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: 811-05398
AB VARIABLE PRODUCTS SERIES FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Joseph J. Mantineo
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 221-5672
Date of fiscal year end: December 31, 2017
Date of reporting period: December 31, 2017
| ITEM 1. | REPORTS TO STOCKHOLDERS. |
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
| + | | BALANCED WEALTH STRATEGY PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| BALANCED WEALTH STRATEGY PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Balanced Wealth Strategy Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to maximize total return consistent with the Adviser’s determination of reasonable risk. The Portfolio invests in a portfolio of equity and debt securities that is designed as a solution for investors who seek a moderate tilt toward equity returns but also want the risk diversification offered by debt securities and the broad diversification of their equity risk across styles, capitalization ranges and geographic regions. The Portfolio targets a weighting of 60% equity securities and 40% debt securities with a goal of providing moderate upside potential without excessive volatility. In managing the Portfolio, the Adviser efficiently diversifies between the debt and equity components to produce the desired risk/return profile. Investments in real estate investment trusts (“REITs”) are deemed to be 50% equity and 50% fixed-income for purposes of the overall target blend of the Portfolio.
The Portfolio’s equity component is diversified between growth and value equity investment styles, and between US and non-US markets.
The Adviser’s targeted blend for the non-REIT portion of the Portfolio’s equity component is an equal weighting of growth and value stocks (50% each).
In addition to blending growth and value styles, the Adviser blends each style-based portion of the Portfolio’s equity component across US and non-US issuers and various capitalization ranges. Within each of the value and growth portions of the Portfolio, the Adviser normally targets a blend of approximately 70% in equities of US companies and the remaining 30% in equities of companies outside the United States. The Adviser will allow the relative weightings of the Portfolio’s investments in equity and debt, growth and value, and US and non-US components to vary in response to market conditions, but ordinarily, only by ±5% of the Portfolio’s net assets. Beyond those ranges, the Adviser will rebalance the Portfolio toward the targeted blend. However, under extraordinary circumstances, such as when market conditions favoring one investment style are compelling, the range may expand to ±10% of the Portfolio’s net assets. The Portfolio’s targeted blend may change from time to time without notice to shareholders based on the Adviser’s assessment of underlying market conditions.
The Portfolio’s fixed-income securities will primarily be investment-grade debt securities, but are expected to include lower-rated securities (“junk bonds”) and preferred stock. The Portfolio will not invest more than 25% of its total assets in securities rated, at the time of purchase, below investment-grade.
The Portfolio also may enter into forward commitments, make short sales of securities or maintain a short position and invest in rights or warrants.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives. The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps.
At meetings held on February 6-7, 2018, the Board of Directors approved the following changes to the Portfolio’s principal strategies, which do not require stockholder approval and will take effect on or about May 1, 2018.
The Portfolio invests in a portfolio of equity and fixed-income securities that is designed as a solution for investors who seek a moderate tilt toward equity returns but also want the risk diversification offered by fixed-income securities and the broad diversification of their equity risk across styles, capitalization ranges and geographic regions. Under normal circumstances, the Portfolio will invest at least 25% of its total assets in equity securities and at least 25% of its total assets in fixed-income securities with a goal of providing moderate upside potential without excessive volatility. The Portfolio also seeks exposure to real assets by investing in real estate-related equity securities (including REITs), natural resource equity securities and inflation-sensitive equity securities. The Portfolio pursues a global strategy, typically investing in securities of issuers located in the United States and in other countries throughout the world, including emerging-market countries.
The Adviser expects that the Portfolio will normally invest a greater percentage of its total assets in equity securities than in fixed-income securities, and will generally invest in equity securities both directly and through underlying
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| (continued) | | AB Variable Products Series Fund |
investment companies advised by the Adviser (“Underlying Portfolios”). A significant portion of the Portfolio’s assets are expected to be invested directly in US large-cap equity securities, primarily common stocks, in accordance with the Adviser’s US Strategic Equities investment strategy (“US Strategic Equities”). Under US Strategic Equities, portfolio managers of the Adviser that specialize in various investment disciplines identify high-conviction large-cap equity securities based on their fundamental investment research for potential investment by the Portfolio. These securities are then assessed in terms of both this fundamental research and quantitative analysis in creating the equity portion of the Portfolio’s portfolio. In applying the quantitative analysis, the Adviser considers a number of metrics that historically have provided some indication of favorable future returns, including metrics related to valuation, quality, investor behavior and corporate behavior.
In addition, the Portfolio seeks to achieve exposure to international large-cap equity securities through investments in the International Strategic Equities Portfolio of Bernstein Fund, Inc. (“Bernstein International Strategic Equities Portfolio”) and the International Portfolio of Sanford C. Bernstein Fund, Inc. (“SCB International Portfolio”), each a registered investment company advised by the Adviser. The Portfolio also invests in other Underlying Portfolios to efficiently gain exposure to certain other types of equity securities, including small- and mid-cap and emerging-market equity securities. The Adviser selects an Underlying Portfolio based on the segment of the equity market to which the Underlying Portfolio provides exposure, its investment philosophy, and how it complements and diversifies the Portfolio’s overall portfolio. Bernstein International Strategic Equities Portfolio and SCB International Portfolio focus on investing in non-US large-cap and mid-cap equity securities. Bernstein International Strategic Equities Portfolio follows a strategy similar to US Strategic Equities, but in the international context. In managing SCB International Portfolio, the Adviser selects stocks by drawing on the capabilities of its separate investment teams specializing in different investment disciplines, including value, growth, stability and others.
In selecting fixed-income investments, the Adviser may draw on the capabilities of separate investment teams that specialize in different areas that are generally defined by the maturity of the debt securities and/or their ratings, and which may include subspecialties (such as inflation-indexed securities). These fixed-income teams draw on the resources and expertise of the Adviser’s internal fixed-income research staff, which includes over 50 dedicated fixed- income research analysts and economists. The Portfolio’s fixed-income securities will primarily be investment-grade debt securities, but are expected to include lower-rated securities (“junk bonds”) and preferred stock.
The Portfolio expects to enter into derivative transactions, such as options, futures contracts, forwards and swaps. Derivatives may provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Portfolio’s exposure. The Portfolio may, for example, use credit default, interest rate and total return swaps to establish exposure to the fixed-income markets or particular fixed-income securities and, as noted below, may use currency derivatives to hedge foreign currency exposure.
Fluctuations in currency exchange rates can have a dramatic impact on the returns of foreign securities. The Adviser may employ currency hedging strategies in the Portfolio or the Underlying Portfolios, including the use of currency- related derivatives, to seek to reduce currency risk in the Portfolio or the Underlying Portfolios, but it is not required to do so. The Adviser will generally employ currency hedging strategies more frequently in the fixed-income portion of the Portfolio than in the equity portion.
INVESTMENT RESULTS
The table on page 6 shows the Portfolio’s performance compared to its primary benchmark, the Standard & Poor’s (“S&P”) 500 Index, the Bloomberg Barclays US Aggregate Bond Index, and its blended benchmark, a 60% / 40% blend of the S&P 500 Index and the Bloomberg Barclays US Aggregate Bond Index, for the one-, five- and 10-year periods ended December 31, 2017.
For the annual period, all share classes of the Portfolio underperformed the primary benchmark and outperformed the Bloomberg Barclays US Aggregate Bond Index and the blended benchmark. The Portfolio’s US value, non-US value, US growth, REIT and fixed-income holdings contributed relative to their respective style benchmarks. Conversely, non-US growth holdings detracted from performance.
During the annual period, the Portfolio utilized derivatives for hedging and investment purposes, including futures, forwards, credit default swaps, interest rate swaps, as well as purchased and written swaptions. Futures, interest rate swaps and written swaptions added to absolute performance; forwards, credit default swaps and purchased swaptions detracted from returns.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked one of the strongest years for global stock market performance
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since the 2008 financial crisis. Emerging-market equities outperformed, followed by non-US stocks. US large-cap stocks outperformed their small-cap peers, and growth outperformed value, in terms of style. Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
Global bonds generally rallied over the period. Emerging-market local-currency government bonds rose, performing in line with investment-grade credit securities and outperforming the positive returns of developed-market treasuries, but lagging the robust returns of global high yield. Developed-market treasury yields were mixed: yields in the US, Canada, UK and Australia flattened, with the short end of the curve rising, while longer maturities moved lower. Japanese yields generally ended the period higher, and yield curves in the eurozone moved in different directions (bond yields move inversely to price).
In the view of the Portfolio’s Senior Investment Management Team (the “Team”), the Portfolio is well positioned to invest opportunistically across a wide range of asset classes and market circumstances. In equities, the Team is confident that its continued focus on companies with strong fundamentals will enable the Team to navigate current market conditions and, more importantly, to seek to outperform as macroeconomic conditions improve. Meanwhile, in fixed income, the Team continues to emphasize corporate bonds and commercial mortgage-backed securities over US Treasuries.
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The S&P® 500 Index and the Bloomberg Barclays US Aggregate Bond Index are unmanaged and do 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. The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Security Risk: Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Allocation Risk: The allocation of investments among the different investment styles, such as growth or value, equity or debt securities, or US or non-US securities may have a more significant effect on the Portfolio’s net asset value (“NAV”) when one of these investment strategies is performing more poorly than others.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Real Assets Risk: The Portfolio’s investments in securities linked to real assets involve significant risks, including financial, operating and competitive risks. Investments in securities linked to real assets expose the Portfolio to adverse macroeconomic conditions, such as a rise in interest rates or a downturn in the economy in which the asset is located. The Portfolio’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
(Disclosures and Risks continued on next page)
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Investment in Other Investment Companies Risk: As with other investments, investments in other investment companies are subject to market and selection risk. In addition, Contractholders invested in the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies (to the extent these expenses are not waived or reimbursed by the Adviser).
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
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| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Balanced Wealth Strategy Portfolio Class A2 | | | 15.84% | | | | 9.05% | | | | 5.11% | |
| Balanced Wealth Strategy Portfolio Class B2 | | | 15.62% | | | | 8.78% | | | | 4.84% | |
| Primary Benchmark: S&P 500 Index | | | 21.83% | | | | 15.79% | | | | 8.50% | |
| Bloomberg Barclays US Aggregate Bond Index | | | 3.54% | | | | 2.10% | | | | 4.01% | |
Blended Benchmark: 60% S&P 500 Index /
40% Bloomberg Barclays US Aggregate Bond Index | | | 14.21% | | | | 10.25% | | | | 6.98% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.02%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.73% and 0.98% for Class A and Class B 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.
BALANCED WEALTH STRATEGY PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 to 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Balanced Wealth Strategy Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 4-5.
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,070.10 | | | $ | 3.81 | | | | 0.73 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,021.53 | | | $ | 3.72 | | | | 0.73 | % |
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Class B | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,069.00 | | | $ | 5.11 | | | | 0.98 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.27 | | | $ | 4.99 | | | | 0.98 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
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| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
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| SECURITY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
Federal National Mortgage Association | | $ | 19,495,666 | | | | 6.4 | % |
U.S. Treasury Bonds & Notes | | | 12,938,460 | | | | 4.3 | |
Inflation-Linked Securities | | | 6,099,588 | | | | 2.0 | |
Alphabet, Inc.—Class A & Class C | | | 5,108,049 | | | | 1.7 | |
Facebook, Inc.—Class A | | | 4,058,580 | | | | 1.3 | |
Bank of America Corp. Series Z | | | 3,189,315 | | | | 1.1 | |
Visa, Inc.—Class A | | | 2,908,650 | | | | 1.0 | |
Government National Mortgage Association | | | 2,859,655 | | | | 0.9 | |
JPMorgan Chase & Co. | | | 2,761,458 | | | | 0.9 | |
Biogen, Inc. | | | 2,681,184 | | | | 0.9 | |
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| | | $ | 62,100,605 | | | | 20.5 | % |
SECURITY TYPE BREAKDOWN2
December 31, 2017 (unaudited)
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| SECURITY TYPE | | U.S. $ VALUE | | | PERCENT OF TOTAL
INVESTMENTS | |
Common Stocks | | $ | 190,713,151 | | | | 60.4 | % |
Mortgage Pass-Throughs | | | 23,253,186 | | | | 7.4 | |
Corporates—Investment Grade | | | 22,563,565 | | | | 7.1 | |
Governments—Treasuries | | | 12,938,460 | | | | 4.1 | |
Asset-Backed Securities | | | 9,691,042 | | | | 3.1 | |
Commercial Mortgage-Backed Securities | | | 8,336,177 | | | | 2.6 | |
Collateralized Mortgage Obligations | | | 6,440,424 | | | | 2.0 | |
Inflation-Linked Securities | | | 6,099,588 | | | | 1.9 | |
Corporates—Non-Investment Grade | | | 3,663,337 | | | | 1.2 | |
Emerging Markets—Treasuries | | | 772,430 | | | | 0.2 | |
Quasi-Sovereigns | | | 607,284 | | | | 0.2 | |
Local Governments—US Municipal Bonds | | | 539,735 | | | | 0.2 | |
Emerging Markets—Corporate Bonds | | | 403,453 | | | | 0.1 | |
Governments—Sovereign Bonds | | | 207,950 | | | | 0.1 | |
Short-Term Investments | | | 29,578,909 | | | | 9.4 | |
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Total Investments | | $ | 315,808,691 | | | | 100.0 | % |
| 2 | | The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| COUNTRY BREAKDOWN1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
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| COUNTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL
INVESTMENTS | |
United States | | $ | 209,019,334 | | | | 66.2 | % |
Japan | | | 14,168,292 | | | | 4.5 | |
United Kingdom | | | 11,143,497 | | | | 3.5 | |
France | | | 7,428,348 | | | | 2.3 | |
Germany | | | 5,131,939 | | | | 1.6 | |
Hong Kong | | | 4,119,263 | | | | 1.3 | |
Switzerland | | | 3,443,240 | | | | 1.1 | |
Canada | | | 3,377,927 | | | | 1.1 | |
Australia | | | 2,764,914 | | | | 0.9 | |
India | | | 2,644,801 | | | | 0.8 | |
China | | | 2,385,815 | | | | 0.8 | |
Brazil | | | 2,099,194 | | | | 0.7 | |
Netherlands | | | 2,037,773 | | | | 0.6 | |
Other | | | 16,465,445 | | | | 5.2 | |
Short-Term Investments | | | 29,578,909 | | | | 9.4 | |
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Total Investments | | $ | 315,808,691 | | | | 100.0 | % |
| 1 | | All data are as of December 31, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 0.5% or less in the following countries: Argentina, Austria, Belgium, Bermuda, Chile, Colombia, Denmark, Finland, Indonesia, Ireland, Israel, Italy, Mexico, New Zealand, Norway, Peru, Philippines, Portugal, Singapore, South Korea, Spain, Sweden, Taiwan and Turkey. |
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
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Company | | | | | Shares | | | U.S. $ Value | |
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COMMON STOCKS–62.9% | | | | | | | | | | | | |
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INFORMATION TECHNOLOGY–11.6% | | | | | | | | | | | | |
COMMUNICATIONS EQUIPMENT–0.4% | | | | | | | | | | | | |
Arista Networks, Inc.(a) | | | | | | | 1,540 | | | $ | 362,793 | |
Nokia Oyj | | | | | | | 72,750 | | | | 339,913 | |
Nokia Oyj (Sponsored ADR)–Class A | | | | | | | 122,979 | | | | 573,082 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,275,788 | |
| | | | | | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.5% | | | | | | | | | | | | |
Amphenol Corp.–Class A | | | | | | | 4,744 | | | | 416,523 | |
Corning, Inc. | | | | | | | 5,906 | | | | 188,933 | |
Halma PLC | | | | | | | 13,560 | | | | 230,400 | |
Horiba Ltd. | | | | | | | 4,200 | | | | 252,862 | |
Ingenico Group SA | | | | | | | 2,290 | | | | 244,569 | |
Keyence Corp. | | | | | | | 400 | | | | 223,453 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,556,740 | |
| | | | | | | | | | | | |
INTERNET SOFTWARE & SERVICES–3.6% | | | | | | | | | | | | |
Alibaba Group Holding Ltd. (ADR)(a) | | | | | | | 2,930 | | | | 505,220 | |
Alphabet, Inc.–Class A(a) | | | | | | | 530 | | | | 558,302 | |
Alphabet, Inc.–Class C(a) | | | | | | | 4,348 | | | | 4,549,747 | |
eBay, Inc.(a) | | | | | | | 4,940 | | | | 186,436 | |
Facebook, Inc.–Class A(a) | | | | | | | 23,000 | | | | 4,058,580 | |
Tencent Holdings Ltd. | | | | | | | 12,700 | | | | 657,325 | |
Yahoo Japan Corp. | | | | | | | 102,200 | | | | 468,228 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,983,838 | |
| | | | | | | | | | | | |
IT SERVICES–2.1% | | | | | | | | | | | | |
Booz Allen Hamilton Holding Corp. | | | | | | | 11,531 | | | | 439,677 | |
Capgemini SE | | | | | | | 2,100 | | | | 248,728 | |
Cognizant Technology Solutions Corp.–Class A | | | | | | | 15,445 | | | | 1,096,904 | |
Fiserv, Inc.(a) | | | | | | | 4,540 | | | | 595,330 | |
Fujitsu Ltd. | | | | | | | 18,000 | | | | 127,612 | |
PayPal Holdings, Inc.(a) | | | | | | | 10,860 | | | | 799,513 | |
Visa, Inc.–Class A | | | | | | | 25,510 | | | | 2,908,650 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,216,414 | |
| | | | | | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.2% | | | | | | | | | | | | |
ams AG(a) | | | | | | | 4,620 | | | | 418,534 | |
Applied Materials, Inc. | | | | | | | 1,594 | | | | 81,485 | |
ASM International NV | | | | | | | 2,690 | | | | 181,662 | |
ASML Holding NV | | | | | | | 3,161 | | | | 549,566 | |
Disco Corp. | | | | | | | 800 | | | | 177,312 | |
Infineon Technologies AG | | | | | | | 18,040 | | | | 491,304 | |
Intel Corp. | | | | | | | 32,193 | | | | 1,486,029 | |
NVIDIA Corp. | | | | | | | 1,709 | | | | 330,691 | |
SCREEN Holdings Co., Ltd. | | | | | | | 2,500 | | | | 203,329 | |
Siltronic AG(a) | | | | | | | 2,590 | | | | 374,442 | |
| | | | | | | | | | | | |
SUMCO Corp. | | | | | | | 10,300 | | | $ | 261,483 | |
Taiwan Semiconductor Manufacturing Co., Ltd. | | | | | | | 39,000 | | | | 298,626 | |
Texas Instruments, Inc. | | | | | | | 3,250 | | | | 339,430 | |
Tokyo Electron Ltd. | | | | | | | 800 | | | | 144,311 | |
Xilinx, Inc. | | | | | | | 20,247 | | | | 1,365,053 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,703,257 | |
| | | | | | | | | | | | |
SOFTWARE–1.4% | | | | | | | | | | | | |
Adobe Systems, Inc.(a) | | | | | | | 9,890 | | | | 1,733,124 | |
Electronic Arts, Inc.(a) | | | | | | | 6,530 | | | | 686,042 | |
Nintendo Co., Ltd. | | | | | | | 700 | | | | 252,067 | |
Oracle Corp. | | | | | | | 30,263 | | | | 1,430,835 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,102,068 | |
| | | | | | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.4% | | | | | | | | | | | | |
Apple, Inc. | | | | | | | 13,560 | | | | 2,294,759 | |
Hewlett Packard Enterprise Co. | | | | | | | 8,190 | | | | 117,608 | |
HP, Inc. | | | | | | | 38,674 | | | | 812,540 | |
NCR Corp.(a) | | | | | | | 9,220 | | | | 313,388 | |
Samsung Electronics Co., Ltd. | | | | | | | 80 | | | | 190,073 | |
Xerox Corp. | | | | | | | 19,206 | | | | 559,855 | |
| | | | | | | | | | | 4,288,223 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 35,126,328 | |
| | | | | | | | | | | | |
REAL ESTATE–10.0% | | | | | | | | | | | | |
DIVERSIFIED REAL ESTATE ACTIVITIES–0.7% | | | | | | | | | | | | |
City Developments Ltd. | | | | | | | 35,600 | | | | 331,084 | |
Kerry Properties Ltd. | | | | | | | 36,500 | | | | 163,969 | |
Leopalace21 Corp. | | | | | | | 34,400 | | | | 267,137 | |
Mitsui Fudosan Co., Ltd. | | | | | | | 30,500 | | | | 682,147 | |
Sumitomo Realty & Development Co., Ltd. | | | | | | | 8,000 | | | | 262,552 | |
Sun Hung Kai Properties Ltd. | | | | | | | 9,000 | | | | 149,841 | |
Wharf Holdings Ltd. (The) | | | | | | | 41,000 | | | | 141,388 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,998,118 | |
| | | | | | | | | | | | |
DIVERSIFIED REITS–1.4% | | | | | | | | | | | | |
Activia Properties, Inc. | | | | | | | 44 | | | | 184,170 | |
Armada Hoffler Properties, Inc. | | | | | | | 15,800 | | | | 245,374 | |
Dream Global Real Estate Investment Trust | | | | | | | 16,220 | | | | 157,684 | |
Empire State Realty Trust, Inc.–Class A | | | | | | | 17,600 | | | | 361,328 | |
GPT Group (The) | | | | | | | 93,640 | | | | 372,483 | |
Gramercy Property Trust | | | | | | | 11,427 | | | | 304,644 | |
H&R Real Estate Investment Trust | | | | | | | 11,960 | | | | 203,234 | |
Hispania Activos Inmobiliarios SOCIMI SA | | | | | | | 16,570 | | | | 312,140 | |
Hulic Reit, Inc. | | | | | | | 125 | | | | 181,939 | |
ICADE | | | | | | | 3,175 | | | | 312,114 | |
Kenedix Office Investment Corp.–Class A | | | | | | | 33 | | | | 187,442 | |
Land Securities Group PLC | | | | | | | 21,650 | | | | 294,153 | |
Liberty Property Trust | | | | | | | 6,500 | | | | 279,565 | |
10
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Merlin Properties Socimi SA | | | | | | | 15,764 | | | $ | 213,509 | |
Mirvac Group | | | | | | | 168,110 | | | | 307,440 | |
Washington Real Estate Investment Trust | | | | | | | 11,260 | | | | 350,411 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,267,630 | |
| | | | | | | | | �� | | | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–0.3% | | | | | | | | | | | | |
Mid-America Apartment Communities, Inc. | | | | | | | 9,561 | | | | 961,454 | |
| | | | | | | | | | | | |
HEALTH CARE REITS–0.5% | | | | | | | | | | | | |
Healthcare Realty Trust, Inc. | | | | | | | 9,200 | | | | 295,504 | |
Medical Properties Trust, Inc. | | | | | | | 22,270 | | | | 306,881 | |
Sabra Health Care REIT, Inc. | | | | | | | 14,390 | | | | 270,100 | |
Welltower, Inc. | | | | | | | 12,120 | | | | 772,892 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,645,377 | |
| | | | | | | | | | | | |
HOTEL & RESORT REITS–0.4% | | | | | | | | | | | | |
MGM Growth Properties LLC–Class A | | | | | | | 10,260 | | | | 299,079 | |
Park Hotels & Resorts, Inc. | | | | | | | 9,400 | | | | 270,250 | |
RLJ Lodging Trust | | | | | | | 16,860 | | | | 370,414 | |
Summit Hotel Properties, Inc. | | | | | | | 10,620 | | | | 161,743 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,101,486 | |
| | | | | | | | | | | | |
INDUSTRIAL REITS–0.7% | | | | | | | | | | | | |
Goodman Group | | | | | | | 27,870 | | | | 182,618 | |
LaSalle Logiport REIT | | | | | | | 151 | | | | 154,518 | |
Mapletree Logistics Trust | | | | | | | 218,000 | | | | 215,156 | |
PLA Administradora Industrial S de RL de CV(a) | | | | | | | 46,200 | | | | 70,043 | |
Prologis, Inc. | | | | | | | 3,260 | | | | 210,302 | |
Rexford Industrial Realty, Inc. | | | | | | | 13,250 | | | | 386,370 | |
Segro PLC | | | | | | | 36,880 | | | | 291,925 | |
STAG Industrial, Inc. | | | | | | | 15,310 | | | | 418,422 | |
Tritax Big Box REIT PLC | | | | | | | 93,590 | | | | 188,151 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,117,505 | |
| | | | | | | | | | | | |
OFFICE REITS–1.3% | | | | | | | | | | | | |
Alexandria Real Estate Equities, Inc. | | | | | | | 3,440 | | | | 449,230 | |
Allied Properties Real Estate Investment Trust | | | | | | | 6,776 | | | | 226,837 | |
Boston Properties, Inc. | | | | | | | 2,044 | | | | 265,781 | |
Brandywine Realty Trust | | | | | | | 16,620 | | | | 302,318 | |
Champion REIT | | | | | | | 196,000 | | | | 143,748 | |
Columbia Property Trust, Inc. | | | | | | | 11,444 | | | | 262,640 | |
Corporate Office Properties Trust | | | | | | | 6,570 | | | | 191,844 | |
Derwent London PLC | | | | | | | 7,330 | | | | 308,576 | |
Hibernia REIT PLC | | | | | | | 54,390 | | | | 99,456 | |
Investa Office Fund | | | | | | | 53,120 | | | | 187,957 | |
Kilroy Realty Corp. | | | | | | | 4,070 | | | | 303,826 | |
Mack-Cali Realty Corp. | | | | | | | 8,320 | | | | 179,379 | |
Nippon Building Fund, Inc. | | | | | | | 61 | | | | 298,300 | |
SL Green Realty Corp. | | | | | | | 3,450 | | | | 348,208 | |
Workspace Group PLC | | | | | | | 21,046 | | | | 284,721 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,852,821 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
REAL ESTATE DEVELOPMENT–0.3% | | | | | | | | | | | | |
CK Asset Holdings Ltd. | | | | | | | 93,500 | | | | 815,055 | |
| | | | | | | | | | | | |
REAL ESTATE MANAGEMENT & DEVELOPMENT–0.4% | | | | | | | | | | | | |
SM Prime Holdings, Inc. | | | | | | | 425,400 | | | | 319,561 | |
Vonovia SE | | | | | | | 15,552 | | | | 770,559 | |
Wharf Real Estate Investment Co., Ltd.(a) | | | | | | | 38,000 | | | | 252,917 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,343,037 | |
| | | | | | | | | | | | |
REAL ESTATE OPERATING COMPANIES–0.6% | | | | | | | | | | | | |
Aroundtown SA | | | | | | | 32,350 | | | | 249,038 | |
BUWOG AG(a) | | | | | | | 4,466 | | | | 153,908 | |
CA Immobilien Anlagen AG | | | | | | | 9,140 | | | | 282,994 | |
Deutsche Wohnen SE | | | | | | | 7,150 | | | | 311,860 | |
Entra ASA(b) | | | | | | | 18,398 | | | | 273,373 | |
Hongkong Land Holdings Ltd. | | | | | | | 42,100 | | | | 296,124 | |
TLG Immobilien AG | | | | | | | 6,290 | | | | 166,813 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,734,110 | |
| | | | | | | | | | | | |
RESIDENTIAL REITS–1.0% | | | | | | | | | | | | |
American Campus Communities, Inc. | | | | | | | 5,220 | | | | 214,177 | |
American Homes 4 Rent–Class A | | | | | | | 18,320 | | | | 400,109 | |
Camden Property Trust | | | | | | | 4,060 | | | | 373,764 | |
Emlak Konut Gayrimenkul Yatirim Ortakligi AS(a) | | | | | | | 202,130 | | | | 149,678 | |
Essex Property Trust, Inc. | | | | | | | 2,350 | | | | 567,219 | |
Independence Realty Trust, Inc. | | | | | | | 21,620 | | | | 218,146 | |
Japan Rental Housing Investments, Inc. | | | | | | | 253 | | | | 184,571 | |
Killam Apartment Real Estate Investment Trust | | | | | | | 27,790 | | | | 314,378 | |
Sun Communities, Inc. | | | | | | | 5,111 | | | | 474,199 | |
UNITE Group PLC (The) | | | | | | | 27,650 | | | | 300,520 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,196,761 | |
| | | | | | | | | | | | |
RETAIL REITS–1.8% | | | | | | | | | | | | |
Charter Hall Retail REIT | | | | | | | 69,220 | | | | 224,337 | |
Frontier Real Estate Investment Corp. | | | | | | | 39 | | | | 151,604 | |
Fukuoka REIT Corp. | | | | | | | 123 | | | | 183,613 | |
Kenedix Retail REIT Corp. | | | | | | | 74 | | | | 152,849 | |
Klepierre SA | | | | | | | 9,173 | | | | 403,193 | |
Link REIT | | | | | | | 70,768 | | | | 654,732 | |
National Retail Properties, Inc. | | | | | | | 10,350 | | | | 446,396 | |
Realty Income Corp. | | | | | | | 11,210 | | | | 639,194 | |
Regency Centers Corp. | | | | | | | 6,460 | | | | 446,903 | |
Retail Opportunity Investments Corp. | | | | | | | 12,600 | | | | 251,370 | |
Simon Property Group, Inc. | | | | | | | 8,056 | | | | 1,383,538 | |
Unibail-Rodamco SE | | | | | | | 960 | | | | 241,586 | |
Urban Edge Properties | | | | | | | 10,880 | | | | 277,331 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,456,646 | |
| | | | | | | | | | | | |
11
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
SPECIALIZED REITS–0.6% | | | | | | | | | | | | |
CubeSmart | | | | | | | 8,990 | | | $ | 259,991 | |
Digital Realty Trust, Inc. | | | | | | | 5,320 | | | | 605,948 | |
Equinix, Inc. | | | | | | | 500 | | | | 226,610 | |
National Storage Affiliates Trust | | | | | | | 12,710 | | | | 346,474 | |
Public Storage | | | | | | | 1,360 | | | | 284,240 | |
| | | | | | | | | | | 1,723,263 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 30,213,263 | |
| | | | | | | | | | | | |
FINANCIALS–9.5% | | | | | | | | | | | | |
BANKS–4.6% | | | | | | | | | | | | |
ABN AMRO Group NV (GDR)(b) | | | | | | | 6,180 | | | | 199,249 | |
Australia & New Zealand Banking Group Ltd. | | | | | | | 8,610 | | | | 192,081 | |
Bank of America Corp. | | | | | | | 79,314 | | | | 2,341,349 | |
Barclays PLC | | | | | | | 92,180 | | | | 252,331 | |
BNP Paribas SA | | | | | | | 4,960 | | | | 368,967 | |
BOC Hong Kong Holdings Ltd. | | | | | | | 59,000 | | | | 298,173 | |
Citigroup, Inc. | | | | | | | 14,051 | | | | 1,045,535 | |
Citizens Financial Group, Inc. | | | | | | | 1,635 | | | | 68,637 | |
Comerica, Inc. | | | | | | | 5,967 | | | | 517,995 | |
Credicorp Ltd. | | | | | | | 2,040 | | | | 423,157 | |
Danske Bank A/S | | | | | | | 4,085 | | | | 158,996 | |
DNB ASA | | | | | | | 15,090 | | | | 279,337 | |
Erste Group Bank AG(a) | | | | | | | 7,840 | | | | 339,751 | |
Fifth Third Bancorp | | | | | | | 5,234 | | | | 158,800 | |
HDFC Bank Ltd. | | | | | | | 27,900 | | | | 827,460 | |
ING Groep NV | | | | | | | 15,660 | | | | 287,466 | |
Intesa Sanpaolo SpA | | | | | | | 50,340 | | | | 167,021 | |
Itau Unibanco Holding SA (Preference Shares) | | | | | | | 8,250 | | | | 105,795 | |
JPMorgan Chase & Co. | | | | | | | 18,724 | | | | 2,002,345 | |
KB Financial Group, Inc. | | | | | | | 2,170 | | | | 128,427 | |
Mitsubishi UFJ Financial Group, Inc. | | | | | | | 63,500 | | | | 462,151 | |
PNC Financial Services Group, Inc. (The) | | | | | | | 2,996 | | | | 432,293 | |
Svenska Handelsbanken AB–Class A | | | | | | | 26,120 | | | | 356,957 | |
Swedbank AB–Class A | | | | | | | 16,710 | | | | 403,125 | |
Wells Fargo & Co. | | | | | | | 35,732 | | | | 2,167,860 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 13,985,258 | |
| | | | | | | | | | | | |
CAPITAL MARKETS–1.5% | | | | | | | | | | | | |
Azimut Holding SpA | | | | | | | 10,760 | | | | 205,851 | |
Credit Suisse Group AG (REG)(a) | | | | | | | 23,088 | | | | 411,791 | |
Franklin Resources, Inc. | | | | | | | 1,564 | | | | 67,768 | |
Goldman Sachs Group, Inc. (The) | | | | | | | 3,676 | | | | 936,498 | |
MarketAxess Holdings, Inc. | | | | | | | 4,759 | | | | 960,128 | |
Morgan Stanley | | | | | | | 8,180 | | | | 429,205 | |
Partners Group Holding AG | | | | | | | 880 | | | | 602,969 | |
S&P Global, Inc. | | | | | | | 5,450 | | | | 923,230 | |
Thomson Reuters Corp. | | | | | | | 2,453 | | | | 106,926 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,644,366 | |
| | | | | | | | | | | | |
CONSUMER FINANCE–0.9% | | | | | | | | | | | | |
Bharat Financial Inclusion Ltd.(a) | | | | | | | 22,630 | | | | 354,620 | |
Capital One Financial Corp. | | | | | | | 6,790 | | | | 676,148 | |
| | | | | | | | | | | | |
Discover Financial Services | | | | | | | 1,591 | | | | 122,380 | |
Hitachi Capital Corp. | | | | | | | 7,400 | | | | 185,569 | |
OneMain Holdings, Inc.(a) | | | | | | | 10,982 | | | | 285,422 | |
Synchrony Financial | | | | | | | 23,834 | | | | 920,231 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,544,370 | |
| | | | | | | | | | | | |
DIVERSIFIED FINANCIAL SERVICES–0.3% | | | | | | | | | | | | |
Berkshire Hathaway, Inc.–Class B(a) | | | | | | | 4,127 | | | | 818,054 | |
ORIX Corp. | | | | | | | 10,900 | | | | 183,784 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,001,838 | |
| | | | | | | | | | | | |
INSURANCE–2.0% | | | | | | | | | | | | |
AIA Group Ltd. | | | | | | | 80,400 | | | | 683,853 | |
Allianz SE (REG) | | | | | | | 1,820 | | | | 416,503 | |
Allstate Corp. (The) | | | | | | | 8,598 | | | | 900,297 | |
American International Group, Inc. | | | | | | | 17,683 | | | | 1,053,553 | |
Aviva PLC | | | | | | | 19,640 | | | | 133,951 | |
Everest Re Group Ltd. | | | | | | | 327 | | | | 72,352 | |
First American Financial Corp. | | | | | | | 11,689 | | | | 655,052 | |
FNF Group | | | | | | | 16,512 | | | | 647,931 | |
Hartford Financial Services Group, Inc. (The) | | | | | | | 2,784 | | | | 156,683 | |
Loews Corp. | | | | | | | 1,598 | | | | 79,948 | |
MetLife, Inc. | | | | | | | 4,482 | | | | 226,610 | |
PICC Property & Casualty Co., Ltd.–Class H | | | | | | | 68,000 | | | | 130,273 | |
Principal Financial Group, Inc. | | | | | | | 1,371 | | | | 96,738 | |
Prudential Financial, Inc. | | | | | | | 1,932 | | | | 222,141 | |
Prudential PLC | | | | | | | 25,530 | | | | 653,831 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,129,716 | |
| | | | | | | | | | | | |
THRIFTS & MORTGAGE FINANCE–0.2% | | | | | | | | | | | | |
Housing Development Finance Corp., Ltd. | | | | | | | 15,120 | | | | 404,917 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 28,710,465 | |
| | | | | | | | | | | | |
HEALTH CARE–7.6% | | | | | | | | | | | | |
BIOTECHNOLOGY–1.1% | | | | | | | | | | | | |
Biogen, Inc.(a) | | | | | | | 7,582 | | | | 2,415,398 | |
Genmab A/S(a) | | | | | | | 1,100 | | | | 182,426 | |
Gilead Sciences, Inc. | | | | | | | 7,281 | | | | 521,611 | |
Grifols SA (ADR) | | | | | | | 7,890 | | | | 180,839 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,300,274 | |
| | | | | | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–1.6% | | | | | | | | | | | | |
Align Technology, Inc.(a) | | | | | | | 1,385 | | | | 307,733 | |
Danaher Corp. | | | | | | | 2,369 | | | | 219,891 | |
Edwards Lifesciences Corp.(a) | | | | | | | 18,605 | | | | 2,096,970 | |
Essilor International Cie Generale d'Optique SA | | | | | | | 2,830 | | | | 389,808 | |
Intuitive Surgical, Inc.(a) | | | | | | | 4,862 | | | | 1,774,338 | |
Sartorius AG (Preference Shares) | | | | | | | 1,296 | | | | 123,110 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,911,850 | |
| | | | | | | | | | | | |
12
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–1.8% | | | | | | | | | | | | |
Aetna, Inc. | | | | | | | 4,027 | | | $ | 726,431 | |
Anthem, Inc. | | | | | | | 1,305 | | | | 293,638 | |
Apollo Hospitals Enterprise Ltd. | | | | | | | 29,930 | | | | 564,227 | |
Cigna Corp. | | | | | | | 3,007 | | | | 610,692 | |
McKesson Corp. | | | | | | | 4,750 | | | | 740,762 | |
Quest Diagnostics, Inc. | | | | | | | 3,584 | | | | 352,988 | |
UnitedHealth Group, Inc. | | | | | | | 10,251 | | | | 2,259,935 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,548,673 | |
| | | | | | | | | | | | |
HEALTH CARE TECHNOLOGY–0.3% | | | | | | | | | | | | |
Cerner Corp.(a) | | | | | | | 12,529 | | | | 844,329 | |
| | | | | | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–0.4% | | | | | | | | | | | | |
Eurofins Scientific SE | | | | | | | 716 | | | | 435,195 | |
Gerresheimer AG | | | | | | | 2,190 | | | | 181,126 | |
Mettler-Toledo International, Inc.(a) | | | | | | | 509 | | | | 315,336 | |
Thermo Fisher Scientific, Inc. | | | | | | | 1,098 | | | | 208,488 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,140,145 | |
| | | | | | | | | | | | |
PHARMACEUTICALS–2.4% | | | | | | | | | | | | |
Allergan PLC | | | | | | | 568 | | | | 92,914 | |
Bristol-Myers Squibb Co. | | | | | | | 4,094 | | | | 250,880 | |
Johnson & Johnson | | | | | | | 7,946 | | | | 1,110,215 | |
Mallinckrodt PLC(a) (c) | | | | | | | 14,204 | | | | 320,442 | |
Novo Nordisk A/S–Class B | | | | | | | 5,090 | | | | 273,514 | |
Ono Pharmaceutical Co., Ltd. | | | | | | | 6,100 | | | | 141,896 | |
Pfizer, Inc. | | | | | | | 27,914 | | | | 1,011,045 | |
Roche Holding AG | | | | | | | 3,880 | | | | 981,079 | |
Sanofi | | | | | | | 5,040 | | | | 433,903 | |
Teva Pharmaceutical Industries Ltd. | | | | | | | 1,680 | | | | 31,773 | |
Teva Pharmaceutical Industries Ltd. (Sponsored ADR) | | | | | | | 30,549 | | | | 578,904 | |
Vectura Group PLC(a) | | | | | | | 86,610 | | | | 137,634 | |
Zoetis, Inc. | | | | | | | 28,560 | | | | 2,057,462 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,421,661 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 23,166,932 | |
| | | | | | | | | | | | |
CONSUMER DISCRETIONARY–6.1% | | | | | | | | | | | | |
AUTO COMPONENTS–1.1% | | | | | | | | | | | | |
Aptiv PLC | | | | | | | 4,440 | | | | 376,645 | |
Bridgestone Corp. | | | | | | | 2,800 | | | | 129,590 | |
Cie Generale des Etablissements Michelin–Class B | | | | | | | 920 | | | | 131,611 | |
Continental AG | | | | | | | 700 | | | | 188,216 | |
Delphi Technologies PLC(a) | | | | | | | 2,820 | | | | 147,965 | |
Faurecia | | | | | | | 3,915 | | | | 305,116 | |
Hankook Tire Co., Ltd.(a) | | | | | | | 2,360 | | | | 120,236 | |
Lear Corp. | | | | | | | 2,621 | | | | 463,026 | |
Magna International, Inc.– Class A | | | | | | | 15,980 | | | | 905,587 | |
Sumitomo Electric Industries Ltd. | | | | | | | 9,500 | | | | 160,144 | |
Valeo SA | | | | | | | 4,680 | | | | 348,617 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,276,753 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
AUTOMOBILES–0.4% | | | | | | | | | | | | |
Ford Motor Co. | | | | | | | 14,115 | | | | 176,296 | |
General Motors Co. | | | | | | | 6,743 | | | | 276,396 | |
Honda Motor Co., Ltd. | | | | | | | 9,500 | | | | 324,211 | |
Peugeot SA | | | | | | | 13,800 | | | | 280,295 | |
Subaru Corp. | | | | | | | 2,700 | | | | 85,611 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,142,809 | |
| | | | | | | | | | | | |
Hotels, Restaurants & Leisure–0.3% | | | | | | | | | | | | |
Carnival Corp. | | | | | | | 2,091 | | | | 138,780 | |
InterContinental Hotels Group PLC | | | | | | | 3,560 | | | | 226,433 | |
Merlin Entertainments PLC(b) | | | | | | | 29,979 | | | | 146,868 | |
Royal Caribbean Cruises Ltd. | | | | | | | 863 | | | | 102,938 | |
Starbucks Corp. | | | | | | | 7,230 | | | | 415,219 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,030,238 | |
| | | | | | | | | | | | |
HOUSEHOLD DURABLES–0.3% | | | | | | | | | | | | |
Nikon Corp. | | | | | | | 10,600 | | | | 213,306 | |
Panasonic Corp. | | | | | | | 47,700 | | | | 696,129 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 909,435 | |
| | | | | | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–0.2% | | | | | | | | | | | | |
Ctrip.com International Ltd. (ADR)(a) | | | | | | | 4,230 | | | | 186,543 | |
Priceline Group, Inc. (The)(a) | | | | | | | 280 | | | | 486,567 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 673,110 | |
| | | | | | | | | | | | |
LEISURE PRODUCTS–0.1% | | | | | | | | | | | | |
Amer Sports Oyj(a) | | | | | | | 6,590 | | | | 182,399 | |
| | | | | | | | | | | | |
MEDIA–0.9% | | | | | | | | | | | | |
Charter Communications, Inc.–Class A(a) | | | | | | | 319 | | | | 107,171 | |
Comcast Corp.–Class A | | | | | | | 36,941 | | | | 1,479,487 | |
Twenty-First Century Fox, Inc.–Class A | | | | | | | 24,194 | | | | 835,419 | |
Walt Disney Co. (The) | | | | | | | 2,058 | | | | 221,256 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,643,333 | |
| | | | | | | | | | | | |
MULTILINE RETAIL–0.4% | | | | | | | | | | | | |
B&M European Value Retail SA | | | | | | | 43,300 | | | | 247,091 | |
Dollar Tree, Inc.(a) | | | | | | | 6,281 | | | | 674,014 | |
Target Corp. | | | | | | | 3,136 | | | | 204,624 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,125,729 | |
| | | | | | | | | | | | |
SPECIALTY RETAIL–1.7% | | | | | | | | | | | | |
Best Buy Co., Inc. | | | | | | | 1,291 | | | | 88,395 | |
Gap, Inc. (The) | | | | | | | 6,477 | | | | 220,607 | |
Home Depot, Inc. (The) | | | | | | | 12,081 | | | | 2,289,712 | |
Michaels Cos., Inc. (The)(a) | | | | | | | 20,754 | | | | 502,039 | |
Signet Jewelers Ltd.(c) | | | | | | | 5,798 | | | | 327,877 | |
TJX Cos., Inc. (The) | | | | | | | 14,478 | | | | 1,106,988 | |
Ulta Salon Cosmetics & Fragrance, Inc.(a) | | | | | | | 3,570 | | | | 798,466 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,334,084 | |
| | | | | | | | | | | | |
13
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–0.7% | | | | | | | | | | | | |
Crystal International Group Ltd.(a)(b) | | | | | | | 92,000 | | | $ | 89,023 | |
HUGO BOSS AG | | | | | | | 3,090 | | | | 262,212 | |
Kering | | | | | | | 420 | | | | 197,705 | |
LVMH Moet Hennessy Louis Vuitton SE | | | | | | | 730 | | | | 214,259 | |
NIKE, Inc.–Class B | | | | | | | 15,282 | | | | 955,889 | |
Pandora A/S | | | | | | | 3,194 | | | | 347,183 | |
Samsonite International SA | | | | | | | 41,100 | | | | 188,854 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,255,125 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 18,573,015 | |
| | | | | | | | | | | | |
CONSUMER STAPLES–5.3% | | | | | | | | | | | | |
BEVERAGES–1.5% | | | | | | | | | | | | |
Asahi Group Holdings Ltd. | | | | | | | 2,500 | | | | 124,049 | |
Coca-Cola Bottlers Japan, Inc. | | | | | | | 5,000 | | | | 182,443 | |
Constellation Brands, Inc.–Class A | | | | | | | 5,010 | | | | 1,145,136 | |
Monster Beverage Corp.(a) | | | | | | | 27,021 | | | | 1,710,159 | |
PepsiCo, Inc. | | | | | | | 6,097 | | | | 731,152 | |
Pernod Ricard SA | | | | | | | 1,530 | | | | 241,977 | |
Treasury Wine Estates Ltd. | | | | | | | 23,810 | | | | 295,457 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,430,373 | |
| | | | | | | | | | | | |
FOOD & STAPLES RETAILING–0.9% | | | | | | | | | | | | |
Costco Wholesale Corp. | | | | | | | 8,760 | | | | 1,630,411 | |
CVS Health Corp. | | | | | | | 2,294 | | | | 166,315 | |
Tsuruha Holdings, Inc. | | | | | | | 2,500 | | | | 339,575 | |
Wal-Mart Stores, Inc. | | | | | | | 7,088 | | | | 699,940 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,836,241 | |
| | | | | | | | | | | | |
FOOD PRODUCTS–0.9% | | | | | | | | | | | | |
Archer-Daniels-Midland Co. | | | | | | | 4,072 | | | | 163,206 | |
BRF SA(a) | | | | | | | 8,500 | | | | 93,787 | |
Calbee, Inc. | | | | | | | 3,400 | | | | 110,492 | |
Glanbia PLC | | | | | | | 18,830 | | | | 336,638 | |
Kerry Group PLC–Class A | | | | | | | 3,310 | | | | 371,335 | |
Nestle SA (REG) | | | | | | | 4,570 | | | | 392,911 | |
Orkla ASA | | | | | | | 30,610 | | | | 324,377 | |
Tyson Foods, Inc.–Class A | | | | | | | 8,297 | | | | 672,638 | |
WH Group Ltd.(b) | | | | | | | 214,000 | | | | 241,586 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,706,970 | |
| | | | | | | | | | | | |
HOUSEHOLD PRODUCTS–0.8% | | | | | | | | | |
Colgate-Palmolive Co. | | | | | | | 3,537 | | | | 266,866 | |
Henkel AG & Co. KGaA (Preference Shares) | | | | | | | 2,430 | | | | 320,894 | |
Procter & Gamble Co. (The) | | | | | | | 11,786 | | | | 1,082,898 | |
Reckitt Benckiser Group PLC | | | | | | | 5,110 | | | | 476,730 | |
Unicharm Corp. | | | | | | | 13,100 | | | | 340,169 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,487,557 | |
| | | | | | | | | | | | |
PERSONAL PRODUCTS–0.2% | | | | | | | | | | | | |
Godrej Consumer Products Ltd. | | | | | | | 18,510 | | | | 289,577 | |
Kose Corp. | | | | | | | 1,700 | | | | 264,906 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 554,483 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
TOBACCO–1.0% | | | | | | | | | | | | |
British American Tobacco PLC | | | | | | | 9,660 | | | | 653,005 | |
British American Tobacco PLC (Sponsored ADR) | | | | | | | 9,400 | | | | 629,706 | |
Imperial Brands PLC | | | | | | | 4,060 | | | | 173,178 | |
Japan Tobacco, Inc. | | | | | | | 11,400 | | | | 367,115 | |
Philip Morris International, Inc. | | | | | | | 11,740 | | | | 1,240,331 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,063,335 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 16,078,959 | |
| | | | | | | | | | | | |
INDUSTRIALS–4.5% | | | | | | | | | | | | |
AEROSPACE & DEFENSE–0.6% | | | | | | | | | |
Airbus SE | | | | | | | 4,230 | | | | 420,406 | |
BAE Systems PLC | | | | | | | 39,660 | | | | 306,426 | |
Raytheon Co. | | | | | | | 3,985 | | | | 748,582 | |
Saab AB–Class B | | | | | | | 3,600 | | | | 175,082 | |
United Technologies Corp. | | | | | | | 2,541 | | | | 324,155 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,974,651 | |
| | | | | | | | | | | | |
AIRLINES–0.4% | | | | | | | | | | | | |
Japan Airlines Co., Ltd. | | | | | | | 10,000 | | | | 390,699 | |
JetBlue Airways Corp.(a) | | | | | | | 22,157 | | | | 494,987 | |
Qantas Airways Ltd. | | | | | | | 79,944 | | | | 313,464 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,199,150 | |
| | | | | | | | | | | | |
BUILDING PRODUCTS–0.8% | | | | | | | | | | | | |
Allegion PLC | | | | | | | 10,472 | | | | 833,152 | |
AO Smith Corp. | | | | | | | 10,484 | | | | 642,460 | |
Assa Abloy AB–Class B | | | | | | | 8,500 | | | | 176,217 | |
Cie de Saint-Gobain | | | | | | | 4,460 | | | | 245,462 | |
Kingspan Group PLC | | | | | | | 9,110 | | | | 399,182 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,296,473 | |
| | | | | | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–0.4% | | | | | | | | | | | | |
China Everbright International Ltd. | | | | | | | 226,000 | | | | 322,422 | |
Copart, Inc.(a) | | | | | | | 20,171 | | | | 871,185 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,193,607 | |
| | | | | | | | | | | | |
CONSTRUCTION & ENGINEERING–0.1% | | | | | | | | | | | | |
AECOM(a) | | | | | | | 5,381 | | | | 199,904 | |
| | | | | | | | | | | | |
ELECTRICAL EQUIPMENT–0.6% | | | | | | | | | | | | |
Eaton Corp. PLC | | | | | | | 7,562 | | | | 597,474 | |
Emerson Electric Co. | | | | | | | 2,696 | | | | 187,884 | |
Nidec Corp. | | | | | | | 1,900 | | | | 266,032 | |
Philips Lighting NV(b) | | | | | | | 4,997 | | | | 183,274 | |
Schneider Electric SE (Paris)(a) | | | | | | | 4,900 | | | | 415,424 | |
TKH Group NV | | | | | | | 2,160 | | | | 137,194 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,787,282 | |
| | | | | | | | | | | | |
INDUSTRIAL CONGLOMERATES–0.6% | | | | | | | | | | | | |
General Electric Co. | | | | | | | 8,392 | | | | 146,440 | |
Roper Technologies, Inc. | | | | | | | 4,465 | | | | 1,156,435 | |
Siemens AG (REG) | | | | | | | 3,780 | | | | 523,370 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,826,245 | |
| | | | | | | | | | | | |
14
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
MACHINERY–0.6% | | | | | | | | | | | | |
FANUC Corp. | | | | | | | 1,000 | | | $ | 239,896 | |
Hoshizaki Corp. | | | | | | | 1,500 | | | | 132,893 | |
IDEX Corp. | | | | | | | 1,910 | | | | 252,063 | |
IHI Corp. | | | | | | | 7,700 | | | | 255,381 | |
Oshkosh Corp. | | | | | | | 5,088 | | | | 462,448 | |
WABCO Holdings, Inc.(a) | | | | | | | 4,050 | | | | 581,175 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,923,856 | |
| | | | | | | | | | | | |
PROFESSIONAL SERVICES–0.2% | | | | | | | | | | | | |
Adecco Group AG (REG) | | | | | | | 2,710 | | | | 207,099 | |
Recruit Holdings Co., Ltd. | | | | | | | 9,500 | | | | 235,885 | |
RELX NV | | | | | | | 8,370 | | | | 192,379 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 635,363 | |
| | | | | | | | | | | | |
ROAD & RAIL–0.2% | | | | | | | | | | | | |
Norfolk Southern Corp. | | | | | | | 602 | | | | 87,230 | |
Ryder System, Inc. | | | | | | | 2,277 | | | | 191,655 | |
Union Pacific Corp. | | | | | | | 2,580 | | | | 345,978 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 624,863 | |
| | | | | | | | | | | | |
TRADING COMPANIES & DISTRIBUTORS–0.0% | | | | | | | | | | | | |
United Rentals, Inc.(a) | | | | | | | 380 | | | | 65,326 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 13,726,720 | |
| | | | | | | | | | | | |
ENERGY–2.8% | | | | | | | | | | | | |
ENERGY EQUIPMENT & SERVICES–0.2% | | | | | | | | | | | | |
RPC, Inc.(c) | | | | | | | 18,654 | | | | 476,237 | |
| | | | | | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–2.6% | | | | | | | | | | | | |
Canadian Natural Resources Ltd. | | | | | | | 16,240 | | | | 580,093 | |
Canadian Natural Resources Ltd. (Toronto) | | | | | | | 5,580 | | | | 199,406 | |
Chevron Corp. | | | | | | | 6,492 | | | | 812,733 | |
ConocoPhillips | | | | | | | 3,545 | | | | 194,585 | |
Devon Energy Corp. | | | | | | | 13,363 | | | | 553,228 | |
EOG Resources, Inc. | | | | | | | 8,525 | | | | 919,933 | |
Exxon Mobil Corp. | | | | | | | 13,492 | | | | 1,128,471 | |
Hess Corp. | | | | | | | 10,872 | | | | 516,094 | |
HollyFrontier Corp. | | | | | | | 5,962 | | | | 305,374 | |
JXTG Holdings, Inc. | | | | | | | 58,000 | | | | 372,726 | |
Marathon Oil Corp. | | | | | | | 4,332 | | | | 73,341 | |
Marathon Petroleum Corp. | | | | | | | 11,896 | | | | 784,898 | |
QEP Resources, Inc.(a) | | | | | | | 26,098 | | | | 249,758 | |
Royal Dutch Shell PLC (Euronext Amsterdam)–Class A | | | | | | | 24,795 | | | | 826,293 | |
Valero Energy Corp. | | | | | | | 2,806 | | | | 257,899 | |
YPF SA (Sponsored ADR) | | | | | | | 5,353 | | | | 122,637 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,897,469 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 8,373,706 | |
| | | | | | | | | | | | |
MATERIALS–2.4% | | | | | | | | | | | | |
CHEMICALS–1.4% | | | | | | | | | | | | |
Air Water, Inc. | | | | | | | 8,400 | | | | 176,829 | |
Arkema SA | | | | | | | 2,356 | | | | 287,066 | |
CF Industries Holdings, Inc. | | | | | | | 11,767 | | | | 500,568 | |
| | | | | | | | | | | | |
Chr Hansen Holding A/S | | | | | | | 2,690 | | | | 252,322 | |
Eastman Chemical Co. | | | | | | | 4,166 | | | | 385,938 | |
Ecolab, Inc. | | | | | | | 3,290 | | | | 441,452 | |
Incitec Pivot Ltd. | | | | | | | 65,980 | | | | 199,924 | |
Johnson Matthey PLC | | | | | | | 7,028 | | | | 291,229 | |
Koninklijke DSM NV | | | | | | | 1,688 | | | | 161,244 | |
LyondellBasell Industries NV–Class A | | | | | | | 3,895 | | | | 429,696 | |
Mosaic Co. (The) | | | | | | | 1,842 | | | | 47,266 | |
Nippon Shokubai Co., Ltd. | | | | | | | 3,300 | | | | 222,454 | |
Sherwin-Williams Co. (The) | | | | | | | 980 | | | | 401,839 | |
Umicore SA | | | | | | | 7,480 | | | | 354,170 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,151,997 | |
| | | | | | | | | | | | |
CONSTRUCTION MATERIALS–0.3% | | | | | | | | | | | | |
Anhui Conch Cement Co., Ltd.–Class H | | | | | | | 19,500 | | | | 91,528 | |
Buzzi Unicem SpA | | | | | | | 5,080 | | | | 137,043 | |
CRH PLC (London) | | | | | | | 7,580 | | | | 272,047 | |
Fletcher Building Ltd. | | | | | | | 25,910 | | | | 139,555 | |
Grupo Cementos de Chihuahua SAB de CV | | | | | | | 39,050 | | | | 182,157 | |
HeidelbergCement AG | | | | | | | 1,590 | | | | 171,442 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 993,772 | |
| | | | | | | | | | | | |
CONTAINERS & PACKAGING–0.0% | | | | | | | | | | | | |
WestRock Co. | | | | | | | 1,282 | | | | 81,035 | |
| | | | | | | | | | | | |
METALS & MINING–0.7% | | | | | | | | | | | | |
Alcoa Corp.(a) | | | | | | | 11,626 | | | | 626,293 | |
BlueScope Steel Ltd. | | | | | | | 9,318 | | | | 110,982 | |
Boliden AB | | | | | | | 4,880 | | | | 166,885 | |
First Quantum Minerals Ltd. | | | | | | | 10,380 | | | | 145,419 | |
Gerdau SA (Preference Shares) | | | | | | | 40,300 | | | | 150,212 | |
Glencore PLC(a) | | | | | | | 39,480 | | | | 206,637 | |
Newmont Mining Corp. | | | | | | | 3,210 | | | | 120,439 | |
Norsk Hydro ASA | | | | | | | 36,750 | | | | 278,595 | |
Sumitomo Metal Mining Co., Ltd. | | | | | | | 4,900 | | | | 224,176 | |
Yamato Kogyo Co., Ltd. | | | | | | | 6,300 | | | | 182,482 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,212,120 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,438,924 | |
| | | | | | | | | | | | |
UTILITIES–1.4% | | | | | | | | | | | | |
ELECTRIC UTILITIES–0.7% | | | | | | | | | | | | |
American Electric Power Co., Inc. | | | | | | | 10,829 | | | | 796,690 | |
Edison International | | | | | | | 7,026 | | | | 444,324 | |
EDP–Energias de Portugal SA | | | | | | | 43,550 | | | | 150,751 | |
Enel SpA | | | | | | | 30,961 | | | | 190,387 | |
Eversource Energy | | | | | | | 1,154 | | | | 72,910 | |
NextEra Energy, Inc. | | | | | | | 1,258 | | | | 196,487 | |
Portland General Electric Co. | | | | | | | 6,024 | | | | 274,574 | |
Xcel Energy, Inc. | | | | | | | 2,341 | | | | 112,625 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,238,748 | |
| | | | | | | | | | | | |
MULTI-UTILITIES–0.5% | | | | | | | | | | | | |
Ameren Corp. | | | | | | | 1,182 | | | | 69,726 | |
CMS Energy Corp. | | | | | | | 1,661 | | | | 78,565 | |
15
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
DTE Energy Co. | | | | | | | 1,111 | | | $ | 121,610 | |
NiSource, Inc. | | | | | | | 22,229 | | | | 570,619 | |
Public Service Enterprise Group, Inc. | | | | | | | 3,500 | | | | 180,250 | |
Suez | | | | | | | 18,980 | | | | 333,433 | |
WEC Energy Group, Inc. | | | | | | | 1,887 | | | | 125,354 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,479,557 | |
| | | | | | | | | | | | |
WATER UTILITIES–0.2% | | | | | | | | | | | | |
Beijing Enterprises Water Group Ltd.(a) | | | | | | | 424,000 | | | | 327,562 | |
Cia de Saneamento Basico do Estado de Sao Paulo | | | | | | | 21,700 | | | | 224,582 | |
Pennon Group PLC | | | | | | | 2,516 | | | | 26,562 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 578,706 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,297,011 | |
| | | | | | | | | | | | |
TELECOMMUNICATION SERVICES–1.4% | | | | | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–0.9% | | | | | | | | | | | | |
AT&T, Inc. | | | | | | | 20,559 | | | | 799,334 | |
BT Group PLC | | | | | | | 124,420 | | | | 456,417 | |
China Unicom Hong Kong Ltd.(a) | | | | | | | 122,000 | | | | 164,942 | |
Deutsche Telekom AG (REG) | | | | | | | 19,180 | | | | 339,034 | |
Nippon Telegraph & Telephone Corp. | | | | | | | 14,200 | | | | 667,600 | |
TDC A/S | | | | | | | 30,860 | | | | 189,645 | |
Telekomunikasi Indonesia Persero Tbk PT | | | | | | | 520,000 | | | | 170,193 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,787,165 | |
| | | | | | | | | | | | |
WIRELESS TELECOMMUNICATION SERVICES–0.5% | | | | | | | | | | | | |
T-Mobile US, Inc.(a) | | | | | | | 14,426 | | | | 916,195 | |
Vodafone Group PLC | | | | | | | 125,993 | | | | 398,263 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,314,458 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,101,623 | |
| | | | | | | | | | | | |
TRANSPORTATION–0.2% | | | | | | | | | | | | |
AIRPORT SERVICES–0.1% | | | | | | | | | | | | |
Sydney Airport | | | | | | | 38,260 | | | | 209,937 | |
| | | | | | | | | | | | |
HIGHWAYS & RAILTRACKS–0.1% | | | | | | | | | | | | |
Transurban Group | | | | | | | 17,383 | | | | 168,234 | |
| | | | | | | | | | | | |
RAILROADS–0.0% | | | | | | | | | | | | |
East Japan Railway Co. | | | | | | | 1,600 | | | | 156,029 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 534,200 | |
| | | | | | | | | | | | |
BANKS–0.1% | | | | | | | | | | | | |
DIVERSIFIED BANKS–0.0% | | | | | | | | | | | | |
Banco Comercial Portugues SA(a) | | | | | | | 399,360 | | | | 129,989 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
THRIFTS & MORTGAGE FINANCE–0.1% | | | | | | | | | | | | |
Aareal Bank AG | | | | | | | 5,360 | | | | 242,016 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 372,005 | |
| | | | | | | | | | | | |
Total Common Stocks (cost $143,976,392) | | | | | | | | | | | 190,713,151 | |
| | | | | | | | | | | | |
| | | Principal
Amount
(000) | | | | |
MORTGAGE PASS-THROUGHS–7.7% | | | | | | | | | | | | |
AGENCY FIXED RATE 15-YEAR–0.8% | | | | | | | | | | | | |
Federal National Mortgage Association
Series 2016 | | | | | | | | | | | | |
2.50%, 11/01/31 | | U.S.$ | | | | | 748 | | | | 747,581 | |
2.50%, 12/01/31-1/01/32 | | | | | | | 1,546 | | | | 1,544,528 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,292,109 | |
| | | | | | | | | | | | |
AGENCY FIXED RATE 30-YEAR–6.9% | | | | | | | | | | | | |
Federal Home Loan Mortgage Corp. Gold
Series 2017 | | | | | | | | | | | | |
4.00%, 7/01/44 | | | | | | | 379 | | | | 398,900 | |
4.00%, 2/01/46 | | | | | | | 487 | | | | 513,579 | |
Series 2007
5.50%, 7/01/35 | | | | | | | 18 | | | | 19,957 | |
Series 2005
5.50%, 1/01/35 | | | | | | | 176 | | | | 194,816 | |
Federal National Mortgage Association
4.00%, 12/01/40-10/01/43 | | | | | | | 1,208 | | | | 1,272,728 | |
4.00%, 1/01/48, TBA | | | | | | | 3,383 | | | | 3,538,407 | |
5.00%, 12/01/39 | | | | | | | 97 | | | | 105,113 | |
3.50%, 1/01/48, TBA | | | | | | | 7,398 | | | | 7,598,555 | |
4.50%, 1/01/48, TBA | | | | | | | 2,847 | | | | 3,028,941 | |
3.00%, 5/01/45 | | | | | | | 1,190 | | | | 1,193,173 | |
Series 2004
5.50%, 2/01/34-11/01/34 | | | | | | | 65 | | | | 72,071 | |
Series 2007
5.50%, 1/01/37-8/01/37 | | | | | | | 244 | | | | 270,560 | |
Series 2008
5.50%, 8/01/37 | | | | | | | 112 | | | | 124,009 | |
Government National Mortgage Association | | | | | | | | | | | | |
3.00%, 12/20/46 | | | | | | | 473 | | | | 478,059 | |
3.50%, 1/01/48, TBA | | | | | | | 2,081 | | | | 2,152,209 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 20,961,077 | |
| | | | | | | | | | | | |
Total Mortgage Pass-Throughs (cost $23,215,647) | | | | | | | | | | | 23,253,186 | |
| | | | | | | | | | | | |
16
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
CORPORATES–INVESTMENT GRADE–7.4% | | | | | | | | | |
FINANCIAL INSTITUTIONS–3.8% | | | | | | | | | | | | |
BANKING–3.4% | | | | | | | | | | | | |
Banco Santander SA
3.50%, 4/11/22 | | U.S.$ | | | | | 200 | | | $ | 203,864 | |
Bank of America Corp.
2.881%, 4/24/23 | | | | | | | 265 | | | | 265,477 | |
3.824%, 1/20/28 | | | | | | | 270 | | | | 279,285 | |
Series G
3.593%, 7/21/28 | | | | | | | 210 | | | | 213,532 | |
Barclays PLC
3.65%, 3/16/25 | | | | | | | 270 | | | | 270,243 | |
BNP Paribas SA
3.80%, 1/10/24(b) | | | | | | | 215 | | | | 222,299 | |
Capital One Financial Corp. 3.30%, 10/30/24 | | | | | | | 265 | | | | 264,051 | |
Citigroup, Inc.
3.668%, 7/24/28 | | | | | | | 370 | | | | 374,847 | |
3.875%, 3/26/25 | | | | | | | 235 | | | | 240,447 | |
Compass Bank
2.875%, 6/29/22 | | | | | | | 265 | | | | 262,464 | |
5.50%, 4/01/20 | | | | | | | 314 | | | | 330,300 | |
Cooperatieve Rabobank UA 4.375%, 8/04/25 | | | | | | | 320 | | | | 338,118 | |
Credit Agricole SA/London 3.375%, 1/10/22(b) | | | | | | | 260 | | | | 263,931 | |
Credit Suisse Group Funding Guernsey Ltd.
3.80%, 6/09/23 | | | | | | | 385 | | | | 396,816 | |
Goldman Sachs Group, Inc. (The)
2.35%, 11/15/21 | | | | | | | 208 | | | | 204,778 | |
3.75%, 5/22/25 | | | | | | | 186 | | | | 191,580 | |
5.75%, 1/24/22 | | | | | | | 335 | | | | 371,230 | |
Series D
6.00%, 6/15/20 | | | | | | | 217 | | | | 234,434 | |
HSBC Holdings PLC
4.041%, 3/13/28 | | | | | | | 585 | | | | 609,172 | |
JPMorgan Chase & Co.
3.22%, 3/01/25 | | | | | | | 265 | | | | 266,789 | |
3.54%, 5/01/28 | | | | | | | 485 | | | | 492,324 | |
Lloyds Banking Group PLC 4.65%, 3/24/26 | | | | | | | 200 | | | | 211,228 | |
Mitsubishi UFJ Financial Group, Inc.
3.85%, 3/01/26 | | | | | | | 272 | | | | 281,724 | |
Morgan Stanley
3.591%, 7/22/28 | | | | | | | 445 | | | | 449,098 | |
5.625%, 9/23/19 | | | | | | | 168 | | | | 177,055 | |
Series G
5.50%, 7/24/20 | | | | | | | 189 | | | | 202,657 | |
Nationwide Building Society 4.00%, 9/14/26(b) | | | | | | | 290 | | | | 293,582 | |
PNC Bank NA
3.80%, 7/25/23 | | | | | | | 685 | | | | 715,695 | |
| | | | | | | | | | | | |
Santander Holdings USA, Inc.
4.40%, 7/13/27(b) | | U.S.$ | | | | | 265 | | | $ | 271,193 | |
Santander Issuances SAU
3.25%, 4/04/26(b) | | | EUR | | | | 200 | | | | 263,984 | |
Santander UK Group Holdings PLC
2.875%, 8/05/21 | | U.S.$ | | | | | 226 | | | | 225,733 | |
Santander UK PLC
5.00%, 11/07/23(b) | | | | | | | 200 | | | | 214,226 | |
UBS Group Funding Switzerland AG
4.125%, 9/24/25(b) | | | | | | | 305 | | | | 320,101 | |
US Bancorp
Series J
5.30%, 4/15/27(d) | | | | | | | 116 | | | | 125,393 | |
Wells Fargo & Co.
3.069%, 1/24/23 | | | | | | | 212 | | | | 213,885 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,261,535 | |
| | | | | | | | | | | | |
FINANCE–0.1% | | | | | | | | | | | | |
Synchrony Financial
3.95%, 12/01/27 | | | | | | | 265 | | | | 263,879 | |
| | | | | | | | | | | | |
INSURANCE–0.2% | | | | | | | | | | | | |
Hartford Financial Services Group, Inc. (The)
5.50%, 3/30/20 | | | | | | | 38 | | | | 40,484 | |
Lincoln National Corp.
8.75%, 7/01/19 | | | | | | | 31 | | | | 33,788 | |
MetLife, Inc.
10.75%, 8/01/39 | | | | | | | 70 | | | | 116,916 | |
XLIT Ltd.
3.25%, 6/29/47 | | | EUR | | | | 165 | | | | 199,852 | |
6.375%, 11/15/24 | | U.S.$ | | | | | 157 | | | | 182,718 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 573,758 | |
| | | | | | | | | | | | |
REITS–0.1% | | | | | | | | | | | | |
Host Hotels & Resorts LP
Series D
3.75%, 10/15/23 | | | | | | | 10 | | | | 10,178 | |
Trust F/1401
5.25%, 1/30/26(b) | | | | | | | 200 | | | | 211,250 | |
Welltower, Inc.
4.00%, 6/01/25 | | | | | | | 238 | | | | 246,206 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 467,634 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 11,566,806 | |
| | | | | | | | | | | | |
INDUSTRIAL–3.5% | | | | | | | | | | | | |
BASIC–0.5% | | | | | | | | | | | | |
Anglo American Capital PLC 3.75%, 4/10/22(b) | | | | | | | 200 | | | | 203,310 | |
Dow Chemical Co. (The) 4.125%, 11/15/21 | | | | | | | 165 | | | | 173,164 | |
Eastman Chemical Co.
3.80%, 3/15/25 | | | | | | | 84 | | | | 87,441 | |
Glencore Funding LLC 4.125%, 5/30/23(b) | | | | | | | 126 | | | | 130,474 | |
Minsur SA
6.25%, 2/07/24(b) | | | | | | | 168 | | | | 183,960 | |
17
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Mosaic Co. (The)
5.625%, 11/15/43 | | U.S.$ | | | | | 75 | | | $ | 81,184 | |
Sociedad Quimica y Minera de Chile SA
3.625%, 4/03/23(b) | | | | | | | 237 | | | | 239,962 | |
Vale Overseas Ltd.
6.875%, 11/21/36 | | | | | | | 145 | | | | 177,335 | |
Yamana Gold, Inc.
4.95%, 7/15/24 | | | | | | | 142 | | | | 148,187 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,425,017 | |
| | | | | | | | | | | | |
CAPITAL GOODS–0.1% | | | | | | | | | | | | |
Embraer Netherlands Finance BV
5.40%, 2/01/27 | | | | | | | 160 | | | | 171,600 | |
General Electric Co.
Series D
5.00%, 1/21/21(d) | | | | | | | 68 | | | | 70,212 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 241,812 | |
| | | | | | | | | | | | |
COMMUNICATIONS–MEDIA–0.3% | | | | | | | | | |
Charter Communications Operating LLC/Charter Communications Operating Capital
4.908%, 7/23/25 | | | | | | | 165 | | | | 175,261 | |
Comcast Corp.
5.15%, 3/01/20 | | | | | | | 451 | | | | 478,574 | |
Cox Communications, Inc.
2.95%, 6/30/23(b) | | | | | | | 91 | | | | 89,579 | |
Time Warner Cable LLC
4.125%, 2/15/21 | | | | | | | 165 | | | | 169,779 | |
4.50%, 9/15/42 | | | | | | | 85 | | | | 79,423 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 992,616 | |
| | | | | | | | | | | | |
COMMUNICATIONS–
TELECOMMUNI-
CATIONS–0.4% | | | | | | | | | |
AT&T, Inc.
3.40%, 5/15/25 | | | | | | | 575 | | | | 566,064 | |
4.125%, 2/17/26 | | | | | | | 345 | | | | 352,310 | |
5.15%, 2/14/50 | | | | | | | 105 | | | | 105,900 | |
Rogers Communications, Inc.
4.00%, 6/06/22 | | | CAD | | | | 46 | | | | 38,669 | |
Verizon Communications, Inc. 3.50%, 11/01/24 | | U.S.$ | | | | | 281 | | | | 285,915 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,348,858 | |
| | | | | | | | | | | | |
CONSUMER CYCLICAL–AUTOMOTIVE–0.4% | | | | | |
Ford Motor Credit Co. LLC
5.875%, 8/02/21 | | | | | | | 915 | | | | 1,005,210 | |
General Motors Co.
3.50%, 10/02/18 | | | | | | | 130 | | | | 131,244 | |
General Motors Financial Co., Inc.
4.00%, 1/15/25 | | | | | | | 41 | | | | 42,215 | |
4.30%, 7/13/25 | | | | | | | 50 | | | | 52,074 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,230,743 | |
| | | | | | | | | | | | |
CONSUMER NON-
CYCLICAL–0.3% | | | | | | | | | | | | |
Becton Dickinson and Co.
3.734%, 12/15/24 | | | | | | | 66 | | | | 67,467 | |
| | | | | | | | | | | | |
Biogen, Inc.
4.05%, 9/15/25 | | U.S.$ | | | | | 251 | | | $ | 265,786 | |
Bunge Ltd. Finance Corp.
8.50%, 6/15/19 | | | | | | | 155 | | | | 167,994 | |
Teva Pharmaceutical Finance Netherlands III BV
3.15%, 10/01/26 | | | | | | | 183 | | | | 150,289 | |
Tyson Foods, Inc.
2.65%, 8/15/19 | | | | | | | 64 | | | | 64,290 | |
3.95%, 8/15/24 | | | | | | | 206 | | | | 216,419 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 932,245 | |
| | | | | | | | | | | | |
ENERGY–0.8% | | | | | | | | | | | | |
Cenovus Energy, Inc.
3.00%, 8/15/22 | | | | | | | 17 | | | | 16,884 | |
5.70%, 10/15/19 | | | | | | | 59 | | | | 62,038 | |
Ecopetrol SA
5.875%, 5/28/45 | | | | | | | 94 | | | | 96,350 | |
Encana Corp.
3.90%, 11/15/21 | | | | | | | 140 | | | | 143,851 | |
Enterprise Products Operating LLC
3.70%, 2/15/26 | | | | | | | 278 | | | | 284,675 | |
5.20%, 9/01/20 | | | | | | | 185 | | | | 197,845 | |
Hess Corp.
4.30%, 4/01/27 | | | | | | | 199 | | | | 198,932 | |
Kinder Morgan Energy Partners LP
2.65%, 2/01/19 | | | | | | | 302 | | | | 302,652 | |
Kinder Morgan, Inc./DE
5.00%, 2/15/21(b) | | | | | | | 250 | | | | 265,780 | |
Marathon Petroleum Corp.
5.125%, 3/01/21 | | | | | | | 163 | | | | 174,656 | |
Noble Energy, Inc.
3.90%, 11/15/24 | | | | | | | 170 | | | | 175,610 | |
Plains All American Pipeline LP/PAA Finance Corp.
3.60%, 11/01/24 | | | | | | | 232 | | | | 225,905 | |
Sabine Pass Liquefaction LLC
5.00%, 3/15/27 | | | | | | | 146 | | | | 156,086 | |
Williams Partners LP
4.125%, 11/15/20 | | | | | | | 155 | | | | 160,461 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,461,725 | |
| | | | | | | | | | | | |
SERVICES–0.2% | | | | | | | | | | | | |
Expedia, Inc.
3.80%, 2/15/28 | | | | | | | 185 | | | | 178,767 | |
S&P Global, Inc.
4.40%, 2/15/26 | | | | | | | 226 | | | | 244,082 | |
Total System Services, Inc.
3.75%, 6/01/23 | | | | | | | 45 | | | | 46,040 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 468,889 | |
| | | | | | | | | | | | |
TECHNOLOGY–0.4% | | | | | | | | | | | | |
Agilent Technologies, Inc.
5.00%, 7/15/20 | | | | | | | 71 | | | | 75,401 | |
Broadcom Corp./Broadcom Cayman Finance Ltd.
3.625%, 1/15/24(b) | | | | | | | 53 | | | | 52,720 | |
3.875%, 1/15/27(b) | | | | | | | 117 | | | | 115,424 | |
18
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Dell International LLC/EMC Corp.
6.02%, 6/15/26(b) | | U.S.$ | | | | | 50 | | | $ | 55,103 | |
Hewlett Packard Enterprise Co.
2.10%, 10/04/19(b) | | | | | | | 183 | | | | 181,620 | |
HP, Inc.
4.65%, 12/09/21 | | | | | | | 114 | | | | 121,331 | |
KLA-Tencor Corp.
4.65%, 11/01/24 | | | | | | | 225 | | | | 244,053 | |
Lam Research Corp.
2.80%, 6/15/21 | | | | | | | 71 | | | | 71,398 | |
Motorola Solutions, Inc.
7.50%, 5/15/25 | | | | | | | 6 | | | | 7,245 | |
Seagate HDD Cayman
4.75%, 1/01/25 | | | | | | | 127 | | | | 124,673 | |
VMware, Inc. 2.95%, 8/21/22 | | | | | | | 85 | | | | 84,801 | |
Western Digital Corp.
7.375%, 4/01/23(b) | | | | | | | 156 | | | | 168,365 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,302,134 | |
| | | | | | | | | | | | |
TRANSPORTATION–SERVICES–0.1% | | | | | | | | | |
Adani Ports & Special Economic Zone Ltd.
3.95%, 1/19/22(b) | | | | | | | 200 | | | | 204,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,608,039 | |
| | | | | | | | | | | | |
UTILITY–0.1% | | | | | | | | | | | | |
ELECTRIC–0.1% | | | | | | | | | | | | |
Israel Electric Corp., Ltd.
Series 6
5.00%, 11/12/24(b) | | | | | | | 320 | | | | 340,800 | |
Pacific Gas & Electric Co.
6.05%, 3/01/34 | | | | | | | 38 | | | | 47,920 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 388,720 | |
| | | | | | | | | | | | |
Total Corporates–Investment Grade
(cost $21,907,399) | | | | | | | | | | | 22,563,565 | |
| | | | | | | | | | | | |
GOVERNMENTS–TREASURIES–4.3% | | | | | | | | | |
UNITED STATES–4.3% | | | | | | | | | | | | |
U.S. Treasury Bonds
2.75%, 8/15/42 | | | | | | | 280 | | | | 281,969 | |
3.00%, 5/15/45 | | | | | | | 533 | | | | 559,900 | |
3.125%, 2/15/43-8/15/44 | | | | | | | 575 | | | | 617,765 | |
3.375%, 5/15/44 | | | | | | | 234 | | | | 262,516 | |
4.375%, 2/15/38 | | | | | | | 822 | | | | 1,051,130 | |
7.50%, 11/15/24 | | | | | | | 252 | | | | 334,609 | |
U.S. Treasury Notes
1.125%, 2/28/19 | | | | | | | 4,160 | | | | 4,125,550 | |
1.25%, 5/31/19 | | | | | | | 1,070 | | | | 1,061,139 | |
1.75%, 11/30/21 | | | | | | | 1,335 | | | | 1,316,435 | |
1.875%, 7/31/22 | | | | | | | 1,342 | | | | 1,323,757 | |
2.125%, 12/31/22 | | | | | | | 675 | | | | 672,258 | |
2.25%, 8/15/27 | | | | | | | 250 | | | | 246,484 | |
2.375%, 8/15/24 | | | | | | | 1,081 | | | | 1,084,948 | |
| | | | | | | | | | | | |
Total Governments–Treasuries (cost $12,954,774) | | | | | | | | | | | 12,938,460 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
ASSET-BACKED SECURITIES–3.2% | | | | | | | | | | | | |
AUTOS–FIXED RATE–1.7% | | | | | | | | | | | | |
Ally Master Owner Trust
Series 2015-3, Class A
1.63%, 5/15/20 | | U.S.$ | | | | | 454 | | | $ | 453,681 | |
AmeriCredit Automobile Receivables Trust
Series 2016-4, Class A2A 1.34%, 4/08/20 | | | | | | | 95 | | | | 95,177 | |
Series 2017-3, Class A2A
1.69%, 12/18/20 | | | | | | | 130 | | | | 129,665 | |
California Republic Auto Receivables Trust Series 2014-2, Class A4
1.57%, 12/16/19 | | | | | | | 57 | | | | 57,324 | |
Chrysler Capital Auto Receivables Trust
Series 2015-BA, Class A3 1.91%, 3/16/20(b) | | | | | | | 66 | | | | 66,397 | |
CPS Auto Receivables Trust
Series 2013-B, Class A 1.82%, 9/15/20(b) | | | | | | | 35 | | | | 34,876 | |
CPS Auto Trust
Series 2017-A, Class A 1.68%, 8/17/20(b) | | | | | | | 71 | | | | 70,947 | |
Series 2017-D, Class A
1.87%, 3/15/21(b) | | | | | | | 291 | | | | 290,163 | |
Drive Auto Receivables Trust
Series 2016-CA, Class A3 1.67%, 11/15/19(b) | | | | | | | 46 | | | | 45,799 | |
Series 2017-AA, Class A3
1.77%, 1/15/20(b) | | | | | | | 155 | | | | 155,281 | |
Series 2017-BA, Class A3
1.74%, 6/17/19(b) | | | | | | | 215 | | | | 214,963 | |
DT Auto Owner Trust
Series 2017-3A, Class A
1.73%, 8/17/20(b) | | | | | | | 94 | | | | 93,722 | |
Enterprise Fleet Financing LLC
Series 2015-1, Class A2
1.30%, 9/20/20(b) | | | | | | | 13 | | | | 13,135 | |
Exeter Automobile Receivables Trust
Series 2016-1A, Class D 8.20%, 2/15/23(b) | | | | | | | 140 | | | | 146,522 | |
Series 2016-3A, Class A
1.84%, 11/16/20(b) | | | | | | | 41 | | | | 41,333 | |
Series 2017-2A, Class A
2.11%, 6/15/21(b) | | | | | | | 110 | | | | 110,358 | |
Fifth Third Auto Trust
Series 2014-3, Class A4
1.47%, 5/17/21 | | | | | | | 262 | | | | 262,061 | |
First Investors Auto Owner Trust
Series 2016-2A, Class A1
1.53%, 11/16/20(b) | | | | | | | 72 | | | | 71,884 | |
19
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Flagship Credit Auto Trust
Series 2016-3, Class A1
1.61%, 12/15/19(b) | | U.S.$ | | | | | 59 | | | $ | 58,817 | |
Series 2016-4, Class A2
1.96%, 2/16/21(b) | | | | | | | 110 | | | | 109,393 | |
Series 2016-4, Class D
3.89%, 11/15/22(b) | | | | | | | 100 | | | | 100,291 | |
Series 2017-2, Class A
1.85%, 7/15/21(b) | | | | | | | 158 | | | | 157,626 | |
Series 2017-3, Class A 1.88%, 10/15/21(b) | | | | | | | 154 | | | | 153,164 | |
Series 2017-4, Class A 2.07%, 4/15/22(b) | | | | | | | 125 | | | | 124,702 | |
Ford Credit Floorplan Master Owner Trust
Series 2015-2, Class A1 1.98%, 1/15/22 | | | | | | | 322 | | | | 320,519 | |
GM Financial Automobile Leasing Trust
Series 2015-2, Class A3 1.68%, 12/20/18 | | | | | | | 120 | | | | 119,665 | |
GMF Floorplan Owner Revolving Trust
Series 2015-1, Class A1 1.65%, 5/15/20(b) | | | | | | | 221 | | | | 221,092 | |
Series 2016-1, Class A1 1.96%, 5/17/21(b) | | | | | | | 280 | | | | 279,089 | |
Harley-Davidson Motorcycle Trust
Series 2015-1, Class A3 1.41%, 6/15/20 | | | | | | | 56 | | | | 55,589 | |
Hertz Vehicle Financing II LP Series 2015-1A, Class A 2.73%, 3/25/21(b) | | | | | | | 215 | | | | 215,629 | |
Series 2015-2A, Class A 2.02%, 9/25/19(b) | | | | | | | 180 | | | | 179,626 | |
Series 2015-3A, Class A 2.67%, 9/25/21(b) | | | | | | | 265 | | | | 262,331 | |
Series 2016-1A, Class A 2.32%, 3/25/20(b) | | | | | | | 145 | | | | 144,512 | |
Hertz Vehicle Financing LLC Series 2013-1A, Class B2 2.48%, 8/25/19(b) | | | | | | | 192 | | | | 191,305 | |
Hyundai Auto Lease Securitization Trust
Series 2015-B, Class A3 1.40%, 11/15/18(b) | | | | | | | 8 | | | | 8,147 | |
Santander Drive Auto Receivables Trust
Series 2017-3, Class A2 1.67%, 6/15/20 | | | | | | | 123 | | | | 122,773 | |
Westlake Automobile Receivables Trust
Series 2016-2A, Class A2 1.57%, 6/17/19(b) | | | | | | | 33 | | | | 33,112 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,210,670 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
OTHER ABS–FIXED RATE–0.7% | | | | | | | | | | | | |
Ascentium Equipment Receivables Trust
Series 2016-1A, Class A2 1.75%, 11/13/18(b) | | U.S.$ | | | | | 9 | | | $ | 9,337 | |
CLUB Credit Trust
Series 2017-P1, Class A 2.42%, 9/15/23(b)(e) | | | | | | | 276 | | | | 275,966 | |
CNH Equipment Trust
Series 2014-B, Class A4 1.61%, 5/17/21 | | | | | | | 182 | | | | 181,529 | |
Series 2015-A, Class A4 1.85%, 4/15/21 | | | | | | | 227 | | | | 226,218 | |
Marlette Funding Trust
Series 2016-1A, Class A 3.06%, 1/17/23(b)(e) | | | | | | | 23 | | | | 23,158 | |
Series 2017-1A, Class A 2.827%, 3/15/24(b)(e) | | | | | | | 76 | | | | 76,048 | |
Series 2017-2A, Class A 2.39%, 7/15/24(b)(e) | | | | | | | 104 | | | | 103,756 | |
Series 2017-3A, Class A 2.36%, 12/15/24(b)(e) | | | | | | | 150 | | | | 149,652 | |
Series 2017-3A, Class B 3.01%, 12/15/24(b)(e) | | | | | | | 100 | | | | 99,683 | |
Prosper Marketplace Issuance Trust
Series 2017-2A, Class B 3.48%, 9/15/23(b)(e) | | | | | | | 100 | | | | 100,233 | |
SBA Tower Trust
3.156%, 10/08/20(b)(e) | | | | | | | 251 | | | | 252,882 | |
SoFi Consumer Loan Program LLC
Series 2016-2, Class A 3.09%, 10/27/25(b)(e) | | | | | | | 67 | | | | 67,576 | |
Series 2016-3, Class A 3.05%, 12/26/25(b)(e) | | | | | | | 96 | | | | 96,142 | |
Series 2017-2, Class A 3.28%, 2/25/26(b)(e) | | | | | | | 114 | | | | 115,072 | |
Series 2017-3, Class A 2.77%, 5/25/26(b)(e) | | | | | | | 121 | | | | 120,848 | |
Series 2017-5, Class A2 2.78%, 9/25/26(b)(e) | | | | | | | 180 | | | | 177,876 | |
Series 2017-6, Class A2 2.82%, 11/25/26(b)(e) | | | | | | | 105 | | | | 104,387 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,180,363 | |
| | | | | | | | | | | | |
CREDIT CARDS–FIXED RATE–0.3% | | | | | | | | | | | | |
Barclays Dryrock Issuance Trust
Series 2014-3, Class A 2.41%, 7/15/22 | | | | | | | 326 | | | | 327,517 | |
Series 2015-2, Class A
1.56%, 3/15/21 | | | | | | | 214 | | | | 213,831 | |
World Financial Network Credit Card Master Trust
Series 2013-A, Class A 1.61%, 12/15/21 | | | | | | | 246 | | | | 245,933 | |
20
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2017-B, Class A 1.98%, 6/15/23 | | U.S.$ | | | | | 205 | | | $ | 204,201 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 991,482 | |
| | | | | | | | | | | | |
AUTOS–FLOATING RATE–0.3% | | | | | | | | | | | | |
BMW Floorplan Master Owner Trust
Series 2015-1A, Class A 1.977% (LIBOR 1 Month + 0.50%), 7/15/20(b)(f) | | | | | | | 378 | | | | 378,779 | |
Wells Fargo Dealer Floorplan Master Note Trust
Series 2015-1, Class A 2.001% (LIBOR 1 Month + 0.50%), 1/20/20(f) | | | | | | | 384 | | | | 384,088 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 762,867 | |
| | | | | | | | | | | | |
CREDIT CARDS–FLOATING RATE–0.2% | | | | | | | | | | | | |
Discover Card Execution Note Trust
Series 2015-A1, Class A1 1.827% (LIBOR 1 Month + 0.35%), 8/17/20(f) | | | | | | | 240 | | | | 240,113 | |
World Financial Network Credit Card Master Trust
Series 2015-A, Class A 1.957% (LIBOR 1 Month + 0.48%), 2/15/22(f) | | | | | | | 256 | | | | 256,204 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 496,317 | |
| | | | | | | | | | | | |
HOME EQUITY LOANS–FIXED RATE–0.0% | | | | | | | | | | | | |
Credit-Based Asset Servicing & Securitization LLC
Series 2003-CB1, Class AF 3.95%, 1/25/33(e) | | | | | | | 49 | | | | 49,343 | |
| | | | | | | | | | | | |
Total Asset-Backed Securities (cost $9,678,955) | | | | | | | | | | | 9,691,042 | |
| | | | | | | | | | | | |
COMMERCIAL MORTGAGE-BACKED SECURITIES–2.7% | | | | | | | | | | | | |
NON-AGENCY FIXED RATE CMBS–2.1% | | | | | | | | | | | | |
Banc of America Commercial Mortgage Trust
Series 2007-5, Class AM 5.772%, 2/10/51(e) | | | | | | | 12 | | | | 11,531 | |
BHMS Commercial Mortgage Trust
Series 2014-ATLS, Class AFX
3.601%, 7/05/33(b) | | | | | | | 335 | | | | 335,590 | |
CCUBS Commercial Mortgage Trust
Series 2017-C1, Class A4 3.544%, 11/15/50 | | | | | | | 310 | | | | 318,558 | |
| | | | | | | | | | | | |
CFCRE Commercial Mortgage Trust
Series 2016-C4, Class A4 3.283%, 5/10/58 | | U.S.$ | | | | | 115 | | | $ | 115,561 | |
CGRBS Commercial Mortgage Trust
Series 2013-VN05, Class A 3.369%, 3/13/35(b) | | | | | | | 495 | | | | 505,715 | |
Citigroup Commercial Mortgage Trust
Series 2015-GC27, Class A5
3.137%, 2/10/48 | | | | | | | 246 | | | | 248,079 | |
Series 2015-GC35, Class A4
3.818%, 11/10/48 | | | | | | | 100 | | | | 104,972 | |
Series 2016-GC36, Class A5
3.616%, 2/10/49 | | | | | | | 125 | | | | 129,431 | |
Commercial Mortgage Trust
Series 2013-SFS, Class A1 1.873%, 4/12/35(b) | | | | | | | 144 | | | | 140,441 | |
Series 2015-CR24, Class A5 3.696%, 8/10/48 | | | | | | | 135 | | | | 141,038 | |
Series 2015-DC1, Class A5 3.35%, 2/10/48 | | | | | | | 170 | | | | 173,074 | |
CSAIL Commercial Mortgage Trust
Series 2015-C2, Class A4 3.504%, 6/15/57 | | | | | | | 155 | | | | 158,775 | |
Series 2015-C3, Class A4 3.718%, 8/15/48 | | | | | | | 315 | | | | 326,404 | |
Series 2015-C4, Class A4 3.808%, 11/15/48 | | | | | | | 370 | | | | 386,810 | |
GS Mortgage Securities Corp. II
Series 2013-KING, Class A 2.706%, 12/10/27(b) | | | | | | | 433 | | | | 434,762 | |
GS Mortgage Securities Trust
Series 2013-G1, Class A2 3.557%, 4/10/31(b) | | | | | | | 276 | | | | 272,080 | |
JP Morgan Chase Commercial Mortgage Securities Trust
Series 2004-LN2, Class A1A
4.838%, 7/15/41(b) | | | | | | | 96 | | | | 96,105 | |
Series 2006-LDP9, Class AM 5.372%, 5/15/47(e) | | | | | | | 67 | | | | 66,910 | |
Series 2012-C6, Class E 5.136%, 5/15/45(b)(e) | | | | | | | 119 | | | | 105,879 | |
JPMBB Commercial Mortgage Securities Trust
Series 2015-C30, Class A5 3.822%, 7/15/48 | | | | | | | 125 | | | | 131,314 | |
Series 2015-C31, Class A3 3.801%, 8/15/48 | | | | | | | 355 | | | | 371,699 | |
Series 2015-C32, Class C 4.668%, 11/15/48(e) | | | | | | | 195 | | | | 193,845 | |
LB-UBS Commercial Mortgage Trust Series 2006-C6, Class AJ
5.452%, 9/15/39(e) | | | | | | | 75 | | | | 59,424 | |
21
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
LSTAR Commercial Mortgage Trust Series 2014-2, Class A2
2.767%, 1/20/41(b) | | U.S.$ | | | | | 21 | | | $ | 21,358 | |
Series 2015-3, Class A2
2.729%, 4/20/48(b) | | | | | | | 198 | | | | 197,653 | |
Series 2016-4, Class A2
2.579%, 3/10/49(b) | | | | | | | 161 | | | | 158,128 | |
Morgan Stanley Capital I Trust
Series 2005-IQ9, Class D
5.00%, 7/15/56(e) | | | | | | | 112 | | | | 111,740 | |
Series 2016-UB12, Class A4
3.596%, 12/15/49 | | | | | | | 195 | | | | 202,119 | |
UBS-Barclays Commercial Mortgage Trust
Series 2012-C4, Class A5
2.85%, 12/10/45 | | | | | | | 168 | | | | 168,487 | |
Wells Fargo Commercial Mortgage Trust Series 2015-SG1, Class C 4.469%, 9/15/48(e) | | | | | | | 197 | | | | 193,557 | |
Series 2016-NXS6, Class C
4.31%, 11/15/49(e) | | | | | | | 180 | | | | 183,284 | |
WF-RBS Commercial Mortgage Trust Series 2013-C14, Class A5 3.337%, 6/15/46 | | | | | | | 260 | | | | 267,252 | |
Series 2014-C20, Class A2
3.036%, 5/15/47 | | | | | | | 206 | | | | 207,948 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,539,523 | |
| | | | | | | | | | | | |
NON-AGENCY FLOATING RATE CMBS–0.6% | | | | | | | | | | | | |
BAMLL Commercial Mortgage Securities Trust
Series 2017-SCH, Class AF
2.25% (LIBOR 1 Month + 1.00%), 11/15/33(b)(e)(f) | | | | | | | 375 | | | | 375,289 | |
BX Trust
Series 2017-IMC, Class A 2.527% (LIBOR 1 Month + 1.05%), 10/15/32(b)(f) | | | | | | | 165 | | | | 165,259 | |
Credit Suisse Mortgage Trust Series 2016-MFF, Class D 6.077% (LIBOR 1 Month + 4.60%), 11/15/33(b)(e)(f) | | | | | | | 110 | | | | 111,162 | |
Great Wolf Trust
Series 2017-WOLF, Class A 2.477% (LIBOR 1 Month + 0.85%), 9/15/34(b)(f) | | | | | | | 189 | | | | 189,118 | |
H/2 Asset Funding NRE Series 2015-1A 3.202% (LIBOR 1 Month + 1.65%), 6/24/49(e)(f)(g) | | | | | | | 133 | | | | 132,516 | |
| | | | | | | | | | | | |
JP Morgan Chase Commercial Mortgage Securities Trust Series 2015-SGP, Class A 3.177% (LIBOR 1 Month + 1.70%), 7/15/36(b)(f) | | U.S.$ | | | | | 268 | | | $ | 269,445 | |
Morgan Stanley Capital I Trust
Series 2015-XLF2, Class AFSA
3.302% (LIBOR 1 Month + 1.87%), 8/15/26(b)(f) | | | | | | | 105 | | | | 105,221 | |
Series 2015-XLF2, Class SNMA
3.382% (LIBOR 1 Month + 1.95%), 11/15/26(b)(f) | | | | | | | 96 | | | | 95,632 | |
Starwood Retail Property Trust
Series 2014-STAR, Class A
2.697% (LIBOR 1 Month + 1.22%), 11/15/27(b)(f) | | | | | | | 352 | | | | 353,012 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,796,654 | |
| | | | | | | | | | | | |
Total Commercial Mortgage-Backed Securities
(cost $8,380,869) | | | | | | | | | | | 8,336,177 | |
| | | | | | | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS–2.1% | | | | | | | | | | | | |
RISK SHARE FLOATING RATE–1.1% | | | | | | | | | | | | |
Bellemeade Re II Ltd. Series 2016-1A, Class M2B 8.052% (LIBOR 1 Month + 6.50%), 4/25/26(f)(g) | | | | | | | 127 | | | | 129,689 | |
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes Series 2014-DN3, Class M3 5.552% (LIBOR 1 Month + 4.00%), 8/25/24(f) | | | | | | | 306 | | | | 334,321 | |
Series 2014-DN4, Class M3 6.102% (LIBOR 1 Month + 4.55%), 10/25/24(f) | | | | | | | 221 | | | | 244,148 | |
Series 2014-HQ3, Class M3 6.302% (LIBOR 1 Month + 4.75%), 10/25/24(f) | | | | | | | 250 | | | | 276,518 | |
Series 2016-DNA1, Class M3
7.102% (LIBOR 1 Month + 5.55%), 7/25/28(f) | | | | | | | 250 | | | | 302,407 | |
Federal National Mortgage Association Connecticut Avenue Securities
Series 2014-C04, Class 1M2
6.452% (LIBOR 1 Month + 4.90%), 11/25/24(f) | | | | | | | 164 | | | | 187,549 | |
Series 2014-C04, Class 2M2
6.552% (LIBOR 1 Month + 5.00%), 11/25/24(f) | | | | | | | 59 | | | | 67,026 | |
22
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2015-C01, Class 1M2 5.852% (LIBOR 1 Month + 4.30%), 2/25/25(f) | | U.S.$ | | | | | 119 | | | $ | 129,329 | |
Series 2015-C01, Class 2M2 6.102% (LIBOR 1 Month + 4.55%), 2/25/25(f) | | | | | | | 110 | | | | 117,971 | |
Series 2015-C02, Class 1M2 5.552% (LIBOR 1 Month + 4.00%), 5/25/25(f) | | | | | | | 158 | | | | 171,939 | |
Series 2015-C02, Class 2M2 5.552% (LIBOR 1 Month + 4.00%), 5/25/25(f) | | | | | | | 145 | | | | 154,481 | |
Series 2015-C03, Class 1M2 6.552% (LIBOR 1 Month + 5.00%), 7/25/25(f) | | | | | | | 77 | | | | 87,277 | |
Series 2015-C03, Class 2M2 6.552% (LIBOR 1 Month + 5.00%), 7/25/25(f) | | | | | | | 217 | | | | 239,064 | |
Series 2015-C04, Class 1M2 7.252% (LIBOR 1 Month + 5.70%), 4/25/28(f) | | | | | | | 70 | | | | 80,701 | |
Series 2015-C04, Class 2M2 7.102% (LIBOR 1 Month + 5.55%), 4/25/28(f) | | | | | | | 109 | | | | 122,828 | |
Series 2016-C01, Class 1M2 8.302% (LIBOR 1 Month + 6.75%), 8/25/28(f) | | | | | | | 204 | | | | 243,450 | |
Series 2016-C01, Class 2M2 8.502% (LIBOR 1 Month + 6.95%), 8/25/28(f) | | | | | | | 159 | | | | 187,976 | |
Series 2016-C03, Class 2M2 7.452% (LIBOR 1 Month + 5.90%), 10/25/28(f) | | | | | | | 145 | | | | 167,797 | |
JP Morgan Madison Avenue Securities Trust Series 2014-CH1, Class M2 5.802% (LIBOR 1 Month + 4.25%), 11/25/24(f)(g) | | | | | | | 32 | | | | 34,838 | |
Wells Fargo Credit Risk Transfer Securities Trust Series 2015-WF1, Class 1M2 | | | | | | | | | | | | |
6.802% (LIBOR 1 Month + 5.25%), 11/25/25(f)(g) | | | | | | | 143 | | | | 162,424 | |
Series 2015-WF1, Class 2M2 7.052% (LIBOR 1 Month + 5.50%), 11/25/25(f)(g) | | | | | | | 41 | | | | 48,005 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,489,738 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
AGENCY FLOATING RATE–0.5% | | | | | | | | | | | | |
Federal Home Loan Mortgage Corp. REMICs
Series 4416, Class BS 4.623% (6.10%–LIBOR 1 Month), 12/15/44(f)(h) | | U.S.$ | | | | | 771 | | | $ | 138,806 | |
Series 4693, Class SL 4.673% (6.15%–LIBOR 1 Month), 6/15/47(f)(h) | | | | | | | 672 | | | | 139,179 | |
Series 4719, Class JS 4.673% (6.15%–LIBOR 1 Month), 9/15/47(f)(h) | | | | | | | 583 | | | | 110,622 | |
Series 4727, Class SA 4.723% (6.20%–LIBOR 1 Month), 11/15/47(f)(h) | | | | | | | 747 | | | | 146,884 | |
Federal National Mortgage Association REMICs Series 2011-131, Class ST | | | | | | | | | | | | |
4.988% (6.54%–LIBOR 1 Month), 12/25/41(f)(h) | | | | | | | 355 | | | | 72,300 | |
Series 2012-70, Class SA 4.998% (6.55%–LIBOR 1 Month), 7/25/42(f)(h) | | | | | | | 646 | | | | 138,016 | |
Series 2016-106,
Class ES
4.448% (6.00%–LIBOR 1 Month), 1/25/47(f)(h) | | | | | | | 722 | | | | 135,746 | |
Series 2017-16, Class SG 4.498% (6.05%–LIBOR 1 Month), 3/25/47(f)(h) | | | | | | | 694 | | | | 137,741 | |
Series 2017-81, Class SA 4.648% (6.20%–LIBOR 1 Month), 10/25/47(f)(h) | | | | | | | 681 | | | | 142,399 | |
Series 2017-97, Class LS 4.648% (6.20%–LIBOR 1 Month), 12/25/47(f)(h) | | | | | | | 541 | | | | 114,757 | |
Government National Mortgage Association
Series 2017-134, Class SE | | | | | | | | | | | | |
4.699% (6.20%–LIBOR 1 Month), 9/20/47(f)(h) | | | | | | | 495 | | | | 93,977 | |
Series 2017-65, Class ST 4.649% (6.15%–LIBOR 1 Month), 4/20/47(f)(h) | | | | | | | 673 | | | | 135,410 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,505,837 | |
| | | | | | | | | | | | |
NON-AGENCY FIXED RATE–0.4% | | | | | | | | | | | | |
Alternative Loan Trust
Series 2005-20CB, Class 3A6
5.50%, 7/25/35 | | | | | | | 31 | | | | 29,604 | |
Series 2005-57CB, Class 4A3
5.50%, 12/25/35 | | | | | | | 68 | | | | 61,122 | |
Series 2006-23CB, Class 1A7
6.00%, 8/25/36 | | | | | | | 52 | | | | 52,657 | |
23
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2006-24CB, Class A16
5.75%, 6/25/36 | | U.S.$ | | | | | 131 | | | $ | 109,567 | |
Series 2006-28CB, Class A14
6.25%, 10/25/36 | | | | | | | 92 | | | | 76,271 | |
Series 2006-J1, Class 1A13
5.50%, 2/25/36 | | | | | | | 75 | | | | 67,691 | |
Chase Mortgage Finance Trust
Series 2007-S5, Class 1A17 6.00%, 7/25/37 | | | | | | | 43 | | | | 38,701 | |
Citigroup Mortgage Loan Trust, Inc.
Series 2005-2, Class 1A4
3.244%, 5/25/35 | | | | | | | 14 | | | | 14,057 | |
Countrywide Home Loan Mortgage Pass-Through Trust
Series 2006-10, Class 1A8
6.00%, 5/25/36 | | | | | | | 67 | | | | 57,675 | |
Series 2006-13, Class 1A19
6.25%, 9/25/36 | | | | | | | 39 | | | | 34,315 | |
Credit Suisse Mortgage Trust Series 2010-6R, Class 3A2
5.875%, 1/26/38(b) | | | | | | | 135 | | | | 111,560 | |
First Horizon Alternative Mortgage Securities Trust
Series 2006-FA3, Class A9
6.00%, 7/25/36 | | | | | | | 128 | | | | 109,093 | |
JP Morgan Mortgage Trust
Series 2007-S3, Class 1A8
6.00%, 8/25/37 | | | | | | | 59 | | | | 51,984 | |
RBSSP Resecuritization Trust Series 2009-7, Class 10A3
6.00%, 8/26/37(b) | | | | | | | 201 | | | | 177,861 | |
Series 2010-9, Class 7A6
6.00%, 5/26/37(b) | | | | | | | 170 | | | | 137,347 | |
Wells Fargo Mortgage Backed Securities Trust
Series 2007-8, Class 2A5
5.75%, 7/25/37 | | | | | | | 35 | | | | 34,458 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,163,963 | |
| | | | | | | | | | | | |
NON-AGENCY FLOATING RATE–0.1% | | | | | | | | | | | | |
Deutsche Alt-A Securities Mortgage Loan Trust
Series 2006-AR4, Class A2 1.742% (LIBOR 1 Month + 0.19%), 12/25/36(f) | | | | | | | 297 | | | | 184,950 | |
HomeBanc Mortgage Trust
Series 2005-1, Class A1
1.802% (LIBOR 1 Month + 0.25%), 3/25/35(f) | | | | | | | 108 | | | | 95,936 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 280,886 | |
| | | | | | | | | | | | |
Total Collateralized Mortgage Obligations (cost $6,121,990) | | | | | | | | | | | 6,440,424 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
INFLATION-LINKED SECURITIES–2.0% | | | | | | | | | | | | |
JAPAN–0.3% | | | | | | | | | | | | |
Japanese Government CPI Linked Bond
Series 2022
0.10%, 3/10/27 | | | JPY | | | | 111,278 | | | $ | 1,050,847 | |
| | | | | | | | | | | | |
UNITED STATES–1.7% | | | | | | | | | | | | |
U.S. Treasury Inflation Index 0.125%, 4/15/19-4/15/20 (TIPS) | | U.S.$ | | | | | 2,267 | | | | 2,261,872 | |
0.25%, 1/15/25 (TIPS) | | | | | | | 1,162 | | | | 1,151,521 | |
0.375%, 7/15/25 (TIPS) | | | | | | | 1,633 | | | | 1,635,348 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,048,741 | |
| | | | | | | | | | | | |
Total Inflation-Linked Securities
(cost $6,152,042) | | | | | | | | | | | 6,099,588 | |
| | | | | | | | | | | | |
CORPORATES–NON-
INVESTMENT
GRADE–1.2% | | | | | | | | | | | | |
INDUSTRIAL–0.7% | | | | | | | | | | | | |
BASIC–0.1% | | | | | | | | | | | | |
NOVA Chemicals Corp.
5.25%, 8/01/23(b) | | | | | | | 125 | | | | 128,734 | |
SPCM SA
4.875%, 9/15/25(b) | | | | | | | 200 | | | | 201,540 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 330,274 | |
| | | | | | | | | | | | |
COMMUNICATIONS–
MEDIA–0.1% | | | | | | �� | | | |
CSC Holdings LLC
6.75%, 11/15/21 | | | | | | | 45 | | | | 48,265 | |
SFR Group SA
5.375%, 5/15/22 (b) | | | EUR | | | | 195 | | | | 241,144 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 289,409 | |
| | | | | | | | | | | | |
COMMUNICATIONS–
TELECOMMUNI-
CATIONS–0.1% | | | | | | | | | |
CenturyLink, Inc.
Series Y
7.50%, 4/01/24 | | U.S.$ | | | | | 25 | | | | 24,953 | |
Sprint Capital Corp.
6.90%, 5/01/19 | | | | | | | 370 | | | | 386,309 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 411,262 | |
| | | | | | | | | | | | |
CONSUMER CYCLICAL–
OTHER–0.1% | | | | | | | | | |
International Game Technology PLC
6.25%, 2/15/22(b) | | | | | | | 200 | | | | 215,654 | |
KB Home
4.75%, 5/15/19 | | | | | | | 107 | | | | 108,900 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 324,554 | |
| | | | | | | | | | | | |
CONSUMER NON-
CYCLICAL–0.1% | | | | | | | | | |
Valeant Pharmaceuticals International, Inc.
6.125%, 4/15/25(b) | | | | | | | 135 | | | | 124,022 | |
| | | | | | | | | | | | |
24
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
ENERGY–0.2% | | | | | | | | | |
Diamond Offshore Drilling, Inc.
4.875%, 11/01/43 | | U.S.$ | | | | | 111 | | | $ | 81,030 | |
Nabors Industries, Inc.
5.50%, 1/15/23 | | | | | | | 212 | | | | 205,882 | |
PDC Energy, Inc.
5.75%, 5/15/26(b) | | | | | | | 137 | | | | 140,300 | |
SM Energy Co.
6.50%, 1/01/23 | | | | | | | 14 | | | | 14,275 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 441,487 | |
| | | | | | | | | | | | |
TRANSPORTATION–
SERVICES–0.0% | | | | | | | | | |
Avis Budget Car Rental LLC/Avis Budget Finance, Inc.
5.25%, 3/15/25(b) | | | | | | | 94 | | | | 93,095 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,014,103 | |
| | | | | | | | | | | | |
FINANCIAL INSTITUTIONS–0.5% | | | | | | | | | |
BANKING–0.4% | | | | | | | | | |
Banco Bilbao Vizcaya Argentaria SA
6.125%, 11/16/27(d) | | | | | | | 200 | | | | 207,072 | |
Bank of America Corp.
Series Z
6.50%, 10/23/24(d) | | | | | | | 79 | | | | 89,672 | |
Barclays Bank PLC
6.86%, 6/15/32(b)(d) | | | | | | | 44 | | | | 53,020 | |
Goldman Sachs Group, Inc. (The)
Series P
5.00%, 11/10/22(d) | | | | | | | 142 | | | | 140,468 | |
Intesa Sanpaolo SpA
Series E
3.928%, 9/15/26(b) | | | EUR | | | | 190 | | | | 249,877 | |
Royal Bank of Scotland Group PLC
2.001% (EURIBOR 3 Month + 2.33%), 3/31/18(b)(d)(f) | | | | | | | 100 | | | | 118,377 | |
8.625%, 8/15/21(d) | | U.S.$ | | | | | 200 | | | | 224,996 | |
Series U
4.015% (LIBOR 3 Month + 2.32%), 9/30/27(d)(f) | | | | | | | 200 | | | | 198,542 | |
Standard Chartered PLC 2.888% (LIBOR 3 Month + 1.51%), 1/30/27(b)(d)(f) | | | | | | | 200 | | | | 187,658 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,469,682 | |
| | | | | | | | | | | | |
FINANCE–0.1% | | | | | | | | | |
Navient Corp.
6.625%, 7/26/21 | | | | | | | 170 | | | | 179,552 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,649,234 | |
| | | | | | | | | | | | |
Total Corporates–Non-Investment Grade (cost $3,619,532) | | | | | | | | | | | 3,663,337 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
EMERGING MARKETS–TREASURIES–0.3% | | | | | | | | | |
BRAZIL–0.3% | | | | | | | | | |
Brazil Notas do Tesouro Nacional
Series F
10.00%, 1/01/27 (cost $653,097) | | | BRL | | | | 2,590 | | | $ | 772,430 | |
| | | | | | | | | | | | |
QUASI-SOVEREIGNS–0.2% | | | | | | | | | |
QUASI-SOVEREIGN BONDS–0.2% | | | | | | | | | |
CHILE–0.1% | | | | | | | | | |
Corp. Nacional del Cobre de Chile
3.625%, 8/01/27(b) | | U.S.$ | | | | | 265 | | | | 265,286 | |
| | | | | | | | | | | | |
MEXICO–0.1% | | | | | | | | | | | | |
Petroleos Mexicanos
4.625%, 9/21/23 | | | | | | | 226 | | | | 232,498 | |
6.50%, 3/13/27(b) | | | | | | | 100 | | | | 109,500 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 341,998 | |
| | | | | | | | | | | | |
Total Quasi-Sovereigns (cost $593,223) | | | | | | | | | | | 607,284 | |
| | | | | | | | | | | | |
LOCAL GOVERNMENTS–US MUNICIPAL BONDS–0.2% | | | | | | | | | |
CALIFORNIA–0.2% | | | | | | | | | | | | |
State of California
Series 2010
7.625%, 3/01/40 (cost $350,306) | | | | | | | 345 | | | | 539,735 | |
| | | | | | | | | | | | |
EMERGING MARKETS–CORPORATE BONDS–0.1% | | | | | | | | | |
INDUSTRIAL–0.1% | | | | | | | | | |
CAPITAL GOODS–0.0% | | | | | | | | | |
Odebrecht Finance Ltd.
5.25%, 6/27/29(b) | | | | | | | 217 | | | | 60,912 | |
| | | | | | | | | | | | |
CONSUMER NON-CYCLICAL–0.1% | | | | | | | | | | | | |
Minerva Luxembourg SA
6.50%, 9/20/26(b) | | | | | | | 200 | | | | 205,950 | |
| | | | | | | | | | | | |
ENERGY–0.0% | | | | | | | | | |
Petrobras Global Finance BV 6.125%, 1/17/22 | �� | | | | | | 5 | | | | 5,306 | |
6.25%, 3/17/24 | | | | | | | 124 | | | | 131,285 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 136,591 | |
| | | | | | | | | | | | |
Total Emerging Markets–Corporate Bonds (cost $553,539) | | | | | | | | | | | 403,453 | |
| | | | | | | | | | | | |
GOVERNMENTS–SOVEREIGN BONDS–0.1% | | | | | | | | | |
MEXICO–0.1% | | | | | | | | | |
Mexico Government International Bond
4.125%, 1/21/26(c)
(cost $209,092) | | | | | | | 200 | | | | 207,950 | |
| | | | | | | | | | | | |
25
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Principal
Amount (000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
SHORT-TERM INVESTMENTS–9.7% | | | | | | | | | |
AGENCY DISCOUNT NOTE–4.0% | | | | | | | | | | | | |
Federal Home Loan Bank Discount Notes Zero Coupon,
1/05/18-3/09/18
(cost $12,252,245) | | U.S.$ | | | | | 12,259 | | | $ | 12,252,245 | |
| | | | | | | | | | | | |
TIME DEPOSIT–3.3% | | | | | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18 (cost $10,134,361) | | | | | | | 10,134 | | | | 10,134,361 | |
| | | | | | | | | | | | |
GOVERNMENTS–TREASURIES–2.4% | | | | | | | | | |
JAPAN–2.4% | | | | | | | | | |
Japan Treasury Discount Bill
Series 729
Zero Coupon, 4/05/18 (cost $7,146,005) | | | JPY | | | | 810,000 | | | | 7,192,303 | |
| | | | | | | | | | | | |
Total Short-Term Investments (cost $29,532,611) | | | | | | | | | | | 29,578,909 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–104.1%
(cost $267,899,468) | | | | | | | | 315,808,691 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.4% | | | | | | | | | |
INVESTMENT COMPANIES–0.4% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(i)(j)(k) (cost $1,219,736) | | | | | | | 1,219,736 | | | | 1,219,736 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–104.5%
(cost $269,119,204) | | | | | | | | 317,028,427 | |
Other assets less
liabilities–(4.5)% | | | | | | | | | | | (13,630,415 | ) |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | | | | | $ | 303,398,012 | |
| | | | | | | | | | | | |
FUTURES (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Month | | | Notional
(000) | | | Original
Value | | | Value at
December 31, 2017 | | | Unrealized
Appreciation/
(Depreciation) | |
Purchased Contracts | |
U.S. T-Note 5 Yr (CBT) Futures | | | 75 | | | | March 2018 | | | | USD 7,500 | | | $ | 8,751,577 | | | $ | 8,712,305 | | | $ | (39,272 | ) |
U.S. T-Note 10 Yr (CBT) Futures | | | 19 | | | | March 2018 | | | | USD 1,900 | | | | 2,369,860 | | | | 2,356,891 | | | | (12,969 | ) |
U.S. Ultra Bond (CBT) Futures | | | 54 | | | | March 2018 | | | | USD 5,400 | | | | 8,978,069 | | | | 9,053,437 | | | | 75,368 | |
Sold Contracts | | | | | | | | | | | | | | | | | | | | | | | | |
10 Yr Mini JGB Futures | | | 8 | | | | March 2018 | | | | JPY 80,000 | | | | 1,070,853 | | | | 1,070,974 | | | | (121 | ) |
Euro-BOBL Futures | | | 47 | | | | March 2018 | | | | EUR 4,700 | | | | 7,461,677 | | | | 7,421,872 | | | | 39,805 | |
U.S. T-Note 2 Yr (CBT) Futures | | | 11 | | | | March 2018 | | | | USD 2,200 | | | | 2,358,284 | | | | 2,355,203 | | | | 3,081 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 65,892 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
26
| | |
| | | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | | BRL | | | | 3,129 | | | | USD | | | | 946 | | | | 1/03/18 | | | $ | 2,594 | |
Bank of America, NA | | | USD | | | | 945 | | | | BRL | | | | 3,129 | | | | 1/03/18 | | | | (1,595 | ) |
Bank of America, NA | | | CHF | | | | 2,100 | | | | USD | | | | 2,141 | | | | 1/22/18 | | | | (17,019 | ) |
Bank of America, NA | | | USD | | | | 25 | | | | RUB | | | | 1,492 | | | | 1/25/18 | | | | 539 | |
Bank of America, NA | | | BRL | | | | 3,129 | | | | USD | | | | 941 | | | | 2/02/18 | | | | 1,097 | |
Bank of America, NA | | | CNY | | | | 5,839 | | | | USD | | | | 873 | | | | 2/07/18 | | | | (21,675 | ) |
Bank of America, NA | | | USD | | | | 74 | | | | INR | | | | 4,790 | | | | 3/12/18 | | | | 446 | |
Barclays Bank PLC | | | USD | | | | 151 | | | | CNY | | | | 1,003 | | | | 2/07/18 | | | | 2,796 | |
Barclays Bank PLC | | | CHF | | | | 528 | | | | USD | | | | 534 | | | | 2/14/18 | | | | (9,431 | ) |
Barclays Bank PLC | | | USD | | | | 1,032 | | | | CHF | | | | 1,020 | | | | 2/14/18 | | | | 18,220 | |
Barclays Bank PLC | | | USD | | | | 153 | | | | TWD | | | | 4,547 | | | | 3/08/18 | | | | 1,838 | |
Barclays Bank PLC | | | EUR | | | | 444 | | | | USD | | | | 525 | | | | 3/14/18 | | | | (9,461 | ) |
BNP Paribas SA | | | CNY | | | | 7,665 | | | | USD | | | | 1,152 | | | | 2/07/18 | | | | (22,667 | ) |
Brown Brothers Harriman & Co. | | | USD | | | | 540 | | | | CHF | | | | 528 | | | | 2/14/18 | | | | 3,038 | |
Citibank, NA | | | CZK | | | | 69,863 | | | | USD | | | | 3,235 | | | | 1/19/18 | | | | (49,297 | ) |
Citibank, NA | | | USD | | | | 97 | | | | RUB | | | | 5,868 | | | | 1/25/18 | | | | 4,938 | |
Citibank, NA | | | CNY | | | | 1,883 | | | | USD | | | | 281 | | | | 2/07/18 | | | | (7,603 | ) |
Citibank, NA | | | JPY | | | | 114,785 | | | | USD | | | | 1,017 | | | | 2/14/18 | | | | (3,239 | ) |
Citibank, NA | | | USD | | | | 1,712 | | | | AUD | | | | 2,237 | | | | 2/14/18 | | | | 33,350 | |
Citibank, NA | | | USD | | | | 674 | | | | JPY | | | | 76,067 | | | | 2/14/18 | | | | 2,146 | |
Credit Suisse International | | | BRL | | | | 2,241 | | | | USD | | | | 693 | | | | 1/03/18 | | | | 17,596 | |
Credit Suisse International | | | USD | | | | 677 | | | | BRL | | | | 2,241 | | | | 1/03/18 | | | | (1,859 | ) |
Credit Suisse International | | | KRW | | | | 716,492 | | | | USD | | | | 640 | | | | 1/18/18 | | | | (31,561 | ) |
Credit Suisse International | | | USD | | | | 2,678 | | | | GBP | | | | 2,012 | | | | 2/14/18 | | | | 42,427 | |
Credit Suisse International | | | USD | | | | 1,664 | | | | JPY | | | | 185,042 | | | | 2/14/18 | | | | (18,846 | ) |
Deutsche Bank AG | | | BRL | | | | 888 | | | | USD | | | | 275 | | | | 1/03/18 | | | | 7,313 | |
Deutsche Bank AG | | | USD | | | | 268 | | | | BRL | | | | 888 | | | | 1/03/18 | | | | (736 | ) |
Deutsche Bank AG | | | CAD | | | | 1,909 | | | | USD | | | | 1,505 | | | | 2/14/18 | | | | (14,334 | ) |
Deutsche Bank AG | | | USD | | | | 1,423 | | | | SEK | | | | 11,827 | | | | 2/14/18 | | | | 22,443 | |
Deutsche Bank AG | | | USD | | | | 675 | | | | EUR | | | | 568 | | | | 3/14/18 | | | | 9,021 | |
Goldman Sachs Bank USA | | | USD | | | | 3,247 | | | | CZK | | | | 69,863 | | | | 1/19/18 | | | | 36,669 | |
Goldman Sachs Bank USA | | | BRL | | | | 421 | | | | USD | | | | 127 | | | | 2/02/18 | | | | 220 | |
JPMorgan Chase Bank, NA | | | USD | | | | 937 | | | | CAD | | | | 1,190 | | | | 2/14/18 | | | | 10,612 | |
JPMorgan Chase Bank, NA | | | TWD | | | | 12,515 | | | | USD | | | | 422 | | | | 3/08/18 | | | | (3,376 | ) |
JPMorgan Chase Bank, NA | | | INR | | | | 131,869 | | | | USD | | | | 2,012 | | | | 3/12/18 | | | | (41,392 | ) |
Royal Bank of Scotland PLC | | | JPY | | | | 925,000 | | | | USD | | | | 8,161 | | | | 1/25/18 | | | | (56,600 | ) |
Royal Bank of Scotland PLC | | | EUR | | | | 446 | | | | USD | | | | 521 | | | | 2/14/18 | | | | (15,399 | ) |
Royal Bank of Scotland PLC | | | GBP | | | | 1,068 | | | | USD | | | | 1,412 | | | | 2/14/18 | | | | (31,762 | ) |
Royal Bank of Scotland PLC | | | USD | | | | 791 | | | | GBP | | | | 598 | | | | 2/14/18 | | | | 17,784 | |
Standard Chartered Bank | | | KRW | | | | 42,820 | | | | USD | | | | 38 | | | | 1/18/18 | | | | (2,312 | ) |
Standard Chartered Bank | | | USD | | | | 357 | | | | KRW | | | | 386,137 | | | | 1/18/18 | | | | 4,816 | |
Standard Chartered Bank | | | EUR | | | | 1,804 | | | | USD | | | | 2,142 | | | | 1/22/18 | | | | (24,050 | ) |
Standard Chartered Bank | | | USD | | | | 388 | | | | CNY | | | | 2,568 | | | | 2/07/18 | | | | 5,905 | |
State Street Bank & Trust Co. | | | KRW | | | | 76,887 | | | | USD | | | | 68 | | | | 1/18/18 | | | | (4,155 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 5,251 | | | | USD | | | | 46 | | | | 1/25/18 | | | | (217 | ) |
State Street Bank & Trust Co. | | | CNY | | | | 162 | | | | USD | | | | 25 | | | | 2/07/18 | | | | (280 | ) |
State Street Bank & Trust Co. | | | AUD | | | | 433 | | | | USD | | | | 328 | | | | 2/14/18 | | | | (9,644 | ) |
27
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
State Street Bank & Trust Co. | | | CAD | | | | 48 | | | | USD | | | | 38 | | | | 2/14/18 | | | $ | (700 | ) |
State Street Bank & Trust Co. | | | CHF | | | | 51 | | | | USD | | | | 52 | | | | 2/14/18 | | | | (697 | ) |
State Street Bank & Trust Co. | | | EUR | | | | 1,479 | | | | USD | | | | 1,750 | | | | 2/14/18 | | | | (28,490 | ) |
State Street Bank & Trust Co. | | | GBP | | | | 192 | | | | USD | | | | 256 | | | | 2/14/18 | | | | (3,318 | ) |
State Street Bank & Trust Co. | | | HKD | | | | 3,932 | | | | USD | | | | 505 | | | | 2/14/18 | | | | 1,065 | |
State Street Bank & Trust Co. | | | HUF | | | | 26,164 | | | | USD | | | | 99 | | | | 2/14/18 | | | | (2,322 | ) |
State Street Bank & Trust Co. | | | ILS | | | | 378 | | | | USD | | | | 107 | | | | 2/14/18 | | | | (1,548 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 27,702 | | | | USD | | | | 248 | | | | 2/14/18 | | | | 1,562 | |
State Street Bank & Trust Co. | | | JPY | | | | 37,445 | | | | USD | | | | 332 | | | | 2/14/18 | | | | (1,201 | ) |
State Street Bank & Trust Co. | | | NOK | | | | 3,706 | | | | USD | | | | 460 | | | | 2/14/18 | | | | 7,916 | |
State Street Bank & Trust Co. | | | NOK | | | | 3,077 | | | | USD | | | | 370 | | | | 2/14/18 | | | | (4,850 | ) |
State Street Bank & Trust Co. | | | SEK | | | | 12,506 | | | | USD | | | | 1,495 | | | | 2/14/18 | | | | (32,882 | ) |
State Street Bank & Trust Co. | | | USD | | | | 925 | | | | AUD | | | | 1,213 | | | | 2/14/18 | | | | 21,298 | |
State Street Bank & Trust Co. | | | USD | | | | 126 | | | | AUD | | | | 161 | | | | 2/14/18 | | | | (140 | ) |
State Street Bank & Trust Co. | | | USD | | | | 429 | | | | CHF | | | | 423 | | | | 2/14/18 | | | | 6,347 | |
State Street Bank & Trust Co. | | | USD | | | | 1,625 | | | | EUR | | | | 1,378 | | | | 2/14/18 | | | | 32,050 | |
State Street Bank & Trust Co. | | | USD | | | | 771 | | | | GBP | | | | 578 | | | | 2/14/18 | | | | 10,926 | |
State Street Bank & Trust Co. | | | USD | | | | 504 | | | | HKD | | | | 3,932 | | | | 2/14/18 | | | | (434 | ) |
State Street Bank & Trust Co. | | | USD | | | | 98 | | | | HUF | | | | 26,164 | | | | 2/14/18 | | | | 3,028 | |
State Street Bank & Trust Co. | | | USD | | | | 416 | | | | JPY | | | | 46,640 | | | | 2/14/18 | | | | (1,246 | ) |
State Street Bank & Trust Co. | | | USD | | | | 233 | | | | NOK | | | | 1,891 | | | | 2/14/18 | | | | (2,371 | ) |
State Street Bank & Trust Co. | | | USD | | | | 43 | | | | NZD | | | | 61 | | | | 2/14/18 | | | | 492 | |
State Street Bank & Trust Co. | | | USD | | | | 125 | | | | PLN | | | | 446 | | | | 2/14/18 | | | | 3,117 | |
State Street Bank & Trust Co. | | | USD | | | | 58 | | | | TRY | | | | 231 | | | | 2/14/18 | | | | 2,130 | |
State Street Bank & Trust Co. | | | EUR | | | | 924 | | | | USD | | | | 1,094 | | | | 3/12/18 | | | | (19,427 | ) |
State Street Bank & Trust Co. | | | CAD | | | | 238 | | | | USD | | | | 186 | | | | 3/14/18 | | | | (3,606 | ) |
State Street Bank & Trust Co. | | | EUR | | | | 470 | | | | USD | | | | 553 | | | | 3/14/18 | | | | (12,893 | ) |
State Street Bank & Trust Co. | | | GBP | | | | 219 | | | | USD | | | | 294 | | | | 3/14/18 | | | | (2,218 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 30,670 | | | | USD | | | | 273 | | | | 3/14/18 | | | | (467 | ) |
State Street Bank & Trust Co. | | | MXN | | | | 4,675 | | | | USD | | | | 240 | | | | 3/14/18 | | | | 5,409 | |
State Street Bank & Trust Co. | | | NOK | | | | 1,904 | | | | USD | | | | 228 | | | | 3/14/18 | | | | (4,558 | ) |
State Street Bank & Trust Co. | | | NZD | | | | 120 | | | | USD | | | | 84 | | | | 3/14/18 | | | | (1,301 | ) |
State Street Bank & Trust Co. | | | SEK | | | | 1,393 | | | | USD | | | | 166 | | | | 3/14/18 | | | | (4,191 | ) |
State Street Bank & Trust Co. | | | USD | | | | 276 | | | | AUD | | | | 365 | | | | 3/14/18 | | | | 9,179 | |
State Street Bank & Trust Co. | | | USD | | | | 65 | | | | CAD | | | | 83 | | | | 3/14/18 | | | | 1,532 | |
State Street Bank & Trust Co. | | | USD | | | | 292 | | | | CHF | | | | 286 | | | | 3/14/18 | | | | 3,000 | |
State Street Bank & Trust Co. | | | USD | | | | 202 | | | | JPY | | | | 22,746 | | | | 3/14/18 | | | | 201 | |
State Street Bank & Trust Co. | | | USD | | | | 449 | | | | SEK | | | | 3,748 | | | | 3/14/18 | | | | 10,088 | |
State Street Bank & Trust Co. | | | USD | | | | 213 | | | | SGD | | | | 287 | | | | 3/14/18 | | | | 2,141 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | (160,081 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December
31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Buy Contracts | |
CDX-NAHY Series 29, 5 Year Index, 12/20/22* | | | (5.00 | )% | | | Quarterly | | | | 3.07 | % | | | USD 150 | | | $ | (12,671 | ) | | $ | (10,667 | ) | | $ | (2,004 | ) |
28
| | |
| | | AB Variable Products Series Fund |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Rate Type | | | | |
Notional
Amount
(000) | | | Termination
Date | | | Payments
made
by the
Fund | | | Payments
received
by the
Fund | | | Payment Frequency Paid/
Received | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
| USD | | | 1,280 | | | | 11/14/19 | | | | 1.863% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | $ | 3,610 | | | $ | — | | | $ | 3,610 | |
| USD | | | 4,520 | | | | 12/12/19 | | | | 1.997% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | | 4,441 | | | | — | | | | 4,441 | |
| SEK | | | 9,070 | | | | 3/31/22 | | | | 3 Month STIBOR | | | | 0.341% | | | Quarterly/Annual | | | 2,336 | | | | 4 | | | | 2,332 | |
| NZD | | | 1,865 | | | | 3/31/22 | | | | 3 Month BKBM | | | | 2.936% | | | Quarterly/Semi-Annual | | | 22,162 | | | | — | | | | 22,162 | |
| USD | | | 430 | | | | 6/09/25 | | | | 2.488% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | | (4,718 | ) | | | — | | | | (4,718 | ) |
| USD | | | 1,560 | | | | 11/10/25 | | | | 2.256% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | | 9,100 | | | | — | | | | 9,100 | |
| USD | | | 142 | | | | 6/28/26 | | | | 1.460% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | | 10,118 | | | | — | | | | 10,118 | |
| USD | | | 185 | | | | 4/26/27 | | | | 2.287% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | | 1,466 | | | | — | | | | 1,466 | |
| GBP | | | 9,800 | | | | 11/07/19 | | | | 6 Month LIBOR | | | | 0.790% | | | Semi-Annual/Semi-Annual | | | 8,371 | | | | (67 | ) | | | 8,438 | |
| GBP | | | 1,850 | | | | 11/07/22 | | | | 1.032% | | | | 6 Month LIBOR | | | Semi-Annual/Semi-Annual | | | (2,376 | ) | | | 29 | | | | (2,405 | ) |
| USD | | | 295 | | | | 11/08/26 | | | | 1.657% | | | | 3 Month LIBOR | | | Semi-Annual/Quarterly | | | 16,683 | | | | | | | | 16,683 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 71,193 | | | $ | (34 | ) | | $ | 71,227 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CREDIT DEFAULT SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Buy Contracts | |
Citibank, NA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | | | (5.00 | )% | | | Quarterly | | | | 0.82 | % | | | USD | | | | 172 | | | $ | (10,343 | ) | | $ | (3,098 | ) | | $ | (7,245 | ) |
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | | | (5.00 | ) | | | Quarterly | | | | 0.82 | | | | USD | | | | 198 | | | | (11,907 | ) | | | (3,698 | ) | | | (8,209 | ) |
Citigroup Global Markets, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 17 | | | | (32 | ) | | | 218 | | | | (250 | ) |
Credit Suisse International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 620 | | | | (1,176 | ) | | | 7,878 | | | | (9,054 | ) |
CDX-CMBX.NA.AAA Series 9,9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 5 | | | | (10 | ) | | | 46 | | | | (56 | ) |
Deutsche Bank AG | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 207 | | | | (392 | ) | | | 2,836 | | | | (3,228 | ) |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 775 | | | | (1,471 | ) | | | 8,329 | | | | (9,800 | ) |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 233 | | | | (442 | ) | | | 2,483 | | | | (2,925 | ) |
Goldman Sachs International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 226 | | | | (428 | ) | | | 3,071 | | | | (3,499 | ) |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 51 | | | | (97 | ) | | | 491 | | | | (588 | ) |
29
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Sale Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Citigroup Global Markets, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | % | | | Monthly | | | | 6.80 | % | | | USD | | | | 60 | | | $ | (8,743 | ) | | $ | (8,320 | ) | | $ | (423 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 55 | | | | (8,015 | ) | | | (7,808 | ) | | | (207 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 210 | | | | (30,601 | ) | | | (27,173 | ) | | | (3,428 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 69 | | | | (10,066 | ) | | | (11,075 | ) | | | 1,009 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 11 | | | | (1,605 | ) | | | (1,853 | ) | | | 248 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 70 | | | | (10,206 | ) | | | (10,907 | ) | | | 701 | |
Credit Suisse International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 35 | | | | (5,100 | ) | | | (4,460 | ) | | | (640 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 75 | | | | (10,935 | ) | | | (11,633 | ) | | | 698 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 165 | | | | (24,043 | ) | | | (11,160 | ) | | | (12,883 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 48 | | | | (6,994 | ) | | | (3,470 | ) | | | (3,524 | ) |
Deutsche Bank AG | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 156 | | | | (22,732 | ) | | | (13,416 | ) | | | (9,316 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 8 | | | | (1,165 | ) | | | (980 | ) | | | (185 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 48 | | | | (6,994 | ) | | | (6,324 | ) | | | (670 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 53 | | | | (7,723 | ) | | | (6,339 | ) | | | (1,384 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 52 | | | | (7,578 | ) | | | (6,217 | ) | | | (1,361 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 79 | | | | (11,511 | ) | | | (8,898 | ) | | | (2,613 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 232 | | | | (33,806 | ) | | | (17,000 | ) | | | (16,806 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 9 | | | | (1,311 | ) | | | (540 | ) | | | (771 | ) |
Goldman Sachs International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 64 | | | | (9,326 | ) | | | (4,436 | ) | | | (4,890 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 47 | | | | (6,848 | ) | | | (4,246 | ) | | | (2,602 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 4 | | | | (583 | ) | | | (375 | ) | | | (208 | ) |
30
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | % | | | Monthly | | | | 6.80 | % | | | USD | | | | 8 | | | $ | (1,165 | ) | | $ | (763 | ) | | $ | (402 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 8 | | | | (1,165 | ) | | | (826 | ) | | | (339 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 15 | | | | (2,186 | ) | | | (1,693 | ) | | | (493 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 78 | | | | (11,366 | ) | | | (11,099 | ) | | | (267 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 172 | | | | (25,063 | ) | | | (23,842 | ) | | | (1,221 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 53 | | | | (7,723 | ) | | | (5,904 | ) | | | (1,819 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 58 | | | | (8,462 | ) | | | (9,912 | ) | | | 1,450 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 82 | | | | (11,963 | ) | | | (14,215 | ) | | | 2,252 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 75 | | | | (10,941 | ) | | | (12,054 | ) | | | 1,113 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 5 | | | | (729 | ) | | | (794 | ) | | | 65 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 272 | | | | (39,635 | ) | | | (13,908 | ) | | | (25,727 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 230 | | | | (33,514 | ) | | | (19,144 | ) | | | (14,370 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 170 | | | | (24,772 | ) | | | (13,588 | ) | | | (11,184 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | (430,867 | ) | | $ | (275,816 | ) | | $ | (155,051 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | | Non-income producing security. |
| (b) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2017, the aggregate market value of these securities amounted to $17,924,333 or 5.9% of net assets. |
| (c) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (d) | | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
| (e) | | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (f) | | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at December 31, 2017. |
31
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| (g) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.16% of net assets as of December 31, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
| | | | | | | | | | | | | | | | |
| 144A/Restricted & Illiquid Securities | | Acquisition
Date | | | Cost | | | Market
Value | | | Percentage
of Net Assets | |
Bellemeade Re II Ltd. Series 2016-1A, Class M2B
8.052%, 4/25/26 | | | 4/29/16 | | | $ | 126,851 | | | $ | 129,689 | | | | 0.04 | % |
H/2 Asset Funding NRE Series 2015-1A
3.202%, 6/24/49 | | | 6/19/15 | | | | 132,516 | | | | 132,516 | | | | 0.04 | % |
JP Morgan Madison Avenue Securities Trust Series 2014-CH1, Class M2
5.802%, 11/25/24 | | | 11/06/15 | | | | 31,634 | | | | 34,838 | | | | 0.01 | % |
Wells Fargo Credit Risk Transfer Securities Trust Series 2015-WF1, Class 1M2
6.802%, 11/25/25 | | | 9/28/15 | | | | 143,493 | | | | 162,424 | | | | 0.05 | % |
Wells Fargo Credit Risk Transfer Securities Trust Series 2015-WF1, Class 2M2
7.052%, 11/25/25 | | | 9/28/15 | | | | 40,473 | | | | 48,005 | | | | 0.02 | % |
| (h) | | Inverse interest only security. |
| (i) | | 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. |
| (j) | | The rate shown represents the 7-day yield as of period end. |
| (l) | | Affiliated investments. |
Currency Abbreviations:
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
CZK—Czech Koruna
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
HUF—Hungarian Forint
ILS—Israeli Shekel
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NOK—Norwegian Krone
NZD—New Zealand Dollar
PLN—Polish Zloty
RUB—Russian Ruble
SEK—Swedish Krona
SGD—Singapore Dollar
TRY—Turkish Lira
TWD—New Taiwan Dollar
USD—United States Dollar
Glossary:
ABS—Asset-Backed Securities
ADR—American Depositary Receipt
BKBM—Bank Bill Benchmark (New Zealand)
BOBL—Bundesobligationen
CBT—Chicago Board of Trade
CDX-CMBX.NA—North American Commercial Mortgage-Backed Index
CDX-NAHY—North American High Yield Credit Default Swap Index
CMBS—Commercial Mortgage-Backed Securities
32
| | |
| | | AB Variable Products Series Fund |
CPI—Consumer Price Index
EURIBOR—Euro Interbank Offered Rate
GDR—Global Depositary Receipt
LIBOR—London Interbank Offered Rates
REG—Registered Shares
REIT—Real Estate Investment Trust
REMICs—Real Estate Mortgage Investment Conduits
STIBOR—Stockholm Interbank Offered Rate
TBA—To Be Announced
TIPS—Treasury Inflation Protected Security
See notes to financial statements.
33
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| STATEMENT OF ASSETS & LIABILITIES |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $267,899,468) | | $ | 315,808,691 | (a) |
Affiliated issuers (cost $1,219,736—investment of cash collateral for securities loaned) | | | 1,219,736 | |
Cash | | | 1,595 | |
Cash collateral due from broker | | | 468,682 | |
Foreign currencies, at value (cost $4,425,911) | | | 4,482,249 | |
Interest and dividends receivable | | | 815,675 | |
Unrealized appreciation on forward currency exchange contracts | | | 367,289 | |
Receivable for investment securities sold and foreign currency transactions | | | 286,614 | |
Receivable for capital stock sold | | | 59,666 | |
Receivable for variation margin on futures | | | 33,234 | |
Upfront premiums paid on credit default swaps | | | 25,352 | |
Unrealized appreciation on credit default swaps | | | 7,536 | |
| | | | |
Total assets | | | 323,576,319 | |
| | | | |
LIABILITIES | | | | |
Payable for investment securities purchased and foreign currency transactions | | | 17,509,689 | |
Payable for collateral received on securities loaned | | | 1,219,736 | |
Unrealized depreciation on forward currency exchange contracts | | | 527,370 | |
Upfront premiums received on credit default swaps | | | 301,168 | |
Unrealized depreciation on credit default swaps | | | 162,587 | |
Advisory fee payable | | | 141,498 | |
Distribution fee payable | | | 58,136 | |
Payable for capital stock redeemed | | | 56,723 | |
Administrative fee payable | | | 13,617 | |
Payable for variation margin on exchange traded swaps | | | 8,989 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 178,697 | |
| | | | |
Total liabilities | | | 20,178,307 | |
| | | | |
NET ASSETS | | $ | 303,398,012 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 25,832 | |
Additional paid-in capital | | | 231,878,608 | |
Undistributed net investment income | | | 3,838,099 | |
Accumulated net realized gain on investment and foreign currency transactions | | | 19,868,315 | |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 47,787,158 | |
| | | | |
| | $ | 303,398,012 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 29,327,976 | | | | 2,471,900 | | | $ | 11.86 | |
| B | | $ | 274,070,036 | | | | 23,360,562 | | | $ | 11.73 | |
| (a) | | Includes securities on loan with a value of $1,189,226 (see Note E). |
See notes to financial statements.
34
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $194,841) | | $ | 3,807,821 | |
Affiliated issuers | | | 5,810 | |
Interest | | | 2,966,898 | |
Securities lending income | | | 1,450 | |
| | | | |
| | | 6,781,979 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 1,672,136 | |
Distribution fee—Class B | | | 683,763 | |
Transfer agency—Class A | | | 645 | |
Transfer agency—Class B | | | 5,819 | |
Custodian | | | 225,285 | |
Audit and tax | | | 102,269 | |
Printing | | | 57,101 | |
Administrative | | | 53,887 | |
Legal | | | 37,189 | |
Directors’ fees | | | 28,561 | |
Miscellaneous | | | 23,763 | |
| | | | |
Total expenses | | | 2,890,418 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (1,130 | ) |
| | | | |
Net expenses | | | 2,889,288 | |
| | | | |
Net investment income | | | 3,892,691 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain (loss) on: | | | | |
Investment transactions | | | 21,986,137 | |
Forward currency exchange contracts | | | (428,424 | ) |
Futures | | | 492,972 | |
Swaps | | | (43,204 | ) |
Swaptions written | | | 17,827 | |
Foreign currency transactions | | | (302,151 | ) |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 18,381,050 | |
Forward currency exchange contracts | | | (117,118 | ) |
Futures | | | 192,633 | |
Swaps | | | (54,051 | ) |
Swaptions written | | | (9,703 | ) |
Foreign currency denominated assets and liabilities | | | 157,169 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 40,273,137 | |
| | | | |
Contributions from Affiliates (see Note B) | | | 521 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 44,166,349 | |
| | | | |
See notes to financial statements.
35
| | |
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | |
Net investment income | | $ | 3,892,691 | | | $ | 4,823,445 | |
Net realized gain on investment and foreign currency transactions | | | 21,723,157 | | | | 3,164,927 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 18,549,980 | | | | 5,683,604 | |
Contributions from Affiliates (see Note B) | | | 521 | | | | 30 | |
| | | | | | | | |
Net increase in net assets from operations | | | 44,166,349 | | | | 13,672,006 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | |
Net investment income | |
Class A | | | (646,765 | ) | | | (652,050 | ) |
Class B | | | (4,907,858 | ) | | | (5,122,504 | ) |
Net realized gain on investment transactions | |
Class A | | | (256,844 | ) | | | (2,087,516 | ) |
Class B | | | (2,233,659 | ) | | | (18,962,700 | ) |
CAPITAL STOCK TRANSACTIONS | |
Net decrease | | | (35,588,392 | ) | | | (15,624,524 | ) |
| | | | | | | | |
Total increase (decrease) | | | 532,831 | | | | (28,777,288 | ) |
NET ASSETS | |
Beginning of period | | | 302,865,181 | | | | 331,642,469 | |
| | | | | | | | |
End of period (including undistributed net investment income of $3,838,099 and $5,292,864, respectively) | | $ | 303,398,012 | | | $ | 302,865,181 | |
| | | | | | | | |
See notes to financial statements.
36
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Balanced Wealth Strategy Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to maximize total return consistent with the determination of AllianceBernstein L.P. (the “Adviser”) of reasonable risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in
37
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are
38
| | |
| | | AB Variable Products Series Fund |
value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities | | | | | | | | | | | | | | | | |
Assets: | |
Common Stocks: | | | | | | | | | | | | | | | | |
Information Technology | | $ | 29,035,098 | | | $ | 6,091,230 | | | $ | –0 | – | | $ | 35,126,328 | |
Real Estate | | | 21,591,158 | | | | 8,622,105 | | | | –0 | – | | | 30,213,263 | |
Financials | | | 19,515,266 | | | | 9,195,199 | | | | –0 | – | | | 28,710,465 | |
Health Care | | | 19,611,301 | | | | 3,555,631 | | | | –0 | – | | | 23,166,932 | |
Consumer Discretionary | | | 13,765,783 | | | | 4,807,232 | | | | –0 | – | | | 18,573,015 | |
Consumer Staples | | | 11,182,104 | | | | 4,896,855 | | | | –0 | – | | | 16,078,959 | |
Industrials | | | 8,188,533 | | | | 5,538,187 | | | | –0 | – | | | 13,726,720 | |
Energy | | | 7,174,687 | | | | 1,199,019 | | | | –0 | – | | | 8,373,706 | |
Materials | | | 3,901,490 | | | | 3,537,434 | | | | –0 | – | | | 7,438,924 | |
Utilities | | | 3,419,067 | | | | 877,944 | | | | –0 | – | | | 4,297,011 | |
Telecommunication Services | | | 2,361,591 | | | | 1,740,032 | | | | –0 | – | | | 4,101,623 | |
Transportation | | | –0 | – | | | 534,200 | | | | –0 | – | | | 534,200 | |
Banks | | | –0 | – | | | 372,005 | | | | –0 | – | | | 372,005 | |
Mortgage Pass-Throughs | | | –0 | – | | | 23,253,186 | | | | –0 | – | | | 23,253,186 | |
Corporates—Investment Grade | | | –0 | – | | | 22,563,565 | | | | –0 | – | | | 22,563,565 | |
Governments—Treasuries | | | –0 | – | | | 12,938,460 | | | | –0 | – | | | 12,938,460 | |
Asset-Backed Securities | | | –0 | – | | | 7,878,420 | | | | 1,812,622 | | | | 9,691,042 | |
Commercial Mortgage-Backed Securities | | | –0 | – | | | 6,791,040 | | | | 1,545,137 | | | | 8,336,177 | |
Collateralized Mortgage Obligations | | | –0 | – | | | 6,440,424 | | | | –0 | – | | | 6,440,424 | |
Inflation-Linked Securities | | | –0 | – | | | 6,099,588 | | | | –0 | – | | | 6,099,588 | |
Corporates—Non-Investment Grade | | | –0 | – | | | 3,663,337 | | | | –0 | – | | | 3,663,337 | |
Emerging Markets—Treasuries | | | –0 | – | | | 772,430 | | | | –0 | – | | | 772,430 | |
Quasi-Sovereigns | | | –0 | – | | | 607,284 | | | | –0 | – | | | 607,284 | |
Local Governments—US Municipal Bonds | | | –0 | – | | | 539,735 | | | | –0 | – | | | 539,735 | |
Emerging Markets—Corporate Bonds | | | –0 | – | | | 403,453 | | | | –0 | – | | | 403,453 | |
Governments—Sovereign Bonds | | | –0 | – | | | 207,950 | | | | –0 | – | | | 207,950 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Agency Discount Notes | | | –0 | – | | | 12,252,245 | | | | –0 | – | | | 12,252,245 | |
Time Deposits | | | –0 | – | | | 10,134,361 | | | | –0 | – | | | 10,134,361 | |
Governments—Treasuries | | | –0 | – | | | 7,192,303 | | | | –0 | – | | | 7,192,303 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 1,219,736 | | | | –0 | – | | | –0 | – | | | 1,219,736 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 140,965,814 | | | | 172,704,854 | | | | 3,357,759 | | | | 317,028,427 | |
39
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Other Financial Instruments(a): | | | | | | | | | | | | | | | | |
Assets: | |
Futures | | $ | 118,254 | | | $ | –0 | – | | $ | –0 | – | | $ | 118,254 | (b) |
Forward Currency Exchange Contracts | | | –0 | – | | | 367,289 | | | | –0 | – | | | 367,289 | |
Centrally Cleared Interest Rate Swaps | | | –0 | – | | | 78,287 | | | | –0 | – | | | 78,287 | (b) |
Liabilities: | |
Futures | | | (52,362 | ) | | | –0 | – | | | –0 | – | | | (52,362 | )(b) |
Forward Currency Exchange Contracts | | | –0 | – | | | (527,370 | ) | | | –0 | – | | | (527,370 | ) |
Centrally Cleared Credit Default Swaps | | | –0 | – | | | (12,671 | ) | | | –0 | – | | | (12,671 | )(b) |
Centrally Cleared Interest Rate Swaps | | | –0 | – | | | (7,094 | ) | | | –0 | – | | | (7,094 | )(b) |
Credit Default Swaps | | | –0 | – | | | (430,867 | ) | | | –0 | – | | | (430,867 | ) |
| | | | | | | | | | | | | | | | |
Total(c)(d) | | $ | 141,031,706 | | | $ | 172,172,428 | | | $ | 3,357,759 | | | $ | 316,561,893 | |
| | | | | | | | | | | | | | | | |
| (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) of exchange-traded derivatives as reported in the portfolio of investments. Exchange-traded swaps with upfront premiums are presented here as market value. |
| (c) | | There were no transfers from Level 1 to Level 2 during the reporting period. |
| (d) | | An amount of $4,352,281 was transferred from Level 2 to Level 1 as the above mentioned foreign equity fair valuation by the third party vendor was not applied during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
| | | | | | | | | | | | |
| | | Common
Stocks | | | Commercial
Mortgage-
Backed
Securities | | | Asset-
Backed
Securities | |
Balance as of 12/31/16 | | $ | 9,230 | | | $ | 4,024,522 | | | $ | 828,021 | |
Accrued discounts/(premiums) | | | –0 | – | | | (2,293 | ) | | | 510 | |
Realized gain (loss) | | | (36,058 | ) | | | (219,672 | ) | | | 5,757 | |
Change in unrealized appreciation/depreciation | | | 150,967 | | | | 195,089 | | | | (1,756 | ) |
Purchases/Payups | | | –0 | – | | | 375,000 | | | | 1,584,656 | |
Sales/Paydowns | | | (124,139 | ) | | | (2,827,509 | ) | | | (604,566 | ) |
Transfers in to Level 3 | | | –0 | – | | | –0 | – | | | –0 | – |
Transfers out of Level 3 | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Balance as of 12/31/17 | | $ | –0 | – | | $ | 1,545,137 | | | $ | 1,812,622 | |
| | | | | | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(a) | | $ | –0– | | | $ | 34,750 | | | $ | (1,196 | ) |
| | | | | | | | | | | | |
40
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | Total | | | | | | | |
Balance as of 12/31/16 | | $ | 4,861,773 | | | | | | | | | |
Accrued discounts/(premiums) | | | (1,783 | ) | | | | | | | | |
Realized gain (loss) | | | (249,973 | ) | | | | | | | | |
Change in unrealized appreciation/depreciation | | | 344,300 | | | | | | | | | |
Purchases/Payups | | | 1,959,656 | | | | | | | | | |
Sales/Paydowns | | | (3,556,214 | ) | | | | | | | | |
Transfers in to Level 3 | | | –0 | – | | | | | | | | |
Transfers out of Level 3 | | | –0 | – | | | | | | | | |
| | | | | | | | | | | | |
Balance as of 12/31/17 | | $ | 3,357,759 | | | | | | | | | |
| | | | | | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(a) | | $ | 33,554 | | | | | | | | | |
| | | | | | | | | | | | |
| (a) | | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
As of December 31, 2017, all Level 3 securities were priced by third party vendors and by brokers.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
41
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, ..45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .75% and 1.00% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2017, there were no expenses waived by the Adviser.
During the years ended December 31, 2017 and December 31, 2016, the Adviser reimbursed the Portfolio $521 and $30, respectively, for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,887.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $97,716, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments,
42
| | |
| | | AB Variable Products Series Fund |
Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 120,832,062 | | | $ | 164,948,772 | |
U.S. government securities | | | 193,613,268 | | | | 187,916,940 | |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 271,397,008 | |
| | | | |
Gross unrealized appreciation | | $ | 52,184,563 | |
Gross unrealized depreciation | | | (6,485,659 | ) |
| | | | |
Net unrealized appreciation | | $ | 45,698,904 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the
43
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2017, the Portfolio held futures for hedging and non-hedging purposes.
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
44
| | |
| | | AB Variable Products Series Fund |
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
During the year ended December 31, 2017, the Portfolio held purchased swaptions for hedging and non-hedging purposes.
During the year ended December 31, 2017, the Portfolio held written swaptions for hedging and non-hedging purposes.
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation
45
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Portfolio may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended December 31, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same referenced obligations with the same counterparty. As of December 31, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the
46
| | |
| | | AB Variable Products Series Fund |
agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the year ended December 31, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty tables below.
During the year ended December 31, 2017, the Portfolio had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and Liabilities
Location | | Fair Value | | | Statement of
Assets and Liabilities
Location | | Fair Value | |
Interest rate contracts | | Receivable/Payable for variation margin on futures | | $ | 118,254 | * | | Receivable/Payable for variation margin on futures | | $ | 52,362 | * |
Credit contracts | | | | | | | | Receivable/Payable for variation margin on exchange traded swaps | | | 2,004 | * |
Interest rate contracts | | Receivable/Payable for variation margin on exchange traded swaps | | | 78,350 | * | | Receivable/Payable for variation margin on exchange traded swaps | | | 7,123 | * |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | | 367,289 | | | Unrealized depreciation on forward currency exchange contracts | | | 527,370 | |
Credit contracts | | Unrealized appreciation on credit default swaps | | | 7,536 | | | Unrealized depreciation on credit default swaps | | | 162,587 | |
| | | | | | | | | | | | |
Total | | | | $ | 571,429 | | | | | $ | 751,446 | |
| | | | | | | | | | | | |
| * | | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
| | | | | | | | | | |
Derivative Type | | Location of Gain or (Loss) on Derivatives
Within Statement of Operations | | Realized Gain or
(Loss) on
Derivatives | | | Change in Unrealized
Appreciation or
(Depreciation) | |
Interest rate contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | $ | 492,972 | | | $ | 192,633 | |
Foreign currency contracts | | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | | (428,424 | ) | | | (117,118 | ) |
47
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | |
Derivative Type | | Location of Gain or (Loss) on Derivatives
Within Statement of Operations | | Realized Gain or
(Loss) on
Derivatives | | | Change in Unrealized
Appreciation or
(Depreciation) | |
Interest rate contracts | | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | $ | (9,796 | ) | | $ | (1,305 | ) |
Interest rate contracts | | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | | | 17,827 | | | | (9,703 | ) |
Interest rate contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 15,202 | | | | 23,578 | |
Credit contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | (58,406 | ) | | | (77,629 | ) |
| | | | | | | | | | |
Total | | | | $ | 29,375 | | | $ | 10,456 | |
| | | | | | | | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Futures: | | | | |
Average original value of buy contracts | | $ | 28,652,647 | |
Average original value of sale contracts | | $ | 8,306,204 | (a) |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 16,228,424 | |
Average principal amount of sale contracts | | $ | 27,598,687 | |
Purchased Options: | | | | |
Average monthly cost | | $ | 9,771 | (b) |
Swaptions Written: | | | | |
Average notional amount | | $ | 6,395,000 | (c) |
Interest Rate Swaps: | | | | |
Average notional amount | | $ | 2,046,000 | (d) |
Centrally Cleared Interest Rate Swaps: | | | | |
Average notional amount | | $ | 23,003,198 | |
Credit Default Swaps: | | | | |
Average notional amount of buy contracts | | $ | 1,428,000 | |
Average notional amount of sale contracts | | $ | 2,322,538 | |
Centrally Cleared Credit Default Swaps: | | | | |
Average notional amount of buy contracts | | $ | 1,289,738 | |
Average notional amount of sale contracts(c) | | $ | 160,000 | |
| (a) | | Positions were open for ten months during the year. |
| (b) | | Positions were open for two months during the year. |
| (c) | | Positions were open for one month during the year. |
| (d) | | Positions were open for four months during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and
48
| | |
| | | AB Variable Products Series Fund |
net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Received* | | | Security Collateral
Received* | | | Net Amount of
Derivatives Assets | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 4,676 | | | $ | (4,676 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Barclays Bank PLC | | | 22,854 | | | | (18,892 | ) | | | –0 | – | | | –0 | – | | | 3,962 | |
Brown Brothers Harriman & Co. | | | 3,038 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 3,038 | |
Citibank, NA | | | 40,434 | | | | (40,434 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 60,023 | | | | (60,023 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Deutsche Bank AG | | | 38,777 | | | | (38,777 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Goldman Sachs Bank USA | | | 36,889 | | | | (36,889 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
JPMorgan Chase Bank, NA | | | 10,612 | | | | (10,612 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Royal Bank of Scotland PLC | | | 17,784 | | | | (17,784 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Standard Chartered Bank | | | 10,721 | | | | (10,721 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
State Street Bank & Trust Co. | | | 121,481 | | | | (121,481 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 367,289 | | | $ | (360,289 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 7,000 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Liabilities
Subject to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Pledged* | | | Security Collateral
Pledged* | | | Net Amount of
Derivatives Liabilities | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 40,289 | | | $ | (4,676 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 35,613 | |
Barclays Bank PLC | | | 18,892 | | | | (18,892 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
BNP Paribas SA | | | 22,667 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 22,667 | |
Citibank, NA | | | 82,389 | | | | (40,434 | ) | | | –0 | – | | | –0 | – | | | 41,955 | |
Citigroup Global Markets, Inc. | | | 69,268 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 69,268 | |
Credit Suisse International | | | 100,524 | | | | (60,023 | ) | | | –0 | – | | | –0 | – | | | 40,501 | |
Deutsche Bank AG | | | 110,195 | | | | (38,777 | ) | | | –0 | – | | | –0 | – | | | 71,418 | |
Goldman Sachs International | | | 195,966 | | | | (36,889 | ) | | | –0 | – | | | –0 | – | | | 159,077 | |
JPMorgan Chase Bank, NA | | | 44,768 | | | | (10,612 | ) | | | –0 | – | | | –0 | – | | | 34,156 | |
Royal Bank of Scotland PLC | | | 103,761 | | | | (17,784 | ) | | | –0 | – | | | –0 | – | | | 85,977 | |
Standard Chartered Bank | | | 26,362 | | | | (10,721 | ) | | | –0 | – | | | –0 | – | | | 15,641 | |
State Street Bank & Trust Co. | | | 143,156 | | | | (121,481 | ) | | | –0 | – | | | –0 | – | | | 21,675 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 958,237 | | | $ | (360,289 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 597,948 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
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| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
3. TBA and Dollar Rolls
The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the year ended December 31, 2017, the Portfolio earned drop income of $205,639 which is included in interest income in the accompanying statement of operations.
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $1,189,226 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,219,736. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $1,450 and $5,810 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $1,130. 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.
A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value 12/31/16 (000) | | | Purchases at Cost (000) | | | Sales Proceeds (000) | | | Market Value 12/31/17 (000) | |
| $ | 655 | | | $ | 18,533 | | | $ | 17,968 | | | $ | 1,220 | |
50
| | |
| | | AB Variable Products Series Fund |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | |
Shares sold | | | 177,869 | | | | 129,847 | | | | | | | $ | 2,060,513 | | | $ | 1,429,054 | |
Shares issued in reinvestment of dividends and distributions | | | 80,751 | | | | 256,995 | | | | | | | | 903,608 | | | | 2,739,565 | |
Shares redeemed | | | (645,720 | ) | | | (568,590 | ) | | | | | | | (7,353,598 | ) | | | (6,140,574 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (387,100 | ) | | | (181,748 | ) | | | | | | $ | (4,389,477 | ) | | $ | (1,971,955 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | |
Shares sold | | | 1,027,911 | | | | 2,276,658 | | | | | | | $ | 11,533,980 | | | $ | 24,482,089 | |
Shares issued in reinvestment of dividends | | | 645,124 | | | | 2,282,958 | | | | | | | | 7,141,518 | | | | 24,085,204 | |
Shares redeemed | | | (4,477,191 | ) | | | (5,822,726 | ) | | | | | | | (49,874,413 | ) | | | (62,219,862 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (2,804,156 | ) | | | (1,263,110 | ) | | | | | | $ | (31,198,915 | ) | | $ | (13,652,569 | ) |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 62% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Allocation Risk—The allocation of investments among different investment styles, such as equity or debt, growth or value, U.S. or non-U.S. securities, or diversification strategies, may have a more significant effect on the Portfolio’s net asset value, or NAV, when one of these investment strategies is performing more poorly than others.
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
51
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| BALANCED WEALTH STRATEGY PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Real Assets Risk—The Portfolio’s investments in securities linked to real assets involve significant risks, including financial, operating and competitive risks. Investments in securities linked to real assets expose the Portfolio to adverse macroeconomic conditions, such as a rise in interest rates or a downturn in the economy in which the asset is located. The Portfolio’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
Investment in Other Investment Companies Risk—As with other investments, investments in other investment companies are subject to market and selection risk. In addition, Contractholders invested in the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies (to the extent these expenses are not waived or reimbursed by the Adviser).
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 5,554,623 | | | $ | 5,774,554 | |
Net long-term capital gains | | $ | 2,490,503 | | | $ | 21,050,216 | |
| | | | | | | | |
Total taxable distributions | | $ | 8,045,126 | | | $ | 26,824,770 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 6,199,025 | |
Undistributed capital gains | | | 19,537,691 | |
Unrealized appreciation/(depreciation) | | | 45,756,856 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 71,493,572 | |
| | | | |
| (a) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, the tax treatment of passive foreign investment companies (PFICs), and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
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 December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, the tax treatment of passive foreign investment companies (PFICs), the tax treatment of partnership investments, foreign currency reclassifications, paydown gain/loss reclassifications, contributions from the Adviser, and the tax treatment of corporate restructurings, resulted in a net increase in undistributed net investment income, a net decrease in accumulated net realized gain on investment and foreign currency transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
52
| | |
| | | AB Variable Products Series Fund |
NOTE J: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE K: Subsequent Events
At meetings held on February 6-7, 2018, the Board approved certain changes to the Portfolio’s principal strategies, which do not require stockholder approval and will take effect on or about May 1, 2018. There is no change to the Portfolio’s investment objective, and the Portfolio will continue to allocate its assets among a variety of asset classes, including equity, fixed-income and other “diversifying” asset classes such as real assets. The Portfolio will continue to pursue a global strategy, typically investing in securities of issuers located in the United States and in other countries throughout the world. In addition, the Adviser expects that the Portfolio will continue to normally invest a greater percentage of its total assets in equity securities than in fixed-income securities.
Beyond these broad similarities, certain important aspects of the Portfolio’s management will change, including:
| • | | The explicit and static asset class allocation targets for the Portfolio will be revised. Under the Portfolio’s revised principal strategies, under normal market conditions at least 25% of the Portfolio’s total assets will be invested in equity securities and at least 25% of total assets will be invested in fixed-income securities. |
| • | | The equity portion of the Portfolio will be broadened to include allocations to small- and mid-cap and emerging market companies. The specialized equity allocations of the Portfolio (e.g., allocations to small- and mid-cap and emerging market companies) will generally be achieved through investments in other mutual funds advised by the Adviser, as will large-cap international equity allocations. |
| • | | As to real assets, exposure will be broadened beyond real estate, with allocations to inflation-sensitive equity securities and in equities of companies in the natural resources sector. |
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
53
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| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $10.54 | | | | $10.99 | | | | $12.16 | | | | $13.77 | | | | $12.12 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income(a) | | | .17 | (b) | | | .19 | (b)† | | | .20 | | | | .26 | | | | .23 | |
Net realized and unrealized gain on investment and foreign currency transactions | | | 1.48 | | | | .34 | | | | .02 | ‡ | | | .71 | | | | 1.74 | |
Contributions from Affiliates | | | .00 | (c) | | | .00 | (c) | | | –0 | – | | | .00 | (c) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 1.65 | | | | .53 | | | | .22 | | | | .97 | | | | 1.97 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.24 | ) | | | (.24 | ) | | | (.27 | ) | | | (.39 | ) | | | (.32 | ) |
Distributions from net realized gain on investment transactions | | | (.09 | ) | | | (.74 | ) | | | (1.12 | ) | | | (2.19 | ) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.33 | ) | | | (.98 | ) | | | (1.39 | ) | | | (2.58 | ) | | | (.32 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $11.86 | | | | $10.54 | | | | $10.99 | | | | $12.16 | | | | $13.77 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | 15.84 | %* | | | 4.69 | %† | | | 1.65 | %* | | | 7.37 | %* | | | 16.49 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $29,328 | | | | $30,132 | | | | $33,409 | | | | $36,882 | | | | $41,222 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | .73 | % | | | .73 | % | | | .70 | % | | | .71 | % | | | .65 | % |
Expenses, before waivers/reimbursements | | | .73 | % | | | .73 | % | | | .70 | % | | | .71 | % | | | .65 | % |
Net investment income | | | 1.51 | %(b) | | | 1.74 | %(b)† | | | 1.71 | % | | | 1.96 | % | | | 1.76 | % |
Portfolio turnover rate** | | | 108 | % | | | 106 | % | | | 132 | % | | | 114 | % | | | 117 | % |
See footnote summary on page 55.
54
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $10.42 | | | | $10.87 | | | | $12.05 | | | | $13.65 | | | | $12.01 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income(a) | | | .14 | (b) | | | .16 | (b)† | | | .17 | | | | .22 | | | | .19 | |
Net realized and unrealized gain on investment and foreign currency transactions | | | 1.47 | | | | .33 | | | | .01 | ‡ | | | .71 | | | | 1.74 | |
Contributions from Affiliates | | | .00 | (c) | | | .00 | (c) | | | –0 | – | | | .00 | (c) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 1.61 | | | | .49 | | | | .18 | | | | .93 | | | | 1.93 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.21 | ) | | | (.20 | ) | | | (.24 | ) | | | (.34 | ) | | | (.29 | ) |
Distributions from net realized gain on investment and foreign currency transactions | | | (.09 | ) | | | (.74 | ) | | | (1.12 | ) | | | (2.19 | ) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.30 | ) | | | (.94 | ) | | | (1.36 | ) | | | (2.53 | ) | | | (.29 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $11.73 | | | | $10.42 | | | | $10.87 | | | | $12.05 | | | | $13.65 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(d) | | | 15.62 | %* | | | 4.44 | %† | | | 1.29 | %* | | | 7.11 | %* | | | 16.27 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $274,070 | | | | $272,733 | | | | $298,233 | | | | $328,363 | | | | $351,355 | |
Ratio to average net assets of: | |
Expenses, net of waivers/reimbursements | | | .98 | % | | | .98 | % | | | .95 | % | | | .96 | % | | | .90 | % |
Expenses, before waivers/reimbursements | | | .98 | % | | | .98 | % | | | .95 | % | | | .96 | % | | | .90 | % |
Net investment income | | | 1.26 | %(b) | | | 1.49 | %(b)† | | | 1.46 | % | | | 1.71 | % | | | 1.49 | % |
Portfolio turnover rate** | | | 108 | % | | | 106 | % | | | 132 | % | | | 114 | % | | | 117 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and 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. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | |
Net Investment
Income Per Share | | Net Investment
Income Ratio | | Total Return |
| $.001 | | .01% | | .01% |
| ‡ | | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Portfolio’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2015 and December 31, 2014 by 0.02%, 0.03% and 0.01%, respectively. |
| ** | | The Portfolio accounts for dollar roll transactions as purchases and sales. |
55
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Balanced Wealth Strategy Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Balanced Wealth Strategy Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Balanced Wealth Strategy Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
56
| | |
| | |
| | |
| 2017 TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 32.07% of dividends paid qualify for the dividends received deduction.
57
| | |
| | |
| BALANCED WEALTH STRATEGY | | |
| PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
| Marshall C. Turner, Jr.(1), Chairman | | Robert M. Keith, President and Chief Executive Officer |
Michael J. Downey(1) | | Carol C. McMullen(1) |
William H. Foulk, Jr.(1) | | Garry L. Moody(1) |
Nancy P. Jacklin(1) | | Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Daniel J. Loewy(2), Vice President Jess Gaspar(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the Multi-Asset Solutions Team. Messrs. Loewy and Gaspar are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
58
| | |
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| MANAGEMENT OF THE FUND | | AB Variable Products Series 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 COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
| | | | | | | | |
| INTERESTED DIRECTOR | | | | | | | | |
| | | | | | | | |
Robert M. Keith #
1345 Avenue of the Americas
New York, NY 10105
57
(2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he has been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr. ##
Chairman of the Board
76
(2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semiconductor 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 nonprofit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey ##
74
(2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
59
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
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 |
| | | | | | | | |
INDEPENDENT DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr. ## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin ##
69
(2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen ##
62
(2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
60
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
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 |
| | | | | | | | |
INDEPENDENT DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
Garry L. Moody ##
65
(2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardlQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner ##
78
(2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | None |
| * | The address for each of the Company’s 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, 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. |
61
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith 57 | | President and Chief
Executive Officer | | See biography above. |
| | | | |
Daniel J. Loewy 43 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Jess Gaspar 49 | | Vice President | | Senior Vice President of the Adviser, with which he has been associated since December 2016. Prior thereto, he was Managing Director and head of asset allocation and research at Commonfund from prior to 2013 until 2016. |
| | | | |
Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo 58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke 57 | | Controller | | Vice President of the ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | The address for each of the Portfolio’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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
62
| | |
|
| BALANCED WEALTH STRATEGY PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Balanced Wealth Strategy Portfolio (the “Fund”) at a meeting held on August 1-2, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous
63
| | |
| BALANCED WEALTH STRATEGY PORTFOLIO |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended May 31, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Adviser informed the directors that there were no institutional products managed by it that have a substantially similar investment style.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the
64
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| | | AB Variable Products Series Fund |
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.
65
VPS-BW-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
| + | | DYNAMIC ASSET ALLOCATION PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| DYNAMIC ASSET ALLOCATION | | |
| PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Dynamic Asset Allocation Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to maximize total return consistent with the Adviser’s determination of reasonable risk. The Portfolio invests in a globally diversified portfolio of equity and debt securities, including exchange-traded funds (“ETFs”) and other financial instruments, and expects to enter into derivatives transactions, such as options, futures contracts, forwards and swaps to achieve market exposure. The Portfolio’s neutral weighting, from which it will make its tactical asset allocations, is 60% equity exposure and 40% debt exposure. Within these broad components, the Portfolio may invest in any type of security, including common and preferred stocks, warrants and convertible securities, government and corporate fixed-income securities, commodities, currencies, real estate-related securities and inflation-indexed securities. The Portfolio may invest in US, non-US and emerging-market issuers. The Portfolio may invest in securities of companies across the capitalization spectrum, including smaller capitalization companies. The Portfolio expects its investments in fixed-income securities to have a broad range of maturities and quality levels. The Portfolio is expected to be highly diversified across industries, sectors and countries, and will choose its positions from several market indices worldwide in a manner that is intended to track the performance (before fees and expenses) of those indices.
The Adviser will continuously monitor the risks presented by the Portfolio’s asset allocation and may make frequent adjustments to the Portfolio’s exposures to different asset classes. Using its proprietary Dynamic Asset Allocation (“DAA”) techniques, the Adviser will adjust the Portfolio’s exposure to the equity and debt markets, and to segments within those markets, in response to the Adviser’s assessment of the relative risks and returns of those segments. For example, when the Adviser determines that equity market volatility is particularly low and that, therefore, the equity markets present reasonable return opportunities, the Adviser may increase the Portfolio’s equity exposure to as much as 80%. Conversely, when the Adviser determines that the risks in the equity markets are disproportionately greater than the potential returns offered, the Adviser may reduce the Portfolio’s equity exposure significantly below the target percentage or may even decide to eliminate equity exposure altogether by increasing the Portfolio’s fixed-income exposure to 100%. This investment strategy is intended to reduce the Portfolio’s overall investment risk, but may at times result in the Portfolio underperforming the markets.
The Portfolio expects to utilize derivatives and to invest in ETFs to a significant extent. Derivatives and ETFs may provide more efficient and economical exposure to market segments than direct investments, and the Portfolio’s market exposures may at times be achieved almost entirely through the use of derivatives or through the investments in ETFs. Derivatives transactions and ETFs may also be a quicker and more efficient way to alter the Portfolio’s exposure than buying and selling direct investments. As a result, the Adviser expects to use derivatives as one of the primary tools for adjusting the Portfolio’s exposure levels from its neutral weighting. The Adviser also expects to use direct investments and ETFs to adjust the Portfolio’s exposure levels. In determining when and to what extent to enter into derivatives transactions or to invest in ETFs, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of derivatives and ETFs in making its assessment of the Portfolio’s risks.
Currency exchange rate fluctuations can have a dramatic impact on returns, significantly adding to returns in some years and greatly diminishing them in others. To the extent that the Portfolio invests in non-US dollar-denominated investments, the Adviser will integrate the risks of foreign currency exposures into its investment and asset allocation decision making. The Adviser may seek to hedge all or a portion of the currency exposure resulting from the Portfolio’s investments. The Adviser may also seek investment opportunities through currencies and currency-related derivatives.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Morgan Stanley Capital International (“MSCI”) World Index, the Bloomberg Barclays US Treasury Index and its blended benchmark, a 60% / 40% blend of the MSCI World Index and the Bloomberg Barclays US Treasury Index, respectively, for the one- and five-year periods ended December 31, 2017, and since the Portfolio’s inception on April 1, 2011.
All share classes of the Portfolio underperformed the primary benchmark for the annual period, but outperformed the blended benchmark and the Bloomberg Barclays US Treasury Index. Throughout the period, the Portfolio held and maintained an overweight to risk
1
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| | | AB Variable Products Series Fund |
assets, with global equity holdings more than that dictated by the Portfolio’s strategic asset allocation. This overweight was characterized by a regional bias towards international large-cap stocks and emerging-market stocks, due to accommodative global monetary policies, a solid economic outlook and strong corporate balance sheets. An overweight to global equities contributed to relative performance throughout the period.
In fixed-income, the Portfolio increased diversification, with modest allocations to international bonds. This allocation to non-US sovereigns was the main detractor from performance. While the Portfolio held an underweight to fixed income for most of the period, the Portfolio’s Senior Investment Management Team slightly extended bond duration to maintain defensive diversification close to the level of a strategic normal allocation, but closed the year underweight to duration. An underweight to global fixed income contributed to performance. In currency management, the Portfolio held an underweight to the US dollar relative to the Portfolio’s strategic asset allocation for most of 2017, but moved closer to neutral in the fourth quarter. This underweight to the US dollar was paired with an overweight to the euro, which contributed to performance.
During the annual period, the Portfolio utilized derivatives for hedging and investment purposes in the form of currency forwards and interest rate swaps, which added to absolute returns, while futures, total return swaps and purchased swaptions detracted. Credit default swaps for investment purposes detracted from returns.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked a strong year for almost all major asset classes. Global stocks finished the period in strong positive territory, led by emerging markets and developed international markets. Global bond markets posted more modest but still positive returns. After a year that saw volatility spike and recede several times, the primary market story of 2017 revolved around extreme calm. Currency movements also played a role, as a weak US dollar strengthened returns for US dollar-based investors.
Though volatility remained low, the annual period did have several events that impacted markets. The first quarter saw the inauguration of a new US president. Following that were concerns around potential fallout from European elections, most notably in France, which abated after the most market-friendly candidate won. In the latter half of the year, rhetoric between the US and North Korea increased, which caused investors to consider the ramifications of potential geopolitical strife. Finally, near year-end, tax reform passed in the US Congress, which ended months of deliberation and negotiation. In each of these instances, the market continued to move forward, and except for minor increases, volatility remained extremely benign.
2
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI World Index and the Bloomberg Barclays US Treasury Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI World Index (free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets. The Bloomberg Barclays US Treasury Index represents the performance of US Treasuries within the US government fixed-income market. 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. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of the Portfolio’s investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Allocation Risk: The allocation of investments among different global asset classes may have a significant effect on the Portfolio’s net asset value (“NAV”) when one of these asset classes is performing more poorly than others. As both the direct investments and derivatives positions will be periodically adjusted to reflect the Adviser’s view of market and economic conditions, there will be transaction costs that may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
Foreign (Non-US) Risk: The Portfolio’s investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
ETF Risk: ETFs are investment companies. When the Portfolio invests in an ETF, the Portfolio bears its share of the ETF’s expenses and runs the risk that the ETF may not achieve its investment objective.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: When the Portfolio borrows money or otherwise leverages its portfolio, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase agreements, forward commitments, or by borrowing money.
(Disclosures and Risks continued on next page)
3
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| DISCLOSURES AND RISKS | | |
| (continued) | | AB Variable Products Series Fund |
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Real Estate Risk: The Portfolio’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts (“REITs”) may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Commodity Risk: Investing in commodities and commodity-linked derivative instruments may subject the Portfolio to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
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| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years | | | Since Inception1 | |
| Dynamic Asset Allocation Portfolio Class A | | | 14.67% | | | | 6.63% | | | | 5.70% | |
| Dynamic Asset Allocation Portfolio Class B | | | 14.32% | | | | 6.37% | | | | 5.45% | |
| Primary Benchmark: MSCI World Index | | | 22.40% | | | | 11.64% | | | | 9.10% | |
| Bloomberg Barclays US Treasury Index | | | 2.31% | | | | 1.27% | | | | 2.67% | |
Blended Benchmark: 60% MSCI World Index /
40% Bloomberg Barclays US Treasury Index | | | 13.98% | | | | 7.53% | | | | 6.71% | |
1 Inception date: 4/1/2011. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.83% and 1.09% for Class A and Class B 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.
DYNAMIC ASSET ALLOCATION PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
4/1/20111 to 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Dynamic Asset Allocation Portfolio Class A shares (from 4/1/20111 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
| 1 | | Inception date: 4/1/2011. |
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | | | Total
Expenses Paid
During Period+ | | | Total
Annualized
Expense Ratio+ | |
Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,065.20 | | | $ | 3.96 | | | | 0.76 | % | | $ | 3.96 | | | | 0.76 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,021.37 | | | $ | 3.87 | | | | 0.76 | % | | $ | 3.87 | | | | 0.76 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,064.10 | | | $ | 5.25 | | | | 1.01 | % | | $ | 5.31 | | | | 1.02 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.11 | | | $ | 5.14 | | | | 1.01 | % | | $ | 5.19 | | | | 1.02 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
| + | | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio 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 Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
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| SECURITY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
U.S. Treasury Bonds & Notes | | $ | 171,585,860 | | | | 28.4 | % |
iShares Core MSCI Emerging Markets ETF | | | 34,589,738 | | | | 5.7 | |
SPDR S&P MidCap 400 ETF Trust | | | 13,812,946 | | | | 2.3 | |
Vanguard REIT ETF | | | 11,647,488 | | | | 1.9 | |
Vanguard Global ex-U.S. Real Estate ETF | | | 9,129,631 | | | | 1.5 | |
iShares International Developed Real Estate ETF | | | 8,801,190 | | | | 1.5 | |
Vanguard Small-Cap ETF | | | 7,254,467 | | | | 1.2 | |
Apple, Inc. | | | 6,282,664 | | | | 1.0 | |
Microsoft Corp. | | | 4,655,087 | | | | 0.8 | |
Alphabet, Inc.—Class A & Class C | | | 4,391,714 | | | | 0.7 | |
| | | | | | | | | |
| | | $ | 272,150,785 | | | | 45.0 | % |
PORTFOLIO BREAKDOWN2
December 31, 2017 (unaudited)
| | | | |
| ASSET CLASSES | | ALLOCATION | |
Equities | | | | |
International Large-Cap | | | 30.3 | % |
U.S. Large-Cap | | | 19.0 | |
Emerging Market | | | 5.7 | |
Real Estate | | | 4.9 | |
U.S. Mid-Cap | | | 2.8 | |
U.S. Small-Cap | | | 2.8 | |
| | | | | |
Subtotal | | | 65.5 | |
| | | | | |
Fixed Income | | | | |
U.S. Bonds | | | 33.6 | |
International Bonds | | | 0.9 | |
| | | | | |
Subtotal | | | 34.5 | |
| | | | | |
Total | | | 100.0 | % |
| | | | | |
SECURITY TYPE BREAKDOWN3
December 31, 2017 (unaudited)
| | | | | | | | |
| SECURITY TYPE | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Common Stocks | | $ | 322,513,995 | | | | 53.7 | % |
Governments—Treasuries | | | 171,585,860 | | | | 28.5 | |
Investment Companies | | | 88,102,450 | | | | 14.7 | |
Options Purchased—Puts | | | 5,627 | | | | 0.0 | |
Short-Term Investments | | | 18,529,279 | | | | 3.1 | |
| | | | | | | | | |
Total Investments | | $ | 600,737,211 | | | | 100.0 | % |
| 2 | | All data are as of December 31, 2017. The Portfolio breakdown is expressed as an approximate percentage of the Portfolio’s total investments inclusive of derivative exposure, based on the Adviser’s internal classification guidelines. |
| 3 | | The Portfolio’s security type breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
7
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
COMMON STOCKS–53.3% | | | | | | | | | |
| | | | | | | | | | | | |
FINANCIALS–9.7% | | | | | | | | | | | | |
| | | | | | | | | | | | |
BANKS–5.1% | |
AIB Group PLC | | | | | | | 5,844 | | | $ | 38,566 | |
Aozora Bank Ltd. | | | | | | | 2,000 | | | | 77,605 | |
Australia & New Zealand Banking Group Ltd. | | | | | | | 31,095 | | | | 693,700 | |
Banco Bilbao Vizcaya Argentaria SA | | | | | | | 73,153 | | | | 621,669 | |
Banco de Sabadell SA | | | | | | | 50,635 | | | | 100,381 | |
Banco Santander SA | | | | | | | 171,172 | | | | 1,122,243 | |
Bank Hapoalim BM | | | | | | | 14,749 | | | | 108,313 | |
Bank Leumi Le-Israel BM | | | | | | | 12,645 | | | | 76,113 | |
Bank of America Corp. | | | | | | | 71,245 | | | | 2,103,152 | |
Bank of East Asia Ltd. (The) | | | | | | | 21,000 | | | | 90,819 | |
Bank of Ireland Group PLC(a) | | | | | | | 11,605 | | | | 98,793 | |
Bank of Kyoto Ltd. (The) | | | | | | | 400 | | | | 20,773 | |
Bank of Queensland Ltd. | | | | | | | 7,933 | | | | 78,467 | |
Bankia SA | | | | | | | 10,832 | | | | 51,701 | |
Bankinter SA | | | | | | | 7,353 | | | | 69,557 | |
Barclays PLC | | | | | | | 180,209 | | | | 493,299 | |
BB&T Corp. | | | | | | | 5,650 | | | | 280,918 | |
Bendigo & Adelaide Bank Ltd. | | | | | | | 4,177 | | | | 37,904 | |
BNP Paribas SA | | | | | | | 13,908 | | | | 1,034,596 | |
BOC Hong Kong Holdings Ltd. | | | | | | | 39,500 | | | | 199,624 | |
CaixaBank SA | | | | | | | 42,465 | | | | 197,412 | |
Chiba Bank Ltd. (The) | | | | | | | 11,000 | | | | 91,220 | |
Citigroup, Inc. | | | | | | | 20,279 | | | | 1,508,960 | |
Citizens Financial Group, Inc. | | | | | | | 3,619 | | | | 151,926 | |
Comerica, Inc. | | | | | | | 1,200 | | | | 104,172 | |
Commerzbank AG(a) | | | | | | | 15,814 | | | | 235,902 | |
Commonwealth Bank of Australia | | | | | | | 18,280 | | | | 1,140,827 | |
Concordia Financial Group Ltd. | | | | | | | 11,221 | | | | 67,488 | |
Credit Agricole SA | | | | | | | 14,327 | | | | 236,568 | |
Danske Bank A/S | | | | | | | 7,940 | | | | 309,041 | |
DBS Group Holdings Ltd. | | | | | | | 17,000 | | | | 314,437 | |
DNB ASA | | | | | | | 9,303 | | | | 172,212 | |
Erste Group Bank AG(a) | | | | | | | 3,207 | | | | 138,977 | |
Fifth Third Bancorp | | | | | | | 5,340 | | | | 162,016 | |
Fukuoka Financial Group, Inc. | | | | | | | 9,000 | | | | 50,361 | |
Hang Seng Bank Ltd. | | | | | | | 8,100 | | | | 200,952 | |
HSBC Holdings PLC | | | | | | | 217,206 | | | | 2,243,318 | |
Huntington Bancshares, Inc./OH | | | | | | | 7,565 | | | | 110,146 | |
ING Groep NV | | | | | | | 36,740 | | | | 674,426 | |
Intesa Sanpaolo SpA | | | | | | | 120,775 | | | | 400,714 | |
Japan Post Bank Co., Ltd. | | | | | | | 3,855 | | | | 50,068 | |
JPMorgan Chase & Co. | | | | | | | 25,215 | | | | 2,696,492 | |
KBC Group NV | | | | | | | 3,064 | | | | 261,094 | |
KeyCorp | | | | | | | 7,525 | | | | 151,779 | |
Kyushu Financial Group, Inc. | | | | | | | 3,564 | | | | 21,481 | |
| | | | | | | | | | | | |
Lloyds Banking Group PLC | | | | | | | 769,079 | | | | 705,232 | |
M&T Bank Corp. | | | | | | | 1,115 | | | | 190,654 | |
Mebuki Financial Group, Inc. | | | | | | | 16,800 | | | | 70,972 | |
Mediobanca SpA | | | | | | | 12,965 | | | | 146,903 | |
Mitsubishi UFJ Financial Group, Inc. | | | | | | | 135,900 | | | | 989,075 | |
Mizrahi Tefahot Bank Ltd. | | | | | | | 1,057 | | | | 19,470 | |
Mizuho Financial Group, Inc. | | | | | | | 253,500 | | | | 458,350 | |
National Australia Bank Ltd. | | | | | | | 28,193 | | | | 647,457 | |
Nordea Bank AB | | | | | | | 28,914 | | | | 350,090 | |
Oversea-Chinese Banking Corp., Ltd. | | | | | | | 29,000 | | | | 267,909 | |
People’s United Financial, Inc. | | | | | | | 2,165 | | | | 40,486 | |
PNC Financial Services Group, Inc. (The) | | | | | | | 3,430 | | | | 494,915 | |
Raiffeisen Bank International AG(a) | | | | | | | 1,307 | | | | 47,360 | |
Regions Financial Corp. | | | | | | | 8,725 | | | | 150,768 | |
Resona Holdings, Inc. | | | | | | | 21,000 | | | | 125,134 | |
Royal Bank of Scotland Group PLC(a) | | | | | | | 42,208 | | | | 158,271 | |
Seven Bank Ltd. | | | | | | | 16,218 | | | | 55,387 | |
Shinsei Bank Ltd. | | | | | | | 3,700 | | | | 63,761 | |
Shizuoka Bank Ltd. (The) | | | | | | | 4,000 | | | | 41,176 | |
Skandinaviska Enskilda Banken AB–Class A | | | | | | | 16,190 | | | | 190,109 | |
Societe Generale SA | | | | | | | 9,446 | | | | 486,993 | |
Standard Chartered PLC(a) | | | | | | | 34,982 | | | | 367,366 | |
Sumitomo Mitsui Financial Group, Inc. | | | | | | | 14,300 | | | | 616,394 | |
Sumitomo Mitsui Trust Holdings, Inc. | | | | | | | 3,200 | | | | 126,611 | |
SunTrust Banks, Inc. | | | | | | | 3,490 | | | | 225,419 | |
Suruga Bank Ltd. | | | | | | | 1,000 | | | | 21,382 | |
Svenska Handelsbanken AB–Class A | | | | | | | 14,254 | | | | 194,796 | |
Swedbank AB–Class A | | | | | | | 8,621 | | | | 207,980 | |
UniCredit SpA(a) | | | | | | | 17,373 | | | | 324,080 | |
United Overseas Bank Ltd. | | | | | | | 12,000 | | | | 236,556 | |
US Bancorp | | | | | | | 11,215 | | | | 600,900 | |
Wells Fargo & Co. | | | | | | | 31,675 | | | | 1,921,722 | |
Westpac Banking Corp. | | | | | | | 35,553 | | | | 864,774 | |
Zions Bancorporation | | | | | | | 1,430 | | | | 72,687 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 30,571,321 | |
| | | | | | | | | | | | |
CAPITAL MARKETS–1.5% | |
3i Group PLC | | | | | | | 9,721 | | | | 119,676 | |
Affiliated Managers Group, Inc. | | | | | | | 407 | | | | 83,537 | |
Ameriprise Financial, Inc. | | | | | | | 1,145 | | | | 194,043 | |
Amundi SA(b) | | | | | | | 1,517 | | | | 128,482 | |
ASX Ltd. | | | | | | | 1,453 | | | | 62,024 | |
Bank of New York Mellon Corp. (The) | | | | | | | 7,415 | | | | 399,372 | |
BlackRock, Inc.–Class A | | | | | | | 877 | | | | 450,524 | |
Cboe Global Markets, Inc. | | | | | | | 646 | | | | 80,485 | |
Charles Schwab Corp. (The) | | | | | | | 8,390 | | | | 430,994 | |
CME Group, Inc.–Class A | | | | | | | 2,350 | | | | 343,217 | |
8
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Credit Suisse Group AG (REG)(a) | | | | | | | 25,000 | | | $ | 445,893 | |
Daiwa Securities Group, Inc. | | | | | | | 16,000 | | | | 100,104 | |
Deutsche Bank AG (REG) | | | | | | | 19,693 | | | | 372,473 | |
Deutsche Boerse AG | | | | | | | 2,077 | | | | 240,403 | |
E*TRADE Financial Corp.(a) | | | | | | | 1,870 | | | | 92,696 | |
Franklin Resources, Inc. | | | | | | | 2,420 | | | | 104,859 | |
Goldman Sachs Group, Inc. (The) | | | | | | | 2,638 | | | | 672,057 | |
Hargreaves Lansdown PLC | | | | | | | 2,483 | | | | 60,302 | |
Hong Kong Exchanges & Clearing Ltd. | | | | | | | 10,900 | | | | 333,412 | |
Intercontinental Exchange, Inc. | | | | | | | 4,330 | | | | 305,525 | |
Invesco Ltd. | | | | | | | 2,830 | | | | 103,408 | |
Investec PLC | | | | | | | 5,877 | | | | 42,316 | |
Japan Exchange Group, Inc. | | | | | | | 4,965 | | | | 86,144 | |
Julius Baer Group Ltd.(a) | | | | | | | 2,130 | | | | 130,254 | |
Kingston Financial Group Ltd. | | | | | | | 68,779 | | | | 65,899 | |
London Stock Exchange Group PLC | | | | | | | 3,987 | | | | 203,922 | |
Macquarie Group Ltd. | | | | | | | 3,705 | | | | 286,563 | |
Moody’s Corp. | | | | | | | 1,145 | | | | 169,013 | |
Morgan Stanley | | | | | | | 10,270 | | | | 538,867 | |
Nasdaq, Inc. | | | | | | | 760 | | | | 58,391 | |
Natixis SA | | | | | | | 21,759 | | | | 171,864 | |
Nomura Holdings, Inc. | | | | | | | 38,855 | | | | 227,758 | |
Northern Trust Corp. | | | | | | | 1,460 | | | | 145,839 | |
Partners Group Holding AG | | | | | | | 158 | | | | 108,260 | |
Raymond James Financial, Inc. | | | | | | | 909 | | | | 81,174 | |
S&P Global, Inc. | | | | | | | 1,860 | | | | 315,084 | |
Schroders PLC | | | | | | | 1,291 | | | | 61,111 | |
Singapore Exchange Ltd. | | | | | | | 21,000 | | | | 116,611 | |
St James’s Place PLC | | | | | | | 4,994 | | | | 82,502 | |
State Street Corp. | | | | | | | 2,535 | | | | 247,441 | |
T. Rowe Price Group, Inc. | | | | | | | 1,725 | | | | 181,004 | |
UBS Group AG(a) | | | | | | | 38,983 | | | | 716,225 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,159,728 | |
| | | | | | | | | | | | |
CONSUMER FINANCE–0.2% | | | | | | | | | | | | |
Acom Co., Ltd.(a) | | | | | | | 13,014 | | | | 54,678 | |
American Express Co. | | | | | | | 5,410 | | | | 537,267 | |
Capital One Financial Corp. | | | | | | | 3,513 | | | | 349,825 | |
Credit Saison Co., Ltd. | | | | | | | 3,500 | | | | 63,558 | |
Discover Financial Services | | | | | | | 2,810 | | | | 216,145 | |
Navient Corp. | | | | | | | 2,200 | | | | 29,304 | |
Synchrony Financial | | | | | | | 5,518 | | | | 213,050 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,463,827 | |
| | | | | | | | | | | | |
DIVERSIFIED FINANCIAL SERVICES–0.8% | | | | | | | | | | | | |
AMP Ltd. | | | | | | | 28,155 | | | | 113,648 | |
Berkshire Hathaway, Inc.–Class B(a) | | | | | | | 13,294 | | | | 2,635,137 | |
Challenger Ltd./Australia | | | | | | | 12,809 | | | | 139,688 | |
Eurazeo SA | | | | | | | 1,370 | | | | 126,565 | |
| | | | | | | | | | | | |
EXOR NV | | | | | | | 3,679 | | | | 225,568 | |
First Pacific Co., Ltd./Hong Kong | | | | | | | 86,660 | | | | 58,908 | |
Groupe Bruxelles Lambert SA | | | | | | | 768 | | | | 82,852 | |
IHS Markit Ltd.(a) | | | | | | | 2,261 | | | | 102,084 | |
Industrivarden AB–Class C | | | | | | | 4,979 | | | | 122,821 | |
Investor AB–Class B | | | | | | | 4,336 | | | | 197,755 | |
Kinnevik AB | | | | | | | 4,676 | | | | 158,006 | |
Leucadia National Corp. | | | | | | | 2,255 | | | | 59,735 | |
ORIX Corp. | | | | | | | 14,110 | | | | 237,907 | |
Pargesa Holding SA | | | | | | | 346 | | | | 29,969 | |
Standard Life Aberdeen PLC | | | | | | | 28,554 | | | | 167,955 | |
Wendel SA | | | | | | | 844 | | | | 146,245 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,604,843 | |
| | | | | | | | | | | | |
INSURANCE–2.1% | | | | | | | | | | | | |
Admiral Group PLC | | | | | | | 2,010 | | | | 54,214 | |
Aegon NV | | | | | | | 11,109 | | | | 70,586 | |
Aflac, Inc. | | | | | | | 2,855 | | | | 250,612 | |
Ageas | | | | | | | 1,646 | | | | 80,407 | |
AIA Group Ltd. | | | | | | | 128,423 | | | | 1,092,320 | |
Allianz SE (REG) | | | | | | | 4,871 | | | | 1,114,717 | |
Allstate Corp. (The) | | | | | | | 2,600 | | | | 272,246 | |
American International Group, Inc. | | | | | | | 7,093 | | | | 422,601 | |
Aon PLC | | | | | | | 1,865 | | | | 249,910 | |
Arthur J Gallagher & Co. | | | | | | | 1,202 | | | | 76,063 | |
Assicurazioni Generali SpA | | | | | | | 11,115 | | | | 202,309 | |
Assurant, Inc. | | | | | | | 410 | | | | 41,344 | |
Aviva PLC | | | | | | | 43,251 | | | | 294,986 | |
Baloise Holding AG (REG) | | | | | | | 926 | | | | 143,943 | |
Brighthouse Financial, Inc.(a) | | | | | | | 697 | | | | 40,872 | |
Chubb Ltd. | | | | | | | 3,232 | | | | 472,292 | |
Cincinnati Financial Corp. | | | | | | | 1,060 | | | | 79,468 | |
CNP Assurances | | | | | | | 4,544 | | | | 104,818 | |
Dai-ichi Life Holdings, Inc. | | | | | | | 10,264 | | | | 210,947 | |
Direct Line Insurance Group PLC | | | | | | | 13,089 | | | | 67,353 | |
Everest Re Group Ltd. | | | | | | | 294 | | | | 65,050 | |
Gjensidige Forsikring ASA | | | | | | | 3,690 | | | | 69,602 | |
Hannover Rueck SE (REG) | | | | | | | 795 | | | | 99,744 | |
Hartford Financial Services Group, Inc. (The) | | | | | | | 2,675 | | | | 150,549 | |
Insurance Australia Group Ltd. | | | | | | | 23,145 | | | | 130,359 | |
Japan Post Holdings Co., Ltd. | | | | | | | 16,700 | | | | 191,280 | |
Legal & General Group PLC | | | | | | | 63,405 | | | | 233,431 | |
Lincoln National Corp. | | | | | | | 1,590 | | | | 122,223 | |
Loews Corp. | | | | | | | 1,890 | | | | 94,557 | |
Mapfre SA | | | | | | | 8,911 | | | | 28,584 | |
Marsh & McLennan Cos., Inc. | | | | | | | 3,590 | | | | 292,190 | |
Medibank Pvt Ltd. | | | | | | | 39,307 | | | | 100,659 | |
MetLife, Inc. | | | | | | | 7,670 | | | | 387,795 | |
MS&AD Insurance Group Holdings, Inc. | | | | | | | 4,800 | | | | 161,906 | |
9
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen (REG) | | | | | | | 1,588 | | | $ | 342,928 | |
NN Group NV | | | | | | | 7,137 | | | | 308,700 | |
Old Mutual PLC | | | | | | | 61,153 | | | | 191,305 | |
Principal Financial Group, Inc. | | | | | | | 1,840 | | | | 129,830 | |
Progressive Corp. (The) | | | | | | | 4,045 | | | | 227,814 | |
Prudential Financial, Inc. | | | | | | | 3,065 | | | | 352,414 | |
Prudential PLC | | | | | | | 27,421 | | | | 702,261 | |
QBE Insurance Group Ltd. | | | | | | | 13,053 | | | | 108,347 | |
RSA Insurance Group PLC | | | | | | | 10,859 | | | | 92,562 | |
Sampo Oyj–Class A | | | | | | | 4,765 | | | | 261,513 | |
SCOR SE | | | | | | | 3,333 | | | | 133,965 | |
Sompo Holdings, Inc. | | | | | | | 4,000 | | | | 154,403 | |
Sony Financial Holdings, Inc. | | | | | | | 4,130 | | | | 72,992 | |
Suncorp Group Ltd. | | | | | | | 12,247 | | | | 132,001 | |
Swiss Life Holding AG(a) | | | | | | | 342 | | | | 120,888 | |
Swiss Re AG | | | | | | | 3,176 | | | | 297,022 | |
T&D Holdings, Inc. | | | | | | | 5,500 | | | | 93,833 | |
Tokio Marine Holdings, Inc. | | | | | | | 7,300 | | | | 332,026 | |
Torchmark Corp. | | | | | | | 752 | | | | 68,214 | |
Travelers Cos., Inc. (The) | | | | | | | 2,030 | | | | 275,349 | |
Tryg A/S | | | | | | | 1,821 | | | | 45,552 | |
UnipolSai Assicurazioni SpA | | | | | | | 4,035 | | | | 9,412 | |
Unum Group | | | | | | | 1,620 | | | | 88,922 | |
Willis Towers Watson PLC | | | | | | | 887 | | | | 133,662 | |
XL Group Ltd. | | | | | | | 1,910 | | | | 67,156 | |
Zurich Insurance Group AG | | | | | | | 1,604 | | | | 487,686 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 12,700,694 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 58,500,413 | |
| | | | | | | | | | | | |
INFORMATION TECHNOLOGY–8.0% | | | | | | | | | |
COMMUNICATIONS EQUIPMENT–0.4% | | | | | | | | | | | | |
Cisco Systems, Inc. | | | | | | | 35,090 | | | | 1,343,947 | |
F5 Networks, Inc.(a) | | | | | | | 480 | | | | 62,986 | |
Harris Corp. | | | | | | | 845 | | | | 119,694 | |
Juniper Networks, Inc. | | | | | | | 2,640 | | | | 75,240 | |
Motorola Solutions, Inc. | | | | | | | 1,145 | | | | 103,439 | |
Nokia Oyj | | | | | | | 62,192 | | | | 290,582 | |
Telefonaktiebolaget LM Ericsson–Class B | | | | | | | 28,969 | | | | 191,187 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,187,075 | |
| | | | | | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.5% | | | | | | | | | | | | |
Alps Electric Co., Ltd. | | | | | | | 2,053 | | | | 58,398 | |
Amphenol Corp.–Class A | | | | | | | 2,150 | | | | 188,770 | |
Corning, Inc. | | | | | | | 7,205 | | | | 230,488 | |
FLIR Systems, Inc. | | | | | | | 910 | | | | 42,424 | |
Hamamatsu Photonics KK | | | | | | | 1,600 | | | | 53,665 | |
Hexagon AB–Class B | | | | | | | 4,263 | | | | 213,849 | |
Hirose Electric Co., Ltd. | | | | | | | 300 | | | | 43,802 | |
Hitachi High-Technologies Corp. | | | | | | | 1,881 | | | | 79,057 | |
| | | | | | | | | | | | |
Hitachi Ltd. | | | | | | | 52,000 | | | | 403,426 | |
Ingenico Group SA | | | | | | | 930 | | | | 99,323 | |
Keyence Corp. | | | | | | | 1,054 | | | | 588,797 | |
Kyocera Corp. | | | | | | | 3,100 | | | | 202,390 | |
Murata Manufacturing Co., Ltd. | | | | | | | 2,000 | | | | 267,776 | |
Nippon Electric Glass Co., Ltd. | | | | | | | 929 | | | | 35,359 | |
Omron Corp. | | | | | | | 1,800 | | | | 107,062 | |
Shimadzu Corp. | | | | | | | 2,000 | | | | 45,373 | |
TDK Corp. | | | | | | | 1,200 | | | | 95,365 | |
TE Connectivity Ltd. | | | | | | | 2,460 | | | | 233,798 | |
Yaskawa Electric Corp. | | | | | | | 2,723 | | | | 119,309 | |
Yokogawa Electric Corp. | | | | | | | 4,500 | | | | 85,917 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,194,348 | |
| | | | | | | | | | | | |
INTERNET SOFTWARE & SERVICES–1.3% | | | | | | | | | | | | |
Akamai Technologies, Inc.(a) | | | | | | | 1,205 | | | | 78,373 | |
Alphabet, Inc.– Class A(a) | | | | | | | 2,089 | | | | 2,200,552 | |
Alphabet, Inc.– Class C(a) | | | | | | | 2,094 | | | | 2,191,162 | |
DeNA Co., Ltd. | | | | | | | 1,663 | | | | 34,236 | |
eBay, Inc.(a) | | | | | | | 7,285 | | | | 274,936 | |
Facebook, Inc.– Class A(a) | | | | | | | 16,237 | | | | 2,865,181 | |
Kakaku.com, Inc. | | | | | | | 3,799 | | | | 64,130 | |
Mixi, Inc. | | | | | | | 827 | | | | 37,040 | |
REA Group Ltd. | | | | | | | 1,002 | | | | 59,747 | |
United Internet AG | | | | | | | 2,321 | | | | 159,037 | |
VeriSign, Inc.(a)(c) | | | | | | | 625 | | | | 71,525 | |
Yahoo Japan Corp. | | | | | | | 13,553 | | | | 62,093 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 8,098,012 | |
| | | | | | | | | | | | |
IT SERVICES–1.3% | |
Accenture PLC–Class A | | | | | | | 4,335 | | | | 663,645 | |
Alliance Data Systems Corp. | | | | | | | 430 | | | | 108,996 | |
Amadeus IT Group SA–Class A | | | | | | | 4,677 | | | | 336,568 | |
Atos SE | | | | | | | 677 | | | | 98,429 | |
Automatic Data Processing, Inc. | | | | | | | 3,170 | | | | 371,492 | |
Capgemini SE | | | | | | | 1,557 | | | | 184,414 | |
Cognizant Technology Solutions Corp.–Class A | | | | | | | 4,230 | | | | 300,415 | |
Computershare Ltd. | | | | | | | 3,663 | | | | 46,409 | |
CSRA, Inc. | | | | | | | 990 | | | | 29,621 | |
DXC Technology Co. | | | | | | | 2,018 | | | | 191,508 | |
Fidelity National Information Services, Inc. | | | | | | | 2,270 | | | | 213,584 | |
Fiserv, Inc.(a) | | | | | | | 1,550 | | | | 203,251 | |
Fujitsu Ltd. | | | | | | | 18,000 | | | | 127,611 | |
Gartner, Inc.(a) | | | | | | | 640 | | | | 78,816 | |
Global Payments, Inc. | | | | | | | 1,059 | | | | 106,154 | |
International Business Machines Corp. | | | | | | | 6,076 | | | | 932,180 | |
Mastercard, Inc.–Class A | | | | | | | 6,710 | | | | 1,015,626 | |
Nomura Research Institute Ltd. | | | | | | | 1,300 | | | | 60,341 | |
NTT Data Corp. | | | | | | | 6,010 | | | | 71,302 | |
Obic Co., Ltd. | | | | | | | 730 | | | | 53,617 | |
10
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Otsuka Corp. | | | | | | | 600 | | | $ | 45,951 | |
Paychex, Inc. | | | | | | | 2,245 | | | | 152,840 | |
PayPal Holdings, Inc.(a) | | | | | | | 7,835 | | | | 576,813 | |
Total System Services, Inc. | | | | | | | 1,110 | | | | 87,790 | |
Visa, Inc.–Class A | | | | | | | 13,150 | | | | 1,499,363 | |
Western Union Co. (The)–Class W | | | | | | | 3,380 | | | | 64,254 | |
Wirecard AG | | | | | | | 1,262 | | | | 140,262 | |
Worldpay Group PLC(b) | | | | | | | 19,270 | | | | 110,583 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,871,835 | |
| | | | | | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–1.4% | | | | | | | | | | | | |
Advanced Micro Devices, Inc.(a)(c) | | | | | | | 5,483 | | | | 56,365 | |
Analog Devices, Inc. | | | | | | | 2,510 | | | | 223,465 | |
Applied Materials, Inc. | | | | | | | 7,535 | | | | 385,189 | |
ASM Pacific Technology Ltd. | | | | | | | 900 | | | | 12,486 | |
ASML Holding NV | | | | | | | 3,784 | | | | 657,880 | |
Broadcom Ltd. | | | | | | | 2,775 | | | | 712,898 | |
Disco Corp. | | | | | | | 309 | | | | 68,487 | |
Infineon Technologies AG | | | | | | | 10,766 | | | | 293,203 | |
Intel Corp. | | | | | | | 33,040 | | | | 1,525,126 | |
KLA-Tencor Corp. | | | | | | | 1,060 | | | | 111,374 | |
Lam Research Corp. | | | | | | | 1,129 | | | | 207,815 | |
Microchip Technology, Inc. | | | | | | | 1,495 | | | | 131,381 | |
Micron Technology, Inc.(a) | | | | | | | 7,220 | | | | 296,886 | |
NVIDIA Corp. | | | | | | | 3,735 | | | | 722,722 | |
NXP Semiconductors NV(a) | | | | | | | 3,725 | | | | 436,160 | |
Qorvo, Inc.(a) | | | | | | | 868 | | | | 57,809 | |
QUALCOMM, Inc. | | | | | | | 10,270 | | | | 657,485 | |
Renesas Electronics Corp.(a) | | | | | | | 5,418 | | | | 62,835 | |
Rohm Co., Ltd. | | | | | | | 1,300 | | | | 143,210 | |
Skyworks Solutions, Inc. | | | | | | | 1,324 | | | | 125,714 | |
STMicroelectronics NV | | | | | | | 12,251 | | | | 267,244 | |
SUMCO Corp. | | | | | | | 2,522 | | | | 64,025 | |
Texas Instruments, Inc. | | | | | | | 6,975 | | | | 728,469 | |
Tokyo Electron Ltd. | | | | | | | 1,689 | | | | 304,678 | |
Xilinx, Inc. | | | | | | | 1,735 | | | | 116,974 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 8,369,880 | |
| | | | | | | | | | | | |
SOFTWARE–1.8% | | | | | | | | | | | | |
Activision Blizzard, Inc. | | | | | | | 4,755 | | | | 301,087 | |
Adobe Systems, Inc.(a) | | | | | | | 3,460 | | | | 606,330 | |
ANSYS, Inc.(a) | | | | | | | 612 | | | | 90,325 | |
Autodesk, Inc.(a) | | | | | | | 1,375 | | | | 144,141 | |
CA, Inc. | | | | | | | 2,185 | | | | 72,717 | |
Cadence Design Systems, Inc.(a) | | | | | | | 2,014 | | | | 84,225 | |
Check Point Software Technologies Ltd.(a) | | | | | | | 1,405 | | | | 145,586 | |
Citrix Systems, Inc.(a) | | | | | | | 1,080 | | | | 95,040 | |
Dassault Systemes SE | | | | | | | 924 | | | | 98,110 | |
Electronic Arts, Inc.(a) | | | | | | | 2,085 | | | | 219,050 | |
Intuit, Inc. | | | | | | | 1,700 | | | | 268,226 | |
Konami Holdings Corp. | | | | | | | 1,300 | | | | 71,490 | |
LINE Corp.(a) | | | | | | | 33 | | | | 1,348 | |
| | | | | | | | | | | | |
Micro Focus International PLC | | | | | | | 4,754 | | | | 161,573 | |
Microsoft Corp. | | | | | | | 54,420 | | | | 4,655,087 | |
Nexon Co., Ltd.(a) | | | | | | | 2,595 | | | | 75,256 | |
Nice Ltd. | | | | | | | 596 | | | | 54,460 | |
Nintendo Co., Ltd. | | | | | | | 1,200 | | | | 432,116 | |
Oracle Corp. | | | | | | | 21,000 | | | | 992,880 | |
Oracle Corp. Japan | | | | | | | 500 | | | | 41,381 | |
Red Hat, Inc.(a) | | | | | | | 1,240 | | | | 148,924 | |
Sage Group PLC (The) | | | | | | | 12,240 | | | | 131,586 | |
salesforce.com, Inc.(a) | | | | | | | 4,484 | | | | 458,399 | |
SAP SE | | | | | | | 10,475 | | | | 1,171,893 | |
Symantec Corp. | | | | | | | 4,255 | | | | 119,395 | |
Synopsys, Inc.(a) | | | | | | | 1,072 | | | | 91,377 | |
Trend Micro, Inc./Japan | | | | | | | 1,600 | | | | 90,565 | |
Ubisoft Entertainment SA(a) | | | | | | | 804 | | | | 61,773 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,884,340 | |
| | | | | | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.3% | | | | | | | | | | | | |
Apple, Inc. | | | | | | | 37,125 | | | | 6,282,664 | |
Brother Industries Ltd. | | | | | | | 2,200 | | | | 54,075 | |
Canon, Inc. | | | | | | | 11,400 | | | | 424,742 | |
FUJIFILM Holdings Corp. | | | | | | | 4,200 | | | | 171,381 | |
Hewlett Packard Enterprise Co. | | | | | | | 11,560 | | | | 166,002 | |
HP, Inc. | | | | | | | 11,910 | | | | 250,229 | |
Konica Minolta, Inc. | | | | | | | 6,000 | | | | 57,569 | |
NEC Corp. | | | | | | | 2,500 | | | | 67,343 | |
NetApp, Inc. | | | | | | | 1,940 | | | | 107,321 | |
Ricoh Co., Ltd. | | | | | | | 6,000 | | | | 55,601 | |
Seagate Technology PLC(c) | | | | | | | 2,050 | | | | 85,772 | |
Seiko Epson Corp. | | | | | | | 2,700 | | | | 63,562 | |
Western Digital Corp. | | | | | | | 1,963 | | | | 156,117 | |
Xerox Corp. | | | | | | | 1,486 | | | | 43,317 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,985,695 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 48,591,185 | |
| | | | | | | | | | | | |
INDUSTRIALS–6.6% | |
AEROSPACE & DEFENSE–1.0% | | | | | | | | | | | | |
Airbus SE | | | | | | | 6,243 | | | | 620,471 | |
Arconic, Inc. | | | | | | | 2,756 | | | | 75,101 | |
BAE Systems PLC | | | | | | | 33,818 | | | | 261,289 | |
Boeing Co. (The) | | | | | | | 4,060 | | | | 1,197,335 | |
Cobham PLC(a) | | | | | | | 27,677 | | | | 47,196 | |
Dassault Aviation SA | | | | | | | 41 | | | | 63,750 | |
Elbit Systems Ltd. | | | | | | | 250 | | | | 33,396 | |
General Dynamics Corp. | | | | | | | 2,010 | | | | 408,935 | |
L3 Technologies, Inc. | | | | | | | 525 | | | | 103,871 | |
Leonardo SpA | | | | | | | 5,271 | | | | 62,636 | |
Lockheed Martin Corp. | | | | | | | 1,800 | | | | 577,890 | |
Meggitt PLC | | | | | | | 10,854 | | | | 70,479 | |
Northrop Grumman Corp. | | | | | | | 1,240 | | | | 380,568 | |
Raytheon Co. | | | | | | | 2,050 | | | | 385,093 | |
Rockwell Collins, Inc. | | | | | | | 900 | | | | 122,058 | |
11
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Rolls-Royce Holdings PLC(a) | | | | | | | 19,591 | | | $ | 223,588 | |
Safran SA | | | | | | | 3,586 | | | | 369,880 | |
Singapore Technologies Engineering Ltd. | | | | | | | 43,000 | | | | 104,614 | |
Textron, Inc. | | | | | | | 1,855 | | | | 104,974 | |
Thales SA | | | | | | | 694 | | | | 74,688 | |
TransDigm Group, Inc. | | | | | | | 363 | | | | 99,687 | |
United Technologies Corp. | | | | | | | 5,425 | | | | 692,067 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,079,566 | |
| | | | | | | | | | | | |
AIR FREIGHT & LOGISTICS–0.3% | | | | | | | | | | | | |
Bollore SA | | | | | | | 25,929 | | | | 140,659 | |
CH Robinson Worldwide, Inc. | | | | | | | 965 | | | | 85,972 | |
Deutsche Post AG (REG) | | | | | | | 9,235 | | | | 438,972 | |
Expeditors International of Washington, Inc. | | | | | | | 1,220 | | | | 78,922 | |
FedEx Corp. | | | | | | | 1,715 | | | | 427,961 | |
Kuehne & Nagel International AG (REG) | | | | | | | 477 | | | | 84,391 | |
Royal Mail PLC | | | | | | | 8,567 | | | | 52,341 | |
United Parcel Service, Inc.–Class B | | | | | | | 4,855 | | | | 578,473 | |
Yamato Holdings Co., Ltd. | | | | | | | 3,400 | | | | 68,256 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,955,947 | |
| | | | | | | | | | | | |
AIRLINES–0.2% | | | | | | | | | | | | |
Alaska Air Group, Inc. | | | | | | | 843 | | | | 61,969 | |
American Airlines Group, Inc. | | | | | | | 3,682 | | | | 191,574 | |
ANA Holdings, Inc. | | | | | | | 1,007 | | | | 42,008 | |
Delta Air Lines, Inc. | | | | | | | 5,202 | | | | 291,312 | |
Deutsche Lufthansa AG (REG) | | | | | | | 3,330 | | | | 122,290 | |
easyJet PLC | | | | | | | 2,320 | | | | 45,858 | |
International Consolidated Airlines Group SA | | | | | | | 10,420 | | | | 90,301 | |
Japan Airlines Co., Ltd. | | | | | | | 900 | | | | 35,163 | |
Singapore Airlines Ltd. | | | | | | | 14,000 | | | | 111,508 | |
Southwest Airlines Co. | | | | | | | 4,305 | | | | 281,762 | |
United Continental Holdings, Inc.(a) | | | | | | | 2,022 | | | | 136,283 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,410,028 | |
| | | | | | | | | | | | |
BUILDING PRODUCTS–0.3% | | | | | | | | | |
Allegion PLC | | | | | | | 635 | | | | 50,521 | |
AO Smith Corp. | | | | | | | 1,055 | | | | 64,650 | |
Asahi Glass Co., Ltd. | | | | | | | 2,000 | | | | 86,449 | |
Assa Abloy AB–Class B | | | | | | | 9,541 | | | | 197,799 | |
Cie de Saint-Gobain | | | | | | | 4,539 | | | | 249,809 | |
Daikin Industries Ltd. | | | | | | | 2,500 | | | | 295,407 | |
Fortune Brands Home & Security, Inc. | | | | | | | 1,071 | | | | 73,299 | |
Geberit AG (REG) | | | | | | | 360 | | | | 158,460 | |
Johnson Controls International PLC | | | | | | | 5,892 | | | | 224,544 | |
LIXIL Group Corp. | | | | | | | 2,500 | | | | 67,543 | |
| | | | | | | | | | | | |
Masco Corp. | | | | | | | 2,305 | | | | 101,282 | |
TOTO Ltd. | | | | | | | 1,522 | | | | 89,622 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,659,385 | |
| | | | | | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–0.2% | | | | | | | | | | | | |
Brambles Ltd. | | | | | | | 15,030 | | | | 117,791 | |
Cintas Corp. | | | | | | | 585 | | | | 91,161 | |
Dai Nippon Printing Co., Ltd. | | | | | | | 2,500 | | | | 55,658 | |
G4S PLC | | | | | | | 17,154 | | | | 61,739 | |
ISS A/S | | | | | | | 1,785 | | | | 69,106 | |
Park24 Co., Ltd. | | | | | | | 1,300 | | | | 31,121 | |
Republic Services, Inc.–Class A | | | | | | | 1,600 | | | | 108,176 | |
Secom Co., Ltd. | | | | | | | 2,000 | | | | 150,886 | |
Societe BIC SA | | | | | | | 891 | | | | 97,917 | |
Sohgo Security Services Co., Ltd. | | | | | | | 1,000 | | | | 54,351 | |
Stericycle, Inc.(a) | | | | | | | 610 | | | | 41,474 | |
Toppan Printing Co., Ltd. | | | | | | | 5,000 | | | | 45,166 | |
Waste Management, Inc. | | | | | | | 2,845 | | | | 245,523 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,170,069 | |
| | | | | | | | | | | | |
CONSTRUCTION & ENGINEERING–0.3% | | | | | | | | | | | | |
ACS Actividades de Construccion y Servicios SA | | | | | | | 2,540 | | | | 99,221 | |
Bouygues SA | | | | | | | 1,739 | | | | 90,233 | |
CIMIC Group Ltd. | | | | | | | 2,988 | | | | 119,506 | |
Eiffage SA | | | | | | | 1,102 | | | | 120,604 | |
Ferrovial SA | | | | | | | 4,609 | | | | 104,593 | |
Fluor Corp. | | | | | | | 965 | | | | 49,842 | |
HOCHTIEF AG | | | | | | | 422 | | | | 74,528 | |
Jacobs Engineering Group, Inc. | | | | | | | 815 | | | | 53,757 | |
JGC Corp. | | | | | | | 4,000 | | | | 77,278 | |
Kajima Corp. | | | | | | | 7,000 | | | | 67,255 | |
Obayashi Corp. | | | | | | | 6,000 | | | | 72,481 | |
Quanta Services, Inc.(a) | | | | | | | 1,015 | | | | 39,697 | |
Shimizu Corp. | | | | | | | 4,000 | | | | 41,256 | |
Skanska AB–Class B | | | | | | | 8,587 | | | | 177,929 | |
Taisei Corp. | | | | | | | 2,000 | | | | 99,462 | |
Vinci SA | | | | | | | 5,456 | | | | 557,012 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,844,654 | |
| | | | | | | | | | | | |
ELECTRICAL EQUIPMENT–0.5% | | | | | | | | | | | | |
ABB Ltd. (REG) | | | | | | | 20,970 | | | | 561,667 | |
Acuity Brands, Inc. | | | | | | | 323 | | | | 56,848 | |
AMETEK, Inc. | | | | | | | 1,599 | | | | 115,880 | |
Eaton Corp. PLC | | | | | | | 3,144 | | | | 248,407 | |
Emerson Electric Co. | | | | | | | 4,450 | | | | 310,121 | |
Fuji Electric Co., Ltd. | | | | | | | 14,000 | | | | 105,173 | |
Legrand SA | | | | | | | 2,541 | | | | 195,349 | |
Mabuchi Motor Co., Ltd. | | | | | | | 800 | | | | 43,244 | |
Mitsubishi Electric Corp. | | | | | | | 21,000 | | | | 348,024 | |
Nidec Corp. | | | | | | | 2,567 | | | | 359,424 | |
12
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
OSRAM Licht AG | | | | | | | 678 | | | $ | 60,710 | |
Prysmian SpA | | | | | | | 1,074 | | | | 34,996 | |
Rockwell Automation, Inc. | | | | | | | 930 | | | | 182,606 | |
Schneider Electric SE (Paris)(a) | | | | | | | 6,098 | | | | 516,991 | |
Siemens Gamesa Renewable Energy SA | | | | | | | 810 | | | | 11,092 | |
Vestas Wind Systems A/S | | | | | | | 2,133 | | | | 147,391 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,297,923 | |
| | | | | | | | | | | | |
INDUSTRIAL CONGLOMERATES–0.9% | | | | | | | | | | | | |
3M Co. | | | | | | | 4,255 | | | | 1,001,499 | |
CK Hutchison Holdings Ltd. | | | | | | | 25,840 | | | | 323,783 | |
DCC PLC | | | | | | | 843 | | | | 84,837 | |
General Electric Co. | | | | | | | 62,559 | | | | 1,091,654 | |
Honeywell International, Inc. | | | | | | | 5,305 | | | | 813,575 | |
Jardine Matheson Holdings Ltd. | | | | | | | 2,300 | | | | 139,547 | |
Jardine Strategic Holdings Ltd. | | | | | | | 2,005 | | | | 79,358 | |
Keihan Holdings Co., Ltd. | | | | | | | 1,000 | | | | 29,420 | |
Keppel Corp., Ltd. | | | | | | | 13,000 | | | | 71,139 | |
NWS Holdings Ltd. | | | | | | | 37,000 | | | | 66,632 | |
Roper Technologies, Inc. | | | | | | | 725 | | | | 187,775 | |
Seibu Holdings, Inc. | | | | | | | 3,142 | | | | 59,360 | |
Siemens AG (REG) | | | | | | | 8,153 | | | | 1,128,845 | |
Smiths Group PLC | | | | | | | 3,761 | | | | 75,481 | |
Toshiba Corp.(a) | | | | | | | 72,000 | | | | 202,565 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,355,470 | |
| | | | | | | | | | | | |
MACHINERY–1.3% | |
Alfa Laval AB | | | | | | | 3,778 | | | | 89,362 | |
Alstom SA | | | | | | | 3,502 | | | | 145,164 | |
Amada Holdings Co., Ltd. | | | | | | | 3,000 | | | | 40,731 | |
ANDRITZ AG | | | | | | | 693 | | | | 39,104 | |
Atlas Copco AB–Class A | | | | | | | 6,392 | | | | 275,853 | |
Atlas Copco AB–Class B | | | | | | | 3,579 | | | | 137,173 | |
Caterpillar, Inc. | | | | | | | 4,085 | | | | 643,714 | |
CNH Industrial NV | | | | | | | 22,634 | | | | 302,810 | |
Cummins, Inc. | | | | | | | 1,100 | | | | 194,304 | |
Daifuku Co., Ltd. | | | | | | | 1,030 | | | | 55,960 | |
Deere & Co. | | | | | | | 2,035 | | | | 318,498 | |
Dover Corp. | | | | | | | 1,085 | | | | 109,574 | |
FANUC Corp. | | | | | | | 2,100 | | | | 503,782 | |
Flowserve Corp. | | | | | | | 910 | | | | 38,338 | |
Fortive Corp. | | | | | | | 2,070 | | | | 149,764 | |
GEA Group AG | | | | | | | 1,741 | | | | 83,297 | |
Hino Motors Ltd. | | | | | | | 6,000 | | | | 77,498 | |
Hitachi Construction Machinery Co., Ltd. | | | | | | | 3,000 | | | | 108,725 | |
Hoshizaki Corp. | | | | | | | 400 | | | | 35,438 | |
IHI Corp. | | | | | | | 2,600 | | | | 86,233 | |
Illinois Tool Works, Inc. | | | | | | | 2,225 | | | | 371,241 | |
IMI PLC | | | | | | | 4,517 | | | | 81,295 | |
Ingersoll-Rand PLC | | | | | | | 1,805 | | | | 160,988 | |
JTEKT Corp. | | | | | | | 4,300 | | | | 73,677 | |
Kawasaki Heavy Industries Ltd. | | | | | | | 900 | | | | 31,486 | |
| | | | | | | | | | | | |
KION Group AG | | | | | | | 1,747 | | | | 150,384 | |
Komatsu Ltd. | | | | | | | 9,800 | | | | 354,169 | |
Kone Oyj–Class B | | | | | | | 3,593 | | | | 192,954 | |
Kubota Corp. | | | | | | | 10,000 | | | | 195,594 | |
Kurita Water Industries Ltd. | | | | | | | 1,200 | | | | 38,906 | |
Makita Corp. | | | | | | | 2,200 | | | | 92,262 | |
MAN SE | | | | | | | 1,273 | | | | 145,715 | |
Metso Oyj | | | | | | | 1,073 | | | | 36,606 | |
MINEBEA MITSUMI, Inc. | | | | | | | 4,131 | | | | 86,161 | |
Mitsubishi Heavy Industries Ltd. | | | | | | | 3,100 | | | | 115,581 | |
Nabtesco Corp. | | | | | | | 1,000 | | | | 38,212 | |
NGK Insulators Ltd. | | | | | | | 2,000 | | | | 37,674 | |
NSK Ltd. | | | | | | | 4,719 | | | | 73,933 | |
PACCAR, Inc. | | | | | | | 2,410 | | | | 171,303 | |
Parker-Hannifin Corp. | | | | | | | 945 | | | | 188,603 | |
Pentair PLC | | | | | | | 1,160 | | | | 81,919 | |
Sandvik AB | | | | | | | 12,165 | | | | 212,944 | |
Schindler Holding AG | | | | | | | 413 | | | | 94,986 | |
Schindler Holding AG (REG) | | | | | | | 575 | | | | 130,024 | |
SKF AB–Class B | | | | | | | 4,700 | | | | 104,414 | |
SMC Corp./Japan | | | | | | | 600 | | | | 246,230 | |
Snap-on, Inc. | | | | | | | 420 | | | | 73,206 | |
Stanley Black & Decker, Inc. | | | | | | | 1,065 | | | | 180,720 | |
Sumitomo Heavy Industries Ltd. | | | | | | | 1,200 | | | | 50,563 | |
THK Co., Ltd. | | | | | | | 1,531 | | | | 57,228 | |
Volvo AB–Class B | | | | | | | 14,676 | | | | 273,295 | |
Wartsila Oyj Abp | | | | | | | 1,408 | | | | 88,862 | |
Weir Group PLC (The) | | | | | | | 2,037 | | | | 58,388 | |
Xylem, Inc./NY | | | | | | | 1,235 | | | | 84,227 | |
Yangzijiang Shipbuilding Holdings Ltd. | | | | | | | 56,331 | | | | 61,768 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,870,840 | |
| | | | | | | | | | | | |
MARINE–0.1% | | | | | | | | | | | | |
AP Moller–Maersk A/S–Class A | | | | | | | 70 | | | | 116,622 | |
AP Moller–Maersk A/S–Class B | | | | | | | 68 | | | | 118,523 | |
Mitsui OSK Lines Ltd. | | | | | | | 1,200 | | | | 39,881 | |
Nippon Yusen KK(a) | | | | | | | 3,100 | | | | 75,428 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 350,454 | |
| | | | | | | | | | | | |
PROFESSIONAL SERVICES–0.4% | | | | | | | | | | | | |
Adecco Group AG (REG) | | | | | | | 1,673 | | | | 127,851 | |
Bureau Veritas SA | | | | | | | 3,094 | | | | 84,505 | |
Capita PLC | | | | | | | 6,326 | | | | 34,180 | |
Equifax, Inc. | | | | | | | 855 | | | | 100,822 | |
Experian PLC | | | | | | | 10,230 | | | | 225,497 | |
Intertek Group PLC | | | | | | | 1,536 | | | | 107,418 | |
Nielsen Holdings PLC | | | | | | | 2,316 | | | | 84,302 | |
Randstad Holding NV | | | | | | | 1,613 | | | | 98,972 | |
Recruit Holdings Co., Ltd. | | | | | | | 11,748 | | | | 291,702 | |
RELX NV | | | | | | | 15,125 | | | | 347,639 | |
RELX PLC | | | | | | | 11,663 | | | | 273,476 | |
13
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Robert Half International, Inc. | | | | | | | 885 | | | $ | 49,153 | |
SGS SA (REG) | | | | | | | 52 | | | | 135,566 | |
Verisk Analytics, Inc.–Class A(a) | | | | | | | 1,100 | | | | 105,600 | |
Wolters Kluwer NV | | | | | | | 5,568 | | | | 290,258 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,356,941 | |
| | | | | | | | | | | | |
ROAD & RAIL–0.5% | | | | | | | | | | | | |
Aurizon Holdings Ltd. | | | | | | | 22,082 | | | | 85,088 | |
Central Japan Railway Co. | | | | | | | 1,537 | | | | 275,062 | |
CSX Corp. | | | | | | | 6,560 | | | | 360,866 | |
DSV A/S | | | | | | | 1,630 | | | | 128,258 | |
East Japan Railway Co. | | | | | | | 3,600 | | | | 351,066 | |
Hankyu Hanshin Holdings, Inc. | | | | | | | 2,200 | | | | 88,370 | |
JB Hunt Transport Services, Inc. | | | | | | | 603 | | | | 69,333 | |
Kansas City Southern | | | | | | | 770 | | | | 81,019 | |
Keikyu Corp. | | | | | | | 2,000 | | | | 38,376 | |
Keio Corp. | | | | | | | 1,200 | | | | 52,709 | |
Keisei Electric Railway Co., Ltd. | | | | | | | 2,945 | | | | 94,555 | |
Kintetsu Group Holdings Co., Ltd. | | | | | | | 1,700 | | | | 65,059 | |
Kyushu Railway Co. | | | | | | | 1,722 | | | | 53,300 | |
MTR Corp., Ltd. | | | | | | | 15,500 | | | | 90,723 | |
Nagoya Railroad Co., Ltd. | | | | | | | 1,800 | | | | 45,330 | |
Nippon Express Co., Ltd. | | | | | | | 1,200 | | | | 79,689 | |
Norfolk Southern Corp. | | | | | | | 2,040 | | | | 295,596 | |
Odakyu Electric Railway Co., Ltd. | | | | | | | 3,000 | | | | 64,100 | |
Tobu Railway Co., Ltd. | | | | | | | 1,200 | | | | 38,728 | |
Tokyu Corp. | | | | | | | 5,000 | | | | 79,700 | |
Union Pacific Corp. | | | | | | | 5,800 | | | | 777,780 | |
West Japan Railway Co. | | | | | | | 1,568 | | | | 114,392 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,329,099 | |
| | | | | | | | | | | | |
TRADING COMPANIES & DISTRIBUTORS–0.4% | | | | | | | | | | | | |
AerCap Holdings NV(a) | | | | | | | 1,493 | | | | 78,547 | |
Ashtead Group PLC | | | | | | | 4,791 | | | | 128,502 | |
Brenntag AG | | | | | | | 1,471 | | | | 92,737 | |
Bunzl PLC | | | | | | | 3,191 | | | | 89,157 | |
Fastenal Co. | | | | | | | 1,980 | | | | 108,286 | |
Ferguson PLC | | | | | | | 3,100 | | | | 222,468 | |
ITOCHU Corp. | | | | | | | 16,000 | | | | 298,264 | |
Marubeni Corp. | | | | | | | 16,000 | | | | 115,675 | |
MISUMI Group, Inc. | | | | | | | 2,900 | | | | 84,193 | |
Mitsubishi Corp. | | | | | | | 16,100 | | | | 443,938 | |
Mitsui & Co., Ltd. | | | | | | | 18,200 | | | | 295,266 | |
Sumitomo Corp. | | | | | | | 11,300 | | | | 191,668 | |
Toyota Tsusho Corp. | | | | | | | 2,300 | | | | 92,398 | |
Travis Perkins PLC | | | | | | | 2,972 | | | | 62,878 | |
United Rentals, Inc.(a) | | | | | | | 600 | | | | 103,146 | |
WW Grainger, Inc. | | | | | | | 380 | | | | 89,775 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,496,898 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
TRANSPORTATION INFRASTRUCTURE–0.2% | | | | | | | | | | | | |
Abertis Infraestructuras SA | | | | | | | 6,861 | | | | 152,655 | |
Aena SME SA(b) | | | | | | | 780 | | | | 157,856 | |
Aeroports de Paris | | | | | | | 1,000 | | | | 190,149 | |
Atlantia SpA | | | | | | | 176 | | | | 5,549 | |
Auckland International Airport Ltd. | | | | | | | 10,521 | | | | 48,294 | |
Getlink SE (REG) | | | | | | | 6,892 | | | | 88,647 | |
Hutchison Port Holdings Trust–Class U | | | | | | | 43,553 | | | | 18,030 | |
Kamigumi Co., Ltd. | | | | | | | 1,500 | | | | 33,149 | |
Sydney Airport | | | | | | | 8,828 | | | | 48,440 | |
Transurban Group | | | | | | | 20,948 | | | | 202,736 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 945,505 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 40,122,779 | |
| | | | | | | | | | | | |
CONSUMER DISCRETIONARY–6.6% | | | | | | | | | |
AUTO COMPONENTS–0.4% | | | | | | | | | | | | |
Aisin Seiki Co., Ltd. | | | | | | | 1,800 | | | | 100,841 | |
Aptiv PLC | | | | | | | 1,891 | | | | 160,414 | |
BorgWarner, Inc. | | | | | | | 1,380 | | | | 70,504 | |
Bridgestone Corp. | | | | | | | 6,900 | | | | 319,347 | |
Cie Generale des Etablissements Michelin–Class B | | | | | | | 1,732 | | | | 247,771 | |
Continental AG | | | | | | | 1,047 | | | | 281,517 | |
Denso Corp. | | | | | | | 5,200 | | | | 311,526 | |
Faurecia | | | | | | | 1,635 | | | | 127,424 | |
GKN PLC | | | | | | | 16,316 | | | | 70,164 | |
Goodyear Tire & Rubber Co. (The) | | | | | | | 1,810 | | | | 58,481 | |
Koito Manufacturing Co., Ltd. | | | | | | | 1,000 | | | | 70,013 | |
NGK Spark Plug Co., Ltd. | | | | | | | 3,000 | | | | 72,712 | |
NOK Corp. | | | | | | | 2,800 | | | | 65,157 | |
Nokian Renkaat Oyj | | | | | | | 1,090 | | | | 49,436 | |
Stanley Electric Co., Ltd. | | | | | | | 1,600 | | | | 64,740 | |
Sumitomo Electric Industries Ltd. | | | | | | | 7,200 | | | | 121,373 | |
Sumitomo Rubber Industries Ltd. | | | | | | | 4,100 | | | | 75,986 | |
Toyota Industries Corp. | | | | | | | 1,600 | | | | 102,558 | |
Valeo SA | | | | | | | 2,277 | | | | 169,616 | |
Yokohama Rubber Co., Ltd. (The) | | | | | | | 1,000 | | | | 24,426 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,564,006 | |
| | | | | | | | | | | | |
AUTOMOBILES–1.1% | | | | | | | | | | | | |
Bayerische Motoren Werke AG | | | | | | | 3,152 | | | | 326,806 | |
Daimler AG (REG) | | | | | | | 10,262 | | | | 867,759 | |
Ferrari NV | | | | | | | 1,527 | | | | 159,999 | |
Fiat Chrysler Automobiles NV(a) | | | | | | | 14,140 | | | | 252,446 | |
Ford Motor Co. | | | | | | | 27,220 | | | | 339,978 | |
General Motors Co. | | | | | | | 9,916 | | | | 406,457 | |
14
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Harley-Davidson, Inc.(c) | | | | | | | 1,250 | | | $ | 63,600 | |
Honda Motor Co., Ltd. | | | | | | | 18,521 | | | | 632,075 | |
Isuzu Motors Ltd. | | | | | | | 5,500 | | | | 91,835 | |
Mazda Motor Corp. | | | | | | | 5,200 | | | | 69,489 | |
Mitsubishi Motors Corp. | | | | | | | 11,400 | | | | 82,013 | |
Nissan Motor Co., Ltd. | | | | | | | 26,300 | | | | 261,845 | |
Peugeot SA | | | | | | | 7,475 | | | | 151,826 | |
Porsche Automobil Holding SE (Preference Shares) | | | | | | | 1,458 | | | | 121,845 | |
Renault SA | | | | | | | 1,830 | | | | 183,692 | |
Subaru Corp. | | | | | | | 6,000 | | | | 190,247 | |
Suzuki Motor Corp. | | | | | | | 3,500 | | | | 202,593 | |
Toyota Motor Corp. | | | | | | | 28,500 | | | | 1,816,304 | |
Volkswagen AG | | | | | | | 630 | | | | 127,140 | |
Volkswagen AG (Preference Shares) | | | | | | | 1,767 | | | | 350,984 | |
Yamaha Motor Co., Ltd. | | | | | | | 2,700 | | | | 88,447 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,787,380 | |
| | | | | | | | | | | | |
DISTRIBUTORS–0.0% | | | | | | | | | | | | |
Genuine Parts Co. | | | | | | | 1,060 | | | | 100,711 | |
Jardine Cycle & Carriage Ltd. | | | | | | | 2,000 | | | | 60,709 | |
LKQ Corp.(a) | | | | | | | 2,114 | | | | 85,976 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 247,396 | |
| | | | | | | | | | | | |
DIVERSIFIED CONSUMER SERVICES–0.0% | | | | | | | | | | | | |
Benesse Holdings, Inc. | | | | | | | 300 | | | | 10,555 | |
H&R Block, Inc. | | | | | | | 1,520 | | | | 39,855 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 50,410 | |
| | | | | | | | | | | | |
HOTELS, RESTAURANTS & LEISURE–0.9% | | | | | | | | | | | | |
Accor SA | | | | | | | 2,705 | | | | 139,253 | |
Aristocrat Leisure Ltd. | | | | | | | 4,876 | | | | 89,788 | |
Carnival Corp. | | | | | | | 2,985 | | | | 198,114 | |
Carnival PLC | | | | | | | 2,273 | | | | 149,553 | |
Chipotle Mexican Grill, Inc.–Class A(a) | | | | | | | 244 | | | | 70,523 | |
Compass Group PLC | | | | | | | 16,836 | | | | 363,021 | |
Crown Resorts Ltd. | | | | | | | 9,430 | | | | 95,586 | |
Darden Restaurants, Inc. | | | | | | | 870 | | | | 83,537 | |
Domino’s Pizza Enterprises Ltd. | | | | | | | 823 | | | | 29,913 | |
Galaxy Entertainment Group Ltd. | | | | | | | 20,155 | | | | 160,913 | |
Genting Singapore PLC | | | | | | | 92,000 | | | | 89,851 | |
Hilton Worldwide Holdings, Inc. | | | | | | | 1,466 | | | | 117,075 | |
InterContinental Hotels Group PLC | | | | | | | 2,053 | | | | 130,581 | |
Marriott International, Inc./MD–Class A | | | | | | | 2,231 | | | | 302,814 | |
McDonald’s Corp. | | | | | | | 5,980 | | | | 1,029,278 | |
McDonald’s Holdings Co. Japan Ltd. | | | | | | | 2,200 | | | | 96,677 | |
Melco Resorts & Entertainment Ltd. (ADR) | | | | | | | 2,651 | | | | 76,985 | |
| | | | | | | | | | | | |
Merlin Entertainments PLC(b) | | | | | | | 2,417 | | | | 11,841 | |
MGM Resorts International | | | | | | | 3,460 | | | | 115,529 | |
Norwegian Cruise Line Holdings Ltd.(a) | | | | | | | 1,281 | | | | 68,213 | |
Oriental Land Co., Ltd./Japan | | | | | | | 2,100 | | | | 191,057 | |
Paddy Power Betfair PLC | | | | | | | 1,060 | | | | 126,167 | |
Royal Caribbean Cruises Ltd. | | | | | | | 1,177 | | | | 140,393 | |
Sands China Ltd. | | | | | | | 39,744 | | | | 204,572 | |
Sodexo SA | | | | | | | 1,005 | | | | 134,729 | |
Starbucks Corp. | | | | | | | 10,220 | | | | 586,935 | |
Tabcorp Holdings Ltd. | | | | | | | 12,097 | | | | 52,483 | |
TUI AG | | | | | | | 6,938 | | | | 143,736 | |
Whitbread PLC | | | | | | | 1,737 | | | | 93,808 | |
Wyndham Worldwide Corp. | | | | | | | 750 | | | | 86,903 | |
Wynn Macau Ltd. | | | | | | | 77,455 | | | | 244,872 | |
Wynn Resorts Ltd. | | | | | | | 560 | | | | 94,410 | |
Yum! Brands, Inc. | | | | | | | 2,545 | | | | 207,697 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,726,807 | |
| | | | | | | | | | | | |
HOUSEHOLD DURABLES–0.5% | | | | | | | | | | | | |
Auto Trader Group PLC(b) | | | | | | | 9,529 | | | | 45,390 | |
Barratt Developments PLC | | | | | | | 9,541 | | | | 83,231 | |
Berkeley Group Holdings PLC | | | | | | | 1,236 | | | | 70,039 | |
Casio Computer Co., Ltd. | | | | | | | 2,100 | | | | 30,134 | |
DR Horton, Inc. | | | | | | | 2,355 | | | | 120,270 | |
Electrolux AB–Class B | | | | | | | 2,430 | | | | 78,235 | |
Garmin Ltd. | | | | | | | 770 | | | | 45,869 | |
Husqvarna AB–Class B | | | | | | | 8,194 | | | | 77,962 | |
Iida Group Holdings Co., Ltd. | | | | | | | 1,346 | | | | 25,335 | |
Leggett & Platt, Inc. | | | | | | | 925 | | | | 44,150 | |
Lennar Corp.–Class A | | | | | | | 1,300 | | | | 82,212 | |
Mohawk Industries, Inc.(a) | | | | | | | 450 | | | | 124,155 | |
Newell Brands, Inc. | | | | | | | 3,355 | | | | 103,669 | |
Nikon Corp. | | | | | | | 3,200 | | | | 64,394 | |
Panasonic Corp. | | | | | | | 23,500 | | | | 342,957 | |
Persimmon PLC | | | | | | | 3,527 | | | | 130,383 | |
PulteGroup, Inc. | | | | | | | 2,135 | | | | 70,989 | |
Rinnai Corp. | | | | | | | 700 | | | | 63,333 | |
SEB SA | | | | | | | 568 | | | | 105,143 | |
Sekisui Chemical Co., Ltd. | | | | | | | 4,000 | | | | 80,081 | |
Sekisui House Ltd. | | | | | | | 6,000 | | | | 108,232 | |
Sharp Corp./Japan(a) | | | | | | | 1,500 | | | | 51,343 | |
Sony Corp. | | | | | | | 13,500 | | | | 605,918 | |
Taylor Wimpey PLC | | | | | | | 31,025 | | | | 86,458 | |
Techtronic Industries Co., Ltd. | | | | | | | 13,454 | | | | 87,524 | |
Whirlpool Corp. | | | | | | | 550 | | | | 92,752 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,820,158 | |
| | | | | | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–0.8% | | | | | | | | | | | | |
Amazon.com, Inc.(a) | | | | | | | 2,762 | | | | 3,230,076 | |
Expedia, Inc. | | | | | | | 832 | | | | 99,649 | |
Netflix, Inc.(a) | | | | | | | 2,982 | | | | 572,425 | |
15
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Priceline Group, Inc. (The)(a) | | | | | | | 347 | | | $ | 602,996 | |
Rakuten, Inc. | | | | | | | 8,852 | | | | 80,913 | |
Start Today Co., Ltd. | | | | | | | 2,592 | | | | 78,675 | |
TripAdvisor, Inc.(a) | | | | | | | 762 | | | | 26,258 | |
Zalando SE(a) (b) | | | | | | | 2,021 | | | | 106,563 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,797,555 | |
| | | | | | | | | | | | |
LEISURE PRODUCTS–0.1% | | | | | | | | | | | | |
Bandai Namco Holdings, Inc. | | | | | | | 1,900 | | | | 62,015 | |
Hasbro, Inc. | | | | | | | 800 | | | | 72,712 | |
Mattel, Inc.(c) | | | | | | | 2,335 | | | | 35,912 | |
Sankyo Co., Ltd. | | | | | | | 300 | | | | 9,434 | |
Shimano, Inc. | | | | | | | 700 | | | | 98,391 | |
Yamaha Corp. | | | | | | | 1,600 | | | | 59,019 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 337,483 | |
| | | | | | | | | | | | |
MEDIA–1.0% | | | | | | | | | | | | |
Altice NV–Class A(a) | | | | | | | 3,528 | | | | 36,996 | |
Axel Springer SE | | | | | | | 2,191 | | | | 170,855 | |
CBS Corp.–Class B | | | | | | | 2,840 | | | | 167,560 | |
Charter Communications, Inc.–Class A(a) | | | | | | | 1,523 | | | | 511,667 | |
Comcast Corp.–Class A | | | | | | | 33,502 | | | | 1,341,755 | |
Dentsu, Inc. | | | | | | | 2,100 | | | | 88,799 | |
Discovery Communications, Inc.–Class A(a)(c) | | | | | | | 1,045 | | | | 23,387 | |
Discovery Communications, Inc.–Class C(a) | | | | | | | 1,545 | | | | 32,708 | |
DISH Network Corp.–Class A(a) | | | | | | | 1,475 | | | | 70,431 | |
Eutelsat Communications SA | | | | | | | 3,140 | | | | 72,699 | |
Hakuhodo DY Holdings, Inc. | | | | | | | 2,490 | | | | 32,278 | |
Interpublic Group of Cos., Inc. (The) | | | | | | | 2,795 | | | | 56,347 | |
ITV PLC | | | | | | | 34,542 | | | | 77,184 | |
JCDecaux SA | | | | | | | 189 | | | | 7,602 | |
Lagardere SCA | | | | | | | 352 | | | | 11,272 | |
News Corp.–Class A | | | | | | | 2,658 | | | | 43,086 | |
News Corp.–Class B | | | | | | | 817 | | | | 13,562 | |
Omnicom Group, Inc. | | | | | | | 1,660 | | | | 120,898 | |
Pearson PLC | | | | | | | 7,821 | | | | 77,475 | |
Publicis Groupe SA | | | | | | | 1,801 | | | | 122,085 | |
RTL Group SA (London)(a) | | | | | | | 1,166 | | | | 93,478 | |
Schibsted ASA–Class B | | | | | | | 2,252 | | | | 59,861 | |
Scripps Networks Interactive, Inc.–Class A | | | | | | | 670 | | | | 57,205 | |
SES SA | | | | | | | 4,651 | | | | 72,602 | |
Sky PLC(a) | | | | | | | 13,314 | | | | 181,700 | |
Telenet Group Holding NV(a) | | | | | | | 454 | | | | 31,629 | |
Time Warner, Inc. | | | | | | | 5,445 | | | | 498,054 | |
Toho Co., Ltd./Tokyo | | | | | | | 1,000 | | | | 34,615 | |
Twenty-First Century Fox, Inc.–Class A | | | | | | | 7,421 | | | | 256,247 | |
Twenty-First Century Fox, Inc.–Class B | | | | | | | 3,367 | | | | 114,882 | |
Viacom, Inc.–Class B | | | | | | | 2,410 | | | | 74,252 | |
Vivendi SA | | | | | | | 11,072 | | | | 297,167 | |
Walt Disney Co. (The) | | | | | | | 11,094 | | | | 1,192,716 | |
| | | | | | | | | | | | |
WPP PLC | | | | | | | 13,761 | | | | 248,603 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,291,657 | |
| | | | | | | | | | | | |
MULTILINE RETAIL–0.2% | |
Dollar General Corp. | | | | | | | 1,820 | | | | 169,278 | |
Dollar Tree, Inc.(a) | | | | | | | 1,638 | | | | 175,774 | |
Don Quijote Holdings Co., Ltd. | | | | | | | 1,000 | | | | 52,130 | |
Isetan Mitsukoshi Holdings Ltd. | | | | | | | 2,200 | | | | 27,225 | |
J Front Retailing Co., Ltd. | | | | | | | 3,500 | | | | 65,772 | |
Kohl’s Corp. | | | | | | | 1,230 | | | | 66,703 | |
Macy’s, Inc. | | | | | | | 2,105 | | | | 53,025 | |
Marks & Spencer Group PLC | | | | | | | 15,442 | | | | 65,515 | |
Marui Group Co., Ltd. | | | | | | | 3,300 | | | | 60,324 | |
Next PLC | | | | | | | 1,363 | | | | 83,074 | |
Nordstrom, Inc. | | | | | | | 770 | | | | 36,483 | |
Ryohin Keikaku Co., Ltd. | | | | | | | 257 | | | | 80,001 | |
Target Corp. | | | | | | | 4,025 | | | | 262,631 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,197,935 | |
| | | | | | | | | | | | |
SPECIALTY RETAIL–0.9% | |
ABC-Mart, Inc. | | | | | | | 500 | | | | 28,659 | |
Advance Auto Parts, Inc. | | | | | | | 531 | | | | 52,935 | |
AutoZone, Inc.(a) | | | | | | | 225 | | | | 160,058 | |
Best Buy Co., Inc. | | | | | | | 1,900 | | | | 130,093 | |
CarMax, Inc.(a) | | | | | | | 1,320 | | | | 84,652 | |
Fast Retailing Co., Ltd. | | | | | | | 500 | | | | 198,807 | |
Foot Locker, Inc. | | | | | | | 942 | | | | 44,161 | |
Gap, Inc. (The) | | | | | | | 1,505 | | | | 51,260 | |
Hennes & Mauritz AB–Class B | | | | | | | 9,038 | | | | 186,941 | |
Hikari Tsushin, Inc. | | | | | | | 500 | | | | 71,787 | |
Home Depot, Inc. (The) | | | | | | | 8,630 | | | | 1,635,644 | |
Industria de Diseno Textil SA | | | | | | | 11,626 | | | | 404,256 | |
Kingfisher PLC | | | | | | | 29,522 | | | | 134,604 | |
L Brands, Inc. | | | | | | | 1,685 | | | | 101,471 | |
Lowe’s Cos., Inc. | | | | | | | 6,090 | | | | 566,005 | |
Nitori Holdings Co., Ltd. | | | | | | | 750 | | | | 106,743 | |
O’Reilly Automotive, Inc.(a) | | | | | | | 690 | | | | 165,973 | |
Ross Stores, Inc. | | | | | | | 2,750 | | | | 220,688 | |
Shimamura Co., Ltd. | | | | | | | 200 | | | | 21,972 | |
Signet Jewelers Ltd.(c) | | | | | | | 508 | | | | 28,727 | |
Tiffany & Co. | | | | | | | 755 | | | | 78,482 | |
TJX Cos., Inc. (The) | | | | | | | 4,570 | | | | 349,422 | |
Tractor Supply Co. | | | | | | | 915 | | | | 68,396 | |
Ulta Salon Cosmetics & Fragrance, Inc.(a) | | | | | | | 402 | | | | 89,911 | |
USS Co., Ltd. | | | | | | | 4,120 | | | | 87,125 | |
Yamada Denki Co., Ltd. | | | | | | | 10,990 | | | | 60,525 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,129,297 | |
| | | | | | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–0.7% | | | | | | | | | | | | |
adidas AG | | | | | | | 2,040 | | | | 407,979 | |
Burberry Group PLC | | | | | | | 4,236 | | | | 102,129 | |
Cie Financiere Richemont SA (REG) | | | | | | | 5,585 | | | | 505,821 | |
16
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Hanesbrands, Inc.(c) | | | | | | | 2,627 | | | $ | 54,931 | |
Hermes International | | | | | | | 281 | | | | 150,327 | |
HUGO BOSS AG | | | | | | | 1,317 | | | | 111,758 | |
Kering | | | | | | | 721 | | | | 339,394 | |
Li & Fung Ltd. | | | | | | | 48,000 | | | | 26,302 | |
Luxottica Group SpA | | | | | | | 1,559 | | | | 95,680 | |
LVMH Moet Hennessy Louis Vuitton SE | | | | | | | 2,973 | | | | 872,591 | |
Michael Kors Holdings Ltd.(a) | | | | | | | 1,159 | | | | 72,959 | |
NIKE, Inc.–Class B | | | | | | | 9,420 | | | | 589,221 | |
Pandora A/S | | | | | | | 1,106 | | | | 120,221 | |
PVH Corp. | | | | | | | 545 | | | | 74,780 | |
Ralph Lauren Corp. | | | | | | | 390 | | | | 40,439 | |
Swatch Group AG (The) | | | | | | | 294 | | | | 119,710 | |
Swatch Group AG (The) (REG) | | | | | | | 1,834 | | | | 139,885 | |
Tapestry, Inc. | | | | | | | 1,930 | | | | 85,364 | |
Under Armour, Inc.–
Class A(a)(c) | | | | | | | 1,247 | | | | 17,994 | |
Under Armour, Inc.–
Class C(a)(c) | | | | | | | 1,254 | | | | 16,703 | |
VF Corp. | | | | | | | 2,310 | | | | 170,940 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,115,128 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 40,065,212 | |
| | | | | | | | | | | | |
HEALTH CARE–6.3% | | | | | | | | | | | | |
BIOTECHNOLOGY–0.9% | | | | | | | | | |
AbbVie, Inc. | | | | | | | 11,366 | | | | 1,099,206 | |
Alexion Pharmaceuticals, Inc.(a) | | | | | | | 1,580 | | | | 188,952 | |
Amgen, Inc. | | | | | | | 5,253 | | | | 913,497 | |
Biogen, Inc.(a) | | | | | | | 1,565 | | | | 498,562 | |
Celgene Corp.(a) | | | | | | | 5,430 | | | | 566,675 | |
CSL Ltd. | | | | | | | 4,876 | | | | 535,842 | |
Genmab A/S(a) | | | | | | | 540 | | | | 89,555 | |
Gilead Sciences, Inc. | | | | | | | 9,215 | | | | 660,163 | |
Grifols SA | | | | | | | 2,839 | | | | 83,009 | |
Incyte Corp.(a) | | | | | | | 1,240 | | | | 117,440 | |
Regeneron Pharmaceuticals, Inc.(a) | | | | | | | 540 | | | | 203,018 | |
Vertex Pharmaceuticals, Inc.(a) | | | | | | | 1,707 | | | | 255,811 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,211,730 | |
| | | | | | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–1.0% | | | | | | | | | | | | |
Abbott Laboratories | | | | | | | 11,976 | | | | 683,470 | |
Align Technology, Inc.(a) | | | | | | | 540 | | | | 119,983 | |
Baxter International, Inc. | | | | | | | 3,380 | | | | 218,483 | |
Becton Dickinson and Co. | | | | | | | 1,748 | | | | 374,277 | |
Boston Scientific Corp.(a) | | | | | | | 9,460 | | | | 234,513 | |
Cochlear Ltd. | | | | | | | 405 | | | | 53,988 | |
Coloplast A/S–Class B | | | | | | | 1,154 | | | | 91,744 | |
ConvaTec Group PLC(b) | | | | | | | 12,601 | | | | 34,745 | |
Cooper Cos., Inc. (The) | | | | | | | 361 | | | | 78,655 | |
CYBERDYNE, Inc.(a) | | | | | | | 3,189 | | | | 54,822 | |
Danaher Corp. | | | | | | | 4,240 | | | | 393,557 | |
| | | | | | | | | | | | |
DENTSPLY SIRONA, Inc. | | | | | | | 1,596 | | | | 105,065 | |
Edwards Lifesciences Corp.(a) | | | | | | | 1,490 | | | | 167,938 | |
Essilor International Cie Generale d’Optique SA | | | | | | | 2,369 | | | | 326,309 | |
Fisher & Paykel Healthcare Corp., Ltd. | | | | | | | 6,133 | | | | 62,223 | |
Getinge AB–Class B | | | | | | | 2,013 | | | | 29,190 | |
Hologic, Inc.(a) | | | | | | | 1,920 | | | | 82,080 | |
Hoya Corp. | | | | | | | 3,900 | | | | 194,232 | |
IDEXX Laboratories, Inc.(a) | | | | | | | 633 | | | | 98,988 | |
Intuitive Surgical, Inc.(a) | | | | | | | 915 | | | | 333,920 | |
Koninklijke Philips NV | | | | | | | 7,299 | | | | 275,600 | |
Medtronic PLC | | | | | | | 9,659 | | | | 779,964 | |
Olympus Corp. | | | | | | | 2,800 | | | | 107,114 | |
ResMed, Inc. | | | | | | | 1,016 | | | | 86,045 | |
Smith & Nephew PLC | | | | | | | 9,779 | | | | 169,207 | |
Sonova Holding AG (REG) | | | | | | | 666 | | | | 104,023 | |
Straumann Holding AG | | | | | | | 67 | | | | 47,265 | |
Stryker Corp. | | | | | | | 2,175 | | | | 336,777 | |
Sysmex Corp. | | | | | | | 1,500 | | | | 117,781 | |
Terumo Corp. | | | | | | | 3,300 | | | | 156,122 | |
Varian Medical Systems, Inc.(a) | | | | | | | 645 | | | | 71,692 | |
William Demant Holding A/S(a) | | | | | | | 2,050 | | | | 57,261 | |
Zimmer Biomet Holdings, Inc. | | | | | | | 1,385 | | | | 167,128 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,214,161 | |
| | | | | | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–0.9% | | | | | | | | | | | | |
Aetna, Inc. | | | | | | | 2,467 | | | | 445,022 | |
Alfresa Holdings Corp. | | | | | | | 2,700 | | | | 63,241 | |
AmerisourceBergen Corp.–Class A | | | | | | | 1,235 | | | | 113,398 | |
Anthem, Inc. | | | | | | | 1,850 | | | | 416,268 | |
Cardinal Health, Inc. | | | | | | | 2,195 | | | | 134,488 | |
Centene Corp.(a) | | | | | | | 1,187 | | | | 119,745 | |
Cigna Corp. | | | | | | | 1,815 | | | | 368,608 | |
DaVita, Inc.(a) | | | | | | | 1,150 | | | | 83,087 | |
Envision Healthcare Corp.(a) | | | | | | | 823 | | | | 28,443 | |
Express Scripts Holding Co.(a) | | | | | | | 4,389 | | | | 327,595 | |
Fresenius Medical Care AG & Co. KGaA | | | | | | | 2,085 | | | | 218,945 | |
Fresenius SE & Co. KGaA | | | | | | | 4,696 | | | | 365,216 | |
HCA Healthcare, Inc.(a) | | | | | | | 2,050 | | | | 180,072 | |
Healthscope Ltd. | | | | | | | 34,249 | | | | 55,985 | |
Henry Schein, Inc.(a) | | | | | | | 1,140 | | | | 79,663 | |
Humana, Inc. | | | | | | | 1,065 | | | | 264,195 | |
Laboratory Corp. of America Holdings(a) | | | | | | | 725 | | | | 115,645 | |
McKesson Corp. | | | | | | | 1,565 | | | | 244,062 | |
Mediclinic International PLC | | | | | | | 1,862 | | | | 16,328 | |
Medipal Holdings Corp. | | | | | | | 3,900 | | | | 76,142 | |
Patterson Cos., Inc. | | | | | | | 560 | | | | 20,233 | |
Quest Diagnostics, Inc. | | | | | | | 950 | | | | 93,565 | |
Ramsay Health Care Ltd. | | | | | | | 1,156 | | | | 63,125 | |
17
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Ryman Healthcare Ltd. | | | | | | | 5,937 | | | $ | 44,503 | |
Sonic Healthcare Ltd. | | | | | | | 5,598 | | | | 99,552 | |
Suzuken Co., Ltd./Aichi Japan | | | | | | | 1,200 | | | | 49,268 | |
UnitedHealth Group, Inc. | | | | | | | 6,635 | | | | 1,462,752 | |
Universal Health Services, Inc.–Class B | | | | | | | 650 | | | | 73,677 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,622,823 | |
| | | | | | | | | | | | |
HEALTH CARE TECHNOLOGY–0.0% | | | | | | | | | | | | |
Cerner Corp.(a) | | | | | | | 2,080 | | | | 140,171 | |
M3, Inc. | | | | | | | 2,070 | | | | 72,562 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 212,733 | |
| | | | | | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–0.3% | | | | | | | | | | | | |
Agilent Technologies, Inc. | | | | | | | 2,245 | | | | 150,348 | |
Illumina, Inc.(a) | | | | | | | 1,011 | | | | 220,893 | |
IQVIA Holdings, Inc.(a) | | | | | | | 896 | | | | 87,718 | |
Lonza Group AG (REG)(a) | | | | | | | 779 | | | | 210,101 | |
Mettler-Toledo International, Inc.(a) | | | | | | | 220 | | | | 136,294 | |
PerkinElmer, Inc. | | | | | | | 755 | | | | 55,206 | |
QIAGEN NV(a) | | | | | | | 2,703 | | | | 84,308 | |
Thermo Fisher Scientific, Inc. | | | | | | | 2,785 | | | | 528,816 | |
Waters Corp.(a) | | | | | | | 545 | | | | 105,289 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,578,973 | |
| | | | | | | | | | | | |
PHARMACEUTICALS–3.2% | | | | | | | | | |
Allergan PLC | | | | | | | 2,400 | | | | 392,592 | |
Astellas Pharma, Inc. | | | | | | | 22,500 | | | | 285,824 | |
AstraZeneca PLC | | | | | | | 13,478 | | | | 930,058 | |
Bayer AG (REG) | | | | | | | 8,814 | | | | 1,095,255 | |
Bristol-Myers Squibb Co. | | | | | | | 11,665 | | | | 714,831 | |
Chugai Pharmaceutical Co., Ltd. | | | | | | | 2,100 | | | | 107,328 | |
Daiichi Sankyo Co., Ltd. | | | | | | | 5,700 | | | | 148,212 | |
Eisai Co., Ltd. | | | | | | | 2,933 | | | | 166,622 | |
Eli Lilly & Co. | | | | | | | 6,765 | | | | 571,372 | |
GlaxoSmithKline PLC | | | | | | | 52,848 | | | | 935,896 | |
Hisamitsu Pharmaceutical Co., Inc. | | | | | | | 1,000 | | | | 60,415 | |
Ipsen SA | | | | | | | 880 | | | | 104,739 | |
Johnson & Johnson | | | | | | | 19,105 | | | | 2,669,351 | |
Kyowa Hakko Kirin Co., Ltd. | | | | | | | 2,152 | | | | 41,429 | |
Merck & Co., Inc. | | | | | | | 19,305 | | | | 1,086,292 | |
Merck KGaA | | | | | | | 1,230 | | | | 132,024 | |
Mitsubishi Tanabe Pharma Corp. | | | | | | | 3,000 | | | | 61,830 | |
Mylan NV(a) | | | | | | | 2,555 | | | | 108,102 | |
Novartis AG (REG) | | | | | | | 23,800 | | | | 2,002,828 | |
Novo Nordisk A/S–Class B | | | | | | | 20,377 | | | | 1,094,968 | |
Ono Pharmaceutical Co., Ltd. | | | | | | | 3,900 | | | | 90,721 | |
Orion Oyj–Class B | | | | | | | 974 | | | | 36,316 | |
Otsuka Holdings Co., Ltd. | | | | | | | 3,717 | | | | 163,017 | |
Perrigo Co. PLC | | | | | | | 1,022 | | | | 89,077 | |
| | | | | | | | | | | | |
Pfizer, Inc. | | | | | | | 42,336 | | | | 1,533,410 | |
Recordati SpA | | | | | | | 2,055 | | | | 91,323 | |
Roche Holding AG | | | | | | | 7,488 | | | | 1,893,380 | |
Sanofi | | | | | | | 12,344 | | | | 1,062,719 | |
Santen Pharmaceutical Co., Ltd. | | | | | | | 2,500 | | | | 39,151 | |
Shionogi & Co., Ltd. | | | | | | | 2,800 | | | | 151,298 | |
Shire PLC | | | | | | | 9,881 | | | | 512,045 | |
Sumitomo Dainippon Pharma Co., Ltd. | | | | | | | 2,900 | | | | 42,929 | |
Taisho Pharmaceutical Holdings Co., Ltd. | | | | | | | 567 | | | | 45,163 | |
Takeda Pharmaceutical Co., Ltd. | | | | | | | 7,600 | | | | 430,294 | |
Teva Pharmaceutical Industries Ltd. (Sponsored ADR) | | | | | | | 9,693 | | | | 183,682 | |
UCB SA | | | | | | | 1,203 | | | | 95,389 | |
Vifor Pharma AG | | | | | | | 802 | | | | 102,672 | |
Zoetis, Inc. | | | | | | | 3,446 | | | | 248,250 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 19,520,804 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 38,361,224 | |
| | | | | | | | | | | | |
CONSUMER STAPLES–5.2% | |
BEVERAGES–1.1% | |
Anheuser-Busch InBev SA/NV | | | | | | | 8,118 | | | | 906,304 | |
Asahi Group Holdings Ltd. | | | | | | | 3,700 | | | | 183,592 | |
Brown-Forman Corp.–Class B | | | | | | | 1,254 | | | | 86,112 | |
Carlsberg A/S–Class B | | | | | | | 1,051 | | | | 126,055 | |
Coca-Cola Amatil Ltd. | | | | | | | 14,439 | | | | 95,656 | |
Coca-Cola Bottlers Japan, Inc. | | | | | | | 1,300 | | | | 47,435 | |
Coca-Cola Co. (The) | | | | | | | 27,130 | | | | 1,244,725 | |
Coca-Cola European Partners PLC | | | | | | | 2,343 | | | | 93,369 | |
Coca-Cola HBC AG(a) | | | | | | | 1,928 | | | | 62,995 | |
Constellation Brands, Inc.–Class A | | | | | | | 1,270 | | | | 290,284 | |
Diageo PLC | | | | | | | 27,623 | | | | 1,012,504 | |
Dr Pepper Snapple Group, Inc. | | | | | | | 1,270 | | | | 123,266 | |
Heineken Holding NV | | | | | | | 1,000 | | | | 98,870 | |
Heineken NV | | | | | | | 2,500 | | | | 260,618 | |
Kirin Holdings Co., Ltd. | | | | | | | 9,345 | | | | 235,507 | |
Molson Coors Brewing Co.–Class B | | | | | | | 1,300 | | | | 106,691 | |
Monster Beverage Corp.(a) | | | | | | | 2,880 | | | | 182,275 | |
PepsiCo, Inc. | | | | | | | 10,075 | | | | 1,208,194 | |
Pernod Ricard SA | | | | | | | 2,021 | | | | 319,631 | |
Remy Cointreau SA | | | | | | | 195 | | | | 27,018 | |
Suntory Beverage & Food Ltd. | | | | | | | 1,324 | | | | 58,878 | |
Treasury Wine Estates Ltd. | | | | | | | 6,024 | | | | 74,752 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,844,731 | |
| | | | | | | | | | | | |
18
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
FOOD & STAPLES RETAILING–0.9% | | | | | | | | | | | | |
Aeon Co., Ltd. | | | | | | | 6,200 | | | $ | 104,580 | |
Carrefour SA | | | | | | | 5,903 | | | | 127,271 | |
Casino Guichard Perrachon SA | | | | | | | 1,228 | | | | 74,455 | |
Colruyt SA | | | | | | | 862 | | | | 44,843 | |
Costco Wholesale Corp. | | | | | | | 3,065 | | | | 570,458 | |
CVS Health Corp. | | | | | | | 7,430 | | | | 538,675 | |
FamilyMart UNY Holdings Co., Ltd. | | | | | | | 800 | | | | 56,031 | |
ICA Gruppen AB | | | | | | | 2,462 | | | | 89,442 | |
J Sainsbury PLC | | | | | | | 18,022 | | | | 58,686 | |
Jeronimo Martins SGPS SA | | | | | | | 2,405 | | | | 46,733 | |
Koninklijke Ahold Delhaize NV | | | | | | | 9,852 | | | | 216,576 | |
Kroger Co. (The) | | | | | | | 6,580 | | | | 180,621 | |
Lawson, Inc. | | | | | | | 600 | | | | 39,872 | |
METRO AG(a) | | | | | | | 3,266 | | | | 65,054 | |
Seven & i Holdings Co., Ltd. | | | | | | | 8,000 | | | | 331,411 | |
Sundrug Co., Ltd. | | | | | | | 1,000 | | | | 46,386 | |
Sysco Corp. | | | | | | | 3,555 | | | | 215,895 | |
Tesco PLC | | | | | | | 87,120 | | | | 246,131 | |
Tsuruha Holdings, Inc. | | | | | | | 600 | | | | 81,498 | |
Wal-Mart Stores, Inc. | | | | | | | 10,563 | | | | 1,043,096 | |
Walgreens Boots Alliance, Inc. | | | | | | | 5,945 | | | | 431,726 | |
Wesfarmers Ltd. | | | | | | | 12,002 | | | | 415,004 | |
Wm Morrison Supermarkets PLC | | | | | | | 19,623 | | | | 58,260 | |
Woolworths Group Ltd. | | | | | | | 14,003 | | | | 297,512 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,380,216 | |
| | | | | | | | | | | | |
FOOD PRODUCTS–1.2% | |
Ajinomoto Co., Inc. | | | | | | | 5,000 | | | | 94,071 | |
Archer-Daniels-Midland Co. | | | | | | | 4,015 | | | | 160,921 | |
Associated British Foods PLC | | | | | | | 3,965 | | | | 150,964 | |
Barry Callebaut AG (REG)(a) | | | | | | | 91 | | | | 189,679 | |
Calbee, Inc. | | | | | | | 1,315 | | | | 42,734 | |
Campbell Soup Co. | | | | | | | 1,325 | | | | 63,746 | |
Conagra Brands, Inc. | | | | | | | 2,885 | | | | 108,678 | |
Danone SA | | | | | | | 6,291 | | | | 527,128 | |
General Mills, Inc. | | | | | | | 4,135 | | | | 245,164 | |
Hershey Co. (The) | | | | | | | 1,000 | | | | 113,510 | |
Hormel Foods Corp. | | | | | | | 1,850 | | | | 67,321 | |
JM Smucker Co. (The) | | | | | | | 795 | | | | 98,771 | |
Kellogg Co. | | | | | | | 1,765 | | | | 119,985 | |
Kerry Group PLC–Class A | | | | | | | 1,906 | | | | 213,826 | |
Kikkoman Corp. | | | | | | | 1,000 | | | | 40,440 | |
Kraft Heinz Co. (The) | | | | | | | 4,178 | | | | 324,881 | |
Marine Harvest ASA(a) | | | | | | | 4,327 | | | | 73,173 | |
McCormick & Co., Inc./MD | | | | | | | 825 | | | | 84,076 | |
MEIJI Holdings Co., Ltd. | | | | | | | 1,100 | | | | 93,620 | |
Mondelez International, Inc.–Class A | | | | | | | 10,835 | | | | 463,738 | |
Nestle SA (REG) | | | | | | | 33,982 | | | | 2,921,645 | |
| | | | | | | | | | | | |
NH Foods Ltd. | | | | | | | 1,866 | | | | 45,454 | |
Nisshin Seifun Group, Inc. | | | | | | | 4,000 | | | | 80,734 | |
Nissin Foods Holdings Co., Ltd. | | | | | | | 1,200 | | | | 87,490 | |
Orkla ASA | | | | | | | 10,095 | | | | 106,978 | |
Toyo Suisan Kaisha Ltd. | | | | | | | 1,000 | | | | 42,691 | |
Tyson Foods, Inc.–Class A | | | | | | | 2,075 | | | | 168,220 | |
WH Group Ltd.(b) | | | | | | | 67,807 | | | | 76,548 | |
Wilmar International Ltd. | | | | | | | 26,000 | | | | 59,916 | |
Yakult Honsha Co., Ltd. | | | | | | | 800 | | | | 60,364 | |
Yamazaki Baking Co., Ltd. | | | | | | | 59 | | | | 1,149 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,927,615 | |
| | | | | | | | | | | | |
HOUSEHOLD PRODUCTS–0.7% | | | | | | | | | | | | |
Church & Dwight Co., Inc. | | | | | | | 1,776 | | | | 89,102 | |
Clorox Co. (The) | | | | | | | 920 | | | | 136,841 | |
Colgate-Palmolive Co. | | | | | | | 6,200 | | | | 467,790 | |
Essity AB–Class B(a) | | | | | | | 4,979 | | | | 141,492 | |
Henkel AG & Co. KGaA | | | | | | | 989 | | | | 118,430 | |
Henkel AG & Co. KGaA (Preference Shares) | | | | | | | 1,696 | | | | 223,966 | |
Kimberly-Clark Corp. | | | | | | | 2,515 | | | | 303,460 | |
Lion Corp. | | | | | | | 2,000 | | | | 37,804 | |
Procter & Gamble Co. (The) | | | | | | | 18,170 | | | | 1,669,459 | |
Reckitt Benckiser Group PLC | | | | | | | 7,158 | | | | 667,795 | |
Unicharm Corp. | | | | | | | 3,800 | | | | 98,675 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,954,814 | |
| | | | | | | | | | | | |
PERSONAL PRODUCTS–0.5% | | | | | | | | | | | | |
Beiersdorf AG | | | | | | | 1,051 | | | | 123,212 | |
Coty, Inc.–Class A | | | | | | | 3,262 | | | | 64,881 | |
Estee Lauder Cos., Inc. (The)–Class A | | | | | | | 1,540 | | | | 195,950 | |
Kao Corp. | | | | | | | 5,400 | | | | 364,876 | |
Kose Corp. | | | | | | | 500 | | | | 77,914 | |
L’Oreal SA | | | | | | | 2,700 | | | | 598,268 | |
Pola Orbis Holdings, Inc. | | | | | | | 1,800 | | | | 63,073 | |
Shiseido Co., Ltd. | | | | | | | 3,600 | | | | 173,466 | |
Unilever NV | | | | | | | 15,507 | | | | 873,089 | |
Unilever PLC | | | | | | | 13,679 | | | | 758,721 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,293,450 | |
| | | | | | | | | | | | |
TOBACCO–0.8% | |
Altria Group, Inc. | | | | | | | 13,660 | | | | 975,461 | |
British American Tobacco PLC | | | | | | | 24,956 | | | | 1,686,996 | |
Imperial Brands PLC | | | | | | | 10,218 | | | | 435,845 | |
Japan Tobacco, Inc. | | | | | | | 11,724 | | | | 377,549 | |
Philip Morris International, Inc. | | | | | | | 10,850 | | | | 1,146,302 | |
Swedish Match AB | | | | | | | 2,884 | | | | 113,606 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,735,759 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 31,136,585 | |
| | | | | | | | | | | | |
19
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
ENERGY–3.0% | | | | | | | | | | | | |
ENERGY EQUIPMENT & SERVICES–0.2% | | | | | | | | | | | | |
Baker Hughes a GE Co.–Class A | | | | | | | 2,960 | | | $ | 93,654 | |
Halliburton Co. | | | | | | | 5,990 | | | | 292,731 | |
Helmerich & Payne, Inc. | | | | | | | 735 | | | | 47,510 | |
John Wood Group PLC | | | | | | | 7,316 | | | | 64,012 | |
National Oilwell Varco, Inc. | | | | | | | 2,605 | | | | 93,832 | |
Schlumberger Ltd. | | | | | | | 9,700 | | | | 653,683 | |
TechnipFMC PLC | | | | | | | 3,318 | | | | 103,887 | |
Tenaris SA | | | | | | | 10,900 | | | | 173,005 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,522,314 | |
| | | | | | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–2.8% | | | | | | | | | | | | |
Anadarko Petroleum Corp. | | | | | | | 3,795 | | | | 203,564 | |
Andeavor | | | | | | | 825 | | | | 94,330 | |
Apache Corp. | | | | | | | 2,645 | | | | 111,672 | |
BP PLC | | | | | | | 210,515 | | | | 1,476,824 | |
Cabot Oil & Gas Corp. | | | | | | | 3,240 | | | | 92,664 | |
Caltex Australia Ltd. | | | | | | | 3,100 | | | | 82,123 | |
Chesapeake Energy
Corp.(a)(c) | | | | | | | 5,195 | | | | 20,572 | |
Chevron Corp. | | | | | | | 13,180 | | | | 1,650,004 | |
Cimarex Energy Co. | | | | | | | 677 | | | | 82,601 | |
Concho Resources, Inc.(a) | | | | | | | 1,007 | | | | 151,272 | |
ConocoPhillips | | | | | | | 8,620 | | | | 473,152 | |
Devon Energy Corp. | | | | | | | 3,620 | | | | 149,868 | |
Enagas SA | | | | | | | 2,159 | | | | 61,746 | |
Eni SpA | | | | | | | 24,216 | | | | 400,725 | |
EOG Resources, Inc. | | | | | | | 3,860 | | | | 416,533 | |
EQT Corp. | | | | | | | 1,190 | | | | 67,735 | |
Exxon Mobil Corp. | | | | | | | 30,310 | | | | 2,535,128 | |
Galp Energia SGPS SA | | | | | | | 5,341 | | | | 98,129 | |
Hess Corp. | | | | | | | 1,840 | | | | 87,345 | |
Idemitsu Kosan Co., Ltd. | | | | | | | 1,200 | | | | 48,067 | |
Inpex Corp. | | | | | | | 9,048 | | | | 112,612 | |
JXTG Holdings, Inc. | | | | | | | 32,750 | | | | 210,461 | |
Kinder Morgan, Inc./DE | | | | | | | 13,389 | | | | 241,939 | |
Koninklijke Vopak NV | | | | | | | 502 | | | | 21,990 | |
Lundin Petroleum AB(a) | | | | | | | 856 | | | | 19,595 | |
Marathon Oil Corp. | | | | | | | 5,905 | | | | 99,972 | |
Marathon Petroleum Corp. | | | | | | | 3,674 | | | | 242,410 | |
Neste Oyj | | | | | | | 1,220 | | | | 78,093 | |
Newfield Exploration Co.(a) | | | | | | | 1,370 | | | | 43,196 | |
Noble Energy, Inc. | | | | | | | 3,000 | | | | 87,420 | |
Occidental Petroleum Corp. | | | | | | | 5,350 | | | | 394,081 | |
Oil Search Ltd. | | | | | | | 18,278 | | | | 110,666 | |
OMV AG | | | | | | | 1,402 | | | | 88,870 | |
ONEOK, Inc. | | | | | | | 2,718 | | | | 145,277 | |
Origin Energy Ltd.(a) | | | | | | | 16,658 | | | | 122,023 | |
Phillips 66 | | | | | | | 3,110 | | | | 314,576 | |
Pioneer Natural Resources Co. | | | | | | | 1,215 | | | | 210,013 | |
Range Resources Corp. | | | | | | | 1,300 | | | | 22,178 | |
Repsol SA | | | | | | | 13,383 | | | | 236,296 | |
Royal Dutch Shell PLC–Class A | | | | | | | 48,497 | | | | 1,618,984 | |
| | | | | | | | | | | | |
Royal Dutch Shell PLC–Class B | | | | | | | 40,305 | | | | 1,357,232 | |
Santos Ltd.(a) | | | | | | | 18,468 | | | | 78,171 | |
Showa Shell Sekiyu KK | | | | | | | 4,285 | | | | 57,984 | |
Snam SpA | | | | | | | 26,833 | | | | 131,414 | |
Statoil ASA | | | | | | | 12,989 | | | | 278,074 | |
TOTAL SA | | | | | | | 25,086 | | | | 1,384,744 | |
Valero Energy Corp. | | | | | | | 3,225 | | | | 296,410 | |
Williams Cos., Inc. (The) | | | | | | | 4,755 | | | | 144,980 | |
Woodside Petroleum Ltd. | | | | | | | 9,055 | | | | 232,967 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 16,686,682 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 18,208,996 | |
| | | | | | | | | | | | |
MATERIALS–3.0% | | | | | | | | | | | | |
CHEMICALS–1.6% | | | | | | | | | | | | |
Air Liquide SA | | | | | | | 4,557 | | | | 572,880 | |
Air Products & Chemicals, Inc. | | | | | | | 1,520 | | | | 249,402 | |
Akzo Nobel NV | | | | | | | 3,630 | | | | 318,515 | |
Albemarle Corp. | | | | | | | 761 | | | | 97,324 | |
Arkema SA | | | | | | | 1,159 | | | | 141,218 | |
Asahi Kasei Corp. | | | | | | | 12,000 | | | | 154,433 | |
BASF SE | | | | | | | 9,789 | | | | 1,073,181 | |
CF Industries Holdings, Inc. | | | | | | | 1,600 | | | | 68,064 | |
Chr Hansen Holding A/S | | | | | | | 1,460 | | | | 136,948 | |
Covestro AG(b) | | | | | | | 1,766 | | | | 181,839 | |
Croda International PLC | | | | | | | 1,689 | | | | 100,686 | |
Daicel Corp. | | | | | | | 3,000 | | | | 34,045 | |
DowDuPont, Inc. | | | | | | | 16,770 | | | | 1,194,359 | |
Eastman Chemical Co. | | | | | | | 1,030 | | | | 95,419 | |
Ecolab, Inc. | | | | | | | 1,840 | | | | 246,891 | |
EMS-Chemie Holding AG (REG) | | | | | | | 203 | | | | 135,434 | |
Evonik Industries AG | | | | | | | 2,574 | | | | 96,677 | |
FMC Corp. | | | | | | | 930 | | | | 88,034 | |
Frutarom Industries Ltd. | | | | | | | 300 | | | | 28,112 | |
Givaudan SA (REG) | | | | | | | 88 | | | | 203,273 | |
Hitachi Chemical Co., Ltd. | | | | | | | 3,000 | | | | 76,818 | |
Incitec Pivot Ltd. | | | | | | | 32,013 | | | | 97,001 | |
International Flavors & Fragrances, Inc. | | | | | | | 550 | | | | 83,935 | |
Israel Chemicals Ltd. | | | | | | | 4,414 | | | | 17,873 | |
Johnson Matthey PLC | | | | | | | 1,842 | | | | 76,329 | |
JSR Corp. | | | | | | | 800 | | | | 15,715 | |
Kansai Paint Co., Ltd. | | | | | | | 3,000 | | | | 77,848 | |
Kuraray Co., Ltd. | | | | | | | 3,000 | | | | 56,484 | |
LANXESS AG | | | | | | | 1,767 | | | | 140,069 | |
Linde AG | | | | | | | 1,768 | | | | 383,191 | |
LyondellBasell Industries NV–Class A | | | | | | | 2,399 | | | | 264,658 | |
Mitsubishi Chemical Holdings Corp. | | | | | | | 13,000 | | | | 142,245 | |
Mitsubishi Gas Chemical Co., Inc. | | | | | | | 2,500 | | | | 71,587 | |
Mitsui Chemicals, Inc. | | | | | | | 1,600 | | | | 51,308 | |
Monsanto Co. | | | | | | | 3,040 | | | | 355,011 | |
Mosaic Co. (The) | | | | | | | 2,430 | | | | 62,354 | |
20
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Nippon Paint Holdings Co., Ltd. | | | | | | | 2,000 | | | $ | 63,193 | |
Nissan Chemical Industries Ltd. | | | | | | | 1,000 | | | | 39,835 | |
Nitto Denko Corp. | | | | | | | 1,600 | | | | 141,518 | |
Novozymes A/S–Class B | | | | | | | 2,458 | | | | 140,321 | |
Orica Ltd. | | | | | | | 7,662 | | | | 107,720 | |
PPG Industries, Inc. | | | | | | | 1,850 | | | | 216,117 | |
Praxair, Inc. | | | | | | | 1,990 | | | | 307,813 | |
Sherwin-Williams Co. (The) | | | | | | | 565 | | | | 231,673 | |
Shin-Etsu Chemical Co., Ltd. | | | | | | | 4,100 | | | | 415,424 | |
Sika AG | | | | | | | 20 | | | | 158,680 | |
Solvay SA | | | | | | | 927 | | | | 128,887 | |
Sumitomo Chemical Co., Ltd. | | | | | | | 15,000 | | | | 107,335 | |
Symrise AG | | | | | | | 1,178 | | | | 101,000 | |
Taiyo Nippon Sanso Corp. | | | | | | | 7,000 | | | | 97,679 | |
Teijin Ltd. | | | | | | | 3,000 | | | | 66,660 | |
Toray Industries, Inc. | | | | | | | 14,000 | | | | 131,772 | |
Tosoh Corp. | | | | | | | 3,149 | | | | 71,042 | |
Umicore SA | | | | | | | 2,002 | | | | 94,793 | |
Yara International ASA | | | | | | | 1,297 | | | | 59,551 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,870,173 | |
| | | | | | | | | | | | |
CONSTRUCTION MATERIALS–0.2% | | | | | | | | | | | | |
Boral Ltd. | | | | | | | 17,642 | | | | 106,801 | |
CRH PLC | | | | | | | 8,841 | | | | 318,196 | |
Fletcher Building Ltd. | | | | | | | 7,055 | | | | 37,999 | |
HeidelbergCement AG | | | | | | | 1,342 | | | | 144,702 | |
James Hardie Industries PLC | | | | | | | 3,449 | | | | 60,574 | |
LafargeHolcim Ltd. (REG)(a) | | | | | | | 4,333 | | | | 244,042 | |
Martin Marietta Materials, Inc. | | | | | | | 477 | | | | 105,436 | |
Taiheiyo Cement Corp. | | | | | | | 500 | | | | 21,527 | |
Vulcan Materials Co. | | | | | | | 915 | | | | 117,459 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,156,736 | |
| | | | | | | | | | | | |
CONTAINERS & PACKAGING–0.1% | | | | | | | | | | | | |
Amcor Ltd./Australia | | | | | | | 11,024 | | | | 132,093 | |
Avery Dennison Corp. | | | | | | | 585 | | | | 67,193 | |
Ball Corp. | | | | | | | 2,420 | | | | 91,597 | |
International Paper Co. | | | | | | | 2,865 | | | | 165,998 | |
Packaging Corp. of America | | | | | | | 675 | | | | 81,371 | |
Sealed Air Corp. | | | | | | | 1,340 | | | | 66,062 | |
Toyo Seikan Group Holdings Ltd. | | | | | | | 1,700 | | | | 27,289 | |
WestRock Co. | | | | | | | 1,747 | | | | 110,428 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 742,031 | |
| | | | | | | | | | | | |
METALS & MINING–1.0% | | | | | | | | | | | | |
Alumina Ltd. | | | | | | | 466 | | | | 878 | |
Anglo American PLC | | | | | | | 14,945 | | | | 310,841 | |
Antofagasta PLC | | | | | | | 6,389 | | | | 86,227 | |
ArcelorMittal(a) | | | | | | | 12,535 | | | | 406,676 | |
BHP Billiton Ltd. | | | | | | | 34,230 | | | | 786,294 | |
BHP Billiton PLC | | | | | | | 22,510 | | | | 455,160 | |
| | | | | | | | | | | | |
BlueScope Steel Ltd. | | | | | | | 6,941 | | | | 82,671 | |
Boliden AB | | | | | | | 4,189 | | | | 143,254 | |
Fortescue Metals Group Ltd. | | | | | | | 18,067 | | | | 68,372 | |
Freeport-McMoRan, Inc.(a) | | | | | | | 8,525 | | | | 161,634 | |
Fresnillo PLC | | | | | | | 2,356 | | | | 45,268 | |
Glencore PLC(a) | | | | | | | 130,406 | | | | 682,540 | |
Hitachi Metals Ltd. | | | | | | | 5,000 | | | | 71,513 | |
JFE Holdings, Inc. | | | | | | | 5,000 | | | | 119,487 | |
Kobe Steel Ltd.(a) | | | | | | | 1,199 | | | | 11,065 | |
Mitsubishi Materials Corp. | | | | | | | 2,700 | | | | 95,811 | |
Newcrest Mining Ltd. | | | | | | | 7,017 | | | | 124,916 | |
Newmont Mining Corp. | | | | | | | 3,695 | | | | 138,636 | |
Nippon Steel & Sumitomo Metal Corp. | | | | | | | 8,643 | | | | 220,823 | |
Norsk Hydro ASA | | | | | | | 16,444 | | | | 124,659 | |
Nucor Corp. | | | | | | | 2,210 | | | | 140,512 | |
Randgold Resources Ltd. | | | | | | | 890 | | | | 88,373 | |
Rio Tinto Ltd. | | | | | | | 4,038 | | | | 237,414 | |
Rio Tinto PLC | | | | | | | 13,185 | | | | 691,653 | |
South32 Ltd. | | | | | | | 56,741 | | | | 153,799 | |
Sumitomo Metal Mining Co., Ltd. | | | | | | | 2,500 | | | | 114,376 | |
thyssenkrupp AG | | | | | | | 3,919 | | | | 113,007 | |
voestalpine AG | | | | | | | 1,082 | | | | 64,599 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,740,458 | |
| | | | | | | | | | | | |
PAPER & FOREST PRODUCTS–0.1% | | | | | | | | | | | | |
Mondi PLC | | | | | | | 3,496 | | | | 90,856 | |
Oji Holdings Corp. | | | | | | | 14,000 | | | | 92,972 | |
Stora Enso Oyj–Class R | | | | | | | 5,244 | | | | 83,080 | |
UPM-Kymmene Oyj | | | | | | | 5,689 | | | | 176,614 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 443,522 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 17,952,920 | |
| | | | | | | | | | | | |
REAL ESTATE–1.7% | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–1.1% | | | | | | | | | | | | |
Alexandria Real Estate Equities, Inc. | | | | | | | 632 | | | | 82,533 | |
American Tower Corp. | | | | | | | 2,965 | | | | 423,017 | |
Apartment Investment & Management Co.–Class A | | | | | | | 1,075 | | | | 46,988 | |
AvalonBay Communities, Inc. | | | | | | | 945 | | | | 168,597 | |
Boston Properties, Inc. | | | | | | | 1,100 | | | | 143,033 | |
British Land Co. PLC (The) | | | | | | | 9,308 | | | | 86,689 | |
Crown Castle International Corp. | | | | | | | 2,370 | | | | 263,094 | |
Daiwa House REIT Investment Corp. | | | | | | | 13 | | | | 30,886 | |
Dexus | | | | | | | 13,420 | | | | 101,839 | |
Digital Realty Trust, Inc. | | | | | | | 1,030 | | | | 117,317 | |
Duke Realty Corp. | | | | | | | 2,548 | | | | 69,331 | |
Equinix, Inc. | | | | | | | 520 | | | | 235,674 | |
Equity Residential | | | | | | | 2,540 | | | | 161,976 | |
Essex Property Trust, Inc. | | | | | | | 478 | | | | 115,375 | |
Extra Space Storage, Inc. | | | | | | | 883 | | | | 77,218 | |
21
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
Federal Realty Investment Trust | | | | | | | 522 | | | $ | 69,327 | |
GGP, Inc. | | | | | | | 4,044 | | | | 94,589 | |
Goodman Group | | | | | | | 16,928 | | | | 110,921 | |
GPT Group (The) | | | | | | | 17,105 | | | | 68,041 | |
Hammerson PLC | | | | | | | 7,467 | | | | 55,091 | |
HCP, Inc. | | | | | | | 2,880 | | | | 75,110 | |
Host Hotels & Resorts, Inc. | | | | | | | 5,150 | | | | 102,227 | |
ICADE | | | | | | | 1,592 | | | | 156,499 | |
Iron Mountain, Inc. | | | | | | | 1,708 | | | | 64,443 | |
Japan Prime Realty Investment Corp. | | | | | | | 7 | | | | 22,241 | |
Japan Real Estate Investment Corp. | | | | | | | 12 | | | | 56,978 | |
Japan Retail Fund Investment Corp. | | | | | | | 24 | | | | 43,992 | |
Kimco Realty Corp. | | | | | | | 2,930 | | | | 53,180 | |
Klepierre SA | | | | | | | 2,231 | | | | 98,062 | |
Land Securities Group PLC | | | | | | | 9,736 | | | | 132,280 | |
Link REIT | | | | | | | 21,500 | | | | 198,914 | |
Macerich Co. (The) | | | | | | | 810 | | | | 53,201 | |
Mid-America Apartment Communities, Inc. | | | | | | | 796 | | | | 80,046 | |
Mirvac Group | | | | | | | 40,488 | | | | 74,045 | |
Nippon Building Fund, Inc. | | | | | | | 13 | | | | 63,572 | |
Nippon Prologis REIT, Inc. | | | | | | | 14 | | | | 29,609 | |
Nomura Real Estate Master Fund, Inc. | | | | | | | 34 | | | | 42,215 | |
Prologis, Inc. | | | | | | | 3,670 | | | | 236,752 | |
Public Storage | | | | | | | 1,030 | | | | 215,270 | |
Realty Income Corp. | | | | | | | 1,808 | | | | 103,092 | |
Regency Centers Corp. | | | | | | | 1,033 | | | | 71,463 | |
SBA Communications Corp.(a) | | | | | | | 870 | | | | 142,123 | |
Scentre Group | | | | | | | 50,683 | | | | 165,326 | |
Segro PLC | | | | | | | 8,541 | | | | 67,607 | |
Simon Property Group, Inc. | | | | | | | 2,216 | | | | 380,576 | |
SL Green Realty Corp. | | | | | | | 676 | | | | 68,229 | |
Stockland | | | | | | | 23,010 | | | | 80,267 | |
UDR, Inc. | | | | | | | 1,828 | | | | 70,415 | |
Unibail-Rodamco SE | | | | | | | 1,361 | | | | 342,498 | |
United Urban Investment Corp. | | | | | | | 26 | | | | 37,405 | |
Ventas, Inc. | | | | | | | 2,441 | | | | 146,484 | |
Vicinity Centres | | | | | | | 39,646 | | | | 83,974 | |
Vornado Realty Trust | | | | | | | 1,185 | | | | 92,643 | |
Welltower, Inc. | | | | | | | 2,475 | | | | 157,831 | |
Westfield Corp. | | | | | | | 18,793 | | | | 138,846 | |
Weyerhaeuser Co. | | | | | | | 5,198 | | | | 183,281 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,652,232 | |
| | | | | | | | | | | | |
REAL ESTATE MANAGEMENT & DEVELOPMENT–0.6% | | | | | | | | | | | | |
Aeon Mall Co., Ltd. | | | | | | | 1,700 | | | | 33,202 | |
Azrieli Group Ltd. | | | | | | | 811 | | | | 45,322 | |
CapitaLand Ltd. | | | | | | | 35,000 | | | | 92,074 | |
| | | | | | | | | | | | |
CBRE Group, Inc.–Class A(a) | | | | | | | 2,065 | | | | 89,435 | |
City Developments Ltd. | | | | | | | 11,000 | | | | 102,301 | |
CK Asset Holdings Ltd. | | | | | | | 25,719 | | | | 224,197 | |
Daito Trust Construction Co., Ltd. | | | | | | | 700 | | | | 142,612 | |
Daiwa House Industry Co., Ltd. | | | | | | | 6,000 | | | | 230,084 | |
Deutsche Wohnen SE | | | | | | | 3,212 | | | | 140,097 | |
Global Logistic Properties Ltd. | | | | | | | 80,329 | | | | 202,407 | |
Hang Lung Properties Ltd. | | | | | | | 14,000 | | | | 34,104 | |
Henderson Land Development Co., Ltd. | | | | | | | 25,141 | | | | 165,302 | |
Hongkong Land Holdings Ltd. | | | | | | | 14,000 | | | | 98,474 | |
Hulic Co., Ltd. | | | | | | | 6,591 | | | | 73,907 | |
Kerry Properties Ltd. | | | | | | | 8,500 | | | | 38,185 | |
LendLease Group | | | | | | | 10,380 | | | | 131,964 | |
Mitsubishi Estate Co., Ltd. | | | | | | | 13,000 | | | | 225,719 | |
Mitsui Fudosan Co., Ltd. | | | | | | | 10,000 | | | | 223,655 | |
New World Development Co., Ltd. | | | | | | | 82,122 | | | | 123,083 | |
Nomura Real Estate Holdings, Inc. | | | | | | | 3,600 | | | | 80,432 | |
Sino Land Co., Ltd. | | | | | | | 16,000 | | | | 28,306 | |
Sumitomo Realty & Development Co., Ltd. | | | | | | | 3,843 | | | | 126,123 | |
Sun Hung Kai Properties Ltd. | | | | | | | 15,000 | | | | 249,736 | |
Swire Properties Ltd. | | | | | | | 25,389 | | | | 81,891 | |
Swiss Prime Site AG (REG)(a) | | | | | | | 976 | | | | 90,157 | |
Tokyu Fudosan Holdings Corp. | | | | | | | 7,989 | | | | 57,655 | |
Vonovia SE | | | | | | | 5,710 | | | | 282,915 | |
Wharf Holdings Ltd. (The) | | | | | | | 13,000 | | | | 44,830 | |
Wharf Real Estate Investment Co., Ltd.(a) | | | | | | | 13,000 | | | | 86,524 | |
Wheelock & Co., Ltd. | | | | | | | 17,000 | | | | 121,180 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,665,873 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,318,105 | |
| | | | | | | | | | | | |
UTILITIES–1.6% | |
ELECTRIC UTILITIES–0.9% | |
Alliant Energy Corp. | | | | | | | 1,588 | | | | 67,665 | |
American Electric Power Co., Inc. | | | | | | | 3,425 | | | | 251,977 | |
AusNet Services | | | | | | | 37,398 | | | | 52,555 | |
Chubu Electric Power Co., Inc. | | | | | | | 6,100 | | | | 75,663 | |
Chugoku Electric Power Co., Inc. (The) | | | | | | | 4,000 | | | | 42,941 | |
CK Infrastructure Holdings Ltd. | | | | | | | 15,000 | | | | 128,717 | |
CLP Holdings Ltd. | | | | | | | 12,500 | | | | 127,914 | |
Duke Energy Corp. | | | | | | | 4,782 | | | | 402,214 | |
Edison International | | | | | | | 2,265 | | | | 143,239 | |
22
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
EDP–Energias de Portugal SA | | | | | | | 25,431 | | | $ | 88,031 | |
Electricite de France SA | | | | | | | 11,071 | | | | 138,414 | |
Endesa SA | | | | | | | 3,024 | | | | 64,677 | |
Enel SpA | | | | | | | 88,110 | | | | 541,812 | |
Entergy Corp. | | | | | | | 1,225 | | | | 99,703 | |
Eversource Energy | | | | | | | 2,210 | | | | 139,628 | |
Exelon Corp. | | | | | | | 6,397 | | | | 252,106 | |
FirstEnergy Corp. | | | | | | | 2,935 | | | | 89,870 | |
Fortum Oyj | | | | | | | 4,228 | | | | 83,678 | |
HK Electric Investments & HK Electric Investments Ltd.–Class SS(b) | | | | | | | 104,180 | | | | 95,341 | |
Iberdrola SA | | | | | | | 62,572 | | | | 484,387 | |
Kansai Electric Power Co., Inc. (The) | | | | | | | 8,491 | | | | 103,845 | |
Kyushu Electric Power Co., Inc. | | | | | | | 4,100 | | | | 42,946 | |
Mercury NZ Ltd. | | | | | | | 3,244 | | | | 7,748 | |
NextEra Energy, Inc. | | | | | | | 3,245 | | | | 506,837 | |
Orsted A/S(b) | | | | | | | 1,822 | | | | 99,459 | |
PG&E Corp. | | | | | | | 3,475 | | | | 155,784 | |
Pinnacle West Capital Corp. | | | | | | | 785 | | | | 66,866 | |
Power Assets Holdings Ltd. | | | | | | | 8,500 | | | | 71,646 | |
PPL Corp. | | | | | | | 4,695 | | | | 145,310 | |
Red Electrica Corp. SA | | | | | | | 5,707 | | | | 128,106 | |
Southern Co. (The) | | | | | | | 6,810 | | | | 327,493 | |
SSE PLC | | | | | | | 10,739 | | | | 190,916 | |
Terna Rete Elettrica Nazionale SpA | | | | | | | 23,069 | | | | 134,101 | |
Tohoku Electric Power Co., Inc. | | | | | | | 4,300 | | | | 54,898 | |
Tokyo Electric Power Co. Holdings, Inc.(a) | | | | | | | 13,800 | | | | 54,464 | |
Xcel Energy, Inc. | | | | | | | 3,520 | | | | 169,347 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,630,298 | |
| | | | | | | | | | | | |
GAS UTILITIES–0.1% | | | | | | | | | | | | |
APA Group | | | | | | | 12,605 | | | | 81,737 | |
Gas Natural SDG SA | | | | | | | 3,334 | | | | 76,943 | |
Hong Kong & China Gas Co., Ltd. | | | | | | | 79,344 | | | | 155,379 | |
Osaka Gas Co., Ltd. | | | | | | | 3,600 | | | | 69,226 | |
Toho Gas Co., Ltd. | | | | | | | 2,017 | | | | 55,221 | |
Tokyo Gas Co., Ltd. | | | | | | | 3,800 | | | | 86,824 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 525,330 | |
| | | | | | | | | | | | |
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS–0.1% | | | | | | | | | |
AES Corp./VA | | | | | | | 4,585 | | | | 49,656 | |
Electric Power Development Co., Ltd. | | | | | | | 1,600 | | | | 43,039 | |
Meridian Energy Ltd. | | | | | | | 18,542 | | | | 38,437 | |
NRG Energy, Inc. | | | | | | | 2,190 | | | | 62,371 | |
Uniper SE | | | | | | | 2,006 | | | | 62,579 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 256,082 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
MULTI-UTILITIES–0.5% | | | | | | | | | |
AGL Energy Ltd. | | | | | | | 6,423 | | | | 121,716 | |
Ameren Corp. | | | | | | | 1,660 | | | | 97,923 | |
CenterPoint Energy, Inc. | | | | | | | 2,995 | | | | 84,938 | |
Centrica PLC | | | | | | | 64,140 | | | | 118,900 | |
CMS Energy Corp. | | | | | | | 1,920 | | | | 90,816 | |
Consolidated Edison, Inc. | | | | | | | 2,130 | | | | 180,944 | |
Dominion Energy, Inc. | | | | | | | 4,385 | | | | 355,448 | |
DTE Energy Co. | | | | | | | 1,270 | | | | 139,014 | |
E.ON SE | | | | | | | 23,845 | | | | 258,388 | |
Engie SA | | | | | | | 18,347 | | | | 315,412 | |
Innogy SE(b) | | | | | | | 1,395 | | | | 54,596 | |
National Grid PLC | | | | | | | 36,605 | | | | 431,519 | |
NiSource, Inc. | | | | | | | 2,205 | | | | 56,602 | |
Public Service Enterprise Group, Inc. | | | | | | | 3,505 | | | | 180,508 | |
RWE AG(a) | | | | | | | 5,973 | | | | 121,553 | |
SCANA Corp. | | | | | | | 995 | | | | 39,581 | |
Sempra Energy | | | | | | | 1,760 | | | | 188,179 | |
Suez | | | | | | | 5,769 | | | | 101,348 | |
United Utilities Group PLC | | | | | | | 8,008 | | | | 89,686 | |
Veolia Environnement SA | | | | | | | 2,727 | | | | 69,536 | |
WEC Energy Group, Inc. | | | | | | | 2,188 | | | | 145,349 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,241,956 | |
| | | | | | | | | | | | |
WATER UTILITIES–0.0% | | | | | | | | | |
American Water Works Co., Inc. | | | | | | | 1,221 | | | | 111,709 | |
Severn Trent PLC | | | | | | | 2,239 | | | | 65,241 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 176,950 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,830,616 | |
| | | | | | | | | | | | |
TELECOMMUNICATION SERVICES–1.6% | | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–1.2% | | | | | | | | | | | | |
AT&T, Inc. | | | | | | | 42,926 | | | | 1,668,963 | |
Bezeq The Israeli Telecommunication Corp., Ltd. | | | | | | | 25,040 | | | | 37,852 | |
BT Group PLC | | | | | | | 89,935 | | | | 329,914 | |
CenturyLink, Inc. | | | | | | | 6,662 | | | | 111,122 | |
Deutsche Telekom AG (REG) | | | | | | | 34,368 | | | | 607,503 | |
Elisa Oyj | | | | | | | 1,354 | | | | 53,108 | |
HKT Trust & HKT Ltd.–Class SS | | | | | | | 55,098 | | | | 70,240 | |
Iliad SA | | | | | | | 332 | | | | 79,552 | |
Koninklijke KPN NV | | | | | | | 28,755 | | | | 100,392 | |
Nippon Telegraph & Telephone Corp. | | | | | | | 7,400 | | | | 347,904 | |
Orange SA | | | | | | | 18,911 | | | | 327,743 | |
Proximus SADP | | | | | | | 1,568 | | | | 51,455 | |
Singapore Telecommunications Ltd. | | | | | | | 76,000 | | | | 202,866 | |
Spark New Zealand Ltd. | | | | | | | 17,417 | | | | 44,807 | |
Swisscom AG (REG) | | | | | | | 247 | | | | 131,344 | |
23
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
TDC A/S | | | | | | | 10,476 | | | $ | 64,379 | |
Telecom Italia SpA/Milano (ordinary shares)(a) | | | | | | | 150,129 | | | | 129,651 | |
Telefonica Deutschland Holding AG | | | | | | | 17,113 | | | | 85,646 | |
Telefonica SA | | | | | | | 50,008 | | | | 486,965 | |
Telenor ASA | | | | | | | 7,146 | | | | 152,973 | |
Telia Co. AB | | | | | | | 24,258 | | | | 108,127 | |
Telstra Corp., Ltd. | | | | | | | 40,732 | | | | 115,143 | |
TPG Telecom Ltd. | | | | | | | 8,880 | | | | 45,439 | |
Verizon Communications, Inc. | | | | | | | 28,445 | | | | 1,505,594 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,858,682 | |
| | | | | | | | | | | | |
WIRELESS TELECOMMUNICATION SERVICES–0.4% | | | | | | | | | | | | |
KDDI Corp. | | | | | | | 19,550 | | | | 485,613 | |
Millicom International Cellular SA | | | | | | | 641 | | | | 43,290 | |
NTT DOCOMO, Inc. | | | | | | | 14,767 | | | | 349,151 | |
SoftBank Group Corp. | | | | | | | 8,822 | | | | 698,443 | |
StarHub Ltd. | | | | | | | 23,000 | | | | 48,942 | |
Tele2 AB–Class B | | | | | | | 3,826 | | | | 47,022 | |
Vodafone Group PLC | | | | | | | 283,081 | | | | 894,817 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,567,278 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,425,960 | |
| | | | | | | | | | | | |
Total Common Stocks
(cost $237,698,484) | | | | | | | | | | | 322,513,995 | |
| | | | | | | | | | | | |
| | | | | | Principal
Amount
(000) | | | | |
GOVERNMENTS–TREASURIES–28.3% | | | | | | | | | |
UNITED STATES–28.3% | | | | | | | | | | | | |
U.S. Treasury Bonds | | | | | | | | |
2.25%, 8/15/46 | | | | | | $ | 5,033 | | | | 4,541,071 | |
2.50%, 2/15/45 | | | | | | | 520 | | | | 495,869 | |
2.75%, 8/15/42–11/15/47 | | | | | | | 1,607 | | | | 1,614,539 | |
2.875%, 5/15/43–11/15/46 | | | | | | | 5,936 | | | | 6,090,142 | |
3.00%, 5/15/45–5/15/47 | | | | | | | 1,633 | | | | 1,716,036 | |
3.125%, 11/15/41–2/15/43 | | | | | | | 2,825 | | | | 3,036,049 | |
3.50%, 2/15/39 | | | | | | | 358 | | | | 408,791 | |
3.625%, 8/15/43 | | | | | | | 3,475 | | | | 4,055,977 | |
3.75%, 8/15/41 | | | | | | | 220 | | | | 260,769 | |
3.875%, 8/15/40 | | | | | | | 280 | | | | 337,356 | |
4.25%, 5/15/39 | | | | | | | 240 | | | | 303,300 | |
4.375%, 11/15/39–5/15/41 | | | | | | | 1,258 | | | | 1,620,564 | |
4.50%, 8/15/39 | | | | | | | 220 | | | | 287,375 | |
4.75%, 2/15/37–2/15/41 | | | | | | | 2,280 | | | | 3,044,417 | |
5.375%, 2/15/31 | | | | | | | 650 | | | | 863,484 | |
6.00%, 2/15/26 | | | | | | | 2,846 | | | | 3,606,416 | |
6.125%, 11/15/27 | | | | | | | 326 | | | | 432,052 | |
6.25%, 8/15/23–5/15/30 | | | | | | | 724 | | | | 993,625 | |
6.875%, 8/15/25 | | | | | | | 590 | | | | 776,219 | |
7.25%, 8/15/22 | | | | | | | 775 | | | | 948,406 | |
| | | | | | | | | | | | |
7.625%, 2/15/25 | | | | | | $ | 55 | | | $ | 74,061 | |
8.00%, 11/15/21 | | | | | | | 9,123 | | | | 11,108,678 | |
U.S. Treasury Notes | | | | | | | | |
1.00%, 9/30/19–11/30/19 | | | | | | | 1,890 | | | | 1,860,546 | |
1.125%, 2/28/21–9/30/21 | | | | | | | 2,905 | | | | 2,816,615 | |
1.25%, 11/30/18–10/31/21 | | | | | | | 15,725 | | | | 15,492,329 | |
1.375%, 12/31/18–5/31/21 | | | | | | | 12,309 | | | | 12,152,219 | |
1.50%, 5/31/19–8/15/26 | | | | | | | 8,738 | | | | 8,551,961 | |
1.625%, 6/30/20–2/15/26(d) | | | | | | | 14,732 | | | | 14,266,304 | |
1.75%, 3/31/22–5/15/23 | | | | | | | 6,871 | | | | 6,742,801 | |
1.875%, 11/30/21–10/31/22 | | | | | | | 7,977 | | | | 7,882,544 | |
2.00%, 11/15/21–11/15/26 | | | | | | | 18,025 | | | | 17,797,666 | |
2.125%, 8/15/21–5/15/25 | | | | | | | 5,862 | | | | 5,811,160 | |
2.25%, 11/15/24–11/15/27 | | | | | | | 3,641 | | | | 3,593,824 | |
2.375%, 8/15/24–5/15/27 | | | | | | | 1,829 | | | | 1,828,567 | |
2.50%, 8/15/23–5/15/24 | | | | | | | 2,242 | | | | 2,270,783 | |
2.625%, 8/15/20–11/15/20 | | | | | | | 3,700 | | | | 3,765,352 | |
2.75%, 2/15/19–11/15/23 | | | | | | | 3,189 | | | | 3,236,088 | |
3.125%, 5/15/21 | | | | | | | 394 | | | | 407,356 | |
3.375%, 11/15/19 | | | | | | | 1,890 | | | | 1,941,975 | |
3.50%, 5/15/20(d) | | | | | | | 910 | | | | 942,988 | |
3.625%, 2/15/20-2/15/21 | | | | | | | 13,021 | | | | 13,609,586 | |
| | | | | | | | | | | | |
Total Governments–Treasuries
(cost $173,444,419) | | | | | | | | 171,585,860 | |
| | | | | | | | | | | | |
| | | | | | Shares | | | | |
INVESTMENT COMPANIES–14.6% | | | | | | | | | | | | |
FUNDS AND INVESTMENT TRUSTS–14.6%(e) | | | | | | | | | |
iShares Core MSCI Emerging Markets ETF | | | | | | | 607,904 | | | | 34,589,738 | |
iShares International Developed Real Estate ETF | | | | | | | 293,373 | | | | 8,801,190 | |
SPDR S&P MidCap 400 ETF Trust | | | | | | | 39,990 | | | | 13,812,946 | |
Vanguard Global ex-U.S. Real Estate ETF(c) | | | | | | | 150,903 | | | | 9,129,631 | |
Vanguard Mid-Cap ETF | | | | | | | 18,523 | | | | 2,866,990 | |
Vanguard REIT ETF | | | | | | | 140,365 | | | | 11,647,488 | |
Vanguard Small-Cap ETF(c) | | | | | | | 49,083 | | | | 7,254,467 | |
| | | | | | | | | | | | |
Total Investment Companies (cost $77,870,476) | | | | | | | | | | | 88,102,450 | |
| | | | | | | | | | | | |
24
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Notional
Amount | | | U.S. $ Value | |
| | | | | | | | | | | | |
OPTIONS PURCHASED–PUTS–0.0% | | | | | | | | | |
SWAPTIONS–0.0% | | | | | | | | | | | | |
IRS Swaption
Expiration: Jan 2018; Contracts: 15,000,000; Exercise Rate: 2.43%; Counterparty: Citibank, NA(a) | | | USD | | | | 15,000,000 | | | $ | 3,047 | |
IRS Swaption
Expiration: Jan 2018; Contracts: 14,700,000;
Exercise Rate: 2.45%; Counterparty: Citibank, NA(a) | | | USD | | | | 14,700,000 | | | | 2,580 | |
| | | | | | | | | | | | |
Total Options Purchased–Puts
(premiums paid $58,653) | | | | | | | | 5,627 | |
| | | | | | | | | | | | |
| | | | | | Shares | | | | |
SHORT-TERM INVESTMENTS–3.1% | | | | | | | | | |
INVESTMENT COMPANIES–3.1% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(e)(f)(g)
(cost $18,529,279) | | | | | | | 18,529,279 | | | | 18,529,279 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–99.3%
(cost $507,601,311) | | | | | | | | | | | 600,737,211 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.3% | | | | | |
INVESTMENT COMPANIES–0.3% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(e)(f)(g)
(cost $1,876,538) | | | | | | | 1,876,538 | | | | 1,876,538 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–99.6%
(cost $509,477,849) | | | | | | | | | | | 602,613,749 | |
Other assets less liabilities–0.4% | | | | | | | | | | | 2,417,695 | |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | | | | | $ | 605,031,444 | |
| | | | | | | | | | | | |
25
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
FUTURES (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Month | | | Notional
(000) | | | Original
Value | | | Value at
December 31,
2017 | | | Unrealized
Appreciation/
(Depreciation) | |
Purchased Contracts | |
10 Yr Canadian Bond Futures | | | 18 | | | | March 2018 | | | | CAD | | | | 1,800 | | | $ | 1,946,447 | | | $ | 1,930,024 | | | $ | (16,423 | ) |
10 Yr Mini Japan Government Bond Futures | | | 7 | | | | March 2018 | | | | JPY | | | | 70,000 | | | | 937,571 | | | | 937,102 | | | | (469 | ) |
Euro-Bund Futures | | | 10 | | | | March 2018 | | | | EUR | | | | 1,000 | | | | 1,960,469 | | | | 1,939,916 | | | | (20,553 | ) |
FTSE 100 Index Futures | | | 55 | | | | March 2018 | | | | GBP | | | | 1 | | | | 5,527,339 | | | | 5,671,849 | | | | 144,510 | |
Mini MSCI EAFE Futures | | | 5 | | | | March 2018 | | | | USD | | | | 0 | * | | | 500,200 | | | | 511,375 | | | | 11,175 | |
SPI 200 Futures | | | 27 | | | | March 2018 | | | | AUD | | | | 1 | | | | 3,171,132 | | | | 3,170,547 | | | | (585 | ) |
TOPIX Index Futures | | | 107 | | | | March 2018 | | | | JPY | | | | 1,070 | | | | 17,031,702 | | | | 17,254,848 | | | | 223,146 | |
U.S. T-Note 10 Yr (CBT) Futures | | | 91 | | | | March 2018 | | | | USD | | | | 9,100 | | | | 11,350,391 | | | | 11,288,266 | | | | (62,125 | ) |
U.S. Ultra Bond (CBT) Futures | | | 58 | | | | March 2018 | | | | USD | | | | 5,800 | | | | 9,641,227 | | | | 9,724,063 | | | | 82,836 | |
| | | | | | | |
Sold Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Euro STOXX 50 Futures | | | 103 | | | | March 2018 | | | | EUR | | | | 1 | | | | 4,413,135 | | | | 4,316,806 | | | | 96,329 | |
S&P 500 E Mini Futures | | | 122 | | | | March 2018 | | | | USD | | | | 6 | | | | 16,302,513 | | | | 16,323,600 | | | | (21,087 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | $ | 436,754 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | | 1,587 | | | | USD | | | | 1,245 | | | | 3/14/18 | | | $ | (18,407 | ) |
Bank of America, NA | | | JPY | | | | 159,060 | | | | USD | | | | 1,420 | | | | 3/14/18 | | | | 3,004 | |
Bank of America, NA | | | USD | | | | 11,688 | | | | JPY | | | | 1,320,230 | | | | 3/14/18 | | | | 69,227 | |
Barclays Bank PLC | | | AUD | | | | 9,724 | | | | USD | | | | 7,392 | | | | 3/14/18 | | | | (194,315 | ) |
Barclays Bank PLC | | | EUR | | | | 7,005 | | | | USD | | | | 8,291 | | | | 3/14/18 | | | | (149,264 | ) |
Citibank, NA | | | CHF | | | | 7,648 | | | | USD | | | | 7,793 | | | | 3/14/18 | | | | (94,956 | ) |
Credit Suisse International | | | EUR | | | | 5,995 | | | | USD | | | | 7,074 | | | | 3/14/18 | | | | (148,242 | ) |
Credit Suisse International | | | GBP | | | | 7,612 | | | | USD | | | | 10,174 | | | | 3/14/18 | | | | (126,921 | ) |
Credit Suisse International | | | JPY | | | | 159,060 | | | | USD | | | | 1,421 | | | | 3/14/18 | | | | 4,742 | |
Credit Suisse International | | | USD | | | | 2,013 | | | | NOK | | | | 16,786 | | | | 3/14/18 | | | | 35,547 | |
HSBC Bank USA | | | EUR | | | | 868 | | | | USD | | | | 1,035 | | | | 3/14/18 | | | | (11,093 | ) |
Royal Bank of Scotland PLC | | | EUR | | | | 868 | | | | USD | | | | 1,035 | | | | 3/14/18 | | | | (10,986 | ) |
State Street Bank & Trust Co. | | | NZD | | | | 617 | | | | USD | | | | 430 | | | | 3/14/18 | | | | (6,688 | ) |
State Street Bank & Trust Co. | | | SEK | | | | 22,038 | | | | USD | | | | 2,630 | | | | 3/14/18 | | | | (68,017 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | (716,369 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
26
| | |
| | | AB Variable Products Series Fund |
TOTAL RETURN SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
Counterparty & Referenced Obligation | | # of Shares
or Units | | | Rate Paid/
Received | | | Payment
Frequency | | | Notional
Amount
(000) | | | Maturity
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Receive Total Return on Reference Obligation | |
UBS AG | |
Russell 2000 Total Return Index | | | 1,256 | | | | LIBOR Minus 0.40% | | | | Quarterly | | | $ | 9,027 | | | | 2/15/18 | | | $ | 445,185 | |
Pay Total Return on Reference Obligation | |
Citibank, NA | | | | | | | | | | | | | | | | | | | | | | | | |
S&P 500 Total Return Index | | | 5,773 | | | | LIBOR Plus 0.67% | | | | Quarterly | | | | 30,101 | | | | 3/15/18 | | | | 41,663 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 486,848 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| * | | Notional amount less than 500. |
| (a) | | Non-income producing security. |
| (b) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2017, the aggregate market value of these securities amounted to $1,103,243 or 0.2% of net assets. |
| (c) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (d) | | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
| (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. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
| (f) | | Affiliated investments. |
| (g) | | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD—Australian Dollar
CAD—Canadian Dollar
CHF—Swiss Franc
EUR—Euro
GBP—Great British Pound
JPY—Japanese Yen
NOK—Norwegian Krone
NZD—New Zealand Dollar
SEK—Swedish Krona
USD—United States Dollar
Glossary:
ADR—American Depositary Receipt
ASX—Australian Stock Exchange
CBOE—Chicago Board Options Exchange
CBT—Chicago Board of Trade
EAFE—Europe, Australia, and Far East
ETF—Exchange Traded Fund
FTSE—Financial Times Stock Exchange
LIBOR—London Interbank Offered Rates
MSCI—Morgan Stanley Capital International
REG—Registered Shares
REIT—Real Estate Investment Trust
SPDR—Standard & Poor’s Depository Receipt
SPI—Share Price Index
TOPIX—Tokyo Price Index
See notes to financial statements.
27
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $489,072,032) | | $ | 582,207,932 | (a) |
Affiliated issuers (cost $20,405,817—including investment of cash collateral for securities loaned of $1,876,538) | | | 20,405,817 | |
Cash | | | 9,013 | |
Cash collateral due from broker | | | 2,075,079 | |
Foreign currencies, at value (cost $1,182,713) | | | 1,243,025 | |
Unaffiliated interest and dividends receivable | | | 1,699,078 | |
Unrealized appreciation on total return swaps | | | 486,848 | |
Receivable for investment securities sold | | | 178,751 | |
Receivable for variation margin on futures | | | 130,822 | |
Unrealized appreciation on forward currency exchange contracts | | | 112,520 | |
Receivable for capital stock sold | | | 97,461 | |
Affiliated dividends receivable | | | 16,992 | |
Receivable from regulatory settlement | | | 269 | |
| | | | |
Total assets | | | 608,663,607 | |
| | | | |
LIABILITIES | | | | |
Payable for collateral received on securities loaned | | | 1,876,538 | |
Unrealized depreciation on forward currency exchange contracts | | | 828,889 | |
Advisory fee payable | | | 353,396 | |
Payable for capital stock redeemed | | | 159,222 | |
Distribution fee payable | | | 127,588 | |
Payable for investment securities purchased | | | 56,573 | |
Administrative fee payable | | | 13,905 | |
Cash collateral due to broker | | | 5,674 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 210,281 | |
| | | | |
Total liabilities | | | 3,632,163 | |
| | | | |
NET ASSETS | | $ | 605,031,444 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 46,618 | |
Additional paid-in capital | | | 503,616,369 | |
Undistributed net investment income | | | 8,916,842 | |
Accumulated net realized loss on investment and foreign currency transactions | | | (909,040 | ) |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 93,360,655 | |
| | | | |
| | $ | 605,031,444 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 328,915 | | | | 25,168 | | | $ | 13.07 | |
| B | | $ | 604,702,529 | | | | 46,592,462 | | | $ | 12.98 | |
| (a) | | Includes securities on loan with a value of $1,822,735 (see Note E). |
See notes to financial statements.
28
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $379,897) | | $ | 9,505,899 | |
Affiliated issuers | | | 200,829 | |
Interest | | | 3,009,536 | |
Other income | | | 307 | |
| | | | |
| | | 12,716,571 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 4,086,774 | |
Distribution fee—Class B | | | 1,458,757 | |
Transfer agency—Class A | | | 2 | |
Transfer agency—Class B | | | 4,409 | |
Custodian | | | 179,628 | |
Audit and tax | | | 112,791 | |
Administrative | | | 54,520 | |
Legal | | | 46,836 | |
Printing | | | 40,561 | |
Directors’ fees | | | 28,561 | |
Miscellaneous | | | 41,227 | |
| | | | |
Total expenses | | | 6,054,066 | |
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | | | (55,353 | ) |
| | | | |
Net expenses | | | 5,998,713 | |
| | | | |
Net investment income | | | 6,717,858 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain (loss) on: | | | | |
Investment transactions | | | 6,799,587 | |
Forward currency exchange contracts | | | 1,169,997 | |
Futures | | | (1,771,480 | ) |
Swaps | | | 1,334,006 | |
Foreign currency transactions | | | 431,096 | |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 65,003,463 | |
Forward currency exchange contracts | | | (520,349 | ) |
Futures | | | 320,298 | |
Swaps | | | (1,450,656 | ) |
Foreign currency denominated assets and liabilities | | | 24,979 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 71,340,941 | |
| | | | |
Contributions from Affiliates (see Note B) | | | 5,430 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 78,064,229 | |
| | | | |
See notes to financial statements.
29
| | |
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 6,717,858 | | | $ | 4,716,370 | |
Net realized gain on investment and foreign currency transactions | | | 7,963,206 | | | | 2,382,396 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 63,377,735 | | | | 9,384,262 | |
Contributions from Affiliates (see Note B) | | | 5,430 | | | | –0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 78,064,229 | | | | 16,483,028 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (6,415 | ) | | | (3,253 | ) |
Class B | | | (10,384,688 | ) | | | (3,066,140 | ) |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | –0 | – | | | (89 | ) |
Class B | | | –0 | – | | | (118,984 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net increase (decrease) | | | (21,670,358 | ) | | | 34,170,007 | |
CAPITAL CONTRIBUTIONS | | | | | | | | |
Proceeds from regulatory settlement (see Note F) | | | 269 | | | | –0 | – |
| | | | | | | | |
Total increase | | | 46,003,037 | | | | 47,464,569 | |
NET ASSETS | | | | | | | | |
Beginning of period | | | 559,028,407 | | | | 511,563,838 | |
| | | | | | | | |
End of period (including undistributed net investment income of $8,916,842 and $8,765,214, respectively) | | $ | 605,031,444 | | | $ | 559,028,407 | |
| | | | | | | | |
See notes to financial statements.
30
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Dynamic Asset Allocation Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to maximize total return consistent with the determination of AllianceBernstein L.P. (the “Adviser”) of reasonable risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S.
31
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
32
| | |
| | | AB Variable Products Series Fund |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Financials | | $ | 25,069,914 | | | $ | 33,430,499 | | | $ | –0 | – | | $ | 58,500,413 | |
Information Technology | | | 38,858,229 | | | | 9,732,956 | | | | –0 | – | | | 48,591,185 | |
Industrials | | | 17,405,484 | | | | 22,717,295 | | | | –0 | – | | | 40,122,779 | |
Consumer Discretionary | | | 21,100,087 | | | | 18,965,125 | | | | –0 | – | | | 40,065,212 | |
Health Care | | | 22,637,977 | | | | 15,723,247 | | | | –0 | – | | | 38,361,224 | |
Consumer Staples | | | 14,239,101 | | | | 16,897,484 | | | | –0 | – | | | 31,136,585 | |
Energy | | | 9,753,059 | | | | 8,455,937 | | | | –0 | – | | | 18,208,996 | |
Materials | | | 5,085,546 | | | | 12,867,374 | | | | –0 | – | | | 17,952,920 | |
Real Estate | | | 5,264,097 | | | | 5,054,008 | | | | –0 | – | | | 10,318,105 | |
Utilities | | | 5,467,586 | | | | 4,363,030 | | | | –0 | – | | | 9,830,616 | |
Telecommunication Services | | | 3,927,616 | | | | 5,498,344 | | | | –0 | – | | | 9,425,960 | |
Governments—Treasuries | | | –0 | – | | | 171,585,860 | | | | –0 | – | | | 171,585,860 | |
Investment Companies | | | 88,102,450 | | | | –0 | – | | | –0 | – | | | 88,102,450 | |
Options Purchased—Puts | | | –0 | – | | | 5,627 | | | | –0 | – | | | 5,627 | |
Short-Term Investments | | | 18,529,279 | | | | –0 | – | | | –0 | – | | | 18,529,279 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 1,876,538 | | | | –0 | – | | | –0 | – | | | 1,876,538 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 277,316,963 | | | | 325,296,786 | | | | –0 | – | | | 602,613,749 | |
Other Financial Instruments(a): | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Futures | | | 94,011 | | | | 463,985 | | | | –0 | – | | | 557,996 | (b) |
Forward Currency Exchange Contracts | | | –0 | – | | | 112,520 | | | | –0 | – | | | 112,520 | |
Total Return Swaps | | | –0 | – | | | 486,848 | | | | –0 | – | | | 486,848 | |
Liabilities: | | | | | | | | | | | | | | | | |
Futures | | | (120,657 | ) | | | (585 | ) | | | –0 | – | | | (121,242 | )(b) |
Forward Currency Exchange Contracts | | | –0 | – | | | (828,889 | ) | | | –0 | – | | | (828,889 | ) |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 277,290,317 | | | $ | 325,530,665 | | | $ | –0 | – | | $ | 602,820,982 | |
| | | | | | | | | | | | | | | | |
| (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) of exchange-traded derivatives as reported in the portfolio of investments. Exchange-traded swaps with upfront premiums are presented here as market value. |
| (c) | | There were de minimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
33
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
| | | | | | | | |
| | | Common Stocks(a) | | | Total | |
Balance as of 12/31/16 | | $ | –0 | – | | $ | –0 | – |
Accrued discounts/(premiums) | | | –0 | – | | | –0 | – |
Realized gain (loss) | | | (8,647 | ) | | | (8,647 | ) |
Change in unrealized appreciation/depreciation | | | 8,647 | | | | 8,647 | |
Purchases | | | –0 | – | | | –0 | – |
Sales | | | –0 | – | | | –0 | – |
Transfers in to Level 3 | | | –0 | – | | | –0 | – |
Transfers out of Level 3 | | | –0 | – | | | –0 | – |
Balance as of 12/31/17 | | $ | –0 | – | | $ | –0 | – |
| | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(b) | | $ | –0 | – | | $ | –0 | – |
| | | | | | | | |
| (a) | | The Portfolio held securities with zero market value that were sold/expired/written off during the reporting period. |
| (b) | | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
34
| | |
| | | AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to the portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .70% of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .85% and 1.10% of daily average net assets for Class A and Class B shares, respectively. The Expense Caps will remain in effect until May 1, 2018 and then may be extended by the Adviser for additional one-year terms. For the year ended December 31, 2017, there were no expenses waived by the Adviser.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $54,520.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $5,430 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. In connection with the investment by the Portfolio in the Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $48,256.
35
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
12/31/16
(000) | | | Purchases at
Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 21,929 | | | $ | 122,616 | | | $ | 126,016 | | | $ | 18,529 | | | $ | 164 | |
Government Money Market Portfolio* | | | 8,035 | | | | 222,388 | | | | 228,546 | | | | 1,877 | | | | 37 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 20,406 | | | $ | 201 | |
| | | | | | | | | | | | | | | | | | | | |
| * | | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $62,174, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 79,114,964 | | | $ | 80,632,104 | |
U.S. government securities | | | 38,996,262 | | | | 28,903,409 | |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 511,733,998 | |
| | | | |
Gross unrealized appreciation | | $ | 103,344,583 | |
Gross unrealized depreciation | | | (12,259,164 | ) |
| | | | |
Net unrealized appreciation | | $ | 91,085,419 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
36
| | |
| | | AB Variable Products Series Fund |
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2017, the Portfolio held futures for hedging and non-hedging purposes.
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
37
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
During the year ended December 31, 2017, the Portfolio held purchased swaptions for hedging and non-hedging purposes.
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
38
| | |
| | | AB Variable Products Series Fund |
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Portfolio may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended December 31, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same referenced obligations with the same counterparty.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
39
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the year ended December 31, 2017, the Portfolio held credit default swaps for non-hedging purposes.
Total Return Swaps:
The Portfolio may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
During the year ended December 31, 2017, the Portfolio held total return swaps for hedging and non-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty tables below.
During the year ended December 31, 2017, the Portfolio had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and Liabilities
Location | | Fair Value | | | Statement of
Assets and Liabilities
Location | | Fair Value | |
Interest rate contracts | | Receivable/Payable for variation margin on futures | | $ | 82,836 | * | | Receivable/Payable for variation margin on futures | | $ | 99,570 | * |
Equity contracts | | Receivable/Payable for variation margin on futures | | | 475,160 | * | | Receivable/Payable for variation margin on futures | | | 21,672 | * |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | | 112,520 | | | Unrealized depreciation on forward currency exchange contracts | | | 828,889 | |
Interest rate contracts | | Investments in securities, at value | | | 5,627 | | | | | | | |
Equity contracts | | Unrealized appreciation on total return swaps | | | 486,848 | | | | | | | |
| | | | | | | | | | | | |
Total | | | | $ | 1,162,991 | | | | | $ | 950,131 | |
| | | | | | | | | | | | |
| * | | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
40
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | |
Derivative Type | | Location of Gain or (Loss) on Derivatives
Within Statement of Operations | | Realized Gain or
(Loss) on
Derivatives | | | Change in Unrealized
Appreciation or
(Depreciation) | |
Interest rate contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | $ | 1,015,330 | | | $ | (115,568 | ) |
Equity contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | | (2,786,810 | ) | | | 435,866 | |
Foreign currency contracts | | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | | 1,169,997 | | | | (520,349 | ) |
Interest rate contracts | | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | | –0 | – | | | (53,026 | ) |
Interest rate contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 152,885 | | | | (36,130 | ) |
Credit contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 502,331 | | | | (502,331 | ) |
Equity contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 678,790 | | | | (912,195 | ) |
| | | | | | | | | | |
Total | | | | $ | 732,523 | | | $ | (1,703,733 | ) |
| | | | | | | | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Futures: | | | | |
Average original value of buy contracts | | $ | 55,394,008 | |
Average original value of sale contracts | | $ | 22,930,765 | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 52,083,446 | |
Average principal amount of sale contracts | | $ | 70,912,682 | |
Purchased Swaptions: | | | | |
Average monthly cost | | $ | 58,653 | (a) |
Centrally Cleared Interest Rate Swaps: | | | | |
Average notional amount | | $ | 4,469,883 | (b) |
Centrally Cleared Credit Default Swaps: | | | | |
Average notional amount of buy contracts | | $ | 16,380,500 | (c) |
Average notional amount of sale contracts | | $ | 16,380,500 | (c) |
Total Return Swaps: | | | | |
Average notional amount | | $ | 26,866,879 | |
| (a) | | Positions were open for three months during the year. |
| (b) | | Positions were open for four months during the year. |
| (c) | | Positions were open for one month during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
41
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Assets Subject
to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Received* | | | Security Collateral
Received* | | | Net Amount of
Derivatives
Assets | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 72,231 | | | $ | (18,407 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 53,824 | |
Citibank, NA | | | 47,290 | | | | (47,290 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 40,289 | | | | (40,289 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
UBS AG | | | 445,185 | | | | –0 | – | | | –0 | – | | | (397,792 | ) | | | 47,393 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 604,995 | | | $ | (105,986 | ) | | $ | –0 | – | | $ | (397,792 | ) | | $ | 101,217 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative
Liabilities Subject
to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Pledged* | | | Security Collateral
Pledged* | | | Net Amount of
Derivatives
Liabilities | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 18,407 | | | $ | (18,407 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Barclays Bank PLC | | | 343,579 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 343,579 | |
Citibank, NA | | | 94,956 | | | | (47,290 | ) | | | –0 | – | | | (47,666 | ) | | | –0 | – |
Credit Suisse International | | | 275,163 | | | | (40,289 | ) | | | –0 | – | | | –0 | – | | | 234,874 | |
HSBC Bank USA | | | 11,093 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 11,093 | |
Royal Bank of Scotland PLC | | | 10,986 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 10,986 | |
State Street Bank & Trust Co. | | | 74,705 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 74,705 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 828,889 | | | $ | (105,986 | ) | | $ | –0 | – | | $ | (47,666 | ) | | $ | 675,237 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are
42
| | |
| | | AB Variable Products Series Fund |
secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $1,822,735 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,876,538. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $37,411 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $7,097. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 23,756 | | | | 11,244 | | | | | | | $ | 304,287 | | | $ | 125,982 | |
Shares issued in reinvestment of dividends and distributions | | | 518 | | | | 284 | | | | | | | | 6,414 | | | | 3,342 | |
Shares redeemed | | | (25,158 | ) | | | (20,757 | ) | | | | | | | (321,633 | ) | | | (236,231 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (884 | ) | | | (9,229 | ) | | | | | | $ | (10,932 | ) | | $ | (106,907 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 3,671,000 | | | | 9,938,397 | | | | | | | $ | 45,294,974 | | | $ | 113,721,017 | |
Shares issued in reinvestment of dividends and distributions | | | 843,598 | | | | 271,768 | | | | | | | | 10,384,688 | | | | 3,185,124 | |
Shares redeemed | | | (6,270,646 | ) | | | (7,265,964 | ) | | | | | | | (77,339,088 | ) | | | (82,629,227 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (1,756,048 | ) | | | 2,944,201 | | | | | | | $ | (21,659,426 | ) | | $ | 34,276,914 | |
| | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2017, the Portfolio recorded $269 related to a settlement of regulatory proceedings. This amount is presented in the Portfolio’s statement of changes in net assets. Neither the Portfolio nor its affiliates were involved in the proceedings or the calculation of the payment.
At December 31, 2017, certain shareholders of the Portfolio owned 91% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Allocation Risk—The allocation of investments among different global asset classes may have a significant effect on the Portfolio’s net asset value, or NAV, when one of these asset classes is performing more poorly than others. As both the direct investments and derivatives positions will be periodically adjusted to reflect the Adviser’s view of market and economic conditions, there will be transaction costs that may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
43
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Foreign (Non-U.S.) Risk—The Portfolio’s investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
ETF Risk—ETFs are investment companies. When the Portfolio invests in an ETF, the Portfolio bears its share of the ETF’s expenses and runs the risk that the ETF may not achieve its investment objective.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares.
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Real Estate Risk—The Portfolio’s investments in the real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts, or “REITs”, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Commodity Risk—Investing in commodities and commodity-linked derivative instruments may subject the Portfolio to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
44
| | |
| | | AB Variable Products Series Fund |
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 10,391,103 | | | $ | 3,071,351 | |
Net long-term capital gains | | | –0 | – | | | 117,115 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 10,391,103 | | | $ | 3,188,466 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 9,529,980 | |
Undistributed capital gains | | | 735,535 | (a) |
Unrealized appreciation/(depreciation) | | | 91,102,941 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 101,368,456 | |
| | | | |
| (a) | | During the fiscal year, the Portfolio utilized $1,509,418 of capital loss carryforwards to offset current year net realized gains. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, the tax treatment of passive foreign investment companies (PFICs), the tax treatment of corporate restructurings, the tax treatment of partnership investments, return of capital distributions received from underlying securities, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, the tax treatment of passive foreign investment companies (PFICs), the tax treatment of partnership investments, return of capital distributions received from underlying securities, foreign currency reclassifications, contributions from the Adviser, and proceeds from a regulatory settlement resulted in a net increase in undistributed net investment income, a net decrease in accumulated net realized gain on investment and foreign currency transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
45
| | |
| | |
| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $11.63 | | | | $11.33 | | | | $11.74 | | | | $11.74 | | | | $10.53 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .17 | (b) | | | .13 | (b)† | | | .08 | | | | .08 | (b) | | | .03 | (b) |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 1.52 | | | | .27 | | | | (.19 | ) | | | .44 | | | | 1.26 | |
Contributions from Affiliates | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 1.69 | | | | .40 | | | | (.11 | ) | | | .52 | | | | 1.29 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.25 | ) | | | (.10 | ) | | | (.10 | ) | | | (.07 | ) | | | (.04 | ) |
Distributions from net realized gain on investment transactions | | | –0 | – | | | (.00 | )(c) | | | (.20 | ) | | | (.45 | ) | | | (.04 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.25 | ) | | | (.10 | ) | | | (.30 | ) | | | (.52 | ) | | | (.08 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $13.07 | | | | $11.63 | | | | $11.33 | | | | $11.74 | | | | $11.74 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d) | | | 14.67 | % | | | 3.59 | %† | | | (1.09 | )% | | | 4.45 | % | | | 12.31 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $328 | | | | $303 | | | | $400 | | | | $350 | | | | $269 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (e) | | | .77 | % | | | .79 | % | | | .83 | % | | | .85 | % | | | .85 | % |
Expenses, before waivers/reimbursements (e) | | | .78 | % | | | .81 | % | | | .83 | % | | | .85 | % | | | .89 | % |
Net investment income | | | 1.39 | %(b) | | | 1.11 | %(b)† | | | .67 | % | | | .69 | %(b) | | | .31 | %(b) |
Portfolio turnover rate | | | 20 | % | | | 64 | % | | | 93 | % | | | 53 | % | | | 52 | % |
See footnote summary on page 47.
46
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $11.56 | | | | $11.26 | | | | $11.68 | | | | $11.68 | | | | $10.49 | |
| | | | �� | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .14 | (b) | | | .10 | (b)† | | | .05 | | | | .05 | (b) | | | .01 | (b) |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 1.50 | | | | .27 | | | | (.19 | ) | | | .45 | | | | 1.25 | |
Contributions from Affiliates | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 1.64 | | | | .37 | | | | (.14 | ) | | | .50 | | | | 1.26 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.22 | ) | | | (.07 | ) | | | (.08 | ) | | | (.05 | ) | | | (.03 | ) |
Distributions from net realized gain on investment transactions | | | –0 | – | | | (.00 | )(c) | | | (.20 | ) | | | (.45 | ) | | | (.04 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.22 | ) | | | (.07 | ) | | | (.28 | ) | | | (.50 | ) | | | (.07 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $12.98 | | | | $11.56 | | | | $11.26 | | | | $11.68 | | | | $11.68 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d) | | | 14.32 | % | | | 3.37 | %† | | | (1.30 | )% | | | 4.21 | % | | | 12.04 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $604,703 | | | | $558,725 | | | | $511,164 | | | | $481,600 | | | | $387,519 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (e) | | | 1.03 | % | | | 1.05 | % | | | 1.08 | % | | | 1.10 | % | | | 1.10 | % |
Expenses, before waivers/reimbursements (e) | | | 1.04 | % | | | 1.07 | % | | | 1.08 | % | | | 1.10 | % | | | 1.14 | % |
Net investment income | | | 1.15 | %(b) | | | .89 | %(b)† | | | .43 | % | | | .44 | %(b) | | | .05 | %(b) |
Portfolio turnover rate | | | 20 | % | | | 64 | % | | | 93 | % | | | 53 | % | | | 52 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of fees waived and expenses reimbursed by the Adviser. |
| (c) | | Amount is less than $.005. |
| (d) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| (e) | | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio 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 Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the years ended December 31, 2017 and December 31, 2016, such waiver amounted to 0.01% and 0.02% (annualized), respectively. |
| † | | For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | |
Net Investment Income Per Share | | Net Investment Income Ratio | | Total Return |
| $.00005 | | .0004% | | .0004% |
| | | | |
47
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Dynamic Asset Allocation Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Dynamic Asset Allocation Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Dynamic Asset Allocation Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
48
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| 2017 FEDERAL TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 18.35% of dividends paid qualify for the dividends received deduction.
49
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| DYNAMIC ASSET ALLOCATION |
| PORTFOLIO | | AB Variable Products Series Fund |
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| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
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| OFFICERS | | |
Brian T. Brugman(2), Vice President Daniel J. Loewy(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
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| CUSTODIAN AND ACCOUNTING AGENT | | LEGAL COUNSEL |
| State Street Bank and Trust Company | | Seward & Kissel LLP |
State Street Corporation CCB/5 1 Iron Street | | One Battery Park Plaza New York, NY 10004 |
| Boston, MA 02210 | | |
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| DISTRIBUTOR | | TRANSFER AGENT |
| AllianceBernstein Investments, Inc. | | AllianceBernstein Investor Services, Inc. |
| 1345 Avenue of the Americas | | P.O. Box 786003 |
| New York, NY 10105 | | San Antonio, TX 78278-6003 |
| | Toll-Free 1-(800) 221-5672 |
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| INDEPENDENT REGISTERED PUBLIC | | |
| ACCOUNTING FIRM | | |
| Ernst & Young LLP | | |
| 5 Times Square | | |
| New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the Adviser’s Dynamic Asset Allocation Team. Messrs. Brugman and Loewy are the investment professionals primarily responsible for the day-to-day management of the Portfolio’s portfolio. |
50
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| MANAGEMENT OF THE FUND | | AB Variable Products Series 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,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
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| DISINTERESTED DIRECTORS |
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Marshall C. Turner, Jr.,## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
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Michael J. Downey,## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
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NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
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DISINTERESTED DIRECTORS (continued) |
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William H. Foulk, Jr.,## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
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Nancy P. Jacklin,## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
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Carol C. McMullen,## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
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| | | AB Variable Products Series Fund |
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NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) |
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Garry L. Moody,## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | | | 96 | | | None |
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Earl D. Weiner,## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
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NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE (5) YEARS |
Robert M. Keith 57 | | President and Chief Executive Officer | | See biography above. |
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Brian T. Brugman 37 | | Vice President | | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. |
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Daniel J. Loewy 43 | | Vice President | | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. He is also Chief Investment Officer and Head of Multi-Asset Solutions and Chief Investment Officer for Dynamic Asset Allocation. |
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Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel, and Assistant Secretary of ABI,** with which she has been associated since prior to 2013. |
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Joseph J. Mantineo 58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2013. |
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Phyllis J. Clarke 57 | | Controller | | Vice President of ABIS,** with which she has been associated since prior to 2013. |
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Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | The Adviser, ABIS and ABI 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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Dynamic Asset Allocation Portfolio (the “Fund”) at a meeting held on August 1-2, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous fac-
55
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| DYNAMIC ASSET ALLOCATION PORTFOLIO |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
tors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, 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 May 31, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund is paid for services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal
56
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year. The directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had previously discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
57
VPS-DAA-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| GLOBAL BOND PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Global Bond Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
At a meeting of the Board of Directors of AB Variable Products Series Fund, Inc. (the “Fund”) held on February 6-7, 2018, the Board approved the liquidation and termination of the Portfolio (the “Liquidation”). The Portfolio expects to make liquidating distributions on or shortly after April 20, 2018 and will convert its assets to cash shortly before this date. The insurance company separate accounts through which owners of variable insurance contracts hold interests in the Portfolio will give such Contractholders notice of the Liquidation as well as information about allocating their variable insurance contract assets to other investment options available under their contracts.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to generate current income consistent with preservation of capital. The Portfolio invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. In addition, the Portfolio will, under normal circumstances, invest at least 40% of its net assets in the fixed-income securities of non-US corporate and governmental issuers, and invest in issuers located in at least three countries. The Portfolio may invest in a broad range of fixed-income securities in both developed and emerging markets. The Portfolio may invest across all fixed-income sectors, including US and non-US government and corporate debt securities. The Portfolio’s investments may be denominated in local currency or US dollars. The Portfolio may invest in debt securities with a range of maturities from short- to long-term. For a period of time after the Portfolio’s inception, the Portfolio may gain up to approximately 50% of its exposure to fixed-income securities through investment in the AB Global Bond Fund, another investment company advised by the Adviser that has investment objectives and policies substantially similar to those of the Portfolio.
The Adviser selects securities for purchase or sale based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Portfolio. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Portfolio’s other holdings.
The Adviser will actively manage the Portfolio’s assets in relation to market conditions and general economic conditions and adjust the Portfolio’s investments in an effort to best enable the Portfolio to achieve its investment objective. Thus, the percentage of the Portfolio’s assets invested in a particular country or denominated in a particular currency will vary in accordance with the Adviser’s assessment of the relative yield and appreciation potential of such securities and the relationship of the country’s currency to the US dollar. While the Adviser expects to hedge some or all of the foreign currency exposure resulting from the Portfolio’s securities positions through the use of currency-related derivatives, it is not required to do so.
Under normal circumstances, the Portfolio invests at least 75% of its net assets in fixed-income securities rated investment-grade at the time of investment and may invest up to 25% of its net assets in below investment-grade fixed-income securities (commonly known as “junk bonds”).
The Portfolio expects to use derivatives, such as options, futures contracts, forwards and swaps, to a significant extent. For example, the Adviser may enter into futures contracts and swaps on interest rates, credit default swaps to gain or hedge exposure to specific fixed-income securities and currency-related derivatives as noted above. In addition, the Portfolio may borrow money for investment purposes, and expects to enter into transactions such as reverse repurchase agreements and dollar rolls that are functionally equivalent to borrowings. These derivatives and borrowing transactions will at times create aggregate exposure to fixed-income securities for the Portfolio substantially in excess of its net assets, effectively leveraging the Portfolio.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its benchmark, the Bloomberg Barclays Global Aggregate Bond Index (USD hedged), for the one-year period ended December 31, 2017, and the period since the Portfolio’s inception on April 29, 2015.
During the annual period, all share classes of the Portfolio underperformed the benchmark. Currency investments detracted from relative performance, primarily because of short positions in the Australian dollar, Canadian dollar, offshore Chinese renminbi and Japanese yen. A long position in the euro added to returns. The Portfolio’s Brazilian and Canadian yield-curve positioning was also negative. Sector selection contributed due to allocations to US agency risk-sharing transactions and high-yield corporates, as well as a beneficial exposure to emerging-market treasuries. Country positioning also added to performance due to an underweight in Japan and an out-of-benchmark
1
| | |
| | | AB Variable Products Series Fund |
exposure to Brazil. Security decisions were positive, as gains from selection in US and eurozone corporates (both investment-grade and high-yield) and emerging-market sovereigns more than offset losses from selection within US commercial mortgage-backed securities.
During the annual period the Portfolio utilized currency forwards to hedge currency exposure as well as to manage active currency risk. Credit default swaps were used to take active credit risk. Treasury futures were used to manage duration, country exposure and yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Global bonds generally rallied over the annual period, with political events and central bank action being the main drivers of market performance. US president Donald Trump’s promise of fiscal stimulus and relaxed regulation were treated as positive developments by financial markets. Though uncertainty regarding the administration’s ability to implement meaningful changes rose during the period, markets reacted with enthusiasm when the Tax Cuts and Jobs Act was passed in December. UK prime minister Theresa May’s surprise snap parliamentary election—in an effort to firm up the UK’s mandate going into Brexit negotiations—increased political uncertainty; however, at the end of the period, progress was made as the UK and European Union agreed to move on to the second phase of negotiations. In France, investors were relieved when Emmanuel Macron was elected president, as his pro-EU reformist agenda was seen as more business friendly than the protectionist policies espoused by his opponent. The US Federal Reserve (the “Fed”) raised interest rates three times in 2017, with hikes that were well-telegraphed and universally anticipated by markets. The Fed also formally began its balance-sheet reduction program, while the European Central Bank announced that it would start to taper the pace of its monthly asset purchases in January 2018.
Emerging-market debt rallied in the year, helped by a positive global growth story and increasing oil prices. Emerging-market local-currency government bonds rose, performing in line with investment-grade credit securities and outperforming the positive returns of developed-market treasuries, but lagging the robust returns of global high yield. Developed-market treasury yields were mixed: yields in the US, Canada, UK and Australia flattened, with the short end of the curve rising while longer maturities moved lower. Japanese yields generally ended the period higher. Yield curves in the eurozone moved in different directions.
2
| | |
| | |
| GLOBAL BOND PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Bloomberg Barclays Global Aggregate Bond Index (USD hedged) is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays Global Aggregate Bond Index represents the performance of the global investment-grade developed fixed-income markets. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Investment in Other Investment Companies Risk: As with other investments, investments in other investment companies, including exchange-traded funds, are subject to market and selection risk. In addition, contract holders of the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
(Disclosures and Risks continued on next page)
3
| | |
| | |
| DISCLOSURES AND RISKS | | |
| (continued) | | AB Variable Products Series Fund |
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Non-Diversification Risk: The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s NAV.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemption of Portfolio shares. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
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| | |
| GLOBAL BOND PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | |
| | | | | | | | |
| THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | Since Inception1 | |
| Global Bond Portfolio Class A | | | 2.80% | | | | 2.89% | |
| Global Bond Portfolio Class B | | | 2.50% | | | | 2.62% | |
| Bloomberg Barclays Global Aggregate Bond Index (USD hedged) | | | 3.04% | | | | 2.45% | |
1 Inception date: 4/29/2015. | | | | | | | | |
| | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 3.30% and 3.55% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios exclusive of acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Portfolio may invest, interest expense, taxes, extraordinary expenses, expenses associated with securities sold short, and brokerage commissions and other transaction costs to 0.64% and 0.89% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2018 and may be extended by the Adviser for additional one-year terms. Any fees waived and expenses borne by the Adviser through April 28, 2016 may be reimbursed by the Portfolio 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 Portfolio’s total annual operating expenses to exceed the expense limitations. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GLOBAL BOND PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
4/29/20151 to 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Global Bond Portfolio Class A shares (from 4/29/20151 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
| 1 | | Inception date: 4/29/2015. |
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
5
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| | |
| GLOBAL BOND PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | | | Total
Expenses Paid
During Period+ | | | Total
Annualized
Expense Ratio+ | |
Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,009.30 | | | $ | 1.98 | | | | 0.39 | % | | $ | 3.24 | | | | 0.64 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,023.24 | | | $ | 1.99 | | | | 0.39 | % | | $ | 3.26 | | | | 0.64 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,008.20 | | | $ | 3.24 | | | | 0.64 | % | | $ | 4.50 | | | | 0.89 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,021.98 | | | $ | 3.26 | | | | 0.64 | % | | $ | 4.54 | | | | 0.89 | % |
| * | | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
| + | | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio 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 and expenses from the Portfolio in an amount equal to the Portfolio’s pro rata share of affiliated acquired fund fees and expenses. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
| | |
| GLOBAL BOND PORTFOLIO | | |
| SECURITY TYPE BREAKDOWN1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| SECURITY TYPE | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Investment Companies | | $ | 5,434,142 | | | | 48.8 | % |
Governments—Treasuries | | | 3,575,274 | | | | 32.1 | |
Mortgage Pass-Throughs | | | 461,763 | | | | 4.1 | |
Corporates—Investment Grade | | | 364,914 | | | | 3.3 | |
Inflation-Linked Securities | | | 352,327 | | | | 3.2 | |
Governments—Sovereign Agencies | | | 240,314 | | | | 2.2 | |
Emerging Markets—Treasuries | | | 157,467 | | | | 1.4 | |
Local Governments—Provincial Bonds | | | 139,843 | | | | 1.3 | |
Corporates—Non-Investment Grade | | | 125,455 | | | | 1.1 | |
Collateralized Mortgage Obligations | | | 124,790 | | | | 1.1 | |
Covered Bonds | | | 37,335 | | | | 0.3 | |
Commercial Mortgage-Backed Securities | | | 19,844 | | | | 0.2 | |
Emerging Markets—Corporate Bonds | | | 16,564 | | | | 0.1 | |
Short-Term Investments | | | 67,048 | | | | 0.6 | |
Other2 | | | 22,267 | | | | 0.2 | |
| | | | | | | | | |
Total Investments | | $ | 11,139,347 | | | | 100.0 | % |
COUNTRY BREAKDOWN3
December 31, 2017 (unaudited)
| | | | | | | | |
| COUNTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
United States | | $ | 7,730,404 | | | | 69.4 | % |
Italy | | | 609,958 | | | | 5.5 | |
United Kingdom | | | 580,900 | | | | 5.2 | |
Canada | | | 466,121 | | | | 4.2 | |
Germany | | | 415,976 | | | | 3.7 | |
Belgium | | | 195,850 | | | | 1.8 | |
Mexico | | | 194,426 | | | | 1.7 | |
Brazil | | | 180,559 | | | | 1.6 | |
Spain | | | 166,073 | | | | 1.5 | |
France | | | 125,018 | | | | 1.1 | |
Australia | | | 106,647 | | | | 1.0 | |
New Zealand | | | 68,290 | | | | 0.6 | |
Sweden | | | 61,371 | | | | 0.6 | |
Other | | | 170,706 | | | | 1.5 | |
Short-Term Investments | | | 67,048 | | | | 0.6 | |
| | | | | | | | | |
Total Investments | | $ | 11,139,347 | | | | 100.0 | % |
| 1 | | The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivatives transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
| 2 | | “Other” represents less than 0.1% weightings in the following security types: Emerging Markets—Sovereigns and Quasi-Sovereigns. |
| 3 | | All data are as of December 31, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 0.5% or less in the following countries: Argentina, Israel, Poland, Russia, South Africa, Switzerland and Uruguay. |
7
| | |
| GLOBAL BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund, Inc. |
| | | | | | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
INVESTMENT
COMPANIES–51.0% | | | | | | | | | | | | |
FUNDS AND INVESTMENT TRUSTS–51.0% | | | | | | | | | | | | |
AB Global Bond Fund, Inc.–
Class Z(a)(b)
(cost $5,466,943) | | | | | | | 646,922 | | | $ | 5,434,142 | |
| | | | | | | | | | | | |
| | | Principal
Amount
(000) | | | | |
GOVERNMENTS–
TREASURIES–33.5% | | | | | | | | | | | | |
AUSTRALIA–1.0% | | | | | | | | | | | | |
Australia Government Bond
Series 128
5.75%, 7/15/22(c) | | | AUD | | | | 75 | | | | 67,170 | |
Series 142
4.25%, 4/21/26(c) | | | | | | | 45 | | | | 39,477 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 106,647 | |
| | | | | | | | | | | | |
BELGIUM–1.8% | | | | | | | | | | | | |
Kingdom of Belgium
Government Bond
Series 71
3.75%, 6/22/45(c) | | | EUR | | | | 27 | | | | 48,123 | |
Series 72
2.60%, 6/22/24(c) | | | | | | | 53 | | | | 73,441 | |
Series 81
0.80%, 6/22/27(c) | | | | | | | 61 | | | | 74,286 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 195,850 | |
| | | | | | | | | | | | |
CANADA–0.7% | | | | | | | | | | | | |
Canadian Government Bond
1.00%, 6/01/27 | | | CAD | | | | 85 | | | | 61,603 | |
2.75%, 12/01/48 | | | | | | | 15 | | | | 13,210 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 74,813 | |
| | | | | | | | | | | | |
FRANCE–1.2% | | | | | | | | | | | | |
French Republic
Government Bond OAT
2.50%, 5/25/30(c) | | | EUR | | | | 35 | | | | 49,636 | |
3.50%, 4/25/26(c) | | | | | | | 50 | | | | 75,382 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 125,018 | |
| | | | | | | | | | | | |
GERMANY–3.9% | | | | | | | | | | | | |
Bundesobligation
Series 175
Zero Coupon, 4/08/22(c) | | | | | | | 260 | | | | 315,888 | |
Bundesrepublik Deutschland
Bundesanleihe
2.50%, 7/04/44–8/15/46(c) | | | | | | | 64 | | | | 100,088 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 415,976 | |
| | | | | | | | | | | | |
ITALY–5.7% | | | | | | | | | | | | |
Italy Buoni Poliennali
Del Tesoro
1.35%, 4/15/22 | | | | | | | 75 | | | | 92,703 | |
3.45%, 3/01/48(c) | | | | | | | 13 | | | | 16,160 | |
3.75%, 5/01/21 | | | | | | | 262 | | | | 350,085 | |
| | | | | | | | | | | | |
4.50%, 8/01/18 | | | EUR | | | | 45 | | | $ | 55,564 | |
5.50%, 11/01/22 | | | | | | | 65 | | | | 95,446 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 609,958 | |
| | | | | | | | | | | | |
MEXICO–1.7% | | | | | | | | | | | | |
Mexican Bonos Series M
6.50%, 6/10/21 | | | MXN | | | | 1,045 | | | | 51,221 | |
8.00%, 6/11/20 | | | | | | | 1,280 | | | | 65,536 | |
Series M 20
10.00%, 12/05/24 | | | | | | | 1,080 | | | | 61,732 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 178,489 | |
| | | | | | | | | | | | |
NEW ZEALAND–0.5% | | | | | | | | | | | | |
New Zealand Government Bond
Series 423
5.50%, 4/15/23(c) | | | NZD | | | | 65 | | | | 53,480 | |
| | | | | | | | | | | | |
POLAND–0.5% | | | | | | | | | | | | |
Republic of Poland
Government Bond
Series 1023
4.00%, 10/25/23 | | | PLN | | | | 170 | | | | 52,063 | |
| | | | | | | | | | | | |
RUSSIA–0.3% | | | | | | | | | | | | |
Russian Federal Bond–OFZ
Series 6214
6.40%, 5/27/20 | | | RUB | | | | 1,850 | | | | 31,759 | |
| | | | | | | | | | | | |
SPAIN–1.6% | | | | | | | | | | | | |
Spain Government Bond
1.95%, 7/30/30(c) | | | EUR | | | | 13 | | | | 15,649 | |
2.15%, 10/31/25(c) | | | | | | | 20 | | | | 25,827 | |
2.90%, 10/31/46(c) | | | | | | | 29 | | | | 35,196 | |
4.10%, 7/30/18(c) | | | | | | | 45 | | | | 55,409 | |
4.20%, 1/31/37(c) | | | | | | | 21 | | | | 32,251 | |
5.15%, 10/31/44(c) | | | | | | | 1 | | | | 1,741 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 166,073 | |
| | | | | | | | | | | | |
SWEDEN–0.2% | | | | | | | | | | | | |
Sweden Government Bond
Series 1054
3.50%, 6/01/22 | | | SEK | | | | 170 | | | | 24,036 | |
| | | | | | | | | | | | |
UNITED KINGDOM–5.3% | | | | | | | | | | | | |
United Kingdom Gilt
1.50%, 7/22/26(c) | | | GBP | | | | 45 | | | | 62,765 | |
1.75%, 9/07/22(c) | | | | | | | 20 | | | | 28,281 | |
2.00%, 7/22/20–9/07/25(c) | | | | | | | 115 | | | | 164,799 | |
2.25%, 9/07/23(c) | | | | | | | 78 | | | | 113,601 | |
3.25%, 1/22/44(c) | | | | | | | 38 | | | | 66,840 | |
4.25%, 12/07/27(c) | | | | | | | 75 | | | | 130,208 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 566,494 | |
| | | | | | | | | | | | |
UNITED STATES–9.1% | | | | | | | | | | | | |
U.S. Treasury Bonds
2.875%, 5/15/43–11/15/46 | | $ | | | | | 109 | | | | 111,954 | |
3.00%, 11/15/44–11/15/45 | | | | | | | 95 | | | | 99,781 | |
3.625%, 8/15/43 | | | | | | | 90 | | | | 105,047 | |
6.25%, 5/15/30 | | | | | | | 90 | | | | 126,520 | |
U.S. Treasury Notes
1.625%, 2/15/26–5/15/26 | | | | | | | 70 | | | | 65,993 | |
1.75%, 6/30/22 | | | | | | | 130 | | | | 127,644 | |
2.00%, 2/15/25–11/15/26 | | | | | | | 98 | | | | 95,262 | |
8
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| Company | | Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
2.125%, 12/31/22 | | $ | | | | | 55 | | | $ | 54,777 | |
2.25%, 2/15/27 | | | | | | | 185 | | | | 182,601 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 969,579 | |
| | | | | | | | | | | | |
URUGUAY–0.0% | | | | | | | | | | | | |
Uruguay Government International Bond 8.50%, 3/15/28(c) | | | UYU | | | | 146 | | | | 5,039 | |
| | | | | | | | | | | | |
Total Governments–Treasuries
(cost $3,470,293) | | | | | | | | | | | 3,575,274 | |
| | | | | | | | | | | | |
MORTGAGE PASS–THROUGHS–4.3% | | | | | | | | | | | | |
AGENCY FIXED RATE 30-YEAR–4.2% | | | | | | | | | | | | |
Federal National Mortgage Association
3.50%, 1/01/48, TBA | | $ | | | | | 195 | | | | 200,287 | |
4.00%, 1/01/48, TBA | | | | | | | 239 | | | | 250,325 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 450,612 | |
| | | | | | | | | | | | |
OTHER AGENCY FIXED RATE PROGRAMS–0.1% | | | | | | | | | | | | |
Canadian Mortgage Pools
6.125%, 12/15/24 | | | CAD | | | | 12 | | | | 11,151 | |
| | | | | | | | | | | | |
Total Mortgage Pass-Throughs
(cost $461,000) | | | | | | | | | | | 461,763 | |
| | | | | | | | | | | | |
CORPORATES–INVESTMENT GRADE–3.4% | | | | | | | | | | | | |
INDUSTRIAL–2.6% | | | | | | | | | | | | |
BASIC–0.2% | | | | | | | | | | | | |
Fibria Overseas Finance Ltd.
5.50%, 1/17/27 | | $ | | | | | 2 | | | | 2,142 | |
Glencore Funding LLC
4.00%, 4/16/25(c) | | | | | | | 5 | | | | 5,072 | |
4.125%, 5/30/23(c) | | | | | | | 5 | | | | 5,178 | |
4.625%, 4/29/24(c) | | | | | | | 4 | | | | 4,231 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 16,623 | |
| | | | | | | | | | | | |
CAPITAL GOODS–0.0% | | | | | | | | | | | | |
General Electric Co.
Series D
5.00%, 1/21/21(d) | | | | | | | 5 | | | | 5,163 | |
| | | | | | | | | | | | |
COMMUNICATIONS–MEDIA–0.3% | | | | | | | | | |
Charter Communications Operating LLC/Charter Communications Operating Capital
3.579%, 7/23/20 | | | | | | | 5 | | | | 5,089 | |
4.908%, 7/23/25 | | | | | | | 15 | | | | 15,933 | |
Cox Communications, Inc.
2.95%, 6/30/23(c) | | | | | | | 8 | | | | 7,875 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 28,897 | |
| | | | | | | | | | | | |
COMMUNICATIONS–
TELECOMMUNICATIONS–0.4% | | | | | | | | | | | | |
AT&T, Inc.
3.40%, 8/14/24–5/15/25 | | | | | | | 13 | | | | 13,002 | |
3.60%, 2/17/23 | | | | | | | 7 | | | | 7,169 | |
4.125%, 2/17/26 | | | | | | | 12 | | | | 12,254 | |
4.90%, 8/14/37 | | | | | | | 10 | | | | 10,117 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 42,542 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
CONSUMER NON-CYCLICAL–0.4% | | | | | | | | | |
Celgene Corp.
2.75%, 2/15/23 | | $ | | | | | 9 | | | $ | 8,918 | |
3.45%, 11/15/27 | | | | | | | 11 | | | | 11,005 | |
Reynolds American, Inc.
4.45%, 6/12/25 | | | | | | | 10 | | | | 10,663 | |
5.85%, 8/15/45 | | | | | | | 3 | | | | 3,743 | |
Teva Pharmaceutical Finance
Netherlands III BV
3.15%, 10/01/26 | | | | | | | 12 | | | | 9,855 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 44,184 | |
| | | | | | | | | | | | |
ENERGY–0.3% | | | | | | | | | | | | |
Energy Transfer LP
4.65%, 6/01/21 | | | | | | | 5 | | | | 5,247 | |
EnLink Midstream Partners LP
4.15%, 6/01/25 | | | | | | | 13 | | | | 13,089 | |
Hess Corp.
4.30%, 4/01/27 | | | | | | | 7 | | | | 6,997 | |
Plains All American Pipeline
LP/PAA Finance Corp.
3.60%, 11/01/24 | | | | | | | 12 | | | | 11,685 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 37,018 | |
| | | | | | | | | | | | |
SERVICES–0.2% | | | | | | | | | | | | |
Expedia, Inc.
3.80%, 2/15/28 | | | | | | | 6 | | | | 5,798 | |
S&P Global, Inc.
4.40%, 2/15/26 | | | | | | | 15 | | | | 16,200 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 21,998 | |
| | | | | | | | | | | | |
TECHNOLOGY–0.8% | | | | | | | | | | | | |
Broadcom Corp./Broadcom Cayman Finance Ltd.
3.625%, 1/15/24(c) | | | | | | | 5 | | | | 4,974 | |
3.875%, 1/15/27(c) | | | | | | | 5 | | | | 4,933 | |
Dell International LLC/EMC Corp.
5.45%, 6/15/23(c) | | | | | | | 20 | | | | 21,590 | |
6.02%, 6/15/26(c) | | | | | | | 5 | | | | 5,510 | |
HP, Inc.
4.65%, 12/09/21 | | | | | | | 10 | | | | 10,643 | |
KLA-Tencor Corp.
4.65%, 11/01/24 | | | | | | | 15 | | | | 16,270 | |
Seagate HDD Cayman
4.875%, 3/01/24(c) | | | | | | | 5 | | | | 5,015 | |
VMware, Inc.
2.95%, 8/21/22 | | | | | | | 6 | | | | 5,986 | |
Western Digital Corp.
7.375%, 4/01/23(c) | | | | | | | 10 | | | | 10,793 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 85,714 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 282,139 | |
| | | | | | | | | | | | |
FINANCIAL INSTITUTIONS–0.8% | | | | | | | | | |
BANKING–0.6% | | | | | | | | | | | | |
Bank of America Corp.
3.419%, 12/20/28(c) | | | | | | | 10 | | | | 9,987 | |
3.824%, 1/20/28 | | | | | | | 15 | | | | 15,516 | |
Goldman Sachs Group, Inc. (The)
3.85%, 1/26/27 | | | | | | | 3 | | | | 3,080 | |
Series E
1.625%, 7/27/26(c) | | | EUR | | | | 5 | | | | 6,100 | |
JPMorgan Chase & Co.
3.782%, 2/01/28 | | $ | | | | | 16 | | | | 16,563 | |
9
| | |
| GLOBAL BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| Company | | Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | |
Santander Holdings USA, Inc.
4.40%, 7/13/27(c) | | $ | | | | | 15 | | | $ | 15,350 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 66,596 | |
| | | | | | | | | | | | |
FINANCE–0.1% | | | | | | | | | | | | |
Synchrony Financial
3.95%, 12/01/27 | | | | | | | 11 | | | | 10,953 | |
| | | | | | | | | | | | |
REITS–0.1% | | | | | | | | | | | | |
VEREIT Operating Partnership LP
4.60%, 2/06/24 | | | | | | | 5 | | | | 5,226 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 82,775 | |
| | | | | | | | | | | | |
Total Corporates–Investment Grade
(cost $357,716) | | | | | | | | | | | 364,914 | |
| | | | | | | | | | | | |
INFLATION-LINKED SECURITIES–3.3% | | | | | | | | | | | | |
BRAZIL–0.5% | | | | | | | | | | | | |
Brazil Notas do Tesouro Nacional Series B
6.00%, 8/15/50–5/15/55 | | | BRL | | | | 56 | | | | 55,565 | |
| | | | | | | | | | | | |
NEW ZEALAND–0.1% | | | | | | | | | | | | |
New Zealand Government Bond Series 925
2.00%, 9/20/25(c) | | | NZD | | | | 20 | | | | 14,810 | |
| | | | | | | | | | | | |
UNITED STATES–2.7% | | | | | | | | | | | | |
U.S. Treasury Inflation Index
0.125%, 4/15/20 (TIPS) | | $ | | | | | 184 | | | | 183,928 | |
0.25%, 1/15/25 (TIPS) | | | | | | | 99 | | | | 98,024 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 281,952 | |
| | | | | | | | | | | | |
Total Inflation-Linked Securities
(cost $349,428) | | | | | | | | | | | 352,327 | |
| | | | | | | | | | | | |
GOVERNMENTS–SOVEREIGN AGENCIES–2.3% | | | | | | | | | |
CANADA–2.3% | | | | | | | | | | | | |
Canada Housing Trust No. 1
3.80%, 6/15/21(c)
(cost $245,004) | | | CAD | | | | 285 | | | | 240,314 | |
| | | | | | | | | | | | |
EMERGING MARKETS–TREASURIES–1.5% | | | | | | | | | | | | |
ARGENTINA–0.3% | | | | | | | | | | | | |
Argentina POM Politica Monetaria Series POM 27.277% (ARPP7DRR + 0.00%), 6/21/20(e) | | | ARS | | | | 44 | | | | 2,562 | |
Argentine Bonos del Tesoro
15.50%, 10/17/26 | | | | | | | 205 | | | | 11,021 | |
16.00%, 10/17/23 | | | | | | | 389 | | | | 20,790 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 34,373 | |
| | | | | | | | | | | | |
BRAZIL–1.0% | | | | | | | | | | | | |
Brazil Notas do Tesouro Nacional Series F
10.00%, 1/01/21–1/01/25 | | | BRL | | | | 349 | | | | 106,288 | |
| | | | | | | | | | | | |
SOUTH AFRICA–0.2% | | | | | | | | | | | | |
Republic of South Africa Government Bond
Series 2048
8.75%, 2/28/48 | | | ZAR | | | | 231 | | | | 16,806 | |
| | | | | | | | | | | | |
Total Emerging Markets–Treasuries
(cost $165,416) | | | | | | | | | | | 157,467 | |
| | | | | | | | | | | | |
LOCAL GOVERNMENTS–PROVINCIAL BONDS–1.3% | | | | | | | | | |
CANADA–1.3% | | | | | | | | | | | | |
Province of Ontario Canada
2.40%, 6/02/26 | | | CAD | | | | 15 | | | $ | 11,776 | |
2.60%, 6/02/25–6/02/27 | | | | | | | 80 | | | | 63,611 | |
Province of Quebec Canada
2.75%, 9/01/27 | | | | | | | 80 | | | | 64,456 | |
| | | | | | | | | | | | |
Total Local Governments–Provincial Bonds
(cost $138,925) | | | | | | | | | | | 139,843 | |
| | | | | | | | | | | | |
CORPORATES–NON-INVESTMENT GRADE–1.2% | | | | | | | | | |
INDUSTRIAL–1.0% | | | | | | | | | | | | |
COMMUNICATIONS–TELECOMMUNICATIONS–0.2% | | | | | | | | | |
CenturyLink, Inc. | | | | | | | | | | | | |
Series S
6.45%, 6/15/21 | | $ | | | | | 8 | | | | 8,099 | |
Series T
5.80%, 3/15/22 | | | | | | | 8 | | | | 7,835 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 15,934 | |
| | | | | | | | | | | | |
CONSUMER
NON-CYCLICAL–0.4% | | | | | | | | | | | | |
CHS/Community Health Systems, Inc.
5.125%, 8/01/21 | | | | | | | 5 | | | | 4,516 | |
6.25%, 3/31/23 | | | | | | | 5 | | | | 4,503 | |
Mallinckrodt International Finance
SA/Mallinckrodt CB LLC
4.875%, 4/15/20(c) | | | | | | | 7 | | | | 6,760 | |
5.75%, 8/01/22(c) | | | | | | | 3 | | | | 2,734 | |
Tenet Healthcare Corp.
4.375%, 10/01/21 | | | | | | | 6 | | | | 6,015 | |
4.50%, 4/01/21 | | | | | | | 5 | | | | 5,041 | |
Valeant Pharmaceuticals International, Inc.
5.875%, 5/15/23(c) | | | | | | | 5 | | | | 4,647 | |
6.125%, 4/15/25(c) | | | | | | | 4 | | | | 3,675 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 37,891 | |
| | | | | | | | | | | | |
ENERGY–0.4% | | | | | | | | | | | | |
Cheniere Energy Partners LP
5.25%, 10/01/25(c) | | | | | | | 6 | | | | 6,121 | |
Diamond Offshore Drilling, Inc. 4.875%, 11/01/43 | | | | | | | 10 | | | | 7,300 | |
Energy Transfer Equity LP
4.25%, 3/15/23 | | | | | | | 10 | | | | 9,909 | |
Hess Infrastructure Partners LP/Hess Infrastructure Partners Finance Corp.
5.625%, 2/15/26(c) | | | | | | | 7 | | | | 7,228 | |
Nabors Industries, Inc.
5.50%, 1/15/23 | | | | | | | 3 | | | | 2,913 | |
PDC Energy, Inc.
5.75%, 5/15/26(c) | | | | | | | 3 | | | | 3,072 | |
QEP Resources, Inc.
5.25%, 5/01/23 | | | | | | | 10 | | | | 10,117 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 46,660 | |
| | | | | | | | | | | | |
10
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| Company | | Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | |
TRANSPORTATION–
SERVICES–0.0% | | | | | | | | | | | | |
Hertz Corp. (The)
5.50%, 10/15/24(c) | | $ | | | | | 5 | | | $ | 4,516 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 105,001 | |
| | | | | | | | | | | | |
FINANCIAL INSTITUTIONS–0.2% | | | | | | | | | |
BANKING–0.1% | | | | | | | | | | | | |
Goldman Sachs Group, Inc. (The) Series P
5.00%, 11/10/22(d) | | | | | | | 10 | | | | 9,892 | |
| | | | | | | | | | | | |
FINANCE–0.1% | | | | | | | | | | | | |
Navient Corp.
6.625%, 7/26/21 | | | | | | | 10 | | | | 10,562 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 20,454 | |
| | | | | | | | | | | | |
Total Corporates–
Non-Investment Grade
(cost $126,859) | | | | | | | | | | | 125,455 | |
| | | | | | | | | | | | |
COLLATERALIZED MORTGAGE
OBLIGATIONS–1.2% | | | | | | | | | | | | |
RISK SHARE FLOATING RATE–1.2% | | | | | | | | | |
Federal National Mortgage Association Connecticut Avenue Securities
Series 2014-C04, Class 2M2 6.552% (LIBOR 1 Month + 5.00%), 11/25/24(e) | | | | | | | 12 | | | | 13,852 | |
Series 2015-C01, Class 1M2 5.852% (LIBOR 1 Month + 4.30%), 2/25/25(e) | | | | | | | 8 | | | | 8,344 | |
Series 2015-C01, Class 2M2 6.102% (LIBOR 1 Month + 4.55%), 2/25/25(e) | | | | | | | 12 | | | | 13,219 | |
Series 2015-C02, Class 2M2 5.552% (LIBOR 1 Month + 4.00%), 5/25/25(e) | | | | | | | 20 | | | | 20,876 | |
Series 2015-C03, Class 2M2 6.552% (LIBOR 1 Month + 5.00%), 7/25/25(e) | | | | | | | 9 | | | | 9,798 | |
Series 2016-C01, Class 1M2 8.302% (LIBOR 1 Month + 6.75%), 8/25/28(e) | | | | | | | 13 | | | | 14,881 | |
Series 2016-C01, Class 2M2 8.502% (LIBOR 1 Month + 6.95%), 8/25/28(e) | | | | | | | 13 | | | | 14,786 | |
Series 2016-C02, Class 1M2 7.552% (LIBOR 1 Month + 6.00%), 9/25/28(e) | | | | | | | 15 | | | | 17,806 | |
Series 2016-C04, Class 1M2 5.802% (LIBOR 1 Month + 4.25%), 1/25/29(e) | | | | | | | 10 | | | | 11,228 | |
| | | | | | | | | | | | |
Total Collateralized Mortgage Obligations
(cost $115,933) | | | | | | | | | | | 124,790 | |
| | | | | | | | | | | | |
COVERED BONDS–0.3% | | | | | | | | | | | | |
Nordea Hypotek AB
Series 5531
1.00%, 4/08/22 | | | SEK | | | | 100 | | | | 12,411 | |
Swedbank Hypotek AB
Series 190
1.00%, 9/15/21(c) | | | SEK | | | | 200 | | | $ | 24,924 | |
| | | | | | | | | | | | |
Total Covered Bonds
(cost $36,672) | | | | | | | | | | | 37,335 | |
| | | | | | | | | | | | |
COMMERCIAL MORTGAGE–BACKED SECURITIES–0.2% | | | | | | | | | | | | |
NON-AGENCY FIXED RATE CMBS–0.2% | | | | | | | | | | | | |
JPMBB Commercial Mortgage Securities Trust
Series 2015-C32, Class C
4.668%, 11/15/48(f) | | | | | | $ | 10 | | | | 9,956 | |
LB-UBS Commercial Mortgage Trust
Series 2006-C6, Class AJ
5.452%, 9/15/39(f) | | | | | | | 12 | | | | 9,888 | |
| | | | | | | | | | | | |
Total Commercial
Mortgage-Backed Securities
(cost $22,154) | | | | | | | | | | | 19,844 | |
| | | | | | | | | | | | |
EMERGING MARKETS–CORPORATE BONDS–0.2% | | | | | | | | |
INDUSTRIAL–0.2% | | | | | | | | |
ENERGY–0.2% | | | | | | | | |
Petrobras Global Finance BV
6.25%, 3/17/24 | | | 10 | | | | 10,588 | |
8.75%, 5/23/26 | | | 5 | | | | 5,976 | |
| | | | | | | | | | | | |
Total Emerging Markets–
Corporate Bonds
(cost $15,680) | | | | | | | 16,564 | |
| | | | | | | | | | | | |
QUASI-SOVEREIGNS–0.1% | | | | | | | | |
Quasi-Sovereign Bonds–0.1% | | | | | | | | |
MEXICO–0.1% | | | | | | | | |
Petroleos Mexicanos
5.375%, 3/13/22(c)
(cost $14,932) | | | 15 | | | | 15,937 | |
| | | | | | | | | | | | |
EMERGING MARKETS–SOVEREIGNS–0.1% | | | | | | | | |
ARGENTINA–0.1% | | | | | | | | |
Argentine Republic Government International Bond
5.625%, 1/26/22
(cost $6,000) | | | 6 | | | | 6,330 | |
| | | | | | | | | | | | |
| | | Shares | | | | |
SHORT-TERM INVESTMENTS–0.6% | | | | | | | | | |
INVESTMENT COMPANIES–0.6% | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(a)(b)(g)
(cost $67,048) | | | 67,048 | | | | 67,048 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–104.5%
(cost $11,060,003) | | | | | | | | | | | 11,139,347 | |
Other Assets Less Liabilities–(4.5)% | | | | | | | | | | | (483,113 | ) |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 10,656,234 | |
| | | | | | | | | | | | |
11
| | |
| GLOBAL BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
FUTURES (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Month | | | Notional (000) | | | Original
Value | | | Value at
December 31, 2017 | | | Unrealized
Appreciation/
(Depreciation) | |
Purchased Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10 Yr Mini Japan Government Bond Futures | | | 7 | | | | March 2018 | | | | JPY | | | | 70,000 | | | $ | 937,255 | | | $ | 937,102 | | | $ | (153 | ) |
| | | | | | | |
Sold Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Euro-BOBL Futures | | | 3 | | | | March 2018 | | | | EUR | | | | 300 | | | | 476,288 | | | | 473,736 | | | | 2,552 | |
Euro-Schatz Futures | | | 1 | | | | March 2018 | | | | EUR | | | | 100 | | | | 134,460 | | | | 134,353 | | | | 107 | |
U.S. T-Note 5 Yr (CBT) Futures | | | 2 | | | | March 2018 | | | | USD | | | | 200 | | | | 233,490 | | | | 232,328 | | | | 1,162 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | $ | 3,668 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | | BRL | | | | 551 | | | | USD | | | | 167 | | | | 1/03/18 | | | $ | 457 | |
Bank of America, NA | | | USD | | | | 167 | | | | BRL | | | | 551 | | | | 1/03/18 | | | | (973 | ) |
Bank of America, NA | | | USD | | | | 34 | | | | KRW | | | | 37,404 | | | | 1/18/18 | | | | 1,224 | |
Bank of America, NA | | | BRL | | | | 316 | | | | USD | | | | 95 | | | | 2/02/18 | | | | 111 | |
Barclays Bank PLC | | | RUB | | | | 395 | | | | USD | | | | 7 | | | | 1/25/18 | | | | (332 | ) |
Credit Suisse International | | | BRL | | | | 334 | | | | USD | | | | 103 | | | | 1/03/18 | | | | 2,620 | |
Credit Suisse International | | | USD | | | | 101 | | | | BRL | | | | 334 | | | | 1/03/18 | | | | (277 | ) |
Credit Suisse International | | | GBP | | | | 421 | | | | USD | | | | 566 | | | | 2/02/18 | | | | (2,072 | ) |
Credit Suisse International | | | USD | | | | 27 | | | | PEN | | | | 88 | | | | 2/07/18 | | | | 352 | |
Standard Chartered Bank | | | BRL | | | | 349 | | | | USD | | | | 105 | | | | 1/03/18 | | | | 336 | |
Standard Chartered Bank | | | USD | | | | 66 | | | | BRL | | | | 218 | | | | 1/03/18 | | | | (181 | ) |
Standard Chartered Bank | | | USD | | | | 80 | | | | KRW | | | | 87,275 | | | | 1/18/18 | | | | 2,277 | |
Standard Chartered Bank | | | TWD | | | | 2,420 | | | | USD | | | | 81 | | | | 2/07/18 | | | | (539 | ) |
Standard Chartered Bank | | | USD | | | | 81 | | | | CNY | | | | 534 | | | | 2/07/18 | | | | 1,199 | |
State Street Bank & Trust Co. | | | CAD | | | | 837 | | | | USD | | | | 658 | | | | 1/18/18 | | | | (8,447 | ) |
State Street Bank & Trust Co. | | | KRW | | | | 124,657 | | | | USD | | | | 110 | | | | 1/18/18 | | | | (6,736 | ) |
State Street Bank & Trust Co. | | | USD | | | | 144 | | | | CAD | | | | 183 | | | | 1/18/18 | | | | 1,593 | |
State Street Bank & Trust Co. | | | USD | | | | 53 | | | | CAD | | | | 66 | | | | 1/18/18 | | | | (93 | ) |
State Street Bank & Trust Co. | | | USD | | | | 28 | | | | ZAR | | | | 387 | | | | 2/07/18 | | | | 2,879 | |
State Street Bank & Trust Co. | | | ZAR | | | | 636 | | | | USD | | | | 47 | | | | 2/07/18 | | | | (4,622 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 11,105 | | | | USD | | | | 100 | | | | 2/09/18 | | | | 873 | |
State Street Bank & Trust Co. | | | JPY | | | | 5,299 | | | | USD | | | | 47 | | | | 2/09/18 | | | | (73 | ) |
State Street Bank & Trust Co. | | | MXN | | | | 3,712 | | | | USD | | | | 194 | | | | 2/22/18 | | | | 7,154 | |
State Street Bank & Trust Co. | | | USD | | | | 53 | | | | TRY | | | | 210 | | | | 2/28/18 | | | | 986 | |
State Street Bank & Trust Co. | | | AUD | | | | 206 | | | | USD | | | | 156 | | | | 3/07/18 | | | | (4,293 | ) |
State Street Bank & Trust Co. | | | NZD | | | | 152 | | | | USD | | | | 105 | | | | 3/07/18 | | | | (2,612 | ) |
State Street Bank & Trust Co. | | | USD | | | | 27 | | | | AUD | | | | 35 | | | | 3/07/18 | | | | 312 | |
State Street Bank & Trust Co. | | | USD | | | | 60 | | | | PLN | | | | 213 | | | | 3/09/18 | | | | 1,482 | |
State Street Bank & Trust Co. | | | EUR | | | | 1,366 | | | | USD | | | | 1,619 | | | | 3/12/18 | | | | (26,475 | ) |
State Street Bank & Trust Co. | | | SEK | | | | 506 | | | | USD | | | | 60 | | | | 3/28/18 | | | | (1,896 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (35,766 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
12
| | |
| | | AB Variable Products Series Fund |
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Description | | Fixed Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Sale Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-NAHY Series 28,
5 Year Index, 6/20/22* | | | 5.00 | % | | | Quarterly | | | | 2.80 | % | | | USD | | | | 9 | | | $ | 792 | | | $ | 513 | | | $ | 279 | |
CDX-NAHY Series 29,
5 Year Index, 12/20/22* | | | 5.00 | | | | Quarterly | | | | 3.07 | | | | USD | | | | 200 | | | | 16,896 | | | | 14,261 | | | | 2,635 | |
CDX-NAIG Series 28,
5 Year Index, 6/20/22* | | | 1.00 | | | | Quarterly | | | | 0.47 | | | | USD | | | | 1,100 | | | | 24,877 | | | | 14,907 | | | | 9,970 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 42,565 | | | $ | 29,681 | | | $ | 12,884 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CREDIT DEFAULT SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Sale Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-EM Series 23,
5 Year Index, 6/20/20* | | | 1.00 | % | | | Quarterly | | | | 0.51 | % | | | USD | | | | 138 | | | $ | 1,675 | | | $ | (5,840 | ) | | $ | 7,515 | |
Barclays Bank PLC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.
BB Series 6, 5/11/63* | | | 5.00 | | | | Monthly | | | | 11.90 | | | | USD | | | | 6 | | | | (1,421 | ) | | | (98 | ) | | | (1,323 | ) |
CDX-CMBX.NA.
BBB- Series 7, 1/17,47* | | | 3.00 | | | | Monthly | | | | 5.47 | | | | USD | | | | 100 | | | | (11,622 | ) | | | (583 | ) | | | (11,039 | ) |
Citigroup Global Markets, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.
BB Series 6, 5/11/63* | | | 5.00 | | | | Monthly | | | | 11.90 | | | | USD | | | | 6 | | | | (1,421 | ) | | | (101 | ) | | | (1,320 | ) |
Goldman Sachs International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.
BB Series 6, 5/11/63* | | | 5.00 | | | | Monthly | | | | 11.90 | | | | USD | | | | 12 | | | | (2,842 | ) | | | (190 | ) | | | (2,652 | ) |
CDX-CMBX.NA.
BB Series 6, 5/11/63* | | | 5.00 | | | | Monthly | | | | 11.90 | | | | USD | | | | 11 | | | | (2,605 | ) | | | (197 | ) | | | (2,408 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (18,236 | ) | | $ | (7,009 | ) | | $ | (11,227 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | | Affiliated investments. |
| (b) | | 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. |
| (c) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2017, the aggregate market value of these securities amounted to $2,092,083 or 19.6% of net assets. |
| (d) | | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
| (e) | | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at December 31, 2017. |
| (f) | | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (g) | | The rate shown represents the 7-day yield as of period end. |
13
| | |
| GLOBAL BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Currency Abbreviations:
ARS—Argentine Peso
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NZD—New Zealand Dollar
PEN—Peruvian Sol
PLN—Polish Zloty
RUB—Russian Ruble
SEK—Swedish Krona
TRY—Turkish Lira
TWD—New Taiwan Dollar
USD—United States Dollar
UYU—Uruguayan Peso
ZAR—South African Rand
Glossary:
ARPP7DRR—Argentina Central Bank 7-Day Repo Reference Rate
BOBL—Bundesobligationen
CBT—Chicago Board of Trade
CDX-CMBX.NA—North American Commercial Mortgage-Backed Index
CDX-NAHY—North American High Yield Credit Default Swap Index
CDX-NAIG—North American Investment Grade Credit Default Swap Index
CMBS—Commercial Mortgage-Backed Securities
LIBOR—London Interbank Offered Rates
OAT—Obligations Assimilables du Trésor
REIT—Real Estate Investment Trust
TBA—To Be Announced
TIPS—Treasury Inflation Protected Security
See notes to financial statements.
14
| | |
| GLOBAL BOND PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $5,526,012) | | $ | 5,638,157 | |
Affiliated issuers (cost $5,533,991) | | | 5,501,190 | |
Cash collateral due from broker | | | 39,456 | |
Foreign currencies, at value (cost $24,622) | | | 24,599 | |
Interest receivable | | | 41,109 | |
Unrealized appreciation on forward currency exchange contracts | | | 23,855 | |
Affiliated dividends receivable | | | 11,790 | |
Unrealized appreciation on credit default swaps | | | 7,515 | |
Receivable due from Adviser | | | 2,223 | |
Receivable for variation margin on exchange traded swaps | | | 507 | |
Receivable for variation margin on futures | | | 483 | |
| | | | |
Total assets | | | 11,290,884 | |
| | | | |
LIABILITIES | | | | |
Due to custodian | | | 649 | |
Payable for investment securities purchased | | | 461,495 | |
Unrealized depreciation on forward currency exchange contracts | | | 59,621 | |
Audit and tax fee payable | | | 46,291 | |
Unrealized depreciation on credit default swaps | | | 18,742 | |
Upfront premiums received on credit default swaps | | | 7,009 | |
Transfer Agent fee payable | | | 105 | |
Distribution fee payable | | | 64 | |
Payable for capital stock redeemed | | | 9 | |
Accrued expenses | | | 40,665 | |
| | | | |
Total liabilities | | | 634,650 | |
| | | | |
NET ASSETS | | $ | 10,656,234 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 1,057 | |
Additional paid-in capital | | | 10,582,292 | |
Undistributed net investment income | | | 23,875 | |
Accumulated net realized loss on investment transactions and foreign currency transactions | | | (113 | ) |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 49,123 | |
| | | | |
| | $ | 10,656,234 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 10,353,911 | | | | 1,026,986 | | | $ | 10.08 | |
| B | | $ | 302,323 | | | | 30,161 | | | $ | 10.02 | |
See notes to financial statements
15
| | |
| GLOBAL BOND PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
INVESTMENT INCOME | | | | | | | | |
Dividends—Affiliated issuers | | $ | 138,937 | | | | | |
Interest | | | 120,937 | | | | | |
Other income | | | 74 | | | | 259,948 | |
| | | | | | | | |
EXPENSES | | | | | | | | |
Advisory fee (see Note B) | | | 53,650 | | | | | |
Distribution fee — Class B | | | 584 | | | | | |
Transfer agency — Class A | | | 4,718 | | | | | |
Transfer agency — Class B | | | 114 | | | | | |
Custodian | | | 87,997 | | | | | |
Administrative | | | 54,946 | | | | | |
Audit and tax | | | 48,160 | | | | | |
Directors’ fees | | | 28,561 | | | | | |
Legal | | | 26,197 | | | | | |
Printing | | | 14,731 | | | | | |
Miscellaneous | | | 3,189 | | | | | |
| | | | | | | | |
Total expenses | | | 322,847 | | | | | |
Less: expenses waived and reimbursed by the Adviser (see Note B) | | | (281,114 | ) | | | | |
| | | | | | | | |
Net expenses | | | | | | | 41,733 | |
| | | | | | | | |
Net investment income | | | | | | | 218,215 | |
| | | | | | | | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | | | | | |
Net realized gain (loss) on: | | | | | | | | |
Investment transactions | | | | | | | 6,652 | |
Forward currency exchange contracts | | | | | | | (36,050 | ) |
Futures | | | | | | | 8,799 | |
Swaps | | | | | | | 37,608 | |
Foreign currency transactions | | | | | | | (152,360 | ) |
Net change in unrealized appreciation/depreciation of: | | | | | | | | |
Affiliated Underlying Portfolios | | | | | | | 31,336 | |
Investments | | | | | | | 275,586 | |
Forward currency exchange contracts | | | | | | | (88,269 | ) |
Futures | | | | | | | 3,738 | |
Swaps | | | | | | | (4,770 | ) |
Foreign currency denominated assets and liabilities | | | | | | | 591 | |
| | | | | | | | |
Net gain on investment and foreign currency transactions | | | | | | | 82,861 | |
| | | | | | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | $ | 301,076 | |
| | | | | | | | |
16
| | |
| | |
| GLOBAL BOND PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 218,215 | | | $ | 227,070 | |
Net realized gain (loss) on investment transactions and foreign currency transactions | | | (135,351 | ) | | | 150,441 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 218,212 | | | | 163,823 | |
| | | | | | | | |
Net increase in net assets from operations | | | 301,076 | | | | 541,334 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (386,249 | ) | | | (291,608 | ) |
Class B | | | (10,923 | ) | | | (383 | ) |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | (40,155 | ) | | | –0 | – |
Class B | | | (1,139 | ) | | | –0 | – |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net increase | | | 292,074 | | | | 294,472 | |
| | | | | | | | |
Total increase | | | 154,684 | | | | 543,815 | |
NET ASSETS | | | | | | | | |
Beginning of period | | | 10,501,550 | | | | 9,957,735 | |
| | | | | | | | |
End of period (including undistributed net investment income of $23,875 and $339,464, respectively) | | $ | 10,656,234 | | | $ | 10,501,550 | |
| | | | | | | | |
17
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Global Bond Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to generate income and price appreciation without assuming what AllianceBernstein L.P. (the “Adviser”) considers undue risk. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. As of December 31, 2017, the Adviser was the sole shareholder of Class A shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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
18
| | |
| | | AB Variable Products Series Fund |
other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more
19
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investment Companies | | $ | 5,434,142 | | | $ | –0 | – | | $ | –0 | – | | $ | 5,434,142 | |
Governments—Treasuries | | | –0 | – | | | 3,575,274 | | | | –0 | – | | | 3,575,274 | |
Mortgage Pass-Throughs | | | –0 | – | | | 461,763 | | | | –0 | – | | | 461,763 | |
Corporates—Investment Grade | | | –0 | – | | | 364,914 | | | | –0 | – | | | 364,914 | |
Inflation-Linked Securities | | | –0 | – | | | 352,327 | | | | –0 | – | | | 352,327 | |
Governments—Sovereign Agencies | | | –0 | – | | | 240,314 | | | | –0 | – | | | 240,314 | |
Emerging Markets—Treasuries | | | –0 | – | | | 157,467 | | | | –0 | – | | | 157,467 | |
Local Governments—Provincial Bonds | | | –0 | – | | | 139,843 | | | | –0 | – | | | 139,843 | |
Corporates—Non-Investment Grade | | | –0 | – | | | 125,455 | | | | –0 | – | | | 125,455 | |
Collateralized Mortgage Obligations | | | –0 | – | | | 124,790 | | | | –0 | – | | | 124,790 | |
Covered Bonds | | | –0 | – | | | 37,335 | | | | –0 | – | | | 37,335 | |
Commercial Mortgage-Backed Securities | | | –0 | – | | | –0 | – | | | 19,844 | | | | 19,844 | |
Emerging Markets—Corporate Bonds | | | –0 | – | | | 16,564 | | | | –0 | – | | | 16,564 | |
Quasi-Sovereigns | | | –0 | – | | | 15,937 | | | | –0 | – | | | 15,937 | |
Emerging Markets—Sovereigns | | | –0 | – | | | 6,330 | | | | –0 | – | | | 6,330 | |
Short-Term Investments | | | 67,048 | | | | –0 | – | | | –0 | – | | | 67,048 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 5,501,190 | | | | 5,618,313 | | | | 19,844 | | | | 11,139,347 | |
Other Financial Instruments(a): | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Futures | | | 3,821 | | | | –0 | – | | | –0 | – | | | 3,821 | (b) |
Forward Currency Exchange Contracts | | | –0 | – | | | 23,855 | | | | –0 | – | | | 23,855 | |
Centrally Cleared Credit Default Swaps | | | –0 | – | | | 42,565 | | | | –0 | – | | | 42,565 | (b) |
Credit Default Swaps | | | –0 | – | | | 1,675 | | | | –0 | – | | | 1,675 | |
Liabilities: | | | | | | | | | | | | | | | | |
Futures | | | (153 | ) | | | –0 | – | | | –0 | – | | | (153 | )(b) |
Forward Currency Exchange Contracts | | | –0 | – | | | (59,621 | ) | | | –0 | – | | | (59,621 | ) |
Credit Default Swaps | | | –0 | – | | | (19,911 | ) | | | –0 | – | | | (19,911 | ) |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 5,504,858 | | | $ | 5,606,876 | | | $ | 19,844 | | | $ | 11,131,578 | |
| | | | | | | | | | | | | | | | |
| (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) of exchange-traded derivatives as reported in the portfolio of investments. Exchange-traded swaps with upfront premiums are presented here as market value. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
20
| | |
| | | AB Variable Products Series Fund |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
| | | | | | | | |
| | | Commercial
Mortgage-
Backed
Securities | | | Total | |
Balance as of 12/31/16 | | $ | 21,371 | | | $ | 21,371 | |
Accrued discounts/(premiums) | | | 4 | | | | 4 | |
Realized gain (loss) | | | (44 | ) | | | (44 | ) |
Change in unrealized appreciation/depreciation | | | (261 | ) | | | (261 | ) |
Purchases/Payups | | | –0 | – | | | –0 | – |
Sales/Paydowns | | | (1,226 | ) | | | (1,226 | ) |
Transfers in to Level 3 | | | –0 | – | | | –0 | – |
Transfers out of Level 3 | | | –0 | – | | | –0 | – |
| | | | | | | | |
Balance as of 12/31/17 | | $ | 19,844 | | | $ | 19,844 | |
| | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(a) | | $ | (261 | ) | | $ | (261 | ) |
| | | | | | | | |
| (a) | | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) of investments in the accompanying statement of operations. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
21
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and prior two tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund 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.
8. Offering Expenses
Offering expenses of $41,223 were deferred and amortized on a straight line basis over a one year period starting from
April 29, 2015 (commencement of operations).
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding acquired fund fees and expenses other than the fees and expenses of any AB mutual funds in which the Portfolio may invest, interest expense, taxes, extraordinary expenses, expenses associated with securities sold short, and brokerage commissions and other transaction costs) on an annual basis (the “Expense Caps”) to .64% and .89% of daily average net assets for Class A and Class B, respectively. For the year ended December 31, 2017, the reimbursements/waivers amounted to $198,645. The Expense Caps may not be terminated by the Adviser before May 1, 2018. Any fees waived and expenses borne by the Adviser through April 28, 2016 are subject to repayment by the Portfolio 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 $179,979 for the fiscal period ended December 31, 2015 and $84,021 for the year ended December 31, 2016, respectively. In any case, no reimbursement payment will be made that would cause the Portfolio’s total annual fund operating expenses to exceed the net fee percentages set forth in the preceding sentence.
The Portfolio may invest in AB mutual funds managed by the Adviser. In addition to the Expense Caps, the Adviser has contractually agreed to waive its management fees and/or bear Portfolio expenses through May 1, 2018 in an amount equal to the Portfolio’s share of all fees and expenses of any AB mutual funds in which the Portfolio invests. For the year ended December 31, 2017, such waiver amounted to $27,523.
22
| | |
| | | AB Variable Products Series Fund |
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | Distributions | |
Fund | | Market Value
12/31/16 (000) | | | Purchases at Cost (000) | | | Sales Proceeds (000) | | | Realized Gain (Loss) (000) | | | Change in Unrealized Appr./(Depr.) (000) | | | Market Value 12/31/17 (000) | | | Dividend Income (000) | | | Realized Gains (000) | |
Government Money Market Portfolio | | $ | 301 | | | $ | 2,595 | | | $ | 2,829 | | | $ | 0 | | | $ | 0 | | | $ | 67 | | | $ | 2 | | | $ | 0 | |
AB Global Bond Fund, Inc. | | | 5,267 | | | | 136 | | | | 0 | | | | 0 | | | | 31 | | | | 5,434 | | | | 137 | | | | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 0 | | | $ | 31 | | | $ | 5,501 | | | $ | 139 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the Adviser voluntarily agreed to waive such fees in the amount of $54,946.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $287, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 2,955,460 | | | $ | 2,484,982 | |
U.S. government securities | | | 3,379,773 | | | | 3,304,000 | |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 11,063,342 | |
| | | | |
Gross unrealized appreciation | | $ | 257,136 | |
Gross unrealized depreciation | | | (181,470 | ) |
| | | | |
Net unrealized appreciation | | $ | 75,666 | |
| | | | |
23
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2017, the Portfolio held futures for hedging and non-hedging purposes.
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
24
| | |
| | | AB Variable Products Series Fund |
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same referenced obligations with the same counterparty. As of December 31, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If
25
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the year ended December 31, 2017, the Portfolio held credit default swaps for non-hedging purposes.
The Portfolio 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty tables below.
During the year ended December 31, 2017, the Portfolio had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and Liabilities
Location | | Fair Value | | | Statement of
Assets and Liabilities
Location | | Fair Value | |
Interest rate contracts | | Receivable/Payable for variation margin on futures | | $ | 3,821 | * | | Receivable/Payable for variation margin on futures | | $ | 153 | * |
Credit contracts | | Receivable/Payable for variation margin on exchange traded swaps | | | 12,884 | * | | | | | | |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | | 23,855 | | | Unrealized depreciation on forward currency exchange contracts | | | 59,621 | |
Credit contracts | | Unrealized appreciation on credit default swaps | | | 7,515 | | | Unrealized depreciation on credit default swaps | | | 18,742 | |
| | | | | | | | | | | | |
Total | | | | $ | 48,075 | | | | | $ | 78,516 | |
| | | | | | | | | | | | |
| * | | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
26
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | |
Derivative Type | | Location of Gain or (Loss) on Derivatives
Within Statement of Operations | | Realized Gain or
(Loss) on
Derivatives | | | Change in Unrealized
Appreciation or
(Depreciation) | |
Interest rate contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | $ | 8,799 | | | $ | 3,738 | |
Foreign currency contracts | | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | | (36,050 | ) | | | (88,269 | ) |
Credit contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 37,608 | | | | (4,770 | ) |
| | | | | | | | | | |
Total | | | | $ | 10,357 | | | $ | (89,301 | ) |
| | | | | | | | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Futures: | | | | |
Average original value of buy contracts | | $ | 938,715 | |
Average original value of sale contracts | | $ | 494,096 | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 717,614 | |
Average principal amount of sale contracts | | $ | 3,889,678 | |
Credit Default Swaps: | | | | |
Average notional amount of sale contracts | | $ | 281,308 | |
Centrally Cleared Credit Default Swaps: | | | | |
Average notional amount of buy contracts | | $ | 198,990 | (a) |
Average notional amount of sale contracts | | $ | 1,323,882 | |
| (a) | | Positions were open for one month during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Received* | | | Security Collateral
Received* | | | Net Amount of
Derivatives Assets | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 3,467 | | | $ | (973 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 2,494 | |
Credit Suisse International | | | 2,972 | | | | (2,349 | ) | | | –0 | – | | | –0 | – | | | 623 | |
Standard Chartered Bank | | | 3,812 | | | | (720 | ) | | | –0 | – | | | –0 | – | | | 3,092 | |
State Street Bank & Trust Co. | | | 15,279 | | | | (15,279 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 25,530 | | | $ | (19,321 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 6,209 | ^ |
| | | | | | | | | | | | | | | | | | | | |
27
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Counterparty | | Derivative
Liabilities Subject
to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net
Amount of
Derivatives
Liabilities | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 973 | | | $ | (973 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Barclays Bank PLC | | | 13,375 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 13,375 | |
Citigroup Global Markets, Inc. | | | 1,421 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 1,421 | |
Credit Suisse International | | | 2,349 | | | | (2,349 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Goldman Sachs International | | | 5,447 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 5,447 | |
Standard Chartered Bank | | | 720 | | | | (720 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
State Street Bank & Trust Co. | | | 55,247 | | | | (15,279 | ) | | | –0 | – | | | –0 | – | | | 39,968 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 79,532 | | | $ | (19,321 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 60,211 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. TBA and Dollar Roles
The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. During the year ended December 31, 2017, the Portfolio had no transactions in dollar rolls.
NOTE E: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | | | | | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares issued in reinvestment of dividends and distributions | | | –0 | – | | | 27,986 | | | | | | | $ | –0 | – | | $ | 291,608 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase | | | –0 | – | | | 27,986 | | | | | | | $ | –0 | – | | $ | 291,608 | |
| | | | | | | | | | | | | | | | | | | | |
28
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | | | | | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 27,837 | | | | 248 | | | | | | | $ | 282,942 | | | $ | 2,514 | |
Shares issued in reinvestment of dividends and distributions | | | 1,164 | | | | 37 | | | | | | | | 11,636 | | | | 383 | |
Shares redeemed | | | (247 | ) | | | (3 | ) | | | | | | | (2,504 | ) | | | (33 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase | | | 28,754 | | | | 282 | | | | | | | $ | 292,074 | | | $ | 2,864 | |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, the Adviser owns approximately 97% of the Portfolio’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Portfolio’s performance.
NOTE F: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to the full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Investment in Other Investment Companies Risk—As with other investments, investments in Underlying Funds, including ETFs, are subject to market and selection risk. In addition, when the Portfolio acquires shares of Underlying Funds, Contract holders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the Underlying Funds.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
29
| | |
| GLOBAL BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Non-Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect the Portfolio’s net asset value, or NAV.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE H: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 424,079 | | | $ | 291,991 | |
Net long-term capital gains | | | 14,387 | | | | –0 | – |
| | | | | | | | |
Total distributions paid | | $ | 438,466 | | | $ | 291,991 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 6,096 | |
Undistributed capital gains | | | 1,205 | |
Accumulated capital and other losses | | | (10,304 | )(a) |
Unrealized appreciation/(depreciation) | | | 75,886 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 72,883 | |
| | | | |
| (a) | | As of December 31, 2017, the cumulative deferred loss on straddles was $10,304. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
30
| | |
| | | AB Variable Products Series Fund |
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, foreign currency reclassifications, paydown gain/loss reclassifications, the redesignation of dividends, and the offset of a net operating loss to short term capital gains, resulted in a net decrease in undistributed net investment income and a net decrease in accumulated net realized loss on investment and foreign currency transactions. These reclassifications had no effect on net assets.
NOTE I: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE J: Subsequent Events
At a meeting held on February 6-7, 2018, the Board approved the liquidation and termination of the Portfolio. The Portfolio expects to make liquidating distributions on or shortly after April 20, 2018 and will convert its assets to cash shortly before this date.
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
31
| | |
| | |
| GLOBAL BOND PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | | | April 29, 2015(a) to
December 31
2015 | |
| | | 2017 | | | 2016 | | |
Net asset value, beginning of period | | | $10.21 | | | | $9.96 | | | | $10.00 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | |
Net investment income (b)(c) | | | .21 | | | | .22 | | | | .18 | |
Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions | | | .08 | | | | .32 | | | | (.22 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | .29 | | | | .54 | | | | (.04 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | |
Dividends from net investment income | | | (.38 | ) | | | (.29 | ) | | | –0 | – |
Distributions from net realized gain on investment transactions | | | (.04 | ) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Total dividends and distributions | | | (.42 | ) | | | (.29 | ) | | | –0 | – |
| | | | | | | | | | | | |
Net asset value, end of period | | | $10.08 | | | | $10.21 | | | | $9.96 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Return | | | | | | | | | | | | |
Total investment return based on net asset value (d) | | | 2.80 | % | | | 5.38 | % | | | (.40 | )% |
| | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $10,354 | | | | $10,488 | | | | $9,947 | |
Ratio to average net assets of: | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (e) | | | .38 | % | | | .38 | % | | | .38 | %^ |
Expenses, before waivers/reimbursements (e) | | | 3.00 | % | | | 3.15 | % | | | 3.63 | %^ |
Net investment income (c) | | | 2.04 | % | | | 2.18 | % | | | 2.74 | %^ |
Portfolio turnover rate | | | 54 | % | | | 38 | % | | | 62 | % |
See footnote summary on page 33.
32
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | | | April 29, 2015(a) to
December 31
2015 | |
| | | 2017 | | | 2016 | | |
Net asset value, beginning of period | | | $10.18 | | | | $9.94 | | | | $10.00 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | |
Net investment income (b)(c) | | | .18 | | | | .20 | | | | .17 | |
Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions | | | .08 | | | | .32 | | | | (.23 | ) |
| | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | .26 | | | | .52 | | | | (.06 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | |
Dividends from net investment income | | | (.38 | ) | | | (.28 | ) | | | –0 | – |
Distributions from net realized gain on investment transactions | | | (.04 | ) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Total dividends and distributions | | | (.42 | ) | | | (.28 | ) | | | –0 | – |
| | | | | | | | | | | | |
Net asset value, end of period | | | $10.02 | | | | $10.18 | | | | $9.94 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Return | | | | | | | | | | | | |
Total investment return based on net asset value (d) | | | 2.50 | % | | | 5.17 | % | | | (.60 | )% |
| | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $302 | | | | $14 | | | | $11 | |
Ratio to average net assets of: | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (e) | | | .63 | % | | | .63 | % | | | .64 | %^ |
Expenses, before waivers/reimbursements (e) | | | 3.23 | % | | | 3.38 | % | | | 3.90 | %^ |
Net investment income (c) | | | 1.82 | % | | | 1.94 | % | | | 2.55 | %^ |
Portfolio turnover rate | | | 54 | % | | | 38 | % | | | 62 | % |
| (a) | | Commencement of operations. |
| (b) | | Based on average shares outstanding. |
| (c) | | Net of fees and expenses waived/reimbursed by the Adviser. |
| (d) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| (e) | | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio 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 Portfolio in an amount equal to the Portfolio’s pro rata share of affiliated acquired fund fees and expenses, and for the years ended December 31, 2017, December 31, 2016 and December 31, 2015, such waiver amounted to 0.26%, 0.26% and 0.26% (annualized), respectively. |
See notes to financial statements.
33
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Global Bond Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Global Bond Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the two years in the period then ended and the period April 29, 2015 (commencement of operations) to December 31, 2015 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of AB Global Bond Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the two years in the period then ended and the period April 29, 2015 (commencement of operations) to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
34
| | |
| | |
| | |
| Global Bond Portfolio | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
| Marshall C. Turner, Jr.(1), Chairman | | Robert M. Keith, President and Chief Executive Officer |
Michael J. Downey(1) | | Carol C. McMullen(1) |
William H. Foulk, Jr.(1) | | Garry L. Moody(1) |
Nancy P. Jacklin(1) | | Earl D. Weiner(1) |
| | |
| OFFICERS | | |
Paul J. DeNoon(2), Vice President | | Joseph J. Mantineo, Treasurer and |
| Scott DiMaggio(2), Vice President | | Chief Financial Officer |
Douglas J. Peebles(2), Vice President | | Emilie D. Wrapp, Secretary |
Matthew Sheridan(2), Vice President | | 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 | | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
| | |
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 |
| | |
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 are made by its senior management team. Messrs. DeNoon, DiMaggio, Peebles and Sheridan are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
35
| | |
| | |
| GLOBAL BOND PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
| | | | | | | | |
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
57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he has been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.##
Chairman of the Board
76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
36
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
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 |
INDEPENDENT DIRECTORS (continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
37
| | |
| GLOBAL BOND PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
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 |
INDEPENDENT DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Garry L. Moody## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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 this position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
38
| | |
| | | AB Variable Products Series Fund |
Officer Information
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST 5 YEARS |
Robert M. Keith 57 | | President and Chief
Executive Officer | | See biography above. |
| | | | |
Paul J. DeNoon 55 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Scott DiMaggio 46 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Douglas J. Peebles 52 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Matthew Sheridan 42 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo 58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke 57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2013. |
| * | | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | | The Adviser, ABI and ABIS are affiliates of the Fund. |
| | | The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at 1-(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
39
| | |
| | |
| AB Variable Products Series Fund, Inc.—AB Global Bond Portfolio |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Bond Portfolio (the “Fund”) at a meeting held on October 31-November 2, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. The Adviser did not request any reimbursement in the Fund’s latest fiscal year. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for the period ended December 31, 2015 and calendar year 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the
40
| | |
| | | AB Variable Products Series Fund |
Fund, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors noted that the Fund was not profitable to the Adviser in the periods reviewed.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended July 31, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; (iv) must service, and be marketed to, retail investors and financial intermediaries; and (v) requires a larger sales support infrastructure. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors concluded, based on the Adviser’s explanation of how it may use ETFs when they are the most cost-effective way to obtain desired exposures or to “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
41
| | |
| AB Variable Products Series Fund, Inc.—AB Global Bond Portfolio |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursement as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
42
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
| + | | GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| GLOBAL RISK ALLOCATION— | | |
| MODERATE PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Global Risk Allocation-Moderate Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to seek long-term growth of capital while seeking to limit volatility. In making decisions on the allocation of assets among “growth assets” and “safety assets”, the Adviser will use a risk-weighted allocation methodology based on the expected “tail risk” of each asset class. For purposes of the Portfolio, growth assets include global equities and, at times, high-yield fixed-income securities (commonly known as “junk bonds”), and safety assets include government securities of developed countries. This strategy attempts to provide investors with favorable long-term total return while minimizing exposure to material or “tail” losses. To execute this strategy, the percentage loss that will constitute a tail loss is calculated for each asset class based on historical market behavior and on a forward-looking basis through options prices. Portfolio assets are then allocated among asset classes so that growth assets contribute the majority of the expected risk of tail loss (“tail risk”) of the Portfolio, and safety assets contribute a lesser amount of tail risk. The Adviser will make frequent adjustments to the Portfolio’s asset class exposures based on these tail risk determinations. To help limit tail risk, the Portfolio will utilize a risk management strategy involving the purchase of put options and sale of call options on equity indices, equity index futures or exchange-traded funds (“ETFs”). The Adviser will on a best efforts basis seek to limit the volatility of the Portfolio to no more than 10% on an annualized basis. Actual results may vary.
The Adviser will also assess tail risk on a security, sector and country basis, and make adjustments to the Portfolio’s allocations within each asset class when practicable. The Portfolio may invest in fixed-income securities with a range of maturities from short- to long-term. The Adviser expects that the Portfolio’s investments in high-yield fixed-income securities will not exceed 10% of the Portfolio’s net assets. The Portfolio’s investments in each asset class will generally be global in nature.
The Adviser expects to utilize a variety of derivatives in its management of the Portfolio, including futures contracts, options, swaps and forwards. Derivatives often provide more efficient and economical exposure to market segments than direct investments, and the Portfolio may utilize derivatives and ETFs to gain exposure to equity and fixed-income asset classes. Because derivatives transactions frequently require cash outlays that are only a small portion of the amount of exposure obtained through the derivative, a portion of the Portfolio’s assets may be held in cash or invested in cash equivalents to cover the Portfolio’s derivatives obligations, such as short-term US government and agency securities, repurchase agreements and money market funds. At times, a combination of direct securities investments and derivatives will be used to gain asset class exposure so that the Portfolio’s aggregate exposure will substantially exceed its net assets (i.e., so that the Portfolio is effectively leveraged).
Currency exchange rate fluctuations can have a dramatic impact on returns. The Adviser may seek to hedge all or a portion of the currency exposure resulting from Portfolio investments through currency-related derivatives, or decide not to hedge this exposure.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its benchmark, the Morgan Stanley Capital International (“MSCI”) World Index (net, USD hedged) and a 60% / 40% blend of the MSCI World Index (net, USD hedged) and the Bloomberg Barclays Global G7 Treasury Index (USD hedged), for the one-year period ended December 31, 2017, and the period since the Portfolio’s inception on April 28, 2015.
All share classes of the Portfolio underperformed the primary and blended benchmarks for the annual period. The Portfolio allocated most of its risk to global equity, with the balance allocated to government bonds. The Portfolio’s systematic equity downside protection strategy detracted relative to the benchmark, as equity markets continued to rally throughout the period. The Portfolio’s asset allocation strategy of overweighting global equity enhanced returns. On the fixed-income side, the Portfolio’s overweight to inflation-linked bonds relative to nominal bonds boosted returns on reflation concerns. However, an underweight to duration slightly detracted. A tactical reduction on currency hedging made a positive contribution to performance.
During the annual period, the Portfolio utilized derivatives for hedging and investment purposes, including futures, written options and written swaptions, which added to absolute returns; currency forwards, purchased swaptions and purchased options detracted.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked a strong year for almost all major asset classes. Global stocks finished the period in strong positive territory, led
1
| | |
| | | AB Variable Products Series Fund |
by emerging markets and developed international markets. Global bond markets posted more modest but still positive returns. After a year that saw volatility spike and recede several times, the primary market story of 2017 revolved around extreme calm. Currency movements also played a role, as a weak US dollar strengthened returns for US dollar-based investors. Though volatility remained low, the annual period did have several events that impacted markets. The first quarter saw the inauguration of a new US president. Following that were concerns around potential fallout from European elections, most notably in France, which abated after the most market-friendly candidate won. In the latter half of the year, rhetoric between the US and North Korea increased, which caused investors to consider the ramifications of potential geopolitical strife. Finally, near year-end, tax reform passed in the US Congress, which ended months of deliberation and negotiation. In each of these instances, the market continued to move forward, and except for minor increases, volatility remained extremely benign.
The Portfolio’s Senior Investment Management Team seeks to allocate, on average, approximately 85% of its risk to equity and the balance to government bonds over time. For global equity exposure, the Portfolio had overweight positions in European, Japanese and emerging markets relative to a market-cap weighted equity index. For fixed-income investments, the Portfolio had overweight positions of inflation-protected bonds over nominal bonds and underweights in Japanese and European government bonds, where interest rates are close to zero. The Portfolio hedged most of the foreign currency exposures and adopted explicit downside hedges via option positions.
2
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| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI World Index and Bloomberg Barclays Global G7 Treasury Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI World Index (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets. The Bloomberg Barclays Global G7 Treasury Index tracks fixed-rate local currency government debt of investment-grade G7 countries. 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 reflect 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s investments will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Allocation Risk: The allocation of investments among asset classes may have a significant effect on the Portfolio’s net asset value (“NAV”) when the asset classes in which the Portfolio has invested more heavily perform worse than the asset classes invested in less heavily.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
High Yield Securities Risk: Investments in fixed-income securities with ratings below investment-grade (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Investment in Other Investment Companies Risk: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, Contractholders of the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments. Transactions intended to hedge fluctuations in the values of the Portfolio’s positions will typically limit the opportunity for gain.
(Disclosures and Risks continued on next page)
3
| | |
| | |
| DISCLOSURES AND RISKS | | |
| (continued) | | AB Variable Products Series Fund |
Leverage Risk: Because the Portfolio uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Non-Diversification Risk: The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s NAV.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
| | |
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | |
| | | | | | | | |
| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | Since Inception1 | |
| Global Risk Allocation—Moderate Portfolio Class A | | | 11.87% | | | | 3.55% | |
| Global Risk Allocation—Moderate Portfolio Class B | | | 11.50% | | | | 3.28% | |
| Primary benchmark: MSCI World Index (net, USD hedged) | | | 19.13% | | | | 8.21% | |
Blended benchmark: 60% MSCI World Index (net, USD hedged) /
40% Bloomberg Barclays Global G7 Treasury Index (USD hedged) | | | 12.05% | | | | 5.88% | |
1 Inception date: 4/28/2015. | | | | | | | | |
| | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 1.19% and 1.44% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios exclusive of interest expense, taxes, extraordinary expenses, expenses associated with securities sold short, and brokerage commissions and other transaction costs to 0.75% and 1.00% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2018 and may be extended by the Adviser for additional one-year terms. Any fees waived and expenses borne by the Adviser may be reimbursed by the Portfolio 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 Portfolio’s total annual operating 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.
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
4/28/20151 to 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Global Risk Allocation—Moderate Portfolio Class A shares (from 4/28/20151 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
| 1 | | Inception date: 4/28/2015. |
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
5
| | |
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | | | Total
Expenses Paid
During Period+ | | | Total
Annualized
Expense Ratio+ | |
Class A | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,061.20 | | | $ | 3.33 | | | | 0.64 | % | | $ | 3.90 | | | | 0.75 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,021.98 | | | $ | 3.26 | | | | 0.64 | % | | $ | 3.82 | | | | 0.75 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,058.60 | | | $ | 4.67 | | | | 0.90 | % | | $ | 5.19 | | | | 1.00 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.67 | | | $ | 4.58 | | | | 0.90 | % | | $ | 5.09 | | | | 1.00 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
| + | | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fund 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 and expenses from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain affiliated/unaffiliated underlying portfolios acquired fund fees and expenses. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro-rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| SECURITY TYPE BREAKDOWN1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| SECURITY TYPE | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Investment Companies | | $ | 47,019,233 | | | | 48.2 | % |
Inflation-Linked Securities | | | 3,764,841 | | | | 3.8 | |
Options Purchased—Puts | | | 71,795 | | | | 0.1 | |
Options Purchased—Calls | | | 5,184 | | | | 0.0 | |
Short-Term Investments | | | 46,711,586 | | | | 47.9 | |
| | | | | | | | | |
Total Investments | | $ | 97,572,639 | | | | 100.0 | % |
COUNTRY BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| COUNTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
United States | | $ | 50,827,088 | | | | 52.1 | % |
Germany | | | 23,466 | | | | 0.0 | |
Japan | | | 9,651 | | | | 0.0 | |
United Kingdom | | | 848 | | | | 0.0 | |
Short-Term | | | 46,711,586 | | | | 47.9 | |
| | | | | | | | | |
Total Investments | | $ | 97,572,639 | | | | 100.0 | % |
| 1 | | The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivatives transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
| 2 | | All data are as of December 31, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. |
7
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| Company | | | | |
Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
INVESTMENT COMPANIES–47.7% | | | | | | | | | | | | |
FUNDS AND INVESTMENT TRUSTS–47.7%(a) | | | | | | | | | | | | |
iShares Core MSCI EAFE ETF | | | | | | | 76,670 | | | $ | 5,067,120 | |
iShares Core S&P 500 ETF | | | | | | | 43,375 | | | | 11,661,369 | |
iShares MSCI EAFE ETF | | | | | | | 90,720 | | | | 6,378,523 | |
iShares Russell 2000 ETF | | | | | | | 11,040 | | | | 1,683,159 | |
SPDR S&P 500 ETF Trust | | | | | | | 38,091 | | | | 10,164,964 | |
Vanguard S&P 500 ETF | | | | | | | 49,183 | | | | 12,064,098 | |
| | | | | | | | | | | | |
Total Investment Companies
(cost $41,310,485) | | | | | | | | | | | 47,019,233 | |
| | | | | | | | | | | | |
| | | | | | Principal
Amount
(000) | | | | |
INFLATION-LINKED SECURITIES–3.8% | | | | | | | | | | | | |
UNITED STATES–3.8% | | | | | | | | | | | | |
U.S. Treasury Inflation Index 0.375%, 7/15/25 (TIPS)
(cost $3,789,875) | | $ | | | | | 3,760 | | | | 3,764,841 | |
| | | | | | | | | | | | |
| | | | | | Notional
Amount | | | | |
OPTIONS PURCHASED–PUTS–0.1% | | | | | | | | | | | | |
OPTIONS ON FUNDS AND INVESTMENT TRUSTS–0.1% | | | | | | | | | | | | |
SPDR S&P 500 ETF Trust Expiration: Jan 2018; Contracts: 388.00;
Exercise Price:
USD 262.00;
Counterparty: Morgan Stanley & Co., Inc.(b) | | | USD | | | | 38,800 | | | | 37,830 | |
| | | | | | | | | | | | |
OPTIONS ON INDICES–0.0% | | | | | | | | | | | | |
Euro STOXX 50 Index Expiration: Jan 2018; Contracts: 740;
Exercise Price:
EUR 3,475.00;
Counterparty:
Deutsche Bank AG(b) | | | EUR | | | | 740 | | | | 23,466 | |
FTSE 100 Index
Expiration: Jan 2018; Contracts: 130;
Exercise Price:
GBP 7,350.00; Counterparty:
Deutsche Bank AG(b) | | | GBP | | | | 130 | | | | 848 | |
Nikkei 225 Index
Expiration: Jan 2018; Contracts: 14,000;
Exercise Price:
JPY 22,250.00; Counterparty:
Deutsche Bank AG(b) | | | JPY | | | | 14,000 | | | | 9,651 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 33,965 | |
| | | | | | | | | | | | |
Total Options Purchased–Puts (premiums paid $93,315) | | | | | | | | | | | 71,795 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
OPTIONS PURCHASED–CALLS–0.0% | | | | | | | | | | | | |
OPTIONS ON FUNDS AND INVESTMENT TRUSTS–0.0% | | | | | | | | | | | | |
SPDR S&P 500 ETF Trust Expiration: Jan 2018; Contracts: 162.00;
Exercise Price:
USD 271.00;
Counterparty: Morgan Stanley & Co., Inc.(b) (premiums paid $12,967) | | | USD | | | | 16,200 | | | $ | 5,184 | |
| | | | | | | | | | | | |
SHORT-TERM INVESTMENTS–47.4% | | | | | | | | | | | | |
GOVERNMENTS– TREASURIES–41.1% | | | | | | | | | | | | |
JAPAN–21.9% | | | | | | | | | | | | |
Japan Treasury Discount Bill | | | | | | | | | | | | |
Series 724 | | | | | | | | | | | | |
Zero Coupon, 3/12/18 | | | JPY | | | | 1,980,000 | | | | 17,579,068 | |
Series 727 | | | | | | | | | | | | |
Zero Coupon, 3/26/18 | | | | | | | 450,000 | | | | 3,995,585 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 21,574,653 | |
| | | | | | | | | | | | |
NETHERLANDS–19.2% | | | | | | | | | | | | |
Dutch Treasury Certificate
Zero Coupon, 1/31/18 | | | EUR | | | | 15,785 | | | | 18,962,386 | |
| | | | | | | | | | | | |
Total Governments–Treasuries (cost $40,209,982) | | | | | | | | | | | 40,537,039 | |
| | | | | | | | | | | | |
U.S. TREASURY BILLS–4.2% | | | | | | | | | | | | |
U.S. Treasury Bill
Zero Coupon, 1/25/18-2/22/18
(cost $4,129,323) | | | | | | | 4,134 | | | | 4,129,323 | |
| | | | | | | | | | | | |
| | | | | | Shares | | | | |
INVESTMENT COMPANIES– 2.1% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(a)(c)(d)
(cost $2,045,224) | | | | | | | 2,045,224 | | | | 2,045,224 | |
| | | | | | | | | | | | |
Total Short-Term Investments (cost $46,384,529) | | | | | | | | | | | 46,711,586 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–99.0%
(cost $91,591,171) | | | | | | | | | | | 97,572,639 | |
Other assets less liabilities–1.0% | | | | | | | | | | | 941,347 | |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | | | | | $ | 98,513,986 | |
| | | | | | | | | | | | |
8
| | |
| | | AB Variable Products Series Fund |
FUTURES (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Month | | | Notional
(000) | | | Original
Value | | | Value at
December 31, 2017 | | | Unrealized
Appreciation/
(Depreciation) | |
Purchased Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10 Yr Canadian Bond Futures | | | 14 | | | | March 2018 | | | | CAD | | | | 1,400 | | | $ | 1,513,631 | | | $ | 1,501,130 | | | $ | (12,501 | ) |
Euro STOXX 50 Index Futures | | | 145 | | | | March 2018 | | | | EUR | | | | 1 | | | | 6,233,862 | | | | 6,077,057 | | | | (156,805 | ) |
Euro-BTP Futures | | | 13 | | | | March 2018 | | | | EUR | | | | 1,300 | | | | 2,174,537 | | | | 2,123,517 | | | | (51,020 | ) |
Euro-Bund Futures | | | 13 | | | | March 2018 | | | | EUR | | | | 1,300 | | | | 2,551,074 | | | | 2,521,891 | | | | (29,183 | ) |
Euro-OAT Futures | | | 13 | | | | March 2018 | | | | EUR | | | | 1,300 | | | | 2,439,633 | | | | 2,420,504 | | | | (19,129 | ) |
FTSE 100 Index Futures | | | 23 | | | | March 2018 | | | | GBP | | | | 0 | * | | | 2,311,464 | | | | 2,371,864 | | | | 60,400 | |
Long Gilt Futures | | | 4 | | | | March 2018 | | | | GBP | | | | 400 | | | | 670,274 | | | | 675,940 | | | | 5,666 | |
Nikkei 225 (CME) Futures | | | 19 | | | | March 2018 | | | | USD | | | | 0 | * | | | 2,138,035 | | | | 2,160,300 | | | | 22,265 | |
S&P TSX 60 Index Futures | | | 13 | | | | March 2018 | | | | CAD | | | | 3 | | | | 1,970,058 | | | | 1,980,302 | | | | 10,244 | |
SPI 200 Futures | | | 11 | | | | March 2018 | | | | AUD | | | | 0 | * | | | 1,291,943 | | | | 1,291,704 | | | | (239 | ) |
TOPIX Index Futures | | | 18 | | | | March 2018 | | | | JPY | | | | 180 | | | | 2,834,906 | | | | 2,902,685 | | | | 67,779 | |
U.S. T-Note 10 Yr (CBT) Futures | | | 58 | | | | March 2018 | | | | USD | | | | 5,800 | | | | 7,234,304 | | | | 7,194,718 | | | | (39,586 | ) |
U.S. Ultra Bond (CBT) Futures | | | 3 | | | | March 2018 | | | | USD | | | | 300 | | | | 498,684 | | | | 502,969 | | | | 4,285 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | $ | (137,824 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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 | | | JPY | | | | 419,446 | | | | USD | | | | 3,747 | | | | 4/06/18 | | | $ | 6,293 | |
Bank of America, NA | | | GBP | | | | 1,990 | | | | USD | | | | 2,671 | | | | 3/14/18 | | | | (21,914 | ) |
Bank of America, NA | | | USD | | | | 855 | | | | GBP | | | | 637 | | | | 3/14/18 | | | | 7,015 | |
Barclays Bank PLC | | | AUD | | | | 1,080 | | | | USD | | | | 821 | | | | 3/14/18 | | | | (21,582 | ) |
Citibank, NA | | | JPY | | | | 1,892,104 | | | | USD | | | | 17,071 | | | | 1/09/18 | | | | 274,953 | |
Citibank, NA | | | CHF | | | | 866 | | | | USD | | | | 882 | | | | 3/14/18 | | | | (10,752 | ) |
Credit Suisse International | | | JPY | | | | 322,496 | | | | USD | | | | 2,862 | | | | 3/14/18 | | | | (10,464 | ) |
HSBC Bank USA | | | EUR | | | | 3,344 | | | | USD | | | | 3,905 | | | | 3/14/18 | | | | (123,683 | ) |
Royal Bank of Scotland PLC | | | JPY | | | | 88,427 | | | | USD | | | | 798 | | | | 1/09/18 | | | | 13,186 | |
Royal Bank of Scotland PLC | | | EUR | | | | 15,883 | | | | USD | | | | 18,838 | | | | 2/02/18 | | | | (252,121 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 38,000 | | | | USD | | | | 338 | | | | 4/06/18 | | | | (523 | ) |
State Street Bank & Trust Co. | | | HKD | | | | 1,141 | | | | USD | | | | 146 | | | | 3/14/18 | | | | 135 | |
State Street Bank & Trust Co. | | | EUR | | | | 490 | | | | USD | | | | 581 | | | | 3/14/18 | | | | (10,259 | ) |
State Street Bank & Trust Co. | | | SGD | | | | 190 | | | | USD | | | | 141 | | | | 3/14/18 | | | | (1,418 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (151,134 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
CALL OPTIONS WRITTEN (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Counterparty | | | Contracts | | | Exercise
Price | | | Expiration
Month | | | Notional
(000) | | | Premiums
Received | | | U.S. $
Value | |
Nikkei 225 Index | | | Deutsche Bank AG | | | | 14,000 | | | | JPY | | | | 24,125.00 | | | | January 2018 | | | | JPY | | | | 14 | | | $ | 5,058 | | | $ | (488 | ) |
9
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
PUT OPTIONS WRITTEN (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Counterparty | | Contracts | | | Exercise
Price | | | Expiration
Month | | | Notional
(000) | | | Premiums
Received | | | U.S. $ Value | |
Euro STOXX 50 Index | | Deutsche Bank AG | | | 740 | | | | EUR | | | | 3,350.00 | | | | January 2018 | | | | EUR | | | | 1 | | | $ | 7,133 | | | $ | (6,417 | ) |
FTSE 100 Index | | Deutsche Bank AG | | | 130 | | | | GBP | | | | 7,050.00 | | | | January 2018 | | | | GBP | | | | 0 | * | | | 1,646 | | | | (339 | ) |
iShares MSCI Emerging Markets ETF | | Morgan Stanley & Co., Inc. | | | 1,269 | | | | USD | | | | 43.50 | | | | January 2018 | | | | USD | | | | 127 | | | | 41,823 | | | | (3,807 | ) |
Nikkei 225 Index | | Deutsche Bank AG | | | 14,000 | | | | JPY | | | | 21,375.00 | | | | January 2018 | | | | JPY | | | | 14 | | | | 7,649 | | | | (1,860 | ) |
SPDR S&P 500 ETF Trust | | Morgan Stanley & Co., Inc. | | | 324 | | | | USD | | | | 250.00 | | | | January 2018 | | | | USD | | | | 32 | | | | 23,638 | | | | (9,234 | ) |
SPDR S&P 500 ETF Trust | | Morgan Stanley & Co., Inc. | | | 257 | | | | USD | | | | 254.00 | | | | January 2018 | | | | USD | | | | 26 | | | | 11,554 | | | | (10,280 | ) |
SPDR S&P 500 ETF Trust | | Morgan Stanley & Co., Inc. | | | 388 | | | | USD | | | | 252.00 | | | | January 2018 | | | | USD | | | | 39 | | | | 15,116 | | | | (13,192 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | $ | 108,559 | | | $ | (45,129 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| * | | Notional amount less than 500. |
| (a) | | 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. |
| (b) | | Non-income producing security. |
| (c) | | Affiliated investments. |
| (d) | | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD—Australian Dollar
CAD—Canadian Dollar
CHF—Swiss Franc
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
JPY—Japanese Yen
SGD—Singapore Dollar
USD—United States Dollar
Glossary:
BTP—Buoni del Tesoro Poliennali
CBT—Chicago Board of Trade
CME—Chicago Mercantile Exchange
EAFE—Europe, Australia, and Far East
ETF—Exchange Traded Fund
FTSE—Financial Times Stock Exchange
MSCI—Morgan Stanley Capital International
OAT—Obligations Assimilables du Trésor
SPDR—Standard & Poor’s Depository Receipt
SPI—Share Price Index
TIPS—Treasury Inflation Protected Security
TOPIX—Tokyo Price Index
TSX—Toronto Stock Exchange
See notes to financial statements.
10
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $89,545,947) | | $ | 95,527,415 | |
Affiliated issuers (cost $2,045,224) | | | 2,045,224 | |
Cash collateral due from broker | | | 1,083,598 | |
Foreign currencies, at value (cost $185,706) | | | 188,471 | |
Unrealized appreciation on forward currency exchange contracts | | | 301,582 | |
Unaffiliated dividends and interest receivable | | | 44,081 | |
Receivable for capital stock sold | | | 35,874 | |
Affiliated dividends receivable | | | 13,923 | |
| | | | |
Total assets | | | 99,240,168 | |
| | | | |
LIABILITIES | | | | |
Options written, at value (premiums received $113,617) | | | 45,617 | |
Unrealized depreciation on forward currency exchange contracts | | | 452,716 | |
Audit and tax fee payable | | | 47,116 | |
Advisory fee payable | | | 39,398 | |
Payable for variation margin on futures | | | 29,886 | |
Distribution fee payable | | | 20,802 | |
Administrative fee payable | | | 13,905 | |
Payable for capital stock redeemed | | | 9,591 | |
Cash collateral due to broker | | | 2,397 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 64,657 | |
| | | | |
Total liabilities | | | 726,182 | |
| | | | |
NET ASSETS | | $ | 98,513,986 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 9,135 | |
Additional paid-in capital | | | 87,288,428 | |
Undistributed net investment income | | | 149,851 | |
Accumulated net realized gain on investment transactions and foreign currency transactions | | | 5,303,297 | |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 5,763,275 | |
| | | | |
| | $ | 98,513,986 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 11,912 | | | | 1,100 | | | $ | 10.83 | |
| B | | $ | 98,502,074 | | | | 9,134,181 | | | $ | 10.78 | |
See notes to financial statements.
11
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers | | $ | 762,188 | |
Affiliated issuers | | | 180,244 | |
Interest | | | 128,195 | |
| | | | |
| | | 1,070,627 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 537,498 | |
Distribution fee—Class B | | | 223,929 | |
Transfer agency—Class B | | | 4,823 | |
Custodian | | | 83,669 | |
Administrative | | | 54,688 | |
Audit and tax | | | 47,621 | |
Legal | | | 28,789 | |
Directors’ fees | | | 28,561 | |
Printing | | | 17,996 | |
Miscellaneous | | | 24,543 | |
| | | | |
Total expenses | | | 1,052,117 | |
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | | | (255,442 | ) |
| | | | |
Net expenses | | | 796,675 | |
| | | | |
Net investment income | | | 273,952 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain (loss) on: | | | | |
Investment transactions | | | 998,400 | |
Forward currency exchange contracts | | | (452,541 | ) |
Futures | | | 4,317,579 | |
Options written | | | 1,229,827 | |
Swaptions written | | | 63,991 | |
Foreign currency transactions | | | 463,878 | |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 3,815,153 | |
Forward currency exchange contracts | | | (451,697 | ) |
Futures | | | (420,290 | ) |
Options written | | | (98,539 | ) |
Swaptions written | | | (257 | ) |
Foreign currency denominated assets and liabilities | | | 2,606 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 9,468,110 | |
| | | | |
Contributions from Affiliates (see Note B) | | | 146 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 9,742,208 | |
| | | | |
See notes to financial statements.
12
| | |
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 273,952 | | | $ | 154,316 | |
Net realized gain on investment transactions and foreign currency transactions | | | 6,621,134 | | | | 174,910 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 2,846,976 | | | | 2,874,799 | |
Contributions from Affiliates (see Note B) | | | 146 | | | | –0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 9,742,208 | | | | 3,204,025 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (59 | ) | | | (36 | ) |
Class B | | | (310,219 | ) | | | (194,179 | ) |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | (57 | ) | | | –0 | – |
Class B | | | (454,753 | ) | | | –0 | – |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net increase | | | 10,228,289 | | | | 25,173,454 | |
| | | | | | | | |
Total increase | | | 19,205,409 | | | | 28,183,264 | |
NET ASSETS | | | | | | | | |
Beginning of period | | | 79,308,577 | | | | 51,125,313 | |
| | | | | | | | |
End of period (including undistributed net investment income of $149,851 and $8,947, respectively) | | $ | 98,513,986 | | | $ | 79,308,577 | |
| | | | | | | | |
See notes to financial statements.
13
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Global Risk Allocation—Moderate Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to generate income and price appreciation without assuming what AllianceBernstein L.P. (the “Adviser”) considers undue risk. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Portfolio’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S.
14
| | |
| | | AB Variable Products Series Fund |
markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk
15
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Investment Companies | | $ | 47,019,233 | | | $ | –0– | | | $ | –0– | | | $ | 47,019,233 | |
Inflation-Linked Securities | | | –0– | | | | 3,764,841 | | | | –0– | | | | 3,764,841 | |
Options Purchased—Puts | | | –0– | | | | 71,795 | | | | –0– | | | | 71,795 | |
Options Purchased—Calls | | | –0– | | | | 5,184 | | | | –0– | | | | 5,184 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Governments—Treasuries | | | –0– | | | | 40,537,039 | | | | –0– | | | | 40,537,039 | |
U.S. Treasury Bills | | | –0– | | | | 4,129,323 | | | | –0– | | | | 4,129,323 | |
Investment Companies | | | 2,045,224 | | | | –0– | | | | –0– | | | | 2,045,224 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 49,064,457 | | | | 48,508,182 | | | | –0– | | | | 97,572,639 | |
Other Financial Instruments(a): | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Futures | | | 42,460 | | | | 128,179 | | | | –0– | | | | 170,639 | (b) |
Forward Currency Exchange Contracts | | | –0– | | | | 301,582 | | | | –0– | | | | 301,582 | |
Liabilities: | | | | | | | | | | | | | | | | |
Futures | | | (151,419 | ) | | | (157,044 | ) | | | –0– | | | | (308,463 | )(b) |
Forward Currency Exchange Contracts | | | –0– | | | | (452,716 | ) | | | –0– | | | | (452,716 | ) |
Call Options Written | | | –0– | | | | (488 | ) | | | –0– | | | | (488 | ) |
Put Options Written | | | –0– | | | | (45,129 | ) | | | –0– | | | | (45,129 | ) |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 48,955,498 | | | $ | 48,282,566 | | | $ | –0– | | | $ | 97,238,064 | |
| | | | | | | | | | | | | | | | |
| (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) of exchange-traded derivatives as reported in the portfolio of investments. Exchange-traded swaps with upfront premiums are presented here as market value. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing
16
| | |
| | | AB Variable Products Series Fund |
Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior two tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Portfolio 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.
17
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
8. Offering Expenses
Offering expenses of $39,078 were deferred and amortized on a straight line basis over a one year period starting from April 29, 2015 (commencement of operations).
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .60% of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses, to the extent necessary to limit total operating expenses, inclusive of the Portfolio’s proportionate share of fees and expenses of registered investment companies or series thereof in which the Portfolio invests (“Acquired Fund Expenses”) on an annual basis (the “Expense Caps”) to .75% and 1.00% of daily average net assets for Class A and Class B, respectively. The Expense Caps may not be terminated by the Adviser before May 1, 2018. Any fees waived and expenses borne by the Adviser through April 27, 2016 are subject to repayment by the Portfolio 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 $157,734 for the fiscal period ended December 31, 2015 and $70,109 for the year ended December 31, 2016. In any case, no reimbursement payment will be made that would cause the Portfolio’s total annual fund operating expenses to exceed the net fee percentage set forth above. For the year ended December 31, 2017, the reimbursements/waivers, exclusive of Acquired Fund Expenses, amounted to $156,316. For the year ended December 31, 2017, such waiver for Acquired Fund Expenses for both affiliated and unaffiliated underlying portfolios amounted to $54,624 and $43,761, respectively.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | | | | | | | |
Fund | | Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | | | Dividend
Income
(000) | |
Government Money Market Portfolio | | $ | 36,333 | | | $ | 42,589 | | | $ | 76,877 | | | $ | 2,045 | | | $ | 176 | |
Government Money Market Portfolio* | | | 0 | | | | 35,258 | | | | 35,258 | | | | 0 | | | | 4 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | | | | | | | | | | | | | $ | 2,045 | | | $ | 180 | |
| | | | | | | | | | | | | | | | | | | | |
| * | | Investments of cash collateral for securities lending transactions (see Note E). |
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $54,688.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $146 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $71,510, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual
18
| | |
| | | AB Variable Products Series Fund |
expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 33,015,770 | | | $ | 21,418,295 | |
U.S. government securities | | | 2,322,781 | | | | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 91,658,892 | |
| | | | |
Gross unrealized appreciation | | $ | 6,948,352 | |
Gross unrealized depreciation | | | (902,604 | ) |
| | | | |
Net unrealized appreciation | | $ | 6,045,748 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2017, the Portfolio held futures for hedging and non-hedging purposes.
19
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
At December 31, 2017, the maximum payments for written put options amounted to $7,166,964. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
20
| | |
| | | AB Variable Products Series Fund |
During the year ended December 31, 2017, the Portfolio held purchased options for hedging and non-hedging purposes. During the year ended December 31, 2017, the Portfolio held written options for hedging and non-hedging purposes.
During the year ended December 31, 2017, the Portfolio held written swaptions for hedging and non-hedging purposes.
During the year ended December 31, 2017, the Portfolio held purchased swaptions for hedging and non-hedging purposes.
The Portfolio 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty tables below.
During the year ended December 31, 2017, the Portfolio had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and Liabilities Location | | Fair Value | | | Statement of
Assets and Liabilities Location | | Fair Value | |
Interest rate contracts | | Receivable/Payable for variation margin on futures | | $ | 9,951 | * | | Receivable/Payable for variation margin on futures | | $ | 151,419 | * |
Equity contracts | | Receivable/Payable for variation margin on futures | | | 160,688 | * | | Receivable/Payable for variation margin on futures | | | 157,044 | * |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | | 301,582 | | | Unrealized depreciation on forward currency exchange contracts | | | 452,716 | |
Equity contracts | | Investments in securities, at value | | | 76,979 | | | | | | | |
Equity contracts | | | | | | | | Options written, at value | | | 45,617 | |
| | | | | | | | | | | | |
Total | | | | $ | 549,200 | | | | | $ | 806,796 | |
| | | | | | | | | | | | |
| * | | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
| | | | | | | | | | |
Derivative Type | | Location of Gain or (Loss) on Derivatives
Within Statement of Operations | | Realized Gain or
(Loss) on
Derivatives | | | Change in Unrealized
Appreciation or
(Depreciation) | |
Interest rate contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | $ | 285,050 | | | $ | (177,540 | ) |
Equity contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | | 4,032,529 | | | | (242,750 | ) |
21
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | |
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 | | $ | (452,541 | ) | | $ | (451,697 | ) |
Interest rate contracts | | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | | (8,416 | ) | | | (4,717 | ) |
Foreign exchange contracts | | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | | (5,317 | ) | | | –0– | |
Equity contracts | | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | | (1,016,015 | ) | | | (8,512 | ) |
Foreign exchange contracts | | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | | | 107,814 | | | | –0– | |
Equity contracts | | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | | | 1,122,013 | | | | (98,539 | ) |
Interest rate contracts | | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | | | 63,991 | | | | (257 | ) |
| | | | | | | | | | |
Total | | | | $ | 4,129,108 | | | $ | (984,012 | ) |
| | | | | | | | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Futures: | | | | |
Average original value of buy contracts | | $ | 36,469,320 | |
Average original value of sale contracts | | $ | 4,899,469 | (a) |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 10,384,488 | |
Average principal amount of sale contracts | | $ | 33,401,715 | |
Purchased Options: | | | | |
Average monthly cost | | $ | 160,527 | |
Options Written: | | | | |
Average notional amount | | $ | 1,732,790 | |
Swaptions Written: | | | | |
Average notional amount | | $ | 12,158,250 | (b) |
| (a) | | Positions were open for eight months during the year. |
| (b) | | Positions were open for three months during the year. |
22
| | |
| | | AB Variable Products Series Fund |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Received* | | | Security Collateral
Received* | | | Net Amount of
Derivatives
Assets | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 13,308 | | | $ | (13,308 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Citibank, NA | | | 274,953 | | | | (10,752 | ) | | | –0 | – | | | –0 | – | | | 264,201 | |
Deutsche Bank AG | | | 33,965 | | | | (9,104 | ) | | | –0 | – | | | –0 | – | | | 24,861 | |
Royal Bank of Scotland PLC | | | 13,186 | | | | (13,186 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
State Street Bank & Trust Co. | | | 135 | | | | (135 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 335,547 | | | $ | (46,485 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 289,062 | ^ |
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Liabilities
Subject to a MA | | | Derivative
Available for
Offset | | | Cash Collateral
Pledged* | | | Security Collateral
Pledged* | | | Net Amount of
Derivatives
Liabilities | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 21,914 | | | $ | (13,308 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 8,606 | |
Barclays Bank PLC | | | 21,582 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 21,582 | |
Citibank, NA | | | 10,752 | | | | (10,752 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 10,464 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 10,464 | |
Deutsche Bank AG | | | 9,104 | | | | (9,104 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
HSBC Bank USA | | | 123,683 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 123,683 | |
Royal Bank of Scotland PLC | | | 252,121 | | | | (13,186 | ) | | | –0 | – | | | –0 | – | | | 238,935 | |
State Street Bank & Trust Co. | | | 12,200 | | | | (135 | ) | | | –0 | – | | | –0 | – | | | 12,065 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 461,820 | | | $ | (46,485 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 415,335 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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
23
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $3,947 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $741. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | Shares | | | | | | Amount | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 2,600,502 | | | | 3,808,075 | | | | | | | $ | 26,589,694 | | | $ | 35,747,390 | |
Shares issued in reinvestment of dividends and distributions | | | 74,915 | | | | 20,203 | | | | | | | | 764,886 | | | | 194,152 | |
Shares redeemed | | | (1,673,405 | ) | | | (1,139,548 | ) | | | | | | | (17,126,291 | ) | | | (10,768,088 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase | | | 1,002,012 | | | | 2,688,730 | | | | | | | $ | 10,228,289 | | | $ | 25,173,454 | |
| | | | | | | | | | | | | | | | | | | | |
There were no transactions in capital shares for Class A for the year ended December 31, 2017 and the year ended December 31, 2016.
At December 31, 2017, certain shareholders of the Portfolio owned 98% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Allocation Risk—The allocation of investments among asset classes may have a significant effect on the Portfolio’s net asset value, or NAV, when asset classes in which the Portfolio has invested more heavily perform worse than the asset classes invested in less heavily.
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
High Yield Securities Risk—Investments in fixed-income securities with ratings below investment grade (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
24
| | |
| | | AB Variable Products Series Fund |
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Investment in Other Investment Companies Risk—As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, shareholders of a Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Non-Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 765,088 | | | $ | 194,215 | |
| | | | | | | | |
Total taxable distributions | | $ | 765,088 | | | $ | 194,215 | |
| | | | | | | | |
25
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 3,215,156 | |
Undistributed capital gains | | | 1,952,754 | |
Unrealized appreciation/(depreciation) | | | 6,048,513 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 11,216,423 | |
| | | | |
| (a) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, foreign currency reclassifications, contributions from the Adviser, the redesignation of dividends, and the disallowance of a net operating loss resulted in a net decrease in distributions in excess of net investment income, a net decrease in accumulated net realized gain on investment and foreign currency transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables —Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
26
| | |
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | |
| | | Class A | |
| | | Year Ended December 31, | | | April 28, 2015(a)
to December 31,
2015 | |
| | | 2017 | | | 2016 | | |
Net asset value, beginning of period | | | $9.78 | | | | $9.40 | | | | $10.00 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | |
Net investment income (b)(c) | | | .06 | | | | .04 | | | | .05 | |
Net realized and unrealized gain (loss) on investment transactions
and foreign currency transactions | | | 1.09 | | | | .37 | | | | (.65 | ) |
Contributions from Affiliates | | | .00 | (d) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 1.15 | | | | .41 | | | | (.60 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | |
Dividends from net investment income | | | (.05 | ) | | | (.03 | ) | | | –0 | – |
Distributions from net realized gain on investment transactions | | | (.05 | ) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Total dividends and distributions | | | (.10 | ) | | | (.03 | ) | | | –0 | – |
| | | | | | | | | | | | |
Net asset value, end of period | | | $10.83 | | | | $9.78 | | | | $9.40 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Return | | | | | | | | | | | | |
Total investment return based on net asset value (e) | | | 11.87 | % | | | 4.39 | % | | | (6.00 | )% |
| | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $12 | | | | $11 | | | | $10 | |
Ratio to average net assets of: | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (f) | | | .63 | % | | | .63 | % | | | .69 | %^ |
Expenses, before waivers/reimbursements (f) | | | .94 | % | | | 1.08 | % | | | 3.21 | %^ |
Net investment income (c) | | | .55 | % | | | .46 | % | | | .82 | %^ |
Portfolio turnover rate | | | 59 | % | | | 79 | % | | | 111 | % |
See footnote summary on page 28.
27
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | |
| | | Class B | |
| | | Year Ended December 31, | | | April 28, 2015(a)
to December 31,
2015 | |
| | | 2017 | | | 2016 | | |
Net asset value, beginning of period | | | $9.75 | | | | $9.39 | | | | $10.00 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | |
Net investment income (b)(c) | | | .03 | | | | .02 | | | | .01 | |
Net realized and unrealized gain (loss) on investment transactions
and foreign currency transactions | | | 1.09 | | | | .37 | | | | (.62 | ) |
Contributions from Affiliates | | | .00 | (d) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 1.12 | | | | .39 | | | | (.61 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | |
Dividends from net investment income | | | (.04 | ) | | | (.03 | ) | | | –0 | – |
Distributions from net realized gain on investment transactions | | | (.05 | ) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Total dividends and distributions | | | (.09 | ) | | | (.03 | ) | | | –0 | – |
| | | | | | | | | | | | |
Net asset value, end of period | | | $10.78 | | | | $9.75 | | | | $9.39 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Total Return | | | | | | | | | | | | |
Total investment return based on net asset value (e) | | | 11.50 | % | | | 4.24 | % | | | (6.20 | )% |
| | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $98,502 | | | | $79,298 | | | | $51,115 | |
Ratio to average net assets of: | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (f) | | | .89 | % | | | .88 | % | | | .94 | %^ |
Expenses, before waivers/reimbursements (f) | | | 1.17 | % | | | 1.33 | % | | | 1.62 | %^ |
Net investment income (c) | | | .31 | % | | | .24 | % | | | .19 | %^ |
Portfolio turnover rate | | | 59 | % | | | 79 | % | | | 111 | % |
| (a) | | Commencement of operations. |
| (b) | | Based on average shares outstanding. |
| (c) | | Net of fees waived and expenses reimbursed by the Adviser. |
| (d) | | Amount is less than $.005. |
| (e) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| (f) | | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio 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 Portfolio in an amount equal to the Portfolio’s pro rata share of affiliated/unaffiliated acquired fund fees and expenses, and for the years ended December 31, 2017, December 31, 2016 and December 31, 2015 such waiver amounted to 0.11%, 0.12% and 0.06% (annualized), respectively. |
See notes to financial statements.
28
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Global Risk Allocation—Moderate Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Global Risk Allocation – Moderate Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the two years in the period then ended and the period April 28, 2015 (commencement of operations) to December 31, 2015 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of AB Global Risk Allocation – Moderate Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the two years in the period then ended and the period April 28, 2015 (commencement of operations) to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
29
| | |
| | |
| | |
| 2017 FEDERAL TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 28.96% of dividends paid qualify for the dividends received deduction.
30
| | |
| | |
| GLOBAL RISK ALLOCATION— | | |
| MODERATE PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
| Marshall C. Turner, Jr.(1), Chairman | | Robert M. Keith, President and Chief Executive Officer |
| Michael J. Downey(1) | | Carol C. McMullen(1) |
| William H. Foulk, Jr.(1) | | Garry L. Moody(1) |
| Nancy P. Jacklin(1) | | Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Daniel J. Loewy(2), Vice President Leon Zhu(2), Vice President | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Emilie D. Wrapp, Secretary Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
| | |
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 |
| | |
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 are made by its senior management team. Messrs. Loewy and Zhu are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
31
| | |
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.,## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey,## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
32
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER
PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.,## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin,## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen,## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
33
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER
PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Garry L. Moody,## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody, and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner,## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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 this position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
34
| | |
| | | AB Variable Products Series Fund |
Officer Information
| | | | |
Robert M. Keith
57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Daniel J. Loewy 43 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer and Head of Multi-Asset Solutions and Chief Investment Officer for Dynamic Asset Allocation. |
| | | | |
Leon Zhu
50 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto
53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | | The Adviser, ABI and ABIS are affiliates of the Fund. |
| | | The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
35
| | |
| | |
| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Risk Allocation—Moderate Portfolio (the “Fund”) at a meeting held on August 1-2, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for the period ended December 31, 2015 and calendar year 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available
36
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| | | AB Variable Products Series Fund |
and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors noted that the Fund was not profitable to the Adviser in the periods reviewed.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 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 the Fund’s Class B 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 unprofitability to the Adviser would be exacerbated without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended May 31, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund is paid for services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
37
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| GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had previously discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability (currently unprofitable) to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
38
VPS-GRA-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
| + | | GLOBAL THEMATIC GROWTH PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| GLOBAL THEMATIC GROWTH | | |
| PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Global Thematic Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio pursues opportunistic growth by investing in a global universe of companies in multiple industries that may benefit from innovation. The Adviser employs a combination of “top-down” and “bottom-up” investment processes with the goal of identifying the most attractive securities worldwide, fitting into broader themes, which are developments that have broad effects across industries and companies. Drawing on its global fundamental research capabilities, the Adviser seeks to identify long-term secular growth trends that will affect multiple industries. The Adviser will assess the effects of these trends on entire industries and on individual companies. Through this process, the Adviser intends to identify key investment themes, which will be the focus of the Portfolio’s investments and which are expected to change over time based on the Adviser’s research.
In addition to this “top-down” thematic approach, the Adviser will also use a “bottom-up” analysis of individual companies that focuses on prospective earnings growth, valuation and quality of company management. The Adviser normally considers a large universe of mid- to large-capitalization companies worldwide for investment.
The Portfolio invests in securities issued by US and non-US companies from multiple industry sectors in an attempt to maximize opportunity, which should also tend to reduce risk. The Portfolio invests in both developed and emerging-market countries. Under normal market conditions, the Portfolio invests significantly (at least 40%—unless market conditions are not deemed favorable by the Adviser) in securities of non-US companies. In addition, the Portfolio invests, under normal circumstances, in the equity securities of companies located in at least three countries. The percentage of the Portfolio’s assets invested in securities of companies in a particular country or denominated in a particular currency varies in accordance with the Adviser’s assessment of the appreciation potential of such securities.
The Portfolio may invest in any company and industry and in any type of equity security, listed and unlisted, with potential for capital appreciation. It invests in well-known, established companies as well as new, smaller or less-seasoned companies. Investments in new, smaller or less-seasoned companies may offer more reward but may also entail more risk than is generally true of larger, established companies. The Portfolio may also invest in synthetic foreign equity securities, which are various types of warrants used internationally that entitle a holder to buy or sell underlying securities, real estate investment trusts and zero-coupon bonds.
The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its benchmark, the Morgan Stanley Capital International All Country World Index (“MSCI ACWI”) (net), for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio outperformed the benchmark for the annual period. The Portfolio’s technology holdings (mainly embedded in the Empowerment theme) contributed the most to performance relative to the benchmark. An underweight to the energy sector also contributed. Cash holdings in a rising market detracted, as did an overweight in the utilities sector.
The Portfolio utilized derivatives in the form of currency forwards for hedging purposes, which had no material impact on absolute performance during the annual period.
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| | | AB Variable Products Series Fund |
MARKET REVIEW AND INVESTMENT STRATEGY
Global equity markets were very robust and largely outpaced economic growth in 2017. Emerging-market stocks were the clear winners, outperforming their developed-market peers after several disappointing years. US stocks, while posting exceptional gains, were outpaced by global stocks. Expectations of tax reform helped fuel US markets.
The Portfolio’s exposures remain focused on secular growth themes, supported by companies with attractive fundamentals. The Portfolio’s Senior Investment Management Team (the “Team”) continues to favor companies with strong organic revenue growth over those that are exposed to more macro-cyclical shifts in the market. The Team has positioned the Portfolio to be ready to take advantage of any market dislocations.
2
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| GLOBAL THEMATIC GROWTH PORTFOLIO |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
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 reflect 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
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 Portfolio’s net asset value (“NAV”).
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
(Disclosures, Risks and Note about Historical Performance continued on next page)
3
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| DISCLOSURES AND RISKS | | |
| (continued) | | AB Variable Products Series Fund |
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
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| GLOBAL THEMATIC GROWTH PORTFOLIO |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
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| THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Global Thematic Growth Portfolio Class A2 | | | 36.66% | | | | 12.59% | | | | 4.24% | |
| Global Thematic Growth Portfolio Class B2 | | | 36.30% | | | | 12.31% | | | | 3.99% | |
| MSCI ACWI (net) | | | 23.97% | | | | 10.80% | | | | 4.65% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.04%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.06% and 1.31% for Class A and Class B 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.
GLOBAL THEMATIC GROWTH PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Global Thematic Growth Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
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| GLOBAL THEMATIC GROWTH PORTFOLIO |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of each class’ table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The second line of each class’ table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,125.30 | | | $ | 5.41 | | | | 1.01 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.11 | | | $ | 5.14 | | | | 1.01 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,123.80 | | | $ | 6.74 | | | | 1.26 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,018.85 | | | $ | 6.41 | | | | 1.26 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
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| GLOBAL THEMATIC GROWTH PORTFOLIO |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
MSCI, Inc.—Class A | | $ | 3,538,059 | | | | 2.4 | % |
Kingspan Group PLC | | | 3,535,672 | | | | 2.4 | |
American Water Works Co., Inc. | | | 3,483,848 | | | | 2.4 | |
Housing Development Finance Corp., Ltd. | | | 3,412,600 | | | | 2.3 | |
Hexcel Corp. | | | 3,336,746 | | | | 2.3 | |
Abbott Laboratories | | | 3,250,137 | | | | 2.2 | |
Apollo Hospitals Enterprise Ltd. | | | 3,125,966 | | | | 2.1 | |
UnitedHealth Group, Inc. | | | 3,031,325 | | | | 2.1 | |
AIA Group Ltd. | | | 3,016,101 | | | | 2.1 | |
Xylem, Inc./NY | | | 3,015,804 | | | | 2.1 | |
| | | | | | | | | |
| | | $ | 32,746,258 | | | | 22.4 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Health Care | | $ | 30,312,446 | | | | 20.7 | % |
Financials | | | 27,425,428 | | | | 18.7 | |
Information Technology | | | 24,909,017 | | | | 17.0 | |
Industrials | | | 20,062,217 | | | | 13.7 | |
Utilities | | | 11,311,352 | | | | 7.7 | |
Consumer Discretionary | | | 8,562,058 | | | | 5.8 | |
Consumer Staples | | | 7,823,200 | | | | 5.3 | |
Real Estate | | | 4,358,735 | | | | 3.0 | |
Materials | | | 2,891,579 | | | | 2.0 | |
Telecommunication Services | | | 1,791,930 | | | | 1.2 | |
Short-Term Investments | | | 7,252,673 | | | | 4.9 | |
| | | | | | | | | |
Total Investments | | $ | 146,700,635 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivatives 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 Portfolio’s prospectus.
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| GLOBAL THEMATIC GROWTH PORTFOLIO |
| COUNTRY BREAKDOWN1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COUNTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
United States | | $ | 69,748,697 | | | | 47.5 | % |
China | | | 10,043,425 | | | | 6.9 | |
India | | | 8,363,577 | | | | 5.7 | |
Switzerland | | | 7,660,217 | | | | 5.2 | |
France | | | 7,210,042 | | | | 4.9 | |
Germany | | | 5,934,207 | | | | 4.0 | |
Denmark | | | 4,847,789 | | | | 3.3 | |
Indonesia | | | 3,764,303 | | | | 2.6 | |
Hong Kong | | | 3,044,607 | | | | 2.1 | |
Ireland | | | 3,016,101 | | | | 2.1 | |
Sweden | | | 2,879,188 | | | | 2.0 | |
United Kingdom | | | 2,591,831 | | | | 1.8 | |
Japan | | | 2,547,036 | | | | 1.7 | |
Other | | | 7,796,942 | | | | 5.3 | |
Short-Term Investments | | | 7,252,673 | | | | 4.9 | |
| | | | | | | | | |
Total Investments | | $ | 146,700,635 | | | | 100.0 | % |
| 1 | | All data are as of December 31, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. “Other” country weightings represent 1.7% or less in the following countries: Brazil, Japan, Peru and Philippines. |
8
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| PORTFOLIO OF INVESTMENTS |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
COMMON STOCKS–95.2% | | | | | | | | | | | | |
HEALTH CARE–20.7% | | | | | | | | | | | | |
BIOTECHNOLOGY–1.6% | | | | | | | | | | | | |
Foundation Medicine, Inc.(a)(b) | | | | | | | 18,298 | | | $ | 1,247,923 | |
Regeneron Pharmaceuticals, Inc.(a) | | | | | | | 2,810 | | | | 1,056,448 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,304,371 | |
| | | | | | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–7.3% | | | | | | | | | | | | |
Abbott Laboratories | | | | | | | 56,950 | | | | 3,250,137 | |
Danaher Corp. | | | | | | | 28,320 | | | | 2,628,662 | |
Essilor International Cie Generale d’Optique SA | | | | | | | 17,977 | | | | 2,476,178 | |
West Pharmaceutical Services, Inc. | | | | | | | 24,170 | | | | 2,384,854 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,739,831 | |
| | | | | | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–4.2% | | | | | | | | | | | | |
Apollo Hospitals Enterprise Ltd. | | | | | | | 165,820 | | | | 3,125,966 | |
UnitedHealth Group, Inc. | | | | | | | 13,750 | | | | 3,031,325 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,157,291 | |
| | | | | | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–5.5% | | | | | | | | | | | | |
Bio-Rad Laboratories, Inc.–Class A(a) | | | | | | | 11,830 | | | | 2,823,466 | |
Bruker Corp. | | | | | | | 79,450 | | | | 2,726,724 | |
ICON PLC(a) | | | | | | | 21,690 | | | | 2,432,534 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,982,724 | |
| | | | | | | | | | | | |
PHARMACEUTICALS–2.1% | | | | | | | | | | | | |
Roche Holding AG | | | | | | | 8,640 | | | | 2,184,669 | |
Vectura Group PLC(a) | | | | | | | 593,760 | | | | 943,560 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,128,229 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 30,312,446 | |
| | | | | | | | | | | | |
FINANCIALS–18.7% | | | | | | | | | | | | |
BANKS–5.5% | | | | | | | | | | | | |
Bank Mandiri Persero Tbk PT | | | | | | | 3,349,500 | | | | 1,972,373 | |
Credicorp Ltd. | | | | | | | 7,400 | | | | 1,534,982 | |
HDFC Bank Ltd. | | | | | | | 52,230 | | | | 1,549,041 | |
Svenska Handelsbanken AB–Class A | | | | | | | 116,250 | | | | 1,588,676 | |
Swedbank AB–Class A | | | | | | | 60,350 | | | | 1,455,931 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 8,101,003 | |
| | | | | | | | | | | | |
CAPITAL MARKETS–6.2% | | | | | | | | | | | | |
Charles Schwab Corp. (The) | | | | | | | 56,790 | | | | 2,917,302 | |
MSCI, Inc.–Class A | | | | | | | 27,960 | | | | 3,538,059 | |
Partners Group Holding AG(b) | | | | | | | 3,720 | | | | 2,548,917 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,004,278 | |
| | | | | | | | | | | | |
CONSUMER FINANCE–1.3% | | | | | | | | | | | | |
Bharat Financial Inclusion Ltd.(a) | | | | | | | 124,810 | | | | 1,955,818 | |
| | | | | | | | | | | | |
INSURANCE–3.4% | | | | | | | | | | | | |
AIA Group Ltd. | | | | | | | 354,600 | | | | 3,016,101 | |
Prudential PLC | | | | | | | 75,580 | | | | 1,935,628 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,951,729 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
THRIFTS & MORTGAGE FINANCE–2.3% | | | | | | | | | | | | |
Housing Development Finance Corp., Ltd. | | | | | | | 127,430 | | | $ | 3,412,600 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 27,425,428 | |
| | | | | | | | | | | | |
INFORMATION TECHNOLOGY–17.0% | | | | | | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–1.2% | | | | | | | | | | | | |
Flex Ltd.(a) | | | | | | | 102,900 | | | | 1,851,171 | |
| | | | | | | | | | | | |
INTERNET SOFTWARE & SERVICES–6.0% | | | | | | | | | | | | |
Alibaba Group Holding Ltd. (Sponsored ADR)(a) | | | | | | | 8,280 | | | | 1,427,720 | |
Alphabet, Inc.–Class C(a) | | | | | | | 2,567 | | | | 2,686,109 | |
Facebook, Inc.–Class A(a) | | | | | | | 11,560 | | | | 2,039,878 | |
Tencent Holdings Ltd. | | | | | | | 50,900 | | | | 2,634,478 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 8,788,185 | |
| | | | | | | | | | | | |
IT SERVICES–2.0% | | | | | | | | | | | | |
Visa, Inc.–Class A | | | | | | | 25,620 | | | | 2,921,192 | |
| | | | | | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–4.7% | | | | | | | | | | | | |
ams AG(a) | | | | | | | 28,610 | | | | 2,591,831 | |
Infineon Technologies AG | | | | | | | 80,290 | | | | 2,186,634 | |
NVIDIA Corp. | | | | | | | 10,988 | | | | 2,126,178 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,904,643 | |
| | | | | | | | | | | | |
SOFTWARE–2.0% | | | | | | | | | | | | |
Microsoft Corp. | | | | | | | 33,680 | | | | 2,880,987 | |
| | | | | | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.1% | | | | | | | | | | | | |
Apple, Inc. | | | | | | | 9,235 | | | | 1,562,839 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 24,909,017 | |
| | | | | | | | | | | | |
INDUSTRIALS–13.7% | | | | | | | | | | | | |
AEROSPACE & DEFENSE–2.3% | | | | | | | | | | | | |
Hexcel Corp. | | | | | | | 53,949 | | | | 3,336,746 | |
| | | | | | | | | | | | |
BUILDING PRODUCTS–2.4% | | | | | | | | | | | | |
Kingspan Group PLC | | | | | | | 80,690 | | | | 3,535,672 | |
| | | | | | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–1.6% | | | | | | | | | | | | |
China Everbright International Ltd. | | | | | | | 1,632,000 | | | | 2,328,284 | |
| | | | | | | | | | | | |
ELECTRICAL EQUIPMENT–3.5% | | | | | | | | | | | | |
Schneider Electric SE (Paris)(a) | | | | | | | 31,110 | | | | 2,637,520 | |
Vestas Wind Systems A/S | | | | | | | 36,860 | | | | 2,547,036 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,184,556 | |
| | | | | | | | | | | | |
INDUSTRIAL CONGLOMERATES–1.8% | | | | | | | | | | | | |
Siemens AG (REG) | | | | | | | 19,220 | | | | 2,661,155 | |
| | | | | | | | | | | | |
9
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
MACHINERY–2.1% | | | | | | | | | | | | |
Xylem, Inc./NY | | | | | | | 44,220 | | | $ | 3,015,804 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 20,062,217 | |
| | | | | | | | | | | | |
UTILITIES–7.7% | | | | | | | | | | | | |
MULTI-UTILITIES–1.4% | | | | | | | | | | | | |
Suez | | | | | | | 119,330 | | | | 2,096,344 | |
| | | | | | | | | | | | |
WATER UTILITIES–6.3% | | | | | | | | | | | | |
American Water Works Co., Inc. | | | | | | | 38,079 | | | | 3,483,848 | |
Aqua America, Inc. | | | | | | | 57,490 | | | | 2,255,332 | |
Beijing Enterprises Water Group Ltd.(a) | | | | | | | 2,554,000 | | | | 1,973,095 | |
Cia de Saneamento Basico do Estado de Sao Paulo | | | | | | | 145,200 | | | | 1,502,733 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,215,008 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 11,311,352 | |
| | | | | | | | | | | | |
CONSUMER DISCRETIONARY–5.9% | | | | | | | | | | | | |
AUTO COMPONENTS–2.4% | | | | | | | | | | | | |
Aptiv PLC | | | | | | | 26,190 | | | | 2,221,698 | |
Delphi Technologies PLC(a) | | | | | | | 23,483 | | | | 1,232,153 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,453,851 | |
| | | | | | | | | | | | |
DIVERSIFIED CONSUMER SERVICES–1.3% | | | | | | | | | | | | |
Bright Horizons Family Solutions, Inc.(a) | | | | | | | 20,320 | | | | 1,910,080 | |
| | | | | | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–1.2% | | | | | | | | | | | | |
Amazon.com, Inc.(a) | | | | | | | 1,443 | | | | 1,687,545 | |
| | | | | | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–1.0% | | | | | | | | | | | | |
NIKE, Inc.–Class B | | | | | | | 24,150 | | | | 1,510,583 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 8,562,059 | |
| | | | | | | | | | | | |
CONSUMER STAPLES–5.3% | | | | | | | | | | | | |
FOOD PRODUCTS–3.6% | | | | | | | | | | | | |
Kerry Group PLC–Class A | | | | | | | 21,380 | | | | 2,398,535 | |
Nestle SA (REG) | | | | | | | 34,040 | | | | 2,926,631 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,325,166 | |
| | | | | | | | | | | | |
HOUSEHOLD PRODUCTS–1.7% | | | | | | | | | | | | |
Unicharm Corp. | | | | | | | 96,200 | | | | 2,498,034 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 7,823,200 | |
| | | | | | | | | | | | |
REAL ESTATE–3.0% | | | | | | | | | | | | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–1.4% | | | | | | | | | | | | |
SBA Communications Corp.(a) | | | | | | | 12,840 | | | | 2,097,542 | |
| | | | | | | | | | | | |
REAL ESTATE MANAGEMENT & DEVELOPMENT–1.6% | | | | | | | | | | | | |
SM Prime Holdings, Inc. | | | | | | | 3,010,100 | | | | 2,261,193 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,358,735 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
MATERIALS–2.0% | | | | | | | | | | | | |
CHEMICALS–2.0% | | | | | | | | | | | | |
Ecolab, Inc. | | | | | | | 21,550 | | | $ | 2,891,579 | |
| | | | | | | | | | | | |
TELECOMMUNICATION SERVICES–1.2% | | | | | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–1.2% | | | | | | | | | | | | |
Telekomunikasi Indonesia Persero Tbk PT | | | | | | | 5,475,000 | | | | 1,791,930 | |
| | | | | | | | | | | | |
Total Common Stocks
(cost $100,692,060) | | | | | | | | | | | 139,447,963 | |
| | | | | | | | | | | | |
WARRANTS–0.0% | | | | | | | | | | | | |
INFORMATION TECHNOLOGY–0.0% | | | | | | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS–0.0% | | | | | | | | | | | | |
Thin Film Electronics ASA, expiring 7/14/18(a)(c)(d)(e)
(cost $0) | | | | | | | 591,845 | | | | –0 | – |
| | | | | | | | | | | | |
| | | | | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–5.0% | | | | | | | | | | | | |
TIME DEPOSIT–5.0% | | | | | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $7,252,672) | | U.S.$ | | | | | 7,253 | | | | 7,252,672 | |
| | | | | | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned–100.2%
(cost $107,944,732) | | | | | | | | | | | 146,700,635 | |
| | | | | | | | | | | | |
| | | | | | Shares | | | | |
INVESTMENT COMPANIES–2.6% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(f)(g)(h)
(cost $3,828,854) | | | | | | | 3,828,854 | | | | 3,828,854 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–102.8%
(cost $111,773,586) | | | | | | | | | | | 150,529,489 | |
Other assets less liabilities–(2.8)% | | | | | | | | | | | (4,077,680 | ) |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | | | | | $ | 146,451,809 | |
| | | | | | | | | | | | |
10
| | |
| | | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | | USD | | | | 756 | | | | BRL | | | | 2,502 | | | | 1/03/18 | �� | | $ | (1,675 | ) |
Bank of America, NA | | | BRL | | | | 1,251 | | | | USD | | | | 378 | | | | 1/03/18 | | | | 1,037 | |
Bank of America, NA | | | BRL | | | | 1,251 | | | | USD | | | | 377 | | | | 1/03/18 | | | | (329 | ) |
Bank of America, NA | | | BRL | | | | 1,251 | | | | USD | | | | 376 | | | | 2/02/18 | | | | 439 | |
Bank of America, NA | | | CNY | | | | 33,705 | | | | USD | | | | 5,039 | | | | 2/07/18 | | | | (125,116 | ) |
Bank of America, NA | | | USD | | | | 5,675 | | | | GBP | | | | 4,228 | | | | 3/14/18 | | | | 46,559 | |
Bank of America, NA | | | INR | | | | 521,894 | | | | USD | | | | 7,976 | | | | 3/12/18 | | | | (149,299 | ) |
Bank of America, NA | | | USD | | | | 1,025 | | | | ZAR | | | | 14,161 | | | | 3/14/18 | | | | 107,559 | |
Barclays Bank PLC | | | USD | | | | 3,048 | | | | CAD | | | | 3,913 | | | | 3/14/18 | | | | 68,350 | |
Barclays Bank PLC | | | USD | | | | 1,981 | | | | CNY | | | | 13,174 | | | | 2/07/18 | | | | 37,022 | |
Barclays Bank PLC | | | EUR | | | | 1,763 | | | | USD | | | | 2,087 | | | | 3/14/18 | | | | (37,566 | ) |
Barclays Bank PLC | | | INR | | | | 36,775 | | | | USD | | | | 565 | | | | 3/12/18 | | | | (7,101 | ) |
Barclays Bank PLC | | | USD | | | | 180 | | | | TWD | | | | 5,354 | | | | 3/08/18 | | | | 2,285 | |
BNP Paribas SA | | | USD | | | | 829 | | | | AUD | | | | 1,093 | | | | 3/14/18 | | | | 23,226 | |
Citibank, NA | | | USD | | | | 476 | | | | RUB | | | | 28,928 | | | | 1/25/18 | | | | 24,343 | |
Credit Suisse International | | | USD | | | | 7,902 | | | | JPY | | | | 890,537 | | | | 3/14/18 | | | | 28,894 | |
Credit Suisse International | | | SEK | | | | 10,318 | | | | USD | | | | 1,235 | | | | 3/14/18 | | | | (27,660 | ) |
Goldman Sachs Bank USA | | | CHF | | | | 2,694 | | | | USD | | | | 2,742 | | | | 3/14/18 | | | | (36,377 | ) |
JPMorgan Chase Bank, NA | | | EUR | | | | 3,595 | | | | USD | | | | 4,264 | | | | 3/14/18 | | | | (67,102 | ) |
JPMorgan Chase Bank, NA | | | HKD | | | | 9,691 | | | | USD | | | | 1,243 | | | | 3/14/18 | | | | 1,001 | |
Morgan Stanley & Co., Inc. | | | USD | | | | 1,242 | | | | HKD | | | | 9,691 | | | | 3/14/18 | | | | (291 | ) |
Standard Chartered Bank | | | USD | | | | 2,427 | | | | AUD | | | | 3,193 | | | | 3/14/18 | | | | 64,061 | |
Standard Chartered Bank | | | USD | | | | 1,720 | | | | TWD | | | | 51,428 | | | | 3/08/18 | | | | 26,387 | |
State Street Bank & Trust Co. | | | EUR | | | | 272 | | | | USD | | | | 324 | | | | 3/14/18 | | | | (3,585 | ) |
State Street Bank & Trust Co. | | | GBP | | | | 289 | | | | USD | | | | 386 | | | | 3/14/18 | | | | (4,613 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 43,695 | | | | USD | | | | 390 | | | | 3/14/18 | | | | 1,133 | |
State Street Bank & Trust Co. | | | USD | | | | 486 | | | | MXN | | | | 9,452 | | | | 3/14/18 | | | | (10,936 | ) |
State Street Bank & Trust Co. | | | USD | | | | 265 | | | | NOK | | | | 2,208 | | | | 3/14/18 | | | | 4,548 | |
State Street Bank & Trust Co. | | | USD | | | | 2,424 | | | | KRW | | | | 2,744,335 | | | | 1/18/18 | | | | 148,288 | |
State Street Bank & Trust Co. | | | SEK | | | | 4,197 | | | | USD | | | | 501 | | | | 3/14/18 | | | | (12,953 | ) |
State Street Bank & Trust Co. | | | CHF | | | | 1,090 | | | | USD | | | | 1,113 | | | | 3/14/18 | | | | (11,571 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | 88,958 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
11
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| (a) | | Non-income producing security. |
| (b) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (d) | | Fair valued by the Adviser. |
| (e) | | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (f) | | Affiliated investments. |
| (g) | | The rate shown represents the 7-day yield as of period end. |
| (h) | | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618. |
Currency Abbreviations:
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NOK—Norwegian Krone
RUB—Russian Ruble
SEK—Swedish Krona
TWD—New Taiwan Dollar
USD—United States Dollar
ZAR—South African Rand
Glossary:
ADR—American Depositary Receipt
REG—Registered Shares
See notes to financial statements.
12
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $107,944,732) | | $ | 146,700,635 | (a) |
Affiliated issuers (cost $3,828,854—investment of cash collateral for securities loaned) | | | 3,828,854 | |
Foreign currencies, at value (cost $124,244) | | | 124,419 | |
Unrealized appreciation on forward currency exchange contracts | | | 585,132 | |
Dividends and interest receivable | | | 133,678 | |
Receivable for capital stock sold | | | 10,285 | |
| | | | |
Total assets | | | 151,383,003 | |
| | | | |
LIABILITIES | | | | |
Payable for collateral received on securities loaned | | | 3,828,854 | |
Unrealized depreciation on forward currency exchange contracts | | | 496,174 | |
Payable for capital stock redeemed | | | 304,526 | |
Advisory fee payable | | | 93,212 | |
Payable for investment securities purchased and foreign currency transactions | | | 50,513 | |
Distribution fee payable | | | 22,656 | |
Administrative fee payable | | | 13,644 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 121,518 | |
| | | | |
Total liabilities | | | 4,931,194 | |
| | | | |
NET ASSETS | | $ | 146,451,809 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 4,958 | |
Additional paid-in capital | | | 107,788,443 | |
Distributions in excess of net investment income | | | (59,576 | ) |
Accumulated net realized loss on investment and foreign currency transactions | | | (128,488 | ) |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 38,846,472 | |
| | | | |
| | $ | 146,451,809 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 40,120,555 | | | | 1,323,257 | | | $ | 30.32 | |
| B | | $ | 106,331,254 | | | | 3,634,981 | | | $ | 29.25 | |
| (a) | | Includes securities on loan with a value of $3,669,395 (see Note E). |
See notes to financial statements.
13
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $88,112) | | $ | 1,400,533 | |
Affiliated issuers | | | 12,795 | |
Interest | | | 6,956 | |
Securities lending income | | | 21,167 | |
Other income | | | 2,440 | |
| | | | |
| | | 1,443,891 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 974,543 | |
Distribution fee—Class B | | | 240,025 | |
Transfer agency—Class A | | | 1,990 | |
Transfer agency—Class B | | | 5,605 | |
Custodian | | | 103,513 | |
Audit and tax | | | 60,853 | |
Printing | | | 54,357 | |
Administrative | | | 53,585 | |
Legal | | | 29,823 | |
Directors’ fees | | | 28,559 | |
Miscellaneous | | | 8,980 | |
| | | | |
Total expenses | | | 1,561,833 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (2,998 | ) |
| | | | |
Net expenses | | | 1,558,835 | |
| | | | |
Net investment loss | | | (114,944 | ) |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain on: | | | | |
Investment transactions | | | 13,796,215 | |
Forward currency exchange contracts | | | (195,458 | ) |
Foreign currency transactions | | | 46,546 | |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 25,226,753 | |
Forward currency exchange contracts | | | 144,082 | |
Foreign currency denominated assets and liabilities | | | 11,906 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 39,030,044 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 38,915,100 | |
| | | | |
See notes to financial statements.
14
| | |
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment loss | | $ | (114,944 | ) | | $ | (10,710 | ) |
Net realized gain on investment and foreign currency transactions | | | 13,647,303 | | | | 3,729,311 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 25,382,741 | | | | (4,937,260 | ) |
| | | | | | | | |
Net increase (decrease) in net assets from operations | | | 38,915,100 | | | | (1,218,659 | ) |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (159,360 | ) | | | –0 | – |
Class B | | | (274,046 | ) | | | –0 | – |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net increase (decrease) | | | 886,757 | | | | (15,530,375 | ) |
| | | | | | | | |
Total increase (decrease) | | | 39,368,451 | | | | (16,749,034 | ) |
NET ASSETS | | | | | | | | |
Beginning of period | | | 107,083,358 | | | | 123,832,392 | |
| | | | | | | | |
End of period (including distributions in excess of net investment income of ($59,576) and undistributed net investment income of $454,754, respectively) | | $ | 146,451,809 | | | $ | 107,083,358 | |
| | | | | | | | |
See notes to financial statements.
15
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Global Thematic Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
16
| | |
| | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | |
Common Stocks: | | | | | | | | | | | | | | | | |
Health Care | | $ | 22,525,633 | | | $ | 7,786,813 | | | $ | –0 | – | | $ | 30,312,446 | |
Financials | | | 7,990,343 | | | | 19,435,085 | | | | –0 | – | | | 27,425,428 | |
Information Technology | | | 17,496,074 | | | | 7,412,943 | | | | –0 | – | | | 24,909,017 | |
Industrials | | | 6,352,550 | | | | 13,709,667 | | | | –0 | – | | | 20,062,217 | |
Utilities | | | 7,241,913 | | | | 4,069,439 | | | | –0 | – | | | 11,311,352 | |
Consumer Discretionary | | | 8,562,059 | | | | –0 | – | | | –0 | – | | | 8,562,059 | |
Consumer Staples | | | 2,398,535 | | | | 5,424,665 | | | | –0 | – | | | 7,823,200 | |
Real Estate | | | 4,358,735 | | | | –0 | – | | | –0 | – | | | 4,358,735 | |
Materials | | | 2,891,579 | | | | –0 | – | | | –0 | – | | | 2,891,579 | |
Telecommunication Services | | | –0 | – | | | 1,791,930 | | | | –0 | – | | | 1,791,930 | |
Warrants | | | –0 | – | | | –0 | – | | | –0 | –(a) | | | –0 | – |
Short-Term Investments | | | –0 | – | | | 7,252,672 | | | | –0 | – | | | 7,252,672 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 3,828,854 | | | | –0 | – | | | –0 | – | | | 3,828,854 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 83,646,275 | | | | 66,883,214 | (b) | | | –0 | – | | | 150,529,489 | |
17
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Other Financial Instruments(c): | | | | | | | | | | | | | | | | |
Assets: | |
Forward Currency Exchange Contracts | | $ | –0 | – | | $ | 585,132 | | | $ | –0 | – | | $ | 585,132 | |
Liabilities: | |
Forward Currency Exchange Contracts | | | –0 | – | | | (496,174 | ) | | | –0 | – | | | (496,174 | ) |
| | | | | | | | | | | | | | | | |
Total(d)(e) | | $ | 83,646,275 | | | $ | 66,972,172 | | | $ | –0 | – | | $ | 150,618,447 | |
| | | | | | | | | | | | | | | | |
| (a) | | The Portfolio held securities with zero market value at period end. |
| (b) | | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
| (c) | | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
| (d) | | An amount of $2,455,063 was transferred from Level 1 to Level 2 due to the above mentioned foreign equity fair valuation using third party vendor modeling tools during the reporting period. |
| (e) | | There were deminimis transfers under 1% of net assets from Level 2 to Level 1 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
| | | | | | | | |
| | | Warrants(a) | | | Total | |
Balance as of 12/31/16 | | $ | –0 | – | | $ | –0 | – |
Accrued discounts/(premiums) | | | –0 | – | | | –0 | – |
Realized gain (loss) | | | –0 | – | | | –0 | – |
Change in unrealized appreciation/depreciation | | | –0 | – | | | –0 | – |
Purchases | | | –0 | – | | | –0 | – |
Sales | | | –0 | – | | | –0 | – |
Transfers in to Level 3 | | | –0 | – | | | –0 | – |
Transfers out of Level 3 | | | –0 | – | | | –0 | – |
| | | | | | | | |
Balance as of 12/31/17 | | $ | –0 | – | | $ | –0 | – |
| | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(b) | | $ | –0 | – | | $ | –0 | – |
| | | | | | | | |
| (a) | | The Portfolio held securities with zero market value at period end. |
| (b) | | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor
18
| | |
| | | AB Variable Products Series Fund |
due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
19
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,585.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $57,715, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 48,841,545 | | | $ | 53,846,882 | |
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 | | $ | 111,862,074 | |
| | | | |
Gross unrealized appreciation | | $ | 39,684,031 | |
Gross unrealized depreciation | | | (1,027,234 | ) |
| | | | |
Net unrealized appreciation | | $ | 38,656,797 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
20
| | |
| | | AB Variable Products Series Fund |
The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging purposes.
The Portfolio 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty table below.
During the year ended December 31, 2017, the Portfolio 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 | | $ | 585,132 | | | Unrealized depreciation on forward currency exchange contracts | | $ | 496,174 | |
| | | | | | | | | | | | |
Total | | | | $ | 585,132 | | | | | $ | 496,174 | |
| | | | | | | | | | | | |
| | | | | | | | | | |
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 | | $ | (195,458 | ) | | $ | 144,082 | |
| | | | | | | | | | |
Total | | | | $ | (195,458 | ) | | $ | 144,082 | |
| | | | | | | | | | |
21
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 28,852,652 | |
Average principal amount of sale contracts | | $ | 24,645,824 | |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Received* | | | Security
Collateral
Received* | | | Net Amount of
Derivatives Assets | |
OTC Derivatives: | |
Bank of America, NA | | $ | 155,594 | | | $ | (155,594 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Barclays Bank PLC | | | 107,657 | | | | (44,667 | ) | | | –0 | – | | | –0 | – | | | 62,990 | |
BNP Paribas SA | | | 23,226 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 23,226 | |
Citibank, NA | | | 24,343 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 24,343 | |
Credit Suisse International | | | 28,894 | | | | (27,660 | ) | | | –0 | – | | | –0 | – | | | 1,234 | |
JPMorgan Chase Bank, NA | | | 1,001 | | | | (1,001 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Standard Chartered Bank | | | 90,448 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 90,448 | |
State Street Bank & Trust Co. | | | 153,969 | | | | (43,658 | ) | | | –0 | – | | | –0 | – | | | 110,311 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 585,132 | | | $ | (272,580 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 312,552 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Counterparty | | Derivative Liabilities
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount of
Derivatives Liabilities | |
OTC Derivatives: | |
Bank of America, NA | | $ | 276,419 | | | $ | (155,594 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 120,825 | |
Barclays Bank PLC | | | 44,667 | | | | (44,667 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 27,660 | | | | (27,660 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Goldman Sachs Bank USA | | | 36,377 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 36,377 | |
JPMorgan Chase Bank, NA | | | 67,102 | | | | (1,001 | ) | | | –0 | – | | | –0 | – | | | 66,101 | |
Morgan Stanley & Co., Inc. | | | 291 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 291 | |
State Street Bank & Trust Co. | | | 43,658 | | | | (43,658 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 496,174 | | | $ | (272,580 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 223,594 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
22
| | |
| | | AB Variable Products Series Fund |
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $3,669,395 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $3,828,854. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $21,167 and $12,795 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $2,998. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 4,544 | | | $ | 30,576 | | | $ | 31,291 | | | $ | 3,829 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 205,607 | | | | 114,273 | | | | | | | $ | 5,763,464 | | | $ | 2,477,642 | |
Shares issued in reinvestment of dividends and distributions | | | 5,799 | | | | –0 | – | | | | | | | 159,360 | | | | –0 | – |
Shares redeemed | | | (164,656 | ) | | | (243,647 | ) | | | | | | | (4,344,931 | ) | | | (5,303,033 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | 46,750 | | | | (129,374 | ) | | | | | | $ | 1,577,893 | | | $ | (2,825,391 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 780,996 | | | | 511,535 | | | | | | | $ | 20,282,734 | | | $ | 10,794,955 | |
Shares issued in reinvestment of dividends and distributions | | | 10,330 | | | | –0 | – | | | | | | | 274,046 | | | | –0 | – |
Shares redeemed | | | (809,779 | ) | | | (1,110,011 | ) | | | | | | | (21,247,916 | ) | | | (23,499,939 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (18,453 | ) | | | (598,476 | ) | | | | | | $ | (691,136 | ) | | $ | (12,704,984 | ) |
| | | | | | | | | | | | | | | | | | | | |
23
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
At December 31, 2017, certain shareholders of the Portfolio owned 65% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid 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 Portfolio’s investments or reduce its returns.
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
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 Portfolio’s NAV.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Components of Accumulated Earnings (Deficit)
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 433,406 | | | $ | –0 | – |
| | | | | | | | |
Total taxable distributions paid | | $ | 433,406 | | | $ | –0 | – |
| | | | | | | | |
24
| | |
| | | AB Variable Products Series Fund |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed capital gains | | $ | –0 | –(a) |
Unrealized appreciation/(depreciation) | | | 38,658,408 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 38,658,408 | |
| | | | |
| (a) | | During the fiscal year, the Portfolio utilized $13,792,210 of capital loss carryforwards to offset current year net realized gains. The Portfolio also had $5,008,350 of capital loss carryforwards expire during the fiscal year. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, return of capital distributions received from underlying securities, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to foreign currency reclassifications, the expiration of capital loss carryforwards, a dividend overdistribution, and the disallowance of a net operating loss resulted in a net decrease in distributions in excess of net investment income, a net decrease in accumulated net realized loss on investment and foreign currency transactions, 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 Portfolio’s financial statements through this date.
25
| | |
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $22.29 | | | | $22.43 | | | | $21.80 | | | | $20.75 | | | | $16.88 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .03 | (b) | | | .04 | (b)† | | | .02 | | | | .06 | | | | .04 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 8.13 | | | | (.18 | ) | | | .60 | | | | .99 | | | | 3.88 | |
Contributions from Affiliates | | | –0 | – | | | –0 | – | | | .01 | | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 8.16 | | | | (.14 | ) | | | .63 | | | | 1.05 | | | | 3.92 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.13 | ) | | | –0 | – | | | –0 | – | | | –0 | – | | | (.05 | ) |
Tax return of capital | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – | | | (.00 | )(c) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.13 | ) | | | –0 | – | | | –0 | – | | | –0 | – | | | (.05 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $30.32 | | | | $22.29 | | | | $22.43 | | | | $21.80 | | | | $20.75 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 36.66 | % | | | (.62 | )%† | | | 2.89 | % | | | 5.06 | % | | | 23.26 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $40,121 | | | | $28,458 | | | | $31,534 | | | | $30,886 | | | | $32,195 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.02 | % | | | 1.06 | % | | | 1.01 | % | | | 1.01 | % | | | .98 | % |
Expenses, before waivers/reimbursements | | | 1.02 | % | | | 1.06 | % | | | 1.01 | % | | | 1.01 | % | | | .98 | % |
Net investment income | | | .09 | %(b) | | | .17 | %(b)† | | | .07 | % | | | .26 | % | | | .22 | % |
Portfolio turnover rate | | | 40 | % | | | 54 | % | | | 47 | % | | | 48 | % | | | 96 | % |
See footnote summary on page 27.
26
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $21.52 | | | | $21.71 | | | | $21.15 | | | | $20.18 | | | | $16.42 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (a) | | | (.04 | )(b) | | | (.02 | )(b)† | | | (.04 | ) | | | .00 | (d) | | | (.01 | ) |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 7.84 | | | | (.17 | ) | | | .59 | | | | .97 | | | | 3.77 | |
Contributions from Affiliates | | | –0 | – | | | –0 | – | | | .01 | | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 7.80 | | | | (.19 | ) | | | .56 | | | | .97 | | | | 3.76 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.07 | ) | | | –0 | – | | | –0 | – | | | –0 | – | | | (.00 | )(c) |
Tax return of capital | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – | | | (.00 | )(c) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.07 | ) | | | –0 | – | | | –0 | – | | | –0 | – | | | (.00 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $29.25 | | | | $21.52 | | | | $21.71 | | | | $21.15 | | | | $20.18 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 36.30 | % | | | (.87 | )%† | | | 2.65 | % | | | 4.81 | % | | | 22.93 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $106,331 | | | | $78,625 | | | | $92,298 | | | | $96,728 | | | | $101,388 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.26 | % | | | 1.31 | % | | | 1.26 | % | | | 1.26 | % | | | 1.23 | % |
Expenses, before waivers/reimbursements | | | 1.27 | % | | | 1.31 | % | | | 1.26 | % | | | 1.26 | % | | | 1.23 | % |
Net investment income (loss) | | | (.15 | )%(b) | | | (.07 | )%(b)† | | | (.17 | )% | | | .01 | % | | | (.06 | )% |
Portfolio turnover rate | | | 40 | % | | | 54 | % | | | 47 | % | | | 48 | % | | | 96 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of fees waived and expenses reimbursed by the Adviser. |
| (c) | | Amount is less than $.005. |
| (d) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment
Income Per Share | | | Net Investment
Income Ratio | | | Total Return | |
| $ | .004 | | | | .02 | % | | | .02 | % |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.04%, 0.28%, 0.01%, 0.02% and 0.05%, respectively. |
See notes to financial statements.
27
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Global Thematic Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Global Thematic Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Global Thematic Growth Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
28
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| 2017 FEDERAL TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 97.89% of dividends paid qualify for the dividends received deduction.
29
| | |
| | |
| GLOBAL THEMATIC GROWTH | | |
| PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and Chief
Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Daniel C. Roarty(2), Vice President Emilie D. Wrapp, Secretary Joseph J. Mantineo, Treasurer and
Chief Financial Officer | | Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
| CUSTODIANAND ACCOUNTING AGENT | | LEGAL COUNSEL |
| State Street Bank and Trust Company | | Seward & Kissel LLP |
State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | One Battery Park Plaza New York, NY 10004 |
| | |
| DISTRIBUTOR | | TRANSFER AGENT |
| AllianceBernstein Investments, Inc. | | AllianceBernstein Investor Services, Inc. |
1345 Avenue of the Americas New York, NY 10105 | | P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 |
| | |
| INDEPENDENT REGISTERED PUBLIC | | |
| ACCOUNTING FIRM | | |
| Ernst & Young LLP | | |
5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the Adviser’s Global Growth and Thematic Investment Team. Mr. Roarty is the investment professional with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
30
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| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.,## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey,## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
| | | | | | | | |
31
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.,## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin,## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen,## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
| | | | | | | | |
32
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
Garry L. Moody,## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995) where he was responsible for accounting, pricing, custody and reporting for the Fidelity Mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner,## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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 this position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
33
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS,* AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith
57 | | President and Chief
Executive Officer | | See biography above. |
| | | | |
Daniel C. Roarty
46 | | Vice President
| | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. He is also Chief Investment Officer of Thematic and Sustainable Equities. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto
53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | The address for each of the Portfolio’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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
34
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| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Thematic Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors
35
| | |
| GLOBAL THEMATIC GROWTH PORTFOLIO |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. 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 breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of
36
| | |
| | | AB Variable Products Series Fund |
scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
37
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| | |
| GROWTH PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a domestic portfolio of equity securities of companies selected by the Adviser for their growth potential within various market sectors. The Adviser looks for companies that have experienced management teams, strong market positions and the potential to deliver greater-than-expected earnings growth rates.
In managing the Portfolio, the Adviser allocates investments among broad sector groups and selects specific investments based on the fundamental company research conducted by the Adviser’s internal research staff, assessing the current and forecasted investment opportunities and conditions, as well as diversification and risk considerations. The Adviser’s research focus is on companies with high sustainable growth prospects, high or improving return on invested capital, transparent business models and clear competitive advantages.
The Portfolio has the flexibility to invest across the capitalization spectrum. The Portfolio is designed for those seeking exposure to companies of various sizes, and typically has substantial investments in both large-capitalization companies and mid-capitalization companies, and may also invest in small-capitalization companies.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 3000 Growth Index, for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio outperformed the benchmark for the annual period. Stock selection in the consumer staples, technology, health care and industrials sectors, as well as an overweight position in technology and underweight positions in real estate and telecommunications, were the primary contributors to performance relative to the benchmark. Stock selection in the consumer discretionary and materials sectors as well as an overweight position in health care detracted.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked one of the strongest years for global stock market performance since the 2008 financial crisis. Emerging-market equities outperformed, followed by non-US stocks. Large-cap stocks outperformed their small-cap peers, and growth outperformed value, in terms of style.
Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
The Portfolio’s Senior Investment Management Team (the “Team”) continues to select companies that are likely to be rewarded for offering high profitability, attractive reinvestment opportunities and sustainable competitive advantages. The Team believes that this strategy can be beneficial in an environment which offers lower growth and that still appears favorable for stock pickers, as investors increasingly reward companies for their fundamental strengths.
1
| | |
| | |
| GROWTH PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 3000® Growth Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 3000 Growth Index represents the performance of 3,000 growth companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as growth, may underperform the market generally.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
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 Portfolio’s net asset value (“NAV”).
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
| | |
| | |
| GROWTH PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Growth Portfolio Class A2 | | | 34.51% | | | | 17.63% | | | | 8.64% | |
| Growth Portfolio Class B2 | | | 34.15% | | | | 17.33% | | | | 8.36% | |
| Russell 3000 Growth Index | | | 29.59% | | | | 17.16% | | | | 9.93% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.11%. Also includes the impact of proceeds received and credited to the Portfolio in connection with a regulatory settlement, which enhanced performance for the annual period ended December 31, 2017, by 0.14%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 1.15% and 1.40% for Class A and Class B 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.
GROWTH PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Growth Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
| | |
| | |
| GROWTH PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,136.80 | | | $ | 5.87 | | | | 1.09 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,019.71 | | | $ | 5.55 | | | | 1.09 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,135.00 | | | $ | 7.26 | | | | 1.35 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,018.40 | | | $ | 6.87 | | | | 1.35 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
| | |
| GROWTH PORTFOLIO | | |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
Alphabet, Inc.—Class C | | $ | 5,352,336 | | | | 7.6 | % |
Facebook, Inc.—Class A | | | 4,058,051 | | | | 5.8 | |
Visa, Inc.—Class A | | | 3,302,019 | | | | 4.7 | |
UnitedHealth Group, Inc. | | | 3,008,838 | | | | 4.3 | |
Biogen, Inc. | | | 2,690,005 | | | | 3.8 | |
Costco Wholesale Corp. | | | 2,601,027 | | | | 3.7 | |
Edwards Lifesciences Corp. | | | 2,444,680 | | | | 3.5 | |
Home Depot, Inc. (The) | | | 2,344,297 | | | | 3.3 | |
Constellation Brands, Inc.—Class A | | | 2,310,843 | | | | 3.3 | |
Adobe Systems, Inc. | | | 2,297,397 | | | | 3.3 | |
| | | | | | | | | |
| | | $ | 30,409,493 | | | | 43.3 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Information Technology | | $ | 24,657,941 | | | | 35.1 | % |
Health Care | | | 14,365,500 | | | | 20.5 | |
Consumer Discretionary | | | 12,042,640 | | | | 17.1 | |
Consumer Staples | | | 7,792,287 | | | | 11.1 | |
Industrials | | | 6,797,555 | | | | 9.7 | |
Financials | | | 2,120,849 | | | | 3.0 | |
Materials | | | 2,047,491 | | | | 2.9 | |
Short-Term Investments | | | 431,503 | | | | 0.6 | |
| | | | | | | | | |
Total Investments | | $ | 70,255,766 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is 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 Portfolio’s prospectus.
5
| | |
| GROWTH PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–99.5% | | | | | | | | |
| | | | | | | | |
INFORMATION TECHNOLOGY–35.1% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–0.7% | | | | | | | | |
Arista Networks, Inc.(a) | | | 2,150 | | | $ | 506,497 | |
| | | | | | | | |
INTERNET SOFTWARE & SERVICES–14.5% | | | | | | | | |
Alphabet, Inc.–Class C(a) | | | 5,115 | | | | 5,352,336 | |
Facebook, Inc.–Class A(a) | | | 22,997 | | | | 4,058,051 | |
Trade Desk, Inc. (The)–Class A(a)(b) | | | 16,130 | | | | 737,625 | |
| | | | | | | | |
| | | | | | | 10,148,012 | |
| | | | | | | | |
IT SERVICES–6.9% | | | | | | | | |
Fiserv, Inc.(a) | | | 4,930 | | | | 646,471 | |
PayPal Holdings, Inc.(a) | | | 12,520 | | | | 921,722 | |
Visa, Inc.–Class A | | | 28,960 | | | | 3,302,019 | |
| | | | | | | | |
| | | | | | | 4,870,212 | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.6% | | | | | | | | |
NVIDIA Corp. | | | 3,120 | | | | 603,720 | |
Xilinx, Inc. | | | 27,970 | | | | 1,885,737 | |
| | | | | | | | |
| | | | | | | 2,489,457 | |
| | | | | | | | |
SOFTWARE–6.8% | | | | | | | | |
Adobe Systems, Inc.(a) | | | 13,110 | | | | 2,297,397 | |
Electronic Arts, Inc.(a) | | | 9,890 | | | | 1,039,043 | |
HubSpot, Inc.(a) | | | 7,980 | | | | 705,432 | |
ServiceNow, Inc.(a) | | | 2,567 | | | | 334,711 | |
Splunk, Inc.(a) | | | 5,050 | | | | 418,342 | |
| | | | | | | | |
| | | | | | | 4,794,925 | |
| | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–2.6% | | | | | | | | |
Apple, Inc. | | | 10,925 | | | | 1,848,838 | |
| | | | | | | | |
| | | | | | | 24,657,941 | |
| | | | | | | | |
HEALTH CARE–20.5% | | | | | | | | |
BIOTECHNOLOGY–3.8% | | | | | | | | |
Biogen, Inc.(a) | | | 8,444 | | | | 2,690,005 | |
| | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–7.3% | | | | | | | | |
Align Technology, Inc.(a) | | | 1,623 | | | | 360,614 | |
Edwards Lifesciences Corp.(a) | | | 21,690 | | | | 2,444,680 | |
Intuitive Surgical, Inc.(a) | | | 4,232 | | | | 1,544,426 | |
Nevro Corp.(a) | | | 10,580 | | | | 730,443 | |
| | | | | | | | |
| | | | | | | 5,080,163 | |
| | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–5.2% | | | | | | | | |
Teladoc, Inc.(a)(b) | | | 18,329 | | | | 638,766 | |
UnitedHealth Group, Inc. | | | 13,648 | | | | 3,008,838 | |
| | | | | | | | |
| | | | | | | 3,647,604 | |
| | | | | | | | |
| | | | | | | | |
| Company | |
Shares | | | U.S. $ Value | |
| | | | | | | | |
| | | | | | | | |
HEALTH CARE TECHNOLOGY–1.4% | | | | | | | | |
Cerner Corp.(a) | | | 14,440 | | | $ | 973,112 | |
| | | | | | | | |
PHARMACEUTICALS–2.8% | | | | | | | | |
Zoetis, Inc. | | | 27,410 | | | | 1,974,616 | |
| | | | | | | | |
| | | | | | | 14,365,500 | |
| | | | | | | | |
CONSUMER DISCRETIONARY–17.2% | | | | | | | | |
DIVERSIFIED CONSUMER SERVICES–3.0% | | | | | | | | |
Bright Horizons Family Solutions, Inc.(a) | | | 12,250 | | | | 1,151,500 | |
Grand Canyon Education, Inc.(a) | | | 10,310 | | | | 923,054 | |
| | | | | | | | |
| | | | | | | 2,074,554 | |
| | | | | | | | |
HOTELS, RESTAURANTS & LEISURE–4.1% | | | | | | | | |
Planet Fitness, Inc.(a) | | | 60,070 | | | | 2,080,224 | |
Starbucks Corp. | | | 13,380 | | | | 768,413 | |
| | | | | | | | |
| | | | | | | 2,848,637 | |
| | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–1.1% | | | | | | | | |
Priceline Group, Inc. (The)(a) | | | 457 | | | | 794,147 | |
| | | | | | | | |
MULTILINE RETAIL–2.3% | | | | | | | | |
Dollar Tree, Inc.(a) | | | 15,150 | | | | 1,625,747 | |
| | | | | | | | |
SPECIALTY RETAIL–5.0% | | | | | | | | |
Home Depot, Inc. (The) | | | 12,369 | | | | 2,344,297 | |
Ulta Salon Cosmetics & Fragrance, Inc.(a) | | | 5,152 | | | | 1,152,296 | |
| | | | | | | | |
| | | | | | | 3,496,593 | |
| | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–1.7% | | | | | | | | |
NIKE, Inc.–Class B | | | 19,232 | | | | 1,202,962 | |
| | | | | | | | |
| | | | | | | 12,042,640 | |
| | | | | | | | |
CONSUMER STAPLES–11.1% | | | | | | | | |
BEVERAGES–6.1% | | | | | | | | |
Constellation Brands, Inc.–Class A | | | 10,110 | | | | 2,310,843 | |
Monster Beverage Corp.(a) | | | 31,238 | | | | 1,977,053 | |
| | | | | | | | |
| | | | | | | 4,287,896 | |
| | | | | | | | |
FOOD & STAPLES RETAILING–3.7% | | | | | | | | |
Costco Wholesale Corp. | | | 13,975 | | | | 2,601,027 | |
| | | | | | | | |
FOOD PRODUCTS–1.3% | | | | | | | | |
Blue Buffalo Pet Products, Inc.(a) | | | 27,550 | | | | 903,364 | |
| | | | | | | | |
| | | | | | | 7,792,287 | |
| | | | | | | | |
INDUSTRIALS–9.7% | | | | | | | | |
BUILDING PRODUCTS–2.9% | | | | | | | | |
Allegion PLC | | | 9,030 | | | | 718,427 | |
6
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
AO Smith Corp. | | | 13,920 | | | $ | 853,018 | |
Lennox International, Inc. | | | 2,220 | | | | 462,337 | |
| | | | | | | | |
| | | | | | | 2,033,782 | |
| | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–1.9% | | | | | | | | |
Copart, Inc.(a) | | | 30,680 | | | | 1,325,069 | |
| | | | | | | | |
INDUSTRIAL CONGLOMERATES–1.8% | | | | | | | | |
Roper Technologies, Inc. | | | 4,860 | | | | 1,258,740 | |
| | | | | | | | |
MACHINERY–2.4% | | | | | | | | |
IDEX Corp. | | | 6,230 | | | | 822,173 | |
WABCO Holdings, Inc.(a) | | | 5,990 | | | | 859,565 | |
| | | | | | | | |
| | | | | | | 1,681,738 | |
| | | | | | | | |
TRADING COMPANIES & DISTRIBUTORS–0.7% | | | | | | | | |
Fastenal Co. | | | 9,110 | | | | 498,226 | |
| | | | | | | | |
| | | | | | | 6,797,555 | |
| | | | | | | | |
FINANCIALS–3.0% | | | | | | | | |
CAPITAL MARKETS–3.0% | | | | | | | | |
MarketAxess Holdings, Inc. | | | 5,340 | | | | 1,077,345 | |
S&P Global, Inc. | | | 6,160 | | | | 1,043,504 | |
| | | | | | | | |
| | | | | | | 2,120,849 | |
| | | | | | | | |
MATERIALS–2.9% | | | | | | | | |
CHEMICALS–2.9% | | | | | | | | |
Ecolab, Inc. | | | 5,020 | | | | 673,584 | |
PolyOne Corp. | | | 19,330 | | | | 840,855 | |
Sherwin-Williams Co. (The) | | | 1,300 | | | | 533,052 | |
| | | | | | | | |
| | | | | | | 2,047,491 | |
| | | | | | | | |
Total Common Stocks
(cost $44,292,331) | | | | | | | 69,824,263 | |
| | | | | | | | |
| | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–0.6% | | | | | | | | |
TIME DEPOSIT–0.6% | | | | | | | | |
State Street Bank & Trust Co. 0.12%, 1/02/18
(cost $431,503) | | $ | 432 | | | | 431,503 | |
| | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned–100.1%
(cost $44,723,834) | | | | | | | 70,255,766 | |
| | | | | | | | |
| | | | | | | | |
| Company | |
Shares | | | U.S. $ Value | |
| | | | | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.6% | | | | | | | | |
INVESTMENT COMPANIES–1.6% | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(c)(d)(e)
(cost $1,100,714) | | | 1,100,714 | | | $ | 1,100,714 | |
| | | | | | | | |
TOTAL INVESTMENTS–101.7%
(cost $45,824,548) | | | | | | | 71,356,480 | |
Other assets less
liabilities–(1.7)% | | | | | | | (1,180,190 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 70,176,290 | |
| | | | | | | | |
| (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.
7
| | |
| GROWTH PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $44,723,834) | | $ | 70,255,766 | (a) |
Affiliated issuers (cost $1,100,714—investment of cash collateral for securities loaned) | | | 1,100,714 | |
Receivable for investment securities sold | | | 235,824 | |
Receivable from regulatory settlement | | | 102,075 | |
Receivable for capital stock sold | | | 13,706 | |
Dividends and interest receivable | | | 11,337 | |
| | | | |
Total assets | | | 71,719,422 | |
| | | | |
LIABILITIES | |
Payable for collateral received on securities loaned | | | 1,100,714 | |
Payable for investment securities purchased | | | 206,954 | |
Payable for capital stock redeemed | | | 85,021 | |
Advisory fee payable | | | 45,583 | |
Administrative fee payable | | | 13,263 | |
Distribution fee payable | | | 8,786 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 82,714 | |
| | | | |
Total liabilities | | | 1,543,132 | |
| | | | |
NET ASSETS | | $ | 70,176,290 | |
| | | | |
COMPOSITION OF NET ASSETS | |
Capital stock, at par | | $ | 2,031 | |
Additional paid-in capital | | | 35,484,837 | |
Accumulated net realized gain on investment transactions | | | 9,157,490 | |
Net unrealized appreciation on investments | | | 25,531,932 | |
| | | | |
| | $ | 70,176,290 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 30,230,297 | | | | 846,183 | | | $ | 35.73 | |
| B | | $ | 39,945,993 | | | | 1,185,207 | | | $ | 33.70 | |
| (a) | | Includes securities on loan with a value of $1,059,067 (see Note E). |
See notes to financial statements.
8
| | |
| GROWTH PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers | | $ | 361,745 | |
Affiliated issuers | | | 3,458 | |
Interest | | | 2,850 | |
Other income | | | 1,661 | |
| | | | |
| | | 369,714 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 505,249 | |
Distribution fee—Class B | | | 100,162 | |
Transfer agency—Class A | | | 2,492 | |
Transfer agency—Class B | | | 3,624 | |
Custodian | | | 65,622 | |
Administrative | | | 52,814 | |
Audit and tax | | | 40,524 | |
Directors’ fees | | | 28,559 | |
Legal | | | 28,117 | |
Printing | | | 20,438 | |
Miscellaneous | | | 5,299 | |
| | | | |
Total expenses | | | 852,900 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (623 | ) |
| | | | |
Net expenses | | | 852,277 | |
| | | | |
Net investment loss | | | (482,563 | ) |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS | | | | |
Net realized gain on investment transactions | | | 9,474,239 | |
Net change in unrealized appreciation/depreciation of investments | | | 10,610,044 | |
| | | | |
Net gain on investment transactions | | | 20,084,283 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 19,601,720 | |
| | | | |
See notes to financial statements.
9
| | |
| | |
| GROWTH PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | |
Net investment loss | | $ | (482,563 | ) | | $ | (250,501 | ) |
Net realized gain on investment and foreign currency transactions | | | 9,474,239 | | | | 3,223,597 | |
Net change in unrealized appreciation/depreciation of investments | | | 10,610,044 | | | | (2,531,961 | ) |
| | | | | | | | |
Net increase in net assets from operations | | | 19,601,720 | | | | 441,135 | |
DISTRIBUTIONS TO SHAREHOLDERS FROM | |
Net realized gain on investment transactions | |
Class A | | | (1,334,624 | ) | | | (3,012,916 | ) |
Class B | | | (2,084,488 | ) | | | (4,764,325 | ) |
CAPITAL STOCK TRANSACTIONS | |
Net decrease | | | (7,779,591 | ) | | | (1,435,411 | ) |
CAPITAL CONTRIBUTIONS | |
Proceeds from regulatory settlement (see Note F) | | | 102,075 | | | | –0 | – |
| | | | | | | | |
Total increase (decrease) | | | 8,505,092 | | | | (8,771,517 | ) |
NET ASSETS | |
Beginning of period | | | 61,671,198 | | | | 70,442,715 | |
| | | | | | | | |
End of period (including undistributed net investment income of $0 and
$0, respectively) | | $ | 70,176,290 | | | $ | 61,671,198 | |
| | | | | | | | |
See notes to financial statements.
10
| | |
| GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
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| GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks(a) | | $ | 69,824,263 | | | $ | –0 | – | | $ | –0 | – | | $ | 69,824,263 | |
Short-Term Investments | | | –0 | – | | | 431,503 | | | | –0 | – | | | 431,503 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 1,100,714 | | | | –0 | – | | | –0 | – | | | 1,100,714 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 70,924,977 | | | | 431,503 | | | | –0 | – | | | 71,356,480 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 70,924,977 | | | $ | 431,503 | | | $ | –0 | – | | $ | 71,356,480 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
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| | | AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
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| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $52,814.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $11,336, of which $13 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 27,288,819 | | | $ | 38,723,387 | |
U.S. government securities | | | –0 | – | | | –0 | – |
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| | | AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 45,897,573 | |
| | | | |
Gross unrealized appreciation | | $ | 25,726,915 | |
Gross unrealized depreciation | | | (268,008 | ) |
| | | | |
Net unrealized appreciation | | $ | 25,458,907 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $1,059,067 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,100,714. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $3,458 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $623. 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.
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| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 684 | | | $ | 7,544 | | | $ | 7,127 | | | $ | 1,101 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | |
Shares sold | | | 85,190 | | | | 232,533 | | | | | | | $ | 2,782,413 | | | $ | 6,654,909 | |
Shares issued in reinvestment of distributions | | | 42,142 | | | | 104,073 | | | | | | | | 1,334,624 | | | | 3,012,916 | |
Shares redeemed | | | (162,782 | ) | | | (326,387 | ) | | | | | | | (5,200,532 | ) | | | (9,201,540 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (35,450 | ) | | | 10,219 | | | | | | | $ | (1,083,495 | ) | | $ | 466,285 | |
| | | | | | | | | | | | | | | | | | | | |
Class B | |
Shares sold | | | 30,476 | | | | 46,733 | | | | | | | $ | 942,367 | | | $ | 1,326,261 | |
Shares issued in reinvestment of distributions | | | 69,692 | | | | 173,311 | | | | | | | | 2,084,488 | | | | 4,764,325 | |
Shares redeemed | | | (311,402 | ) | | | (284,346 | ) | | | | | | | (9,722,951 | ) | | | (7,992,282 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (211,234 | ) | | | (64,302 | ) | | | | | | $ | (6,696,096 | ) | | $ | (1,901,696 | ) |
| | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2017, the Portfolio recorded $102,075 related to a settlement of regulatory proceedings. This amount is presented in the Portfolio’s statement of changes in net assets. Neither the Portfolio nor its affiliates were involved in the proceedings or the calculation of the payment.
At December 31, 2017, certain shareholders of the Portfolio owned 76% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
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 Portfolio’s NAV.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
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| | | AB Variable Products Series Fund |
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Net long-term capital gains | | $ | 3,419,112 | | | | 7,777,241 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 3,419,112 | | | $ | 7,777,241 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed capital gains | | $ | 9,230,516 | |
Unrealized appreciation/(depreciation) | | | 25,458,907 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 34,689,423 | |
| | | | |
| (a) | | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is 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 losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to proceeds from a regulatory settlement and the disallowance of a net operating loss resulted in a net decrease in distributions in excess of net investment income, a net decrease in accumulated net realized gain on investment transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J: Subsequent Event
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
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| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $27.95 | | | | $31.05 | | | | $34.47 | | | | $31.03 | | | | $23.22 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment loss (a) | | | (.18 | )(b) | | | (.07 | )(b)† | | | (.08 | ) | | | (.09 | ) | | | (.03 | ) |
Net realized and unrealized gain on investment and foreign currency transactions | | | 9.61 | | | | .54 | | | | 3.18 | | | | 4.15 | | | | 7.92 | |
Capital contributions | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 9.43 | | | | .47 | | | | 3.10 | | | | 4.06 | | | | 7.89 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – | | | (.08 | ) |
Distributions from net realized gain on investment transactions | | | (1.65 | ) | | | (3.57 | ) | | | (6.52 | ) | | | (.62 | ) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (1.65 | ) | | | (3.57 | ) | | | (6.52 | ) | | | (.62 | ) | | | (.08 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $35.73 | | | | $27.95 | | | | $31.05 | | | | $34.47 | | | | $31.03 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 34.51 | % | | | 1.12 | %† | | | 9.06 | % | | | 13.28 | % | | | 34.01 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $30,230 | | | | $24,645 | | | | $27,060 | | | | $28,141 | | | | $28,650 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.12 | % | | | 1.15 | % | | | 1.09 | % | | | 1.08 | % | | | 1.06 | % |
Expenses, before waivers/reimbursements | | | 1.12 | % | | | 1.15 | % | | | 1.09 | % | | | 1.08 | % | | | 1.06 | % |
Net investment loss | | | (.57 | )%(b) | | | (.23 | )%(b)† | | | (.24 | )% | | | (.28 | )% | | | (.10 | )% |
Portfolio turnover rate | | | 42 | % | | | 57 | % | | | 51 | % | | | 66 | % | | | 63 | % |
See footnote summary on page 19.
18
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $26.51 | | | | $29.70 | | | | $33.30 | | | | $30.08 | | | | $22.50 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment loss (a) | | | (.25 | )(b) | | | (.13 | )(b)† | | | (.16 | ) | | | (.16 | ) | | | (.09 | ) |
Net realized and unrealized gain on investment and foreign currency transactions | | | 9.09 | | | | .51 | | | | 3.08 | | | | 4.00 | | | | 7.68 | |
Capital contributions | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 8.84 | | | | .38 | | | | 2.92 | | | | 3.84 | | | | 7.59 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – | | | (.01 | ) |
Distributions from net realized gain on investment transactions | | | (1.65 | ) | | | (3.57 | ) | | | (6.52 | ) | | | (.62 | ) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (1.65 | ) | | | (3.57 | ) | | | (6.52 | ) | | | (.62 | ) | | | (.01 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $33.70 | | | | $26.51 | | | | $29.70 | | | | $33.30 | | | | $30.08 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 34.15 | % | | | .85 | %† | | | 8.82 | % | | | 12.96 | % | | | 33.72 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $39,946 | | | | $37,026 | | | | $43,383 | | | | $46,330 | | | | $51,993 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.37 | % | | | 1.40 | % | | | 1.34 | % | | | 1.33 | % | | | 1.31 | % |
Expenses, before waivers/reimbursements | | | 1.37 | % | | | 1.40 | % | | | 1.34 | % | | | 1.33 | % | | | 1.31 | % |
Net investment loss | | | (.82 | )%(b) | | | (.48 | )%(b)† | | | (.49 | )% | | | (.52 | )% | | | (.35 | )% |
Portfolio turnover rate | | | 42 | % | | | 57 | % | | | 51 | % | | | 66 | % | | | 63 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and reimbursed by the Adviser. |
| (c) | | Amount is less than $.0005. |
| (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. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment Income Per Share | | | Net Investment Income Ratio | | | Total Return | |
| $ | .015 | | | | .05 | % | | | .05 | % |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.11%, 0.01%, 0.06%, 0.03% and 0.06%, respectively. |
| | | Includes the impact of proceeds received and credited to the Portfolio resulting from a regulatory settlement, which enhanced the Portfolio’s performance for the year ended December 31, 2017 by 0.14%. |
19
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Growth Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
20
| | |
| | |
| | |
| GROWTH PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Bruce K. Aronow(2), Vice President Frank V. Caruso(2), Vice President John H. Fogarty(2), Vice President | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Emilie D. Wrapp, Secretary Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
| | |
DISTRIBUTOR 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 |
| | |
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 are made by its senior management team. Messrs. Aronow, Caruso and Fogarty are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
21
| | |
| | |
| GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN AB FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
| INTERESTED DIRECTOR | | | | | | |
| | | | | | | | |
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.,## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership experience and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey,## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
22
| | |
| | | AB Variable Products Series 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 |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.,## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin,## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen,## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
| | | | | | | | |
23
| | |
| GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series 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 |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Garry L. Moody,## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner,## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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 Section 2(a)(19) of the Investment Company Act of 1940, due to his position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
24
| | |
| | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith
57 | | President and Chief
Executive Officer | | See biography above. |
| | | | |
Bruce K. Aronow
51 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of Small and SMID Cap Growth Equities. |
| | | | |
Frank V. Caruso 61 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of Growth Equities. |
| | | | |
John H. Fogarty
48 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio’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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
25
| | |
| | |
| GROWTH PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous
26
| | |
| | | AB Variable Products Series Fund |
factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. 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.
27
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| GROWTH PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
28
VPS-GTH-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
| + | | GROWTH & INCOME PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| GROWTH & INCOME PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Growth & Income Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in the equity securities of US companies that the Adviser believes are undervalued.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the types of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 1000 Value Index, for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio outperformed the benchmark for the annual period. Stock selection in the industrials, consumer staples, health care and real estate sectors, as well as an underweight position in energy were the primary contributors to performance relative to the benchmark. Stock selection in the energy and materials sectors, as well as underweight positions in financials and materials detracted.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked one of the strongest years for global stock market performance since the 2008 financial crisis. Emerging-market equities outperformed, followed by non-US stocks. US large-cap stocks outperformed their small-cap peers, and growth outperformed value, in terms of style.
Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
The Portfolio’s Senior Investment Management Team (the “Team”) follows a bottom-up stock picking methodology that seeks to identify companies consistent with the Team’s philosophy of relative-value investing, pursuing attractively valued, well-managed companies that deploy capital wisely, giving them capacity to pay dividends and potentially enhance the value of company shares over the long term. The Portfolio is conservatively positioned amid the current uncertainty in the global macro environment.
1
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| | |
| GROWTH & INCOME PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 1000® Value Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 1000 Value Index represents the performance of 1,000 large-cap value companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s value approach, may be underperforming 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Industry/Sector Risk: Investments in a particular industry or group of related industries may have more risk because market or economic factors affecting that industry could have a significant effect on the value of the Portfolio’s investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
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| GROWTH & INCOME PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| |
| THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Growth & Income Portfolio Class A2 | | | 18.93% | | | | 14.76% | | | | 7.28% | |
| Growth & Income Portfolio Class B2 | | | 18.59% | | | | 14.47% | | | | 7.00% | |
| Russell 1000 Value Index | | | 13.66% | | | | 14.04% | | | | 7.10% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.68%. Also includes the impact of proceeds received and credited to the Portfolio in connection with a regulatory settlement, which enhanced performance for the annual period ended December 31, 2017, by 0.01%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.61% and 0.86% for Class A and Class B 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.
GROWTH & INCOME PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Growth & Income Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
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| GROWTH & INCOME PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,124.10 | | | $ | 3.27 | | | | 0.61 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,022.13 | | | $ | 3.11 | | | | 0.61 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,122.60 | | | $ | 4.60 | | | | 0.86 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.87 | | | $ | 4.38 | | | | 0.86 | % |
| * | | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
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GROWTH & INCOME PORTFOLIO |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
JPMorgan Chase & Co. | | $ | 44,982,173 | | | | 4.2 | % |
Time Warner, Inc. | | | 36,164,494 | | | | 3.4 | |
Raytheon Co. | | | 34,370,915 | | | | 3.2 | |
Citigroup, Inc. | | | 33,842,412 | | | | 3.2 | |
Wal-Mart Stores, Inc. | | | 29,935,766 | | | | 2.8 | |
Cigna Corp. | | | 27,147,040 | | | | 2.5 | |
Noble Energy, Inc. | | | 25,789,482 | | | | 2.4 | |
Biogen, Inc. | | | 25,374,101 | | | | 2.4 | |
Verizon Communications, Inc. | | | 25,324,888 | | | | 2.4 | |
Berkshire Hathaway, Inc.—Class B | | | 24,054,393 | | | | 2.3 | |
| | | | | | | | | |
| | | $ | 306,985,664 | | | | 28.8 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Financials | | $ | 242,460,319 | | | | 22.7 | % |
Health Care | | | 175,278,579 | | | | 16.4 | |
Consumer Discretionary | | | 155,282,670 | | | | 14.5 | |
Information Technology | | | 113,502,576 | | | | 10.6 | |
Energy | | | 82,683,028 | | | | 7.7 | |
Industrials | | | 80,568,784 | | | | 7.6 | |
Consumer Staples | | | 33,868,547 | | | | 3.2 | |
Real Estate | | | 28,765,318 | | | | 2.7 | |
Telecommunication Services | | | 25,324,888 | | | | 2.4 | |
Materials | | | 18,200,202 | | | | 1.7 | |
Short-Term Investments | | | 112,415,408 | | | | 10.5 | |
| | | | | | | | | |
Total Investments | | $ | 1,068,350,319 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is 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 Portfolio’s prospectus.
5
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| GROWTH & INCOME PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–89.7% | | | | | | | | |
FINANCIALS–22.7% | | | | | | | | |
BANKS–8.3% | | | | | | | | |
Citigroup, Inc. | | | 454,810 | | | $ | 33,842,412 | |
JPMorgan Chase & Co. | | | 420,630 | | | | 44,982,173 | |
Wells Fargo & Co. | | | 152,760 | | | | 9,267,949 | |
| | | | | | | | |
| | | | | | | 88,092,534 | |
| | | | | | | | |
CAPITAL MARKETS–5.7% | | | | | | | | |
Goldman Sachs Group, Inc. (The) | | | 62,970 | | | | 16,042,237 | |
Northern Trust Corp. | | | 203,469 | | | | 20,324,518 | |
State Street Corp. | | | 206,130 | | | | 20,120,349 | |
TD Ameritrade Holding Corp. | | | 78,550 | | | | 4,016,262 | |
| | | | | | | | |
| | | | | | | 60,503,366 | |
| | | | | | | | |
DIVERSIFIED FINANCIAL SERVICES–2.2% | | | | | | | | |
Berkshire Hathaway, Inc.–Class B(a) | | | 121,352 | | | | 24,054,393 | |
| | | | | | | | |
INSURANCE–6.5% | | | | | | | | |
Aflac, Inc. | | | 107,460 | | | | 9,432,839 | |
Allstate Corp. (The) | | | 164,950 | | | | 17,271,915 | |
Axis Capital Holdings Ltd. | | | 142,753 | | | | 7,174,766 | |
Chubb Ltd. | | | 56,240 | | | | 8,218,351 | |
FNF Group | | | 391,830 | | | | 15,375,409 | |
Reinsurance Group of America, Inc.–Class A | | | 33,359 | | | | 5,201,669 | |
Validus Holdings Ltd. | | | 152,069 | | | | 7,135,077 | |
| | | | | | | | |
| | | | | | | 69,810,026 | |
| | | | | | | | |
| | | | | | | 242,460,319 | |
| | | | | | | | |
HEALTH CARE–16.4% | | | | | | | | |
BIOTECHNOLOGY–5.3% | | | | | | | | |
Amgen, Inc. | | | 80,570 | | | | 14,011,123 | |
Biogen, Inc.(a) | | | 79,650 | | | | 25,374,101 | |
Gilead Sciences, Inc. | | | 245,430 | | | | 17,582,605 | |
| | | | | | | | |
| | | | | | | 56,967,829 | |
| | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–1.2% | | | | | | | | |
Hologic, Inc.(a) | | | 290,160 | | | | 12,404,340 | |
| | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–4.9% | | | | | | | | |
Aetna, Inc. | | | 114,500 | | | | 20,654,655 | |
Cigna Corp. | | | 133,670 | | | | 27,147,040 | |
Quest Diagnostics, Inc. | | | 44,140 | | | | 4,347,349 | |
| | | | | | | | |
| | | | | | | 52,149,044 | |
| | | | | | | | |
PHARMACEUTICALS–5.0% | | | | | | | | |
Eli Lilly & Co. | | | 242,520 | | | | 20,483,239 | |
Pfizer, Inc. | | | 514,370 | | | | 18,630,481 | |
Roche Holding AG (Sponsored ADR) | | | 463,700 | | | | 14,643,646 | |
| | | | | | | | |
| | | | | | | 53,757,366 | |
| | | | | | | | |
| | | | | | | 175,278,579 | |
| | | | | | | | |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
CONSUMER DISCRETIONARY–14.6% | | | | | | | | |
AUTO COMPONENTS–0.6% | | | | | | | | |
BorgWarner, Inc. | | | 120,460 | | | $ | 6,154,301 | |
| | | | | | | | |
HOUSEHOLD DURABLES–2.2% | | | | | | | | |
DR Horton, Inc. | | | 290,290 | | | | 14,825,110 | |
Garmin Ltd. | | | 136,870 | | | | 8,153,346 | |
| | | | | | | | |
| | | | | | | 22,978,456 | |
| | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–0.4% | | | | | | | | |
Liberty Interactive Corp. QVC Group–Class A(a) | | | 158,270 | | | | 3,864,953 | |
| | | | | | | | |
MEDIA–7.2% | | | | | | | | |
AMC Networks, Inc.–Class A(a) | | | 39,975 | | | | 2,161,848 | |
Comcast Corp.–Class A | | | 365,780 | | | | 14,649,489 | |
Discovery Communications, Inc.–Class A(a)(b) | | | 358,190 | | | | 8,016,292 | |
Scripps Networks Interactive, Inc.–Class A | | | 183,220 | | | | 15,643,324 | |
Time Warner, Inc. | | | 395,370 | | | | 36,164,494 | |
| | | | | | | | |
| | | | | | | 76,635,447 | |
| | | | | | | | |
SPECIALTY RETAIL–3.4% | | | | | | | | |
Lowe’s Cos., Inc. | | | 126,000 | | | | 11,710,440 | |
Ross Stores, Inc. | | | 209,220 | | | | 16,789,905 | |
Tractor Supply Co. | | | 111,050 | | | | 8,300,988 | |
| | | | | | | | |
| | | | | | | 36,801,333 | |
| | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–0.8% | | | | | | | | |
VF Corp. | | | 119,570 | | | | 8,848,180 | |
| | | | | | | | |
| | | | | | | 155,282,670 | |
| | | | | | | | |
INFORMATION TECHNOLOGY–10.6% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–1.6% | | | | | | | | |
Cisco Systems, Inc. | | | 444,210 | | | | 17,013,243 | |
| | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–1.5% | | | | | | | | |
Dolby Laboratories, Inc.–Class A | | | 187,030 | | | | 11,595,860 | |
TE Connectivity Ltd. | | | 43,060 | | | | 4,092,423 | |
| | | | | | | | |
| | | | | | | 15,688,283 | |
| | | | | | | | |
INTERNET SOFTWARE & SERVICES–0.4% | | | | | | | | |
eBay, Inc.(a) | | | 106,480 | | | | 4,018,555 | |
| | | | | | | | |
IT SERVICES–3.1% | | | | | | | | |
Amdocs Ltd. | | | 95,910 | | | | 6,280,187 | |
International Business Machines Corp. | | | 152,480 | | | | 23,393,481 | |
Mastercard, Inc.–Class A | | | 26,730 | | | | 4,045,853 | |
| | | | | | | | |
| | | | | | | 33,719,521 | |
| | | | | | | | |
6
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| | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.4% | | | | | | | | |
Ambarella, Inc.(a)(b) | | | 71,660 | | | $ | 4,210,025 | |
Intel Corp. | | | 458,862 | | | | 21,181,070 | |
| | | | | | | | |
| | | | | | | 25,391,095 | |
| | | | | | | | |
SOFTWARE–0.9% | | | | | | | | |
VMware, Inc.–Class A(a)(b) | | | 76,540 | | | | 9,591,993 | |
| | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–0.7% | | | | | | | | |
Apple, Inc. | | | 47,745 | | | | 8,079,886 | |
| | | | | | | | |
| | | | | | | 113,502,576 | |
| | | | | | | | |
ENERGY–7.8% | | | | | | | | |
ENERGY EQUIPMENT & SERVICES–1.9% | | | | | | | | |
Dril-Quip, Inc.(a) | | | 88,610 | | | | 4,226,697 | |
National Oilwell Varco, Inc. | | | 114,860 | | | | 4,137,257 | |
Oil States International, Inc.(a) | | | 144,095 | | | | 4,077,889 | |
TechnipFMC PLC | | | 249,300 | | | | 7,805,583 | |
| | | | | | | | |
| | | | | | | 20,247,426 | |
| | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–5.9% | | | | | | | | |
ConocoPhillips | | | 322,920 | | | | 17,725,079 | |
Exxon Mobil Corp. | | | 226,220 | | | | 18,921,041 | |
Noble Energy, Inc. | | | 885,020 | | | | 25,789,482 | |
| | | | | | | | |
| | | | | | | 62,435,602 | |
| | | | | | | | |
| | | | | | | 82,683,028 | |
| | | | | | | | |
INDUSTRIALS–7.6% | | | | | | | | |
AEROSPACE & DEFENSE–3.2% | | | | | | | | |
Raytheon Co. | | | 182,970 | | | | 34,370,915 | |
| | | | | | | | |
AIRLINES–0.7% | | | | | | | | |
Delta Air Lines, Inc. | | | 70,560 | | | | 3,951,360 | |
Southwest Airlines Co. | | | 61,050 | | | | 3,995,723 | |
| | | | | | | | |
| | | | | | | 7,947,083 | |
| | | | | | | | |
CONSTRUCTION & ENGINEERING–0.6% | | | | | | | | |
Jacobs Engineering Group, Inc. | | | 28,313 | | | | 1,867,525 | |
Valmont Industries, Inc. | | | 24,300 | | | | 4,030,155 | |
| | | | | | | | |
| | | | | | | 5,897,680 | |
| | | | | | | | |
ELECTRICAL EQUIPMENT–0.4% | | | | | | | | |
AMETEK, Inc. | | | 59,520 | | | | 4,313,414 | |
| | | | | | | | |
MACHINERY–1.4% | | | | | | | | |
Caterpillar, Inc. | | | 27,110 | | | | 4,271,994 | |
Crane Co. | | | 45,470 | | | | 4,056,833 | |
PACCAR, Inc. | | | 87,700 | | | | 6,233,716 | |
| | | | | | | | |
| | | | | | | 14,562,543 | |
| | | | | | | | |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
ROAD & RAIL–1.3% | | | | | | | | |
Norfolk Southern Corp. | | | 93,010 | | | $ | 13,477,149 | |
| | | | | | | | |
| | | | | | | 80,568,784 | |
| | | | | | | | |
CONSUMER STAPLES–3.2% | | | | | | | | |
FOOD & STAPLES RETAILING–3.2% | | | | | | | | |
United Natural Foods, Inc.(a) | | | 79,821 | | | | 3,932,781 | |
Wal-Mart Stores, Inc. | | | 303,147 | | | | 29,935,766 | |
| | | | | | | | |
| | | | | | | 33,868,547 | |
| | | | | | | | |
REAL ESTATE–2.7% | | | | | | | | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–1.1% | | | | | | | | |
Liberty Property Trust | | | 265,250 | | | | 11,408,402 | |
| | | | | | | | |
REAL ESTATE MANAGEMENT & DEVELOPMENT–1.6% | | | | | | | | |
CBRE Group, Inc.–Class A(a) | | | 400,760 | | | | 17,356,916 | |
| | | | | | | | |
| | | | | | | 28,765,318 | |
| | | | | | | | |
TELECOMMUNICATION SERVICES–2.4% | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–2.4% | | | | | | | | |
Verizon Communications, Inc. | | | 478,460 | | | | 25,324,888 | |
| | | | | | | | |
MATERIALS–1.7% | | | | | | | | |
METALS & MINING–1.7% | | | | | | | | |
Newmont Mining Corp. | | | 485,080 | | | | 18,200,202 | |
| | | | | | | | |
Total Common Stocks
(cost $770,016,358) | | | | | | | 955,934,911 | |
| | | | | | | | |
| | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–10.5% | | | | | | | | |
TIME DEPOSIT–10.5% | | | | | | | | |
State Street Bank & Trust Co.
0.12%, 1/02/18
(cost $112,415,408) | | $ | 112,415 | | | | 112,415,408 | |
| | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned–100.2%
(cost $882,431,766) | | | | | | | 1,068,350,319 | |
| | | | | | | | |
7
| | |
| GROWTH & INCOME PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.9% | | | | | | | | |
INVESTMENT COMPANIES–1.9% | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(c)(d)(e)
(cost $20,366,038) | | | 20,366,038 | | | $ | 20,366,038 | |
| | | | | | | | |
TOTAL INVESTMENTS–102.1%
(cost $902,797,804) | | | | | | | 1,088,716,357 | |
Other assets less
liabilities–(2.1)% | | | | | | | (22,602,212 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 1,066,114,145 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (b) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (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. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
8
| | |
| GROWTH & INCOME PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $882,431,766) | | $ | 1,068,350,319 | (a) |
Affiliated issuers (cost $20,366,038—investment of cash collateral for securities loaned) | | | 20,366,038 | |
Receivable for investment securities sold | | | 7,855,243 | |
Dividends and interest receivable | | | 693,274 | |
Receivable for regulatory settlement | | | 73,379 | |
Receivable for capital stock sold | | | 58,937 | |
| | | | |
Total assets | | | 1,097,397,190 | |
| | | | |
LIABILITIES | |
Payable for collateral received on securities loaned | | | 20,366,038 | |
Payable for investment securities purchased | | | 9,382,043 | |
Payable for capital stock redeemed | | | 654,033 | |
Advisory fee payable | | | 500,526 | |
Distribution fee payable | | | 194,886 | |
Administrative fee payable | | | 13,275 | |
Transfer Agent fee payable | | | 105 | |
Accrued expenses | | | 172,139 | |
| | | | |
Total liabilities | | | 31,283,045 | |
| | | | |
NET ASSETS | | $ | 1,066,114,145 | |
| | | | |
COMPOSITION OF NET ASSETS | |
Capital stock, at par | | $ | 32,353 | |
Additional paid-in capital | | | 759,969,022 | |
Undistributed net investment income | | | 8,072,136 | |
Accumulated net realized gain on investment transactions | | | 112,122,081 | |
Net unrealized appreciation on investments | | | 185,918,553 | |
| | | | |
| | $ | 1,066,114,145 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 159,324,143 | | | | 4,777,136 | | | $ | 33.35 | |
| B | | $ | 906,790,002 | | | | 27,576,111 | | | $ | 32.88 | |
| (a) | | Includes securities on loan with a value of $19,682,983 (see Note E). |
See notes to financial statements.
9
| | |
| GROWTH & INCOME PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers | | $ | 16,332,204 | |
Affiliated issuers | | | 128,248 | |
Interest | | | 131,782 | |
Other income | | | 18,866 | |
| | | | |
| | | 16,611,100 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 5,804,123 | |
Distribution fee—Class B | | | 2,253,731 | |
Transfer agency—Class A | | | 1,455 | |
Transfer agency—Class B | | | 8,475 | |
Custodian | | | 154,545 | |
Printing | | | 143,035 | |
Legal | | | 91,547 | |
Administrative | | | 52,835 | |
Audit and tax | | | 46,962 | |
Directors’ fees | | | 28,559 | |
Miscellaneous | | | 47,799 | |
| | | | |
Total expenses | | | 8,633,066 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (23,504 | ) |
| | | | |
Net expenses | | | 8,609,562 | |
| | | | |
Net investment income | | | 8,001,538 | |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS | | | | |
Net realized gain on investment transactions | | | 116,524,792 | |
Net change in unrealized appreciation/depreciation of investments | | | 57,076,365 | |
| | | | |
Net gain on investment transactions | | | 173,601,157 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 181,602,695 | |
| | | | |
See notes to financial statements.
10
| | |
| | |
| GROWTH & INCOME PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 8,001,538 | | | $ | 11,500,311 | |
Net realized gain on investment transactions | | | 116,524,792 | | | | 89,905,772 | |
Net change in unrealized appreciation/depreciation of investments | | | 57,076,365 | | | | 2,606,255 | |
| | | | | | | | |
Net increase in net assets from operations | | | 181,602,695 | | | | 104,012,338 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (2,170,398 | ) | | | (1,498,498 | ) |
Class B | | | (11,357,608 | ) | | | (6,966,608 | ) |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | (12,844,972 | ) | | | (8,951,112 | ) |
Class B | | | (78,677,989 | ) | | | (51,731,717 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net increase (decrease) | | | (53,100,913 | ) | | | 210,500,227 | |
CAPITAL CONTRIBUTIONS | | | | | | | | |
Proceeds from regulatory settlement (see Note F) | | | 73,379 | | | | –0 | – |
| | | | | | | | |
Total increase | | | 23,524,194 | | | | 245,364,630 | |
NET ASSETS | | | | | | | | |
Beginning of period | | | 1,042,589,951 | | | | 797,225,321 | |
| | | | | | | | |
End of period (including undistributed net investment income of $8,072,136 and $13,525,225, respectively) | | $ | 1,066,114,145 | | | $ | 1,042,589,951 | |
| | | | | | | | |
See notes to financial statements.
11
| | |
| GROWTH & INCOME PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Growth & Income Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
12
| | |
| | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks(a) | | $ | 955,934,911 | | | $ | –0 | – | | $ | –0 | – | | $ | 955,934,911 | |
Short-Term Investments | | | –0 | – | | | 112,415,408 | | | | –0 | – | | | 112,415,408 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 20,366,038 | | | | –0 | – | | | –0 | – | | | 20,366,038 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 976,300,949 | | | | 112,415,408 | | | | –0 | – | | | 1,088,716,357 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 976,300,949 | | | $ | 112,415,408 | | | $ | –0 | – | | $ | 1,088,716,357 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
13
| | |
| GROWTH & INCOME PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
14
| | |
| | | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $52,835.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $564,734, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 786,200,871 | | | $ | 949,311,035 | |
U.S. government securities | | | –0 | – | | | –0 | – |
15
| | |
| GROWTH & INCOME PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 905,945,620 | |
| | | | |
Gross unrealized appreciation | | $ | 188,511,867 | |
Gross unrealized depreciation | | | (5,741,130 | ) |
| | | | |
Net unrealized appreciation | | $ | 182,770,737 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $19,682,983 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $20,366,038. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $128,248 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $23,504. 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.
16
| | |
| | | AB Variable Products Series Fund |
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value 12/31/16 (000) | | | Purchases at Cost (000) | | | Sales Proceeds (000) | | | Market Value 12/31/17 (000) | |
| $ | 13,560 | | | $ | 282,470 | | | $ | 275,664 | | | $ | 20,366 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 537,077 | | | | 472,723 | | | | | | | $ | 17,105,671 | | | $ | 14,176,667 | |
Shares issued in reinvestment of dividends and distributions | | | 502,186 | | | | 356,156 | | | | | | | | 15,015,370 | | | | 10,449,610 | |
Shares redeemed | | | (1,257,989 | ) | | | (840,378 | ) | | | | | | | (40,491,419 | ) | | | (25,013,777 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (218,726 | ) | | | (11,499 | ) | | | | | | $ | (8,370,378 | ) | | $ | (387,500 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 1,205,291 | | | | 8,766,206 | | | | | | | $ | 38,159,810 | | | $ | 262,089,607 | |
Shares issued in reinvestment of dividends and distributions | | | 3,051,020 | | | | 2,023,382 | | | | | | | | 90,035,597 | | | | 58,698,325 | |
Shares redeemed | | | (5,445,755 | ) | | | (3,729,838 | ) | | | | | | | (172,925,942 | ) | | | (109,900,205 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (1,189,444 | ) | | | 7,059,750 | | | | | | | $ | (44,730,535 | ) | | $ | 210,887,727 | |
| | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2017, the Portfolio recorded $73,379 related to a settlement of regulatory proceedings. This amount is presented in the Portfolio’s statement of changes in net assets. Neither the Portfolio nor its affiliates were involved in the proceedings or the calculation of the payment.
At December 31, 2017, certain shareholders of the Portfolio owned 62% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Industry/Sector Risk—Investments in a particular industry or group of related industries may have more risk because market or economic factors affecting that industry could have a significant effect on the value of the Portfolio’s investments.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
17
| | |
| GROWTH & INCOME PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 21,981,056 | | | $ | 8,465,106 | |
Net long-term capital gains | | | 83,069,911 | | | | 60,682,829 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 105,050,967 | | | $ | 69,147,935 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 37,266,903 | |
Undistributed capital gains | | | 86,075,132 | |
Unrealized appreciation/(depreciation) | | | 182,770,737 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 306,112,772 | |
| | | | |
| (a) | | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is 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 losses incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to proceeds from a regulatory settlement resulted in a net increase in undistributed net investment income 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 Portfolio’s financial statements through this date.
18
| | |
| | |
| GROWTH & INCOME PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $31.21 | | | | $30.12 | | | | $30.04 | | | | $27.80 | | | | $20.88 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .31 | (b) | | | .43 | (b)† | | | .37 | | | | .40 | | | | .33 | |
Net realized and unrealized gain on investment transactions | | | 5.21 | | | | 2.84 | | | | .14 | | | | 2.23 | | | | 6.92 | |
Capital contributions | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 5.52 | | | | 3.27 | | | | .51 | | | | 2.63 | | | | 7.25 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.49 | ) | | | (.32 | ) | | | (.43 | ) | | | (.39 | ) | | | (.33 | ) |
Distributions from net realized gain on investment transactions | | | (2.89 | ) | | | (1.86 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (3.38 | ) | | | (2.18 | ) | | | (.43 | ) | | | (.39 | ) | | | (.33 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $33.35 | | | | $31.21 | | | | $30.12 | | | | $30.04 | | | | $27.80 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset
value (c)* | | | 18.93 | % | | | 11.30 | %† | | | 1.70 | % | | | 9.54 | % | | | 34.96 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $159,324 | | | | $155,924 | | | | $150,801 | | | | $168,135 | | | | $164,154 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | .60 | % | | | .61 | % | | | .60 | % | | | .60 | % | | | .60 | % |
Expenses, before waivers/reimbursements | | | .60 | % | | | .61 | % | | | .60 | % | | | .60 | % | | | .60 | % |
Net investment income | | | .97 | %(b) | | | 1.46 | %(b)† | | | 1.21 | % | | | 1.39 | % | | | 1.35 | % |
Portfolio turnover rate | | | 85 | % | | | 101 | % | | | 73 | % | | | 51 | % | | | 63 | % |
See footnote summary on page 20.
19
| | |
| GROWTH & INCOME PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $30.82 | | | | $29.78 | | | | $29.71 | | | | $27.49 | | | | $20.66 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .23 | (b) | | | .36 | (b)† | | | .29 | | | | .32 | | | | .27 | |
Net realized and unrealized gain on investment transactions | | | 5.14 | | | | 2.79 | | | | .14 | | | | 2.22 | | | | 6.83 | |
Capital contributions | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 5.37 | | | | 3.15 | | | | .43 | | | | 2.54 | | | | 7.10 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.42 | ) | | | (.25 | ) | | | (.36 | ) | | | (.32 | ) | | | (.27 | ) |
Distributions from net realized gain on investment transactions | | | (2.89 | ) | | | (1.86 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (3.31 | ) | | | (2.11 | ) | | | (.36 | ) | | | (.32 | ) | | | (.27 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $32.88 | | | | $30.82 | | | | $29.78 | | | | $29.71 | | | | $27.49 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset
value (d)* | | | 18.59 | % | | | 11.07 | %† | | | 1.43 | % | | | 9.29 | % | | | 34.59 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $906,790 | | | | $886,666 | | | | $646,424 | | | | $701,442 | | | | $709,257 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | .85 | % | | | .86 | % | | | .85 | % | | | .85 | % | | | .85 | % |
Expenses, before waivers/reimbursements | | | .85 | % | | | .86 | % | | | .85 | % | | | .85 | % | | | .85 | % |
Net investment income | | | .72 | %(b) | | | 1.21 | %(b)† | | | .96 | % | | | 1.14 | % | | | 1.11 | % |
Portfolio turnover rate | | | 85 | % | | | 101 | % | | | 73 | % | | | 51 | % | | | 63 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and 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. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment
Income Per Share | | | Net Investment
Income Ratio | | | Total
Return | |
| $ | .002 | | | | .01 | % | | | .01 | % |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.68%, 0.03%, 0.14%, 0.11% and 0.08%, respectively. |
| | | Includes the impact of proceeds received and credited to the Portfolio resulting from a regulatory settlement, which enhanced the Portfolio’s performance for the year ended December 31, 2017 by 0.01%. |
See notes to financial statements.
20
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Growth & Income Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Growth & Income Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Growth & Income Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
21
| | |
| | |
| | |
| 2017 Federal Tax Information (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 75.37% of dividends paid qualify for the dividends received deduction.
22
| | |
| | |
| | |
| GROWTH & INCOME PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| |
| |
| |
| | |
| | |
| OFFICERS | | |
Frank V. Caruso(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIANAND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by Mr. Frank V. Caruso, a member of the Adviser’s Relative Value Investment Team. |
23
| | |
| | |
| GROWTH & INCOME PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semiconductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semiconductors) since 2007 |
| | | | | | | | |
Michael J. Downey,## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
24
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| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER
PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.,## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin,## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen,## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
25
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| GROWTH & INCOME PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER
PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
Garry L. Moody,## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner,## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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. |
26
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| | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS,* AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith
57 | | President and Chief
Executive Officer | | See biography above. |
| | | | |
Frank V. Caruso
61 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of US Growth Equities. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto
53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | | The Adviser, ABIS and ABI 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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
27
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| GROWTH & INCOME PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Growth and Income Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous
28
| | |
| | | AB Variable Products Series Fund |
factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. 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
29
| | |
| GROWTH & INCOME PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
30
VPS-GI-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
| + | | INTERMEDIATE BOND PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| | |
| INTERMEDIATE BOND PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Intermediate Bond Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. The Portfolio invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Portfolio expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term and relatively attractive yields that do not involve undue risk of loss of capital. The Portfolio expects to invest in fixed-income securities with a dollar-weighted average maturity of between three to 10 years and an average duration of three to six years. The Portfolio may invest up to 25% of its net assets in below investment-grade bonds (commonly known as “junk bonds”). The Portfolio may use leverage for investment purposes.
The Portfolio may invest without limit in US dollar-denominated foreign fixed-income securities and may invest up to 25% of its assets in non-US dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed- and emerging-market debt securities.
The Portfolio may invest in mortgage-related and other asset-backed securities, loan participations, inflation-indexed securities, structured securities, variable, floating and inverse floating-rate instruments, and preferred stock, and may use other investment techniques. The Portfolio intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Portfolio may invest, without limit, in derivatives, such as options, futures contracts, forwards and swaps.
INVESTMENT RESULTS
The table on page 4 shows the Portfolio’s performance compared to its benchmark, the Bloomberg Barclays US Aggregate Bond Index, for the one-, five- and 10-year periods ended December 31, 2017.
During the annual period, all share classes of the Portfolio underperformed the benchmark. Currency selection detracted from relative performance, primarily because of short positions in the Canadian and Australian dollars. Duration and yield-curve positioning were modest detractors. Sector positioning added to returns, primarily because of exposures to credit risk-transfer securities and an underweight to Treasuries. (Credit risk-transfer securities are securitized bonds backed by residential mortgage payments, and are issued by Fannie Mae and Freddie Mac, but do not have a government agency guarantee.) An underweight position in investment-grade corporates and overweight to emerging-market corporate bonds detracted. Although overall security selection had no material impact on performance, there were some positions of note: security selection within investment-grade corporates contributed to returns, while selection in agency mortgages and commercial mortgage-backed securities detracted.
During the annual period, the Portfolio utilized derivatives including currency forwards and options to hedge currency risk and actively manage currency positions. Credit default swaps were utilized for hedging and investment purposes, which had an immaterial impact on absolute performance. Treasury futures, interest rate swaps and interest rate swaptions were utilized to manage duration, country exposure and yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Global bonds generally rallied over the annual period, with political events and central bank action being the main drivers of market performance. US president Donald Trump’s promise of fiscal stimulus and relaxed regulation were treated as positive developments by financial markets. Though uncertainty regarding the administration’s ability to implement meaningful changes rose during the period, markets reacted with enthusiasm when the Tax Cuts and Jobs Act was passed in December. UK prime minister Theresa May’s surprise snap parliamentary election—in an effort to firm up the UK’s mandate going into Brexit negotiations—increased political uncertainty; however, at the end of the period, progress was made as the UK and European Union agreed to move on to the second phase of negotiations. In France, investors were relieved when Emmanuel Macron was elected president, as his pro-EU reformist agenda was seen as more business friendly than the protectionist policies espoused by his opponent. The US Federal Reserve (the “Fed”) raised interest rates three times in 2017, with hikes that were well-telegraphed and universally anticipated by markets. The Fed also formally began its balance-sheet reduction program, while the European Central Bank announced that it would start to taper the pace of its monthly asset purchases in January 2018.
Emerging-market debt rallied in the year, helped by a positive global growth story and increasing oil prices. Emerging-market local-currency government bonds rose, performing in line with investment-grade credit securities and outperforming the positive returns of developed-market treasuries, but lagging the robust returns of global high yield. Developed-market treasury yields were mixed: yields in the US, Canada, UK and Australia flattened, with the short end of the curve rising while longer maturities moved lower. Japanese yields generally ended the period higher. Yield curves in the eurozone moved in different directions.
1
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| INTERMEDIATE BOND PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Bloomberg Barclays US Aggregate Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Security Risk: Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Prepayment Risk: The value of mortgage-related or other asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some of these securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments
(Disclosures and Risks continued on next page)
2
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| | | AB Variable Products Series Fund |
associated with these securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
3
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| INTERMEDIATE BOND PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Intermediate Bond Portfolio Class A2 | | | 3.52% | | | | 2.46% | | | | 4.46% | |
| Intermediate Bond Portfolio Class B2 | | | 3.28% | | | | 2.22% | | | | 4.21% | |
| Bloomberg Barclays US Aggregate Bond Index | | | 3.54% | | | | 2.10% | | | | 4.01% | |
1 Average annual returns. | | | | | | | | | | | | |
2 Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.03%. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 1.06% and 1.32% for Class A and Class B 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.
INTERMEDIATE BOND PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Intermediate Bond Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 2-3.
4
| | |
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees of other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees of other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,009.60 | | | $ | 5.62 | | | | 1.11 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,019.61 | | | $ | 5.65 | | | | 1.11 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,008.80 | | | $ | 6.89 | | | | 1.36 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,018.35 | | | $ | 6.92 | | | | 1.36 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
5
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| TOP TEN SECTORS (including derivatives)1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | |
Mortgage Pass-Throughs | | | 21.0 | % |
Corporates—Investment Grade | | | 20.6 | |
Governments—Treasuries2 | | | 12.6 | |
Asset-Backed Securities | | | 13.2 | |
Commercial Mortgage-Backed Securities3 | | | 11.1 | |
Agency Discount Notes | | | 5.2 | |
Collateralized Mortgage Obligations | | | 8.1 | |
Inflation-Linked Securities | | | 6.2 | |
Corporates—Non-Investment Grade3 | | | 3.1 | |
Interest Rate Swaps4 | | | 2.7 | |
SECTOR BREAKDOWN (excluding derivatives)5
December 31, 2017 (unaudited)
| | | | |
Mortgage Pass-Throughs | | | 18.9 | % |
Corporates—Investment Grade | | | 18.6 | |
Asset-Backed Securities | | | 11.9 | |
Commercial Mortgage-Backed Securities | | | 8.7 | |
Governments—Treasuries | | | 8.5 | |
Collateralized Mortgage Obligations | | | 7.3 | |
Inflation-Linked Securities | | | 5.6 | |
Corporates—Non-Investment Grade | | | 3.2 | |
Agencies | | | 2.7 | |
Emerging Markets—Treasuries | | | 0.8 | |
Quasi-Sovereigns | | | 0.6 | |
Local Governments—US Municipal Bonds | | | 0.5 | |
Emerging Markets—Corporate Bonds | | | 0.2 | |
Preferred Stocks | | | 0.2 | |
Short-Term Investments | | | 12.3 | |
| 1 | | All data are as of December 31, 2017. The Portfolio’s sectors include derivative exposure and are expressed as approximate percentages of the Portfolio’s total net assets, based on the Adviser’s internal classification. The percentages will vary over time. |
| 2 | | Includes Treasury Futures |
| 3 | | Includes Credit Default Swaps |
| 4 | | Represents the exposure of the Portfolio’s fixed-rate payments on the Interest Rate Swaps. Interest Rate Swaps involve the exchange by a fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating-rate payments for fixed-rate payments). |
| 5 | | All data are as of December 31, 2017. The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
6
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
MORTGAGE PASS-THROUGHS–21.1% | | | | | | | | | |
AGENCY FIXED RATE 30-YEAR–17.8% | | | | | | | | | | | | |
Federal Home Loan Mortgage Corp. Gold
4.00%, 2/01/46 | | | U.S.$ | | | | 256 | | | $ | 269,629 | |
Series 2005
5.50%, 1/01/35 | | | | | | | 88 | | | | 97,110 | |
Series 2007
5.50%, 7/01/35 | | | | | | | 24 | | | | 26,788 | |
Series 2017
4.00%, 7/01/44 | | | | | | | 202 | | | | 213,049 | |
Federal National Mortgage Association
3.50%, 1/01/48, TBA | | | | | | | 3,716 | | | | 3,816,739 | |
4.00%, 12/01/40–10/01/43 | | | | | | | 609 | | | | 641,522 | |
4.00%, 1/01/48, TBA | | | | | | | 1,258 | | | | 1,315,789 | |
4.50%, 1/01/48, TBA | | | | | | | 1,251 | | | | 1,330,947 | |
Series 2003
5.50%, 4/01/33–7/01/33 | | | | | | | 82 | | | | 91,317 | |
Series 2004
5.50%, 4/01/34–11/01/34 | | | | | | | 73 | | | | 80,367 | |
Series 2005
5.50%, 2/01/35 | | | | | | | 87 | | | | 96,038 | |
Government National Mortgage Association
3.00%, 4/20/46 | | | | | | | 301 | | | | 304,108 | |
3.50%, 1/01/48, TBA | | | | | | | 1,098 | | | | 1,135,572 | |
Series 1994
9.00%, 9/15/24 | | | | | | | 1 | | | | 1,255 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,420,230 | |
| | | | | | | | | | | | |
AGENCY FIXED RATE 15-YEAR–2.4% | | | | | | | | | |
Federal National Mortgage Association
2.50%, 7/01/31–1/01/32 | | | | | | | 1,274 | | | | 1,273,009 | |
| | | | | | | | | | | | |
OTHER AGENCY FIXED RATE PROGRAMS–0.9% | | | | | | | | | |
Federal National Mortgage Association
4.50%, 11/01/30 | | | | | | | 431 | | | | 458,540 | |
| | | | | | | | | | | | |
Total Mortgage Pass-Throughs
(cost $11,123,315) | | | | | | | | | | | 11,151,779 | |
| | | | | | | | | | | | |
CORPORATES–INVESTMENT GRADE–20.8% | | | | | | | | | |
FINANCIAL INSTITUTIONS–10.9% | | | | | | | | | |
BANKING–9.9% | | | | | | | | | | | | |
Banco Santander SA
3.50%, 4/11/22 | | | | | | | 200 | | | | 203,864 | |
Bank of America Corp.
2.881%, 4/24/23 | | | | | | | 145 | | | | 145,261 | |
3.824%, 1/20/28 | | | | | | | 145 | | | | 149,987 | |
Series G
3.593%, 7/21/28 | | | | | | | 85 | | | | 86,430 | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
BNP Paribas SA
3.80%, 1/10/24(a) | | | U.S.$ | | | | 200 | | | $ | 206,790 | |
Capital One Financial Corp.
3.30%, 10/30/24 | | | | | | | 135 | | | | 134,517 | |
Citigroup, Inc.
3.668%, 7/24/28 | | | | | | | 290 | | | | 293,799 | |
Compass Bank
5.50%, 4/01/20 | | | | | | | 250 | | | | 262,977 | |
Cooperatieve Rabobank UA
4.375%, 8/04/25 | | | | | | | 250 | | | | 264,155 | |
Credit Suisse Group Funding Guernsey Ltd.
3.80%, 6/09/23 | | | | | | | 265 | | | | 273,133 | |
Goldman Sachs Group, Inc. (The)
2.35%, 11/15/21 | | | | | | | 118 | | | | 116,172 | |
3.75%, 5/22/25 | | | | | | | 53 | | | | 54,590 | |
3.85%, 7/08/24 | | | | | | | 210 | | | | 217,785 | |
Series D
6.00%, 6/15/20 | | | | | | | 195 | | | | 210,666 | |
HSBC Holdings PLC
4.041%, 3/13/28 | | | | | | | 310 | | | | 322,809 | |
JPMorgan Chase & Co.
3.22%, 3/01/25 | | | | | | | 140 | | | | 140,945 | |
3.54%, 5/01/28 | | | | | | | 255 | | | | 258,850 | |
Lloyds Banking Group PLC
4.65%, 3/24/26 | | | | | | | 200 | | | | 211,228 | |
Mitsubishi UFJ Financial Group, Inc.
3.85%, 3/01/26 | | | | | | | 200 | | | | 207,150 | |
Morgan Stanley
3.591%, 7/22/28 | | | | | | | 235 | | | | 237,164 | |
5.625%, 9/23/19 | | | | | | | 143 | | | | 150,708 | |
Santander Holdings USA, Inc.
4.40%, 7/13/27(a) | | | | | | | 140 | | | | 143,272 | |
Santander Issuances SAU
3.25%, 4/04/26(a) | | | EUR | | | | 200 | | | | 263,984 | |
UBS AG/Stamford CT
7.625%, 8/17/22 | | | U.S.$ | | | | 250 | | | | 292,852 | |
UBS Group Funding Switzerland AG
4.125%, 9/24/25(a) | | | | | | | 200 | | | | 209,902 | |
US Bancorp
Series J
5.30%, 4/15/27(b) | | | | | | | 63 | | | | 68,101 | |
Wells Fargo & Co.
3.069%, 1/24/23 | | | | | | | 113 | | | | 114,005 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,241,096 | |
| | | | | | | | | | | | |
FINANCE–0.2% | | | | | | | | | | | | |
Synchrony Financial
3.95%, 12/01/27 | | | | | | | 135 | | | | 134,429 | |
| | | | | | | | | | | | |
INSURANCE–0.5% | | | | | | | | | | | | |
Hartford Financial Services Group, Inc. (The)
5.50%, 3/30/20 | | | | | | | 31 | | | | 33,026 | |
Lincoln National Corp.
8.75%, 7/01/19 | | | | | | | 35 | | | | 38,148 | |
7
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Nationwide Mutual Insurance Co.
9.375%, 8/15/39(a) | | | U.S.$ | | | | 35 | | | $ | 59,614 | |
XLIT Ltd.
3.25%, 6/29/47 | | | EUR | | | | 100 | | | | 121,122 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 251,910 | |
| | | | | | | | | | | | |
REITS–0.3% | | | | | | | | | | | | |
Host Hotels & Resorts LP
Series D
3.75%, 10/15/23 | | | U.S.$ | | | | 6 | | | | 6,107 | |
Welltower, Inc.
4.00%, 6/01/25 | | | | | | | 146 | | | | 151,034 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 157,141 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,784,576 | |
| | | | | | | | | | | | |
INDUSTRIAL–9.2% | | | | | | | | | | | | |
BASIC–1.1% | | | | | | | | | | | | |
Eastman Chemical Co.
3.80%, 3/15/25 | | | | | | | 50 | | | | 52,048 | |
Glencore Funding LLC
4.125%, 5/30/23(a) | | | | | | | 58 | | | | 60,060 | |
Mosaic Co. (The)
5.625%, 11/15/43 | | | | | | | 40 | | | | 43,298 | |
Sociedad Quimica y Minera de Chile SA
3.625%, 4/03/23(a) | | | | | | | 260 | | | | 263,250 | |
Vale Overseas Ltd.
6.875%, 11/21/36 | | | | | | | 80 | | | | 97,840 | |
Yamana Gold, Inc.
4.95%, 7/15/24 | | | | | | | 81 | | | | 84,529 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 601,025 | |
| | | | | | | | | | | | |
CAPITAL GOODS–0.2% | | | | | | | | | | | | |
Embraer Netherlands Finance BV
5.40%, 2/01/27 | | | | | | | 85 | | | | 91,162 | |
General Electric Co.
Series D
5.00%, 1/21/21(b) | | | | | | | 40 | | | | 41,301 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 132,463 | |
| | | | | | | | | | | | |
COMMUNICATIONS–MEDIA–0.8% | | | | | | | | | | | | |
Charter Communications Operating LLC/Charter Communications Operating Capital
4.908%, 7/23/25 | | | | | | | 135 | | | | 143,396 | |
Cox Communications, Inc.
2.95%, 6/30/23(a) | | | | | | | 51 | | | | 50,203 | |
Time Warner Cable LLC
4.125%, 2/15/21 | | | | | | | 200 | | | | 205,792 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 399,391 | |
| | | | | | | | | | | | |
COMMUNICATIONS–TELECOMMUNICATIONS–1.3% | | | | | | | | | | | | |
AT&T, Inc.
3.40%, 5/15/25 | | | | | | | 310 | | | | 305,182 | |
4.125%, 2/17/26 | | | | | | | 147 | | | | 150,115 | |
5.15%, 2/14/50 | | | | | | | 60 | | | | 60,514 | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Rogers Communications, Inc.
4.00%, 6/06/22 | | | CAD | | | | 27 | | | $ | 22,697 | |
Verizon Communications, Inc.
3.50%, 11/01/24 | | | U.S.$ | | | | 36 | | | | 36,630 | |
5.50%, 3/16/47 | | | | | | | 105 | | | | 119,614 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 694,752 | |
| | | | | | | | | | | | |
CONSUMER CYCLICAL–AUTOMOTIVE–0.5% | | | | | | | | | |
General Motors Co.
3.50%, 10/02/18 | | | | | | | 80 | | | | 80,766 | |
General Motors Financial Co., Inc.
3.10%, 1/15/19 | | | | | | | 110 | | | | 110,769 | |
3.25%, 5/15/18 | | | | | | | 9 | | | | 9,035 | |
4.00%, 1/15/25 | | | | | | | 23 | | | | 23,682 | |
4.30%, 7/13/25 | | | | | | | 30 | | | | 31,244 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 255,496 | |
| | | | | | | | | | | | |
CONSUMER NON–CYCLICAL–1.2% | | | | | | | | | |
Becton Dickinson and Co.
3.734%, 12/15/24 | | | | | | | 40 | | | | 40,889 | |
Biogen, Inc.
4.05%, 9/15/25 | | | | | | | 144 | | | | 152,483 | |
Bunge Ltd. Finance Corp.
8.50%, 6/15/19 | | | | | | | 2 | | | | 2,167 | |
Medtronic, Inc.
3.50%, 3/15/25 | | | | | | | 195 | | | | 202,613 | |
Teva Pharmaceutical Finance Netherlands III BV
3.15%, 10/01/26 | | | | | | | 79 | | | | 64,879 | |
Tyson Foods, Inc.
2.65%, 8/15/19 | | | | | | | 39 | | | | 39,177 | |
3.95%, 8/15/24 | | | | | | | 123 | | | | 129,221 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 631,429 | |
| | | | | | | | | | | | |
ENERGY–1.7% | | | | | | | | | | | | |
Cenovus Energy, Inc.
3.00%, 8/15/22 | | | | | | | 12 | | | | 11,918 | |
5.70%, 10/15/19 | | | | | | | 36 | | | | 37,854 | |
Ecopetrol SA
5.875%, 5/28/45 | | | | | | | 57 | | | | 58,425 | |
Encana Corp.
3.90%, 11/15/21 | | | | | | | 45 | | | | 46,238 | |
Enterprise Products Operating LLC
3.70%, 2/15/26 | | | | | | | 161 | | | | 164,865 | |
5.20%, 9/01/20 | | | | | | | 55 | | | | 58,819 | |
Hess Corp.
4.30%, 4/01/27 | | | | | | | 109 | | | | 108,963 | |
Noble Energy, Inc.
3.90%, 11/15/24 | | | | | | | 107 | | | | 110,531 | |
Plains All American Pipeline LP/PAA Finance Corp.
3.60%, 11/01/24 | | | | | | | 137 | | | | 133,401 | |
Sabine Pass Liquefaction LLC
5.00%, 3/15/27 | | | | | | | 80 | | | | 85,526 | |
8
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Williams Partners LP
4.125%, 11/15/20 | | U.S.$ | | | | | 97 | | | $ | 100,417 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 916,957 | |
| | | | | | | | | | | | |
SERVICES–0.5% | | | | | | | | | | | | |
Expedia, Inc.
3.80%, 2/15/28 | | | | | | | 94 | | | | 90,833 | |
S&P Global, Inc.
4.40%, 2/15/26 | | | | | | | 127 | | | | 137,161 | |
Total System Services, Inc.
3.75%, 6/01/23 | | | | | | | 19 | | | | 19,439 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 247,433 | |
| | | | | | | | | | | | |
TECHNOLOGY–1.9% | | | | | | | | | | | | |
Broadcom Corp./Broadcom Cayman Finance Ltd.
3.625%, 1/15/24(a) | | | | | | | 28 | | | | 27,852 | |
3.875%, 1/15/27(a) | | | | | | | 62 | | | | 61,165 | |
Dell International LLC/EMC Corp.
5.45%, 6/15/23(a) | | | | | | | 160 | | | | 172,723 | |
6.02%, 6/15/26(a) | | | | | | | 31 | | | | 34,164 | |
Hewlett Packard Enterprise Co.
2.10%, 10/04/19(a) | | | | | | | 96 | | | | 95,276 | |
HP, Inc.
4.65%, 12/09/21 | | | | | | | 107 | | | | 113,881 | |
KLA-Tencor Corp.
4.65%, 11/01/24 | | | | | | | 134 | | | | 145,347 | |
Lam Research Corp.
2.80%, 6/15/21 | | | | | | | 39 | | | | 39,219 | |
Motorola Solutions, Inc.
3.50%, 3/01/23 | | | | | | | 82 | | | | 82,569 | |
7.50%, 5/15/25 | | | | | | | 4 | | | | 4,830 | |
Seagate HDD Cayman
4.75%, 1/01/25 | | | | | | | 75 | | | | 73,626 | |
VMware, Inc.
2.95%, 8/21/22 | | | | | | | 45 | | | | 44,895 | |
Western Digital Corp.
7.375%, 4/01/23(a) | | | | | | | 89 | | | | 96,054 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 991,601 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,870,547 | |
| | | | | | | | | | | | |
UTILITY–0.7% | | | | | | | | | | | | |
ELECTRIC–0.7% | | | | | | | | | | | | |
Berkshire Hathaway Energy Co.
6.125%, 4/01/36 | | | | | | | 88 | | | | 118,018 | |
Israel Electric Corp., Ltd.
Series 6
5.00%, 11/12/24(a) | | | | | | | 200 | | | | 213,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 331,018 | |
| | | | | | | | | | | | |
Total Corporates–Investment Grade
(cost $10,573,152) | | | | | | | | | | | 10,986,141 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
ASSET-BACKED SECURITIES–13.3% | | | | | | | | | | | | |
AUTOS–FIXED RATE–6.8% | | | | | | | | | |
Ally Auto Receivables Trust
Series 2015-2, Class A3
1.49%, 11/15/19 | | U.S.$ | | | | | 68 | | | $ | 67,764 | |
Ally Master Owner Trust
Series 2015-3, Class A
1.63%, 5/15/20 | | | | | | | 259 | | | | 258,818 | |
AmeriCredit Automobile Receivables Trust
Series 2016-4, Class A2A
1.34%, 4/08/20 | | | | | | | 52 | | | | 52,221 | |
Series 2017-3, Class A2A
1.69%, 12/18/20 | | | | | | | 65 | | | | 64,833 | |
Avis Budget Rental Car Funding AESOP LLC
Series 2013-2A, Class A
2.97%, 2/20/20(a) | | | | | | | 288 | | | | 289,933 | |
Series 2016-1A, Class A
2.99%, 6/20/22(a) | | | | | | | 100 | | | | 100,598 | |
Bank of The West Auto Trust
Series 2015-1, Class A3
1.31%, 10/15/19(a) | | | | | | | 57 | | | | 57,127 | |
California Republic Auto Receivables Trust
Series 2014-2, Class A4
1.57%, 12/16/19 | | | | | | | 34 | | | | 34,451 | |
Chrysler Capital Auto Receivables Trust
Series 2015-BA, Class A3
1.91%, 3/16/20(a) | | | | | | | 62 | | | | 62,316 | |
CPS Auto Receivables Trust
Series 2013-B, Class A
1.82%, 9/15/20(a) | | | | | | | 29 | | | | 29,453 | |
DT Auto Owner Trust
Series 2017-3A, Class A
1.73%, 8/17/20(a) | | | | | | | 47 | | | | 46,861 | |
Enterprise Fleet Financing LLC
Series 2015-1, Class A2
1.30%, 9/20/20(a) | | | | | | | 8 | | | | 7,746 | |
Exeter Automobile Receivables Trust
Series 2016-3A, Class A
1.84%, 11/16/20(a) | | | | | | | 21 | | | | 20,667 | |
Series 2016-3A, Class D
6.40%, 7/17/23(a) | | | | | | | 100 | | | | 102,484 | |
Series 2017-1A, Class D
6.20%, 11/15/23(a) | | | | | | | 100 | | | | 103,158 | |
Series 2017-2A, Class A
2.11%, 6/15/21(a) | | | | | | | 55 | | | | 55,179 | |
Series 2017-3A, Class A
2.05%, 12/15/21(a) | | | | | | | 120 | | | | 120,150 | |
Series 2017-3A, Class C
3.68%, 7/17/23(a) | | | | | | | 60 | | | | 59,489 | |
9
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Fifth Third Auto Trust
Series 2014-3, Class A4
1.47%, 5/17/21 | | | U.S.$ | | | | 161 | | | $ | 161,343 | |
Flagship Credit Auto Trust
Series 2016-3, Class A1
1.61%, 12/15/19(a) | | | | | | | 22 | | | | 21,624 | |
Series 2016-4, Class D
3.89%, 11/15/22(a) | | | | | | | 125 | | | | 125,364 | |
Series 2017-3, Class A
1.88%, 10/15/21(a) | | | | | | | 81 | | | | 80,837 | |
Ford Credit Auto Owner Trust
Series 2014-2, Class A
2.31%, 4/15/26(a) | | | | | | | 257 | | | | 257,473 | |
Ford Credit Floorplan Master Owner Trust
Series 2015-2, Class A1
1.98%, 1/15/22 | | | | | | | 198 | | | | 197,090 | |
Series 2016-1, Class A1
1.76%, 2/15/21 | | | | | | | 131 | | | | 130,568 | |
Series 2017-1, Class A1
2.07%, 5/15/22 | | | | | | | 115 | | | | 114,413 | |
GM Financial Automobile Leasing Trust
Series 2015-2, Class A3
1.68%, 12/20/18 | | | | | | | 67 | | | | 67,384 | |
GMF Floorplan Owner Revolving Trust
Series 2015-1, Class A1
1.65%, 5/15/20(a) | | | | | | | 128 | | | | 128,352 | |
Harley-Davidson Motorcycle Trust
Series 2015-1, Class A3
1.41%, 6/15/20 | | | | | | | 61 | | | | 60,442 | |
Hertz Vehicle Financing II LP
Series 2015-1A, Class B
3.52%, 3/25/21(a) | | | | | | | 115 | | | | 114,699 | |
Hertz Vehicle Financing LLC
Series 2013-1A, Class A2
1.83%, 8/25/19(a) | | | | | | | 485 | | | | 484,364 | |
Hyundai Auto Lease Securitization Trust
Series 2015-B, Class A3
1.40%, 11/15/18(a) | | | | | | | 5 | | | | 4,819 | |
Santander Drive Auto Receivables Trust
Series 2016-3, Class A2
1.34%, 11/15/19 | | | | | | | 18 | | | | 18,329 | |
Series 2017-3, Class A2
1.67%, 6/15/20 | | | | | | | 65 | | | | 64,880 | |
Westlake Automobile Receivables Trust
Series 2016-2A, Class A2
1.57%, 6/17/19(a) | | | | | | | 18 | | | | 18,099 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,583,328 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
OTHER ABS–FIXED RATE–2.9% | | | | | | | | | |
Ascentium Equipment Receivables Trust
Series 2016-1A, Class A2
1.75%, 11/13/18(a) | | | U.S.$ | | | | 5 | | | $ | 5,493 | |
CLUB Credit Trust
Series 2017-P1, Class B
3.56%, 9/15/23(a)(c) | | | | | | | 100 | | | | 100,240 | |
Series 2017-P2, Class A
2.61%, 1/15/24(a)(c) | | | | | | | 105 | | | | 104,833 | |
CNH Equipment Trust
Series 2014-B, Class A4
1.61%, 5/17/21 | | | | | | | 87 | | | | 87,175 | |
Series 2015-A, Class A4
1.85%, 4/15/21 | | | | | | | 134 | | | | 133,380 | |
Marlette Funding Trust
Series 2016-1A, Class A
3.06%, 1/17/23(a)(c) | | | | | | | 26 | | | | 26,315 | |
Series 2017-1A, Class A
2.827%, 3/15/24(a)(c) | | | | | | | 54 | | | | 54,320 | |
Series 2017-2A, Class A
2.39%, 7/15/24(a)(c) | | | | | | | 97 | | | | 96,839 | |
Series 2017-3A, Class A
2.36%, 12/15/24(a)(c) | | | | | | | 94 | | | | 93,533 | |
Series 2017-3A, Class B
3.01%, 12/15/24(a)(c) | | | | | | | 100 | | | | 99,683 | |
SBA Tower Trust
3.156%, 10/08/20(a)(c) | | | | | | | 147 | | | | 148,102 | |
SoFi Consumer Loan Program LLC
Series 2016-2, Class A
3.09%, 10/27/25(a)(c) | | | | | | | 63 | | | | 63,571 | |
Series 2016-3, Class A
3.05%, 12/26/25(a)(c) | | | | | | | 69 | | | | 69,561 | |
Series 2017-1, Class A
3.28%, 1/26/26(a)(c) | | | | | | | 64 | | | | 64,301 | |
Series 2017-2, Class A
3.28%, 2/25/26(a)(c) | | | | | | | 77 | | | | 77,843 | |
Series 2017-3, Class A
2.77%, 5/25/26(a)(c) | | | | | | | 87 | | | | 86,859 | |
Series 2017-4, Class B
3.59%, 5/26/26(a)(c) | | | | | | | 130 | | | | 129,510 | |
Series 2017-5, Class A2
2.78%, 9/25/26(a)(c) | | | | | | | 110 | | | | 108,702 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,550,260 | |
| | | | | | | | | | | | |
CREDIT CARDS–FIXED RATE–1.8% | | | | | | | | | | | | |
Barclays Dryrock Issuance Trust
Series 2015-2, Class A
1.56%, 3/15/21 | | | | | | | 183 | | | | 182,855 | |
Synchrony Credit Card Master Note Trust
Series 2012-2, Class A
2.22%, 1/15/22 | | | | | | | 232 | | | | 232,299 | |
10
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2015-3, Class A
1.74%, 9/15/21 | | | U.S.$ | | | | 173 | | | $ | 172,782 | |
Series 2016-1, Class A
2.04%, 3/15/22 | | | | | | | 130 | | | | 129,940 | |
World Financial Network Credit Card Master Trust
Series 2016-B, Class A
1.44%, 6/15/22 | | | | | | | 137 | | | | 136,601 | |
Series 2017-B, Class A
1.98%, 6/15/23 | | | | | | | 110 | | | | 109,571 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 964,048 | |
| | | | | | | | | | | | |
AUTOS–FLOATING RATE–0.8% | | | | | | | | | |
BMW Floorplan Master Owner Trust
Series 2015-1A, Class A
1.977% (LIBOR 1 Month + 0.50%), 7/15/20(a)(d) | | | | | | | 214 | | | | 214,441 | |
Wells Fargo Dealer Floorplan Master Note Trust
Series 2015-1, Class A
2.001% (LIBOR 1 Month + 0.50%), 1/20/20(d) | | | | | | | 227 | | | | 227,052 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 441,493 | |
| | | | | | | | | | | | |
CREDIT CARDS–FLOATING RATE–0.8% | | | | | | | | | |
Discover Card Execution Note Trust
Series 2015-A1, Class A1
1.827% (LIBOR 1 Month + 0.35%), 8/17/20(d) | | | | | | | 263 | | | | 263,123 | |
World Financial Network Credit Card Master Trust
Series 2015-A, Class A
1.957% (LIBOR 1 Month + 0.48%), 2/15/22(d) | | | | | | | 150 | | | | 150,120 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 413,243 | |
| | | | | | | | | | | | |
HOME EQUITY LOANS–FIXED RATE–0.1% | | | | | | | | | |
Credit-Based Asset Servicing & Securitization LLC
Series 2003-CB1, Class AF
3.95%, 1/25/33(c) | | | | | | | 56 | | | | 56,749 | |
| | | | | | | | | | | | |
HOME EQUITY LOANS–FLOATING RATE–0.1% | | | | | | | | | |
Asset Backed Funding Certificates Trust
Series 2003-WF1, Class A2
2.677% (LIBOR 1 Month + 1.13%), 12/25/32(c)(d) | | | | | | | 29 | | | | 29,003 | |
| | | | | | | | | | | | |
Total Asset-Backed Securities
(cost $7,035,732) | | | | | | | | | | | 7,038,124 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
COMMERCIAL MORTGAGE-BACKED SECURITIES–9.7% | | | | | | | | | |
NON-AGENCY FIXED RATE CMBS–7.8% | | | | | | | | | |
Banc of America Commercial Mortgage Trust
Series 2007-5, Class AM
5.772%, 2/10/51(c) | | | U.S.$ | | | | 6 | | | $ | 5,977 | |
BHMS Commercial Mortgage Trust
Series 2014-ATLS, Class AFX
3.601%, 7/05/33(a) | | | | | | | 200 | | | | 200,352 | |
CCUBS Commercial Mortgage Trust
Series 2017-C1, Class A4
3.544%, 11/15/50 | | | | | | | 155 | | | | 159,279 | |
CFCRE Commercial Mortgage Trust
Series 2016-C4, Class A4
3.283%, 5/10/58 | | | | | | | 115 | | | | 115,561 | |
CGRBS Commercial Mortgage Trust
Series 2013-VN05, Class A
3.369%, 3/13/35(a) | | | | | | | 260 | | | | 265,628 | |
Citigroup Commercial Mortgage Trust
Series 2015-GC27, Class A5
3.137%, 2/10/48 | | | | | | | 144 | | | | 144,822 | |
Series 2015-GC35, Class A4
3.818%, 11/10/48 | | | | | | | 55 | | | | 57,735 | |
Series 2016-C1, Class A4
3.209%, 5/10/49 | | | | | | | 192 | | | | 193,646 | |
Series 2016-GC36, Class A5
3.616%, 2/10/49 | | | | | | | 65 | | | | 67,304 | |
Commercial Mortgage Trust
Series 2013-SFS, Class A1
1.873%, 4/12/35(a) | | | | | | | 75 | | | | 73,219 | |
Series 2014-UBS3, Class A4
3.819%, 6/10/47 | | | | | | | 130 | | | | 136,391 | |
Series 2014-UBS5, Class A4
3.838%, 9/10/47 | | | | | | | 130 | | | | 136,672 | |
Series 2015-CR24, Class A5
3.696%, 8/10/48 | | | | | | | 65 | | | | 67,907 | |
Series 2015-DC1, Class A5
3.35%, 2/10/48 | | | | | | | 80 | | | | 81,446 | |
CSAIL Commercial Mortgage Trust
Series 2015-C2, Class A4
3.504%, 6/15/57 | | | | | | | 100 | | | | 102,436 | |
11
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2015-C3, Class A4
3.718%, 8/15/48 | | | U.S.$ | | | | 117 | | | $ | 120,881 | |
Series 2015-C4, Class A4
3.808%, 11/15/48 | | | | | | | 215 | | | | 224,768 | |
GS Mortgage Securities Corp. II
Series 2013-KING, Class A
2.706%, 12/10/27(a) | | | | | | | 235 | | | | 236,014 | |
GS Mortgage Securities Trust
Series 2013-G1, Class A2
3.557%, 4/10/31(a) | | | | | | | 136 | | | | 134,564 | |
JP Morgan Chase Commercial Mortgage Securities Trust
Series 2006-LDP9, Class AM
5.372%, 5/15/47(c) | | | | | | | 37 | | | | 37,359 | |
Series 2012-C6, Class D
5.136%, 5/15/45(c) | | | | | | | 110 | | | | 109,928 | |
Series 2012-C6, Class E
5.136%, 5/15/45(a)(c) | | | | | | | 132 | | | | 117,299 | |
JPMBB Commercial Mortgage Securities Trust
Series 2014-C22, Class XA
0.92%, 9/15/47(e) | | | | | | | 2,855 | | | | 132,059 | |
Series 2015-C30, Class A5
3.822%, 7/15/48 | | | | | | | 65 | | | | 68,283 | |
Series 2015-C31, Class A3
3.801%, 8/15/48 | | | | | | | 195 | | | | 204,444 | |
LB-UBS Commercial Mortgage Trust
Series 2006-C6, Class AJ
5.452%, 9/15/39(c) | | | | | | | 40 | | | | 31,683 | |
LSTAR Commercial Mortgage Trust
Series 2016-4, Class A2
2.579%, 3/10/49(a) | | | | | | | 159 | | | | 156,608 | |
Morgan Stanley Capital I Trust
Series 2016-UB12, Class A4
3.596%, 12/15/49 | | | | | | | 100 | | | | 103,651 | |
UBS-Barclays Commercial Mortgage Trust
Series 2012-C4, Class A5
2.85%, 12/10/45 | | | | | | | 112 | | | | 112,475 | |
Wells Fargo Commercial Mortgage Trust
Series 2016-LC25, Class C
4.436%, 12/15/59(c) | | | | | | | 85 | | | | 84,011 | |
Series 2016-NXS6, Class C
4.31%, 11/15/49(c) | | | | | | | 100 | | | | 101,824 | |
WF-RBS Commercial Mortgage Trust
Series 2013-C11, Class XA
1.23%, 3/15/45(a)(e) | | | | | | | 1,344 | | | | 66,331 | |
Series 2013-C14, Class A5
3.337%, 6/15/46 | | | | | | | 132 | | | | 135,810 | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2014-C20, Class A2
3.036%, 5/15/47 | | | U.S.$ | | | | 125 | | | $ | 126,291 | |
| | | | | | | | | | | | |
NON-AGENCY FLOATING RATE CMBS–1.9% | | | | | | | | | | | 4,112,658 | |
| | | | | | | | | | | | |
BAMLL Commercial Mortgage Securities Trust
Series 2017-SCH, Class AF
2.25% (LIBOR 1 Month + 1.00%), 11/15/33(a)(c)(d) | | | | | | | 185 | | | | 185,143 | |
BX Trust
Series 2017-IMC, Class A
2.527% (LIBOR 1 Month + 1.05%), 10/15/32(a)(d) | | | | | | | 135 | | | | 135,211 | |
Credit Suisse Mortgage Trust
Series 2016-MFF, Class D
6.077% (LIBOR 1 Month + 4.60%), 11/15/33(a)(c)(d) | | | | | | | 100 | | | | 101,057 | |
Great Wolf Trust
Series 2017-WOLF, Class A
2.477% (LIBOR 1 Month + 0.85%), 9/15/34(a)(d) | | | | | | | 93 | | | | 93,058 | |
JP Morgan Chase Commercial Mortgage Securities Trust
Series 2015-SGP, Class A
3.177% (LIBOR 1 Month + 1.70%), 7/15/36(a)(d) | | | | | | | 122 | | | | 122,313 | |
Starwood Retail Property Trust
Series 2014-STAR, Class A
2.697% (LIBOR 1 Month + 1.22%), 11/15/27(a)(d) | | | | | | | 183 | | | | 183,145 | |
Waldorf Astoria Boca Raton Trust
Series 2016-BOCA, Class A
2.827% (LIBOR 1 Month + 1.35%), 6/15/29(a)(d) | | | | | | | 211 | | | | 211,326 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,031,253 | |
| | | | | | | | | | | | |
Total Commercial Mortgage-Backed Securities
(cost $5,194,650) | | | | | | | | | | | 5,143,911 | |
| | | | | | | | | | | | |
GOVERNMENTS–TREASURIES–9.4% | | | | | | | | | | | | |
UNITED STATES–9.4% | | | | | | | | | | | | |
U.S. Treasury Bonds
2.75%, 11/15/47 | | | | | | | 77 | | | | 77,144 | |
2.875%, 8/15/45–11/15/46 | | | | | | | 54 | | | | 54,879 | |
3.00%, 11/15/45–2/15/47 | | | | | | | 1,978 | | | | 2,076,824 | |
4.50%, 2/15/36 | | | | | | | 99 | | | | 127,447 | |
6.125%, 11/15/27 | | | | | | | 101 | | | | 133,857 | |
6.25%, 5/15/30 | | | | | | | 261 | | | | 366,347 | |
7.50%, 11/15/24 | | | | | | | 147 | | | | 195,189 | |
12
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
U.S. Treasury Notes
1.75%, 11/30/21 | | | U.S.$ | | | | 1,247 | | | $ | 1,229,659 | |
2.125%, 12/31/22 | | | | | | | 335 | | | | 333,639 | |
2.25%, 8/15/27 | | | | | | | 185 | | | | 182,398 | |
2.50%, 8/15/23 | | | | | | | 215 | | | | 217,956 | |
| | | | | | | | | | | | |
Total Governments–Treasuries
(cost $5,202,984) | | | | | | | | | | | 4,995,339 | |
| | | | | | | | | | | | |
COLLATERALIZED MORTGAGE OBLIGATIONS–8.1% | | | | | | | | | |
RISK SHARE FLOATING RATE–5.2% | | | | | | | | | | | | |
Bellemeade Re II Ltd.
Series 2016-1A, Class M2B
8.052% (LIBOR 1 Month + 6.50%), 4/25/26(d)(f) | | | | | | | 112 | | | | 114,230 | |
Bellemeade Re Ltd.
Series 2017-1, Class M1
3.252% (LIBOR 1 Month + 1.70%), 10/25/27(a)(d) | | | | | | | 137 | | | | 137,144 | |
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes
Series 2014-DN4, Class M3
6.102% (LIBOR 1 Month + 4.55%), 10/25/24(d) | | | | | | | 221 | | | | 244,148 | |
Series 2014-HQ3, Class M2
4.202% (LIBOR 1 Month + 2.65%), 10/25/24(d) | | | | | | | 10 | | | | 9,982 | |
Series 2015-DNA1, Class M3
4.852% (LIBOR 1 Month + 3.30%), 10/25/27(d) | | | | | | | 250 | | | | 280,068 | |
Series 2015-HQA1, Class M2
4.202% (LIBOR 1 Month + 2.65%), 3/25/28(d) | | | | | | | 135 | | | | 137,740 | |
Federal National Mortgage Association Connecticut Avenue Securities
Series 2014-C04, Class 1M2
6.452% (LIBOR 1 Month + 4.90%), 11/25/24(d) | | | | | | | 154 | | | | 176,088 | |
Series 2014-C04, Class 2M2
6.552% (LIBOR 1 Month + 5.00%), 11/25/24(d) | | | | | | | 51 | | | | 58,089 | |
Series 2015-C01, Class 1M2
5.852% (LIBOR 1 Month + 4.30%), 2/25/25(d) | | | | | | | 73 | | | | 79,266 | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2015-C01, Class 2M2
6.102% (LIBOR 1 Month + 4.55%), 2/25/25(d) | | | U.S.$ | | | | 62 | | | $ | 66,785 | |
Series 2015-C02, Class 1M2
5.552% (LIBOR 1 Month + 4.00%), 5/25/25(d) | | | | | | | 90 | | | | 97,633 | |
Series 2015-C02, Class 2M2
5.552% (LIBOR 1 Month + 4.00%), 5/25/25(d) | | | | | | | 102 | | | | 108,554 | |
Series 2015-C03, Class 1M2
6.552% (LIBOR 1 Month + 5.00%), 7/25/25(d) | | | | | | | 112 | | | | 126,067 | |
Series 2015-C03, Class 2M2
6.552% (LIBOR 1 Month + 5.00%), 7/25/25(d) | | | | | | | 93 | | | | 102,876 | |
Series 2015-C04, Class 1M2
7.252% (LIBOR 1 Month + 5.70%), 4/25/28(d) | | | | | | | 137 | | | | 157,995 | |
Series 2015-C04, Class 2M2
7.102% (LIBOR 1 Month + 5.55%), 4/25/28(d) | �� | | | | | | 128 | | | | 144,143 | |
Series 2016-C01, Class 1M2
8.302% (LIBOR 1 Month + 6.75%), 8/25/28(d) | | | | | | | 160 | | | | 190,231 | |
Series 2016-C01, Class 2M2
8.502% (LIBOR 1 Month + 6.95%), 8/25/28(d) | | | | | | | 92 | | | | 108,971 | |
Series 2016-C02, Class 1M2
7.552% (LIBOR 1 Month + 6.00%), 9/25/28(d) | | | | | | | 130 | | | | 154,322 | |
Series 2016-C03, Class 2M2
7.452% (LIBOR 1 Month + 5.90%), 10/25/28(d) | | | | | | | 148 | | | | 171,269 | |
Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 1M2
6.802% (LIBOR 1 Month + 5.25%), 11/25/25(d)(f) | | | | | | | 48 | | | | 54,142 | |
Series 2015-WF1, Class 2M2
7.052% (LIBOR 1 Month + 5.50%), 11/25/25(d)(f) | | | | | | | 20 | | | | 24,177 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,743,920 | |
| | | | | | | | | | | | |
13
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
AGENCY FLOATING RATE–1.4% | | | | | | | | | |
Federal National Mortgage Association REMICs
Series 2011-131, Class ST
4.988% (6.54%-LIBOR 1 Month), 12/25/41(d)(g) | | | U.S.$ | | | | 187 | | | $ | 38,159 | |
Series 2012-70, Class SA
4.998% (6.55%-LIBOR 1 Month), 7/25/42(d)(g) | | | | | | | 346 | | | | 73,937 | |
Series 2015-90, Class SL
4.598% (6.15%-LIBOR 1 Month), 12/25/45(d)(g) | | | | | | | 380 | | | | 69,259 | |
Series 2016-77, Class DS
4.448% (6.00%-LIBOR 1 Month), 10/25/46(d)(g) | | | | | | | 380 | | | | 71,441 | |
Series 2017-16, Class SG
4.498% (6.05%-LIBOR 1 Month), 3/25/47(d)(g) | | | | | | | 370 | | | | 73,462 | |
Series 2017-26, Class TS
4.398% (5.95%-LIBOR 1 Month), 4/25/47(d)(g) | | | | | | | 345 | | | | 70,343 | |
Series 2017-62, Class AS
4.598% (6.15%-LIBOR 1 Month), 8/25/47(d)(g) | | | | | | | 360 | | | | 71,395 | |
Series 2017-81, Class SA
4.648% (6.20%-LIBOR 1 Month), 10/25/47(d)(g) | | | | | | | 352 | | | | 73,536 | |
Series 2017-97, Class LS
4.648% (6.20%-LIBOR 1 Month), 12/25/47(d)(g) | | | | | | | 364 | | | | 77,200 | |
Government National Mortgage Association
Series 2017-134, Class SE
4.699% (6.20%-LIBOR 1 Month), 9/20/47(d)(g) | | | | | | | 297 | | | | 56,386 | |
Series 2017-65, Class ST
4.649% (6.15%-LIBOR 1 Month), 4/20/47(d)(g) | | | | | | | 350 | | | | 70,487 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 745,605 | |
| | | | | | | | | | | | |
NON-AGENCY FIXED RATE–1.2% | | | | | | | | | | | | |
Alternative Loan Trust
Series 2005-20CB, Class 3A6
5.50%, 7/25/35 | | | | | | | 21 | | | | 19,736 | |
Series 2005-57CB, Class 4A3
5.50%, 12/25/35 | | | | | | | 42 | | | | 37,636 | |
Series 2006-23CB, Class 1A7
6.00%, 8/25/36 | | | | | | | 26 | | | | 26,662 | |
Series 2006-24CB, Class A16
5.75%, 6/25/36 | | | | | | | 78 | | | | 65,046 | |
Series 2006-28CB, Class A14
6.25%, 10/25/36 | | | | | | | 54 | | | | 45,069 | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
Series 2006-9T1, Class A1
5.75%, 5/25/36 | | | U.S.$ | | | | 33 | | | $ | 26,112 | |
Series 2006-J1, Class 1A13
5.50%, 2/25/36 | | | | | | | 44 | | | | 40,326 | |
Chase Mortgage Finance Trust
Series 2007-S5, Class 1A17
6.00%, 7/25/37 | | | | | | | 26 | | | | 23,729 | |
Citigroup Mortgage Loan Trust, Inc.
Series 2005-2, Class 1A4
3.244%, 5/25/35 | | | | | | | 50 | | | | 50,203 | |
Countrywide Home Loan Mortgage Pass-Through Trust
Series 2006-10, Class 1A8
6.00%, 5/25/36 | | | | | | | 40 | | | | 34,605 | |
Series 2006-13, Class 1A19
6.25%, 9/25/36 | | | | | | | 23 | | | | 20,366 | |
First Horizon Alternative Mortgage Securities Trust
Series 2006-FA3, Class A9
6.00%, 7/25/36 | | | | | | | 65 | | | | 55,159 | |
JP Morgan Alternative Loan Trust
Series 2006-A3, Class 2A1
3.78%, 7/25/36 | | | | | | | 143 | | | | 127,252 | |
JP Morgan Mortgage Trust
Series 2007-S3, Class 1A8
6.00%, 8/25/37 | | | | | | | 36 | | | | 31,811 | |
Wells Fargo Mortgage Backed Securities Trust
Series 2007-8, Class 2A5
5.75%, 7/25/37 | | | | | | | 19 | | | | 19,383 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 623,095 | |
| | | | | | | | | | | | |
NON–AGENCY FLOATING RATE–0.2% | | | | | | | | | |
Deutsche Alt-A Securities Mortgage Loan Trust
Series 2006-AR4, Class A2
1.742% (LIBOR 1 Month + 0.19%), 12/25/36(d) | | | | | | | 150 | | | | 93,193 | |
HomeBanc Mortgage Trust
Series 2005-1, Class A1
1.802% (LIBOR 1 Month + 0.25%), 3/25/35(d) | | | | | | | 54 | | | | 48,214 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 141,407 | |
| | | | | | | | | | | | |
AGENCY FIXED RATE–0.1% | | | | | | | | | |
Federal National Mortgage Association Grantor Trust
Series 2004-T5, Class AB4
1.805%, 5/28/35(c) | | | | | | | 50 | | | | 46,791 | |
| | | | | | | | | | | | |
Total Collateralized Mortgage Obligations
(cost $4,103,808) | | | | | | | | | | | 4,300,818 | |
| | | | | | | | | | | | |
14
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
INFLATION–LINKED SECURITIES–6.2% | | | | | | | | | |
JAPAN–1.1% | | | | | | | | | | | | |
Japanese Government CPI Linked Bond
Series 2022
0.10%, 3/10/27 | | | JPY | | | | 59,919 | | | $ | 565,840 | |
| | | | | | | | | | | | |
UNITED STATES–5.1% | | | | | | | | | | | | |
U.S. Treasury Inflation Index
0.125%, 4/15/19–4/15/20 (TIPS) | | | U.S.$ | | | | 1,210 | | | | 1,206,775 | |
0.25%, 1/15/25 (TIPS) | | | | | | | 652 | | | | 645,925 | |
0.375%, 7/15/25 (TIPS) | | | | | | | 858 | | | | 859,339 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,712,039 | |
| | | | | | | | | | | | |
Total Inflation–Linked Securities
(cost $3,306,438) | | | | | | | | | | | 3,277,879 | |
| | | | | | | | | | | | |
CORPORATES–NON-INVESTMENT GRADE–3.5% | | | | | | | | | |
INDUSTRIAL–2.1% | | | | | | | | | | | | |
BASIC–0.2% | | | | | | | | | | | | |
NOVA Chemicals Corp.
5.25%, 8/01/23(a) | | | | | | | 74 | | | | 76,210 | |
| | | | | | | | | | | | |
COMMUNICATIONS–MEDIA–0.3% | | | | | | | | | |
CSC Holdings LLC
6.75%, 11/15/21 | | | | | | | 30 | | | | 32,177 | |
SFR Group SA
5.375%, 5/15/22(a) | | | EUR | | | | 120 | | | | 148,396 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 180,573 | |
| | | | | | | | | | | | |
COMMUNICATIONS–TELECOMMUNICATIONS–0.8% | | | | | |
Arqiva Broadcast Finance PLC
9.50%, 3/31/20(a) | | | GBP | | | | 100 | | | | 140,394 | |
CenturyLink, Inc.
Series Y
7.50%, 4/01/24 | | | U.S.$ | | | | 14 | | | | 13,974 | |
Sprint Capital Corp.
6.90%, 5/01/19 | | | | | | | 210 | | | | 219,257 | |
Windstream Services LLC/Windstream Finance Corp.
6.375%, 8/01/23 | | | | | | | 80 | | | | 49,118 | |
| | | | | | | | | | | | |
| | | | 422,743 | |
| | | | | | | | | | | | |
CONSUMER CYCLICAL–OTHER–0.1% | | | | | | | | | | | | |
KB Home
4.75%, 5/15/19 | | | | | | | 63 | | | | 64,119 | |
| | | | | | | | | | | | |
CONSUMER NON-CYCLICAL–0.2% | | | | | | | | | | | | |
First Quality Finance Co., Inc.
4.625%, 5/15/21(a) | | | | | | | 85 | | | | 85,507 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
ENERGY–0.4% | |
Diamond Offshore Drilling, Inc.
4.875%, 11/01/43 | | | U.S.$ | | | | 68 | | | $ | 49,640 | |
Nabors Industries, Inc.
5.50%, 1/15/23 | | | | | | | 113 | | | | 109,739 | |
PDC Energy, Inc.
5.75%, 5/15/26(a) | | | | | | | 46 | | | | 47,108 | |
SM Energy Co.
6.50%, 1/01/23 | | | | | | | 9 | | | | 9,177 | |
| | | | | | | | | | | | |
| | | | 215,664 | |
| | | | | | | | | | | | |
TRANSPORTATION–SERVICES–0.1% | | | | | | | | | | | | |
Avis Budget Car Rental LLC/Avis Budget Finance, Inc.
5.25%, 3/15/25(a) | | | | | | | 52 | | | | 51,499 | |
| | | | | | | | | | | | |
| | | | 1,096,315 | |
| | | | | | | | | | | | |
FINANCIAL INSTITUTIONS–1.4% | | | | | | | | | |
BANKING–1.2% | | | | | | | | | | | | |
Bank of America Corp.
Series Z
6.50%, 10/23/24(b) | | | | | | | 49 | | | | 55,619 | |
Barclays Bank PLC
6.86%, 6/15/32(a)(b) | | | | | | | 29 | | | | 34,945 | |
Goldman Sachs Group, Inc. (The)
Series P
5.00%, 11/10/22(b) | | | | | | | 74 | | | | 73,201 | |
Intesa Sanpaolo SpA
Series E
3.928%, 9/15/26(a) | | | EUR | | | | 100 | | | | 131,514 | |
Lloyds Banking Group PLC
7.50%, 6/27/24(b) | | | U.S.$ | | | | 200 | | | | 226,518 | |
Royal Bank of Scotland Group PLC
2.001% (EURIBOR 3 Month + 2.33%), 3/31/18(a)(b)(d) | | | EUR | | | | 50 | | | | 59,189 | |
Standard Chartered PLC
2.888% (LIBOR 3 Month + 1.51%), 1/30/27(a)(b)(d) | | | U.S.$ | | | | 100 | | | | 93,829 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 674,815 | |
| | | | | | | | | | | | |
FINANCE–0.2% | | | | | | | | | | | | |
Navient Corp.
6.625%, 7/26/21 | | | | | | | 95 | | | | 100,338 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 775,153 | |
| | | | | | | | | | | | |
Total Corporates–Non-Investment Grade
(cost $1,903,255) | | | | | | | | | | | 1,871,468 | |
| | | | | | | | | | | | |
AGENCIES–3.0% | | | | | | | | | |
AGENCY DEBENTURES–3.0% | | | | | | | | | |
Residual Funding Corp. Principal Strip
Zero Coupon, 7/15/20
(cost $1,520,451) | | | | | | | 1,677 | | | | 1,583,373 | |
| | | | | | | | | | | | |
15
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | |
Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | | | | | |
EMERGING MARKETS–TREASURIES–0.9% | | | | | | | | | |
ARGENTINA–0.2% | | | | | | | | | | | | |
Argentina POM Politica Monetaria
Series POM
27.277% (ARPP7DRR + 0.00%), 6/21/20(d) | | | ARS | | | | 1,745 | | | $ | 100,549 | |
| | | | | | | | | | | | |
BRAZIL–0.7% | | | | | | | | | | | | |
Brazil Notas do Tesouro Nacional
Series F
10.00%, 1/01/27 | | | BRL | | | | 1,300 | | | | 387,706 | |
| | | | | | | | | | | | |
Total Emerging Markets–Treasuries
(cost $430,811) | | | | | | | | | | | 488,255 | |
| | | | | | | | | | | | |
QUASI-SOVEREIGNS–0.7% | | | | | | | | | |
QUASI-SOVEREIGN BONDS–0.7% | | | | | | | | | |
CHILE–0.4% | | | | | | | | | | | | |
Corp. Nacional del Cobre de Chile
3.625%, 8/01/27(a) | | | U.S.$ | | | | 200 | | | | 200,216 | |
| | | | | | | | | | | | |
MEXICO–0.3% | |
Petroleos Mexicanos
4.625%, 9/21/23 | | | | | | | 120 | | | | 123,450 | |
6.50%, 3/13/27(a) | | | | | | | 50 | | | | 54,750 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 178,200 | |
| | | | | | | | | | | | |
Total Quasi-Sovereigns
(cost $369,963) | | | | | | | | | | | 378,416 | |
| | | | | | | | | | | | |
LOCAL GOVERNMENTS–US MUNICIPAL BONDS–0.6% | | | | | | | | | |
UNITED STATES–0.6% | | | | | | | | | | | | |
State of California
Series 2010
7.625%, 3/01/40
(cost $203,076) | | | | | | | 200 | | | | 312,890 | |
| | | | | | | | | | | | |
EMERGING MARKETS–CORPORATE BONDS–0.3% | | | | | | | | | |
INDUSTRIAL–0.3% | | | | | | | | | | | | |
CAPITAL GOODS–0.1% | | | | | | | | | | | | |
Odebrecht Finance Ltd.
7.125%, 6/26/42(a) | | | | | | | 200 | | | | 60,500 | |
| | | | | | | | | | | | |
ENERGY–0.2% | | | | | | | | | | | | |
Petrobras Global Finance BV
6.125%, 1/17/22 | | | | | | | 3 | | | | 3,184 | |
6.25%, 3/17/24 | | | | | | | 63 | | | | 66,701 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 69,885 | |
| | | | | | | | | | | | |
Total Emerging Markets–Corporate Bonds
(cost $129,328) | | | | | | | | | | | 130,385 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Company | |
Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
PREFERRED STOCKS–0.2% | | | | | | | | | |
FINANCIAL INSTITUTIONS–0.2% | | | | | | | | | |
REITS–0.2% | | | | | | | | | |
Sovereign Real Estate Investment Trust
12.00%(a)
(cost $87,658) | | | | | | | 93 | | | $ | 116,250 | |
| | | | | | | | | | | | |
| | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–13.6% | | | | | | | | | |
AGENCY DISCOUNT NOTE–5.2% | | | | | | | | | |
Federal Home Loan Bank Discount Notes
Zero Coupon, 1/05/18–2/21/18
(cost $2,766,950) | | | U.S.$ | | | | 2,770 | | | | 2,766,950 | |
| | | | | | | | | | | | |
GOVERNMENTS–TREASURIES–5.0% | | | | | | | | | | | | |
JAPAN–5.0% | | | | | | | | | | | | |
Japan Treasury Discount Bill
Series 729
Zero Coupon, 4/05/18
(cost $2,646,668) | | | JPY | | | | 300,000 | | | | 2,663,816 | |
| | | | | | | | | | | | |
TIME DEPOSIT–3.4% | | | | | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $1,793,588) | | | U.S.$ | | | | 1,794 | | | | 1,793,588 | |
| | | | | | | | | | | | |
Total Short-Term Investments
(cost $7,207,206) | | | | | | | | | | | 7,224,354 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–111.4%
(cost $58,391,827) | | | | | | | | | | | 58,999,382 | |
Other assets less liabilities–(11.4)% | | | | | | | | | | | (6,041,100 | ) |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | | | | | $ | 52,958,282 | |
| | | | | | | | | | | | |
16
| | |
| | | AB Variable Products Series Fund |
FUTURES (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Description | | Number of
Contracts | | | Expiration
Month | | | Notional
(000) | | | Original
Value | | | Value at
December 31,
2017 | | | Unrealized
Appreciation/
(Depreciation) | |
Purchased Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
U.S. T-Note 5 Yr (CBT) Futures | | | 59 | | | | March 2018 | | | | USD | | | | 5,900 | | | $ | 6,887,316 | | | $ | 6,853,680 | | | $ | (33,636 | ) |
U.S. Ultra Bond (CBT) Futures | | | 15 | | | | March 2018 | | | | USD | | | | 1,500 | | | | 2,493,420 | | | | 2,514,844 | | | | 21,424 | |
| | | | | | | |
Sold Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
10 Yr Mini Japan Government Bond Futures | | | 5 | | | | March 2018 | | | | JPY | | | | 50,000 | | | | 669,286 | | | | 669,359 | | | | (73 | ) |
Euro-BOBL Futures | | | 25 | | | | March 2018 | | | | EUR | | | | 2,500 | | | | 3,968,964 | | | | 3,947,804 | | | | 21,160 | |
U.S. T-Note 2 Yr (CBT) Futures | | | 21 | | | | March 2018 | | | | USD | | | | 4,200 | | | | 4,502,835 | | | | 4,496,297 | | | | 6,538 | |
U.S. T-Note 10 Yr (CBT) Futures | | | 10 | | | | March 2018 | | | | USD | | | | 1,000 | | | | 1,247,157 | | | | 1,240,469 | | | | 6,688 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | $ | 22,101 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | | BRL | | | | 670 | | | | USD | | | | 202 | | | | 1/03/18 | | | $ | 555 | |
Bank of America, NA | | | USD | | | | 203 | | | | BRL | | | | 670 | | | | 1/03/18 | | | | (1,344 | ) |
Bank of America, NA | | | CHF | | | | 1,049 | | | | USD | | | | 1,069 | | | | 1/22/18 | | | | (8,501 | ) |
Bank of America, NA | | | BRL | | | | 329 | | | | USD | | | | 99 | | | | 2/02/18 | | | | 116 | |
Citibank, NA | | | USD | | | | 69 | | | | KRW | | | | 77,116 | | | | 1/18/18 | | | | 3,027 | |
Citibank, NA | | | CZK | | | | 34,955 | | | | USD | | | | 1,618 | | | | 1/19/18 | | | | (24,665 | ) |
Citibank, NA | | | USD | | | | 158 | | | | RUB | | | | 9,632 | | | | 1/25/18 | | | | 8,105 | |
Citibank, NA | | | USD | | | | 112 | | | | CNY | | | | 743 | | | | 2/07/18 | | | | 1,780 | |
Citibank, NA | | | USD | | | | 133 | | | | PEN | | | | 436 | | | | 2/07/18 | | | | 1,805 | |
Deutsche Bank AG | | | BRL | | | | 670 | | | | USD | | | | 207 | | | | 1/03/18 | | | | 5,515 | |
Deutsche Bank AG | | | USD | | | | 202 | | | | BRL | | | | 670 | | | | 1/03/18 | | | | (555 | ) |
Goldman Sachs Bank USA | | | USD | | | | 1,625 | | | | CZK | | | | 34,955 | | | | 1/19/18 | | | | 18,347 | |
Goldman Sachs Bank USA | | | BRL | | | | 143 | | | | USD | | | | 43 | | | | 2/02/18 | | | | 75 | |
HSBC Bank USA | | | USD | | | | 102 | | | | CNY | | | | 679 | | | | 2/07/18 | | | | 1,579 | |
HSBC Bank USA | | | EUR | | | | 155 | | | | PLN | | | | 655 | | | | 3/09/18 | | | | 1,061 | |
JPMorgan Chase Bank, NA | | | TWD | | | | 6,441 | | | | USD | | | | 216 | | | | 2/07/18 | | | | (1,976 | ) |
Royal Bank of Scotland PLC | | | JPY | | | | 320,000 | | | | USD | | | | 2,823 | | | | 1/25/18 | | | | (19,581 | ) |
Standard Chartered Bank | | | USD | | | | 149 | | | | KRW | | | | 163,435 | | | | 1/18/18 | | | | 4,264 | |
Standard Chartered Bank | | | EUR | | | | 902 | | | | USD | | | | 1,072 | | | | 1/22/18 | | | | (12,029 | ) |
State Street Bank & Trust Co. | | | CAD | | | | 452 | | | | USD | | | | 356 | | | | 1/18/18 | | | | (4,230 | ) |
State Street Bank & Trust Co. | | | KRW | | | | 240,509 | | | | USD | | | | 212 | | | | 1/18/18 | | | | (12,996 | ) |
State Street Bank & Trust Co. | | | USD | | | | 195 | | | | CAD | | | | 245 | | | | 1/18/18 | | | | (790 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 47,906 | | | | USD | | | | 424 | | | | 1/25/18 | | | | (1,984 | ) |
State Street Bank & Trust Co. | | | GBP | | | | 202 | | | | USD | | | | 271 | | | | 2/02/18 | | | | (1,616 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 17,001 | | | | USD | | | | 151 | | | | 2/09/18 | | | | 302 | |
State Street Bank & Trust Co. | | | USD | | | | 109 | | | | MXN | | | | 2,085 | | | | 2/22/18 | | | | (4,019 | ) |
State Street Bank & Trust Co. | | | AUD | | | | 45 | | | | USD | | | | 34 | | | | 3/07/18 | | | | (937 | ) |
State Street Bank & Trust Co. | | | NZD | | | | 167 | | | | USD | | | | 115 | | | | 3/07/18 | | | | (2,861 | ) |
State Street Bank & Trust Co. | | | EUR | | | | 638 | | | | USD | | | | 755 | | | | 3/12/18 | | | | (13,400 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (64,953 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
17
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Rate Type | | | | | | | | | | | | |
Notional
Amount (000) | | | Termination
Date | | | Payments
made
by the
Fund | | | Payments
received
by the
Fund | | | Payment
Frequency
Paid/
Received | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
| GBP | | | 4,950 | | | | 11/07/19 | | | | 6 Month LIBOR | | | | 0.790% | | | Semi-Annual/
Semi-Annual | | $ | 4,228 | | | $ | (34 | ) | | $ | 4,262 | |
| USD | | | 2,580 | | | | 11/14/19 | | | | 1.863% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | 7,276 | | | | –0 | – | | | 7,276 | |
| SEK | | | 4,830 | | | | 3/31/22 | | | | 3 Month STIBOR | | | | 0.341% | | | Quarterly/Annual | | | 1,244 | | | | 2 | | | | 1,242 | |
| NZD | | | 1,015 | | | | 3/31/22 | | | | 3 Month BKBM | | | | 2.936% | | | Quarterly/
Semi-Annual | | | 12,061 | | | | –0 | – | | | 12,061 | |
| GBP | | | 940 | | | | 11/07/22 | | | | 1.032% | | | | 6 Month LIBOR | | | Semi-Annual/
Semi-Annual | | | (1,219 | ) | | | 15 | | | | (1,234 | ) |
| USD | | | 530 | | | | 1/14/24 | | | | 2.980% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | (26,487 | ) | | | –0 | – | | | (26,487 | ) |
| USD | | | 650 | | | | 4/28/24 | | | | 2.817% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | (21,425 | ) | | | –0 | – | | | (21,425 | ) |
| USD | | | 740 | | | | 11/10/25 | | | | 2.256% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | 4,317 | | | | –0 | – | | | 4,317 | |
| USD | | | 80 | | | | 6/28/26 | | | | 1.460% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | 5,700 | | | | –0 | – | | | 5,700 | |
| USD | | | 175 | | | | 11/08/26 | | | | 1.657% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | 9,897 | | | | –0 | – | | | 9,897 | |
| USD | | | 200 | | | | 11/09/26 | | | | 1.672% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | 11,075 | | | | –0 | – | | | 11,075 | |
| USD | | | 105 | | | | 4/26/27 | | | | 2.287% | | | | 3 Month LIBOR | | | Semi-Annual/
Quarterly | | | 832 | | | | –0 | – | | | 832 | |
| USD | | | 260 | | | | 7/12/27 | | | | 2.355% | | | | 3 Month LIBOR | | | Semi-Annual/ Quarterly | | | (920 | ) | | | –0 | – | | | (920 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | $ | 6,579 | | | $ | (17 | ) | | $ | 6,596 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CREDIT DEFAULT SWAPS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Buy Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Citibank, NA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | | | (5.00 | )% | | | Quarterly | | | | 0.82 | % | | | USD | | | | 98 | | | $ | (5,893 | ) | | $ | (1,765 | ) | | $ | (4,128 | ) |
Sprint Communications, Inc.,
7.000%, 8/15/20, 6/20/19* | | | (5.00 | ) | | | Quarterly | | | | 0.82 | | | | USD | | | | 112 | | | | (6,736 | ) | | | (2,092 | ) | | | (4,644 | ) |
Citigroup Global Markets, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 3 | | | | (6 | ) | | | 38 | | | | (44 | ) |
Credit Suisse International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 330 | | | | (626 | ) | | | 4,193 | | | | (4,819 | ) |
18
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
CDX-CMBX.NA.AAA
Series 9,9/17/58* | | | (0.50 | ) % | | | Monthly | | | | 0.47 | % | | | USD | | | | 4 | | | $ | (8 | ) | | $ | 37 | | | $ | (45 | ) |
CDX-CMBX.NA.BBB-
Series 7, 1/17/47* | | | (3.00 | ) | | | Monthly | | | | 5.47 | | | | USD | | | | 350 | | | | 40,676 | | | | 22,863 | | | | 17,813 | |
Deutsche Bank AG | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 42 | | | | (80 | ) | | | 575 | | | | (655 | ) |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 122 | | | | (231 | ) | | | 1,300 | | | | (1,531 | ) |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 408 | | | | (774 | ) | | | 4,385 | | | | (5,159 | ) |
Goldman Sachs International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 27 | | | | (51 | ) | | | 260 | | | | (311 | ) |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 46 | | | | (87 | ) | | | 625 | | | | (712 | ) |
Morgan Stanley Capital Services LLC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.AAA Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 50 | | | | (116 | ) | | | 661 | | | | (777 | ) |
CDX-CMBX.NA.AAA
Series 9, 9/17/58* | | | (0.50 | ) | | | Monthly | | | | 0.47 | | | | USD | | | | 99 | | | | (229 | ) | | | 1,309 | | | | (1,538 | ) |
| | | | | | | | |
Sale Contracts | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Citigroup Global Markets, Inc. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 32 | | | | (4,663 | ) | | | (4,437 | ) | | | (226 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 60 | | | | (8,743 | ) | | | (8,517 | ) | | | (226 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 31 | | | | (4,523 | ) | | | (4,976 | ) | | | 453 | |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 52 | | | | (7,582 | ) | | | (8,103 | ) | | | 521 | |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 5 | | | | (729 | ) | | | (842 | ) | | | 113 | |
Credit Suisse International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 318 | | | | (46,365 | ) | | | (13,602 | ) | | | (32,763 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 350 | | | | (51,001 | ) | | | (21,178 | ) | | | (29,823 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 94 | | | | (13,697 | ) | | | (6,358 | ) | | | (7,339 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 28 | | | | (4,080 | ) | | | (2,024 | ) | | | (2,056 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 56 | | | | (8,165 | ) | | | (8,686 | ) | | | 521 | |
Deutsche Bank AG | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.A
Series 6, 5/11/63* | | | 2.00 | | | | Monthly | | | | 3.00 | | | | USD | | | | 135 | | | | (5,955 | ) | | | (2,761 | ) | | | (3,194 | ) |
19
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | % | | | Monthly | | | | 6.80 | % | | | USD | | | | 132 | | | $ | (19,235 | ) | | $ | (9,673 | ) | | $ | (9,562 | ) |
CDX-CMBX.NA.BBB-
Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 85 | | | | (12,386 | ) | | | (7,310 | ) | | | (5,076 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 8 | | | | (1,165 | ) | | | (980 | ) | | | (185 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 51 | | | | (7,431 | ) | | | (6,719 | ) | | | (712 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 28 | | | | (4,080 | ) | | | (3,349 | ) | | | (731 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 27 | | | | (3,935 | ) | | | (3,228 | ) | | | (707 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 84 | | | | (12,241 | ) | | | (9,462 | ) | | | (2,779 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 8 | | | | (1,166 | ) | | | (480 | ) | | | (686 | ) |
Goldman Sachs International | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 125 | | | | (18,215 | ) | | | (10,405 | ) | | | (7,810 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 185 | | | | (26,957 | ) | | | (14,787 | ) | | | (12,170 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 49 | | | | (7,140 | ) | | | (4,427 | ) | | | (2,713 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 4 | | | | (583 | ) | | | (375 | ) | | | (208 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 8 | | | | (1,165 | ) | | | (763 | ) | | | (402 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 8 | | | | (1,166 | ) | | | (826 | ) | | | (340 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 16 | | | | (2,331 | ) | | | (1,806 | ) | | | (525 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 41 | | | | (5,974 | ) | | | (5,834 | ) | | | (140 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 92 | | | | (13,406 | ) | | | (12,753 | ) | | | (653 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 57 | | | | (8,305 | ) | | | (6,349 | ) | | | (1,956 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 246 | | | | (35,847 | ) | | | (12,579 | ) | | | (23,268 | ) |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 39 | | | | (5,690 | ) | | | (6,761 | ) | | | 1,071 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 4 | | | | (583 | ) | | | (635 | ) | | | 52 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 28 | | | | (4,085 | ) | | | (4,785 | ) | | | 700 | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | | | | Monthly | | | | 6.80 | | | | USD | | | | 34 | | | | (4,960 | ) | | | (5,465 | ) | | | 505 | |
20
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Swap Counterparty &
Referenced Obligation | | Fixed
Rate
(Pay)
Receive | | | Payment
Frequency | | | Implied
Credit
Spread at
December 31,
2017 | | | Notional
Amount
(000) | | | Market
Value | | | Upfront
Premiums
Paid
(Received) | | | Unrealized
Appreciation/
(Depreciation) | |
Morgan Stanley Capital Services LLC | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | | | 3.00 | % | | | Monthly | | | | 6.80 | % | | | USD | | | | 35 | | | $ | (5,101 | ) | | $ | (2,581 | ) | | $ | (2,520 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | (332,811 | ) | | $ | (181,427 | ) | | $ | (151,384 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2017, the aggregate market value of these securities amounted to $9,510,966 or 18.0% of net assets. |
| (b) | | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
| (c) | | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
| (d) | | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at December 31, 2017. |
| (f) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.37% of net assets as of December 31, 2017, are considered illiquid and restricted. Additional information regarding such securities follows: |
| | | | | | | | | | | | | | | | |
144A/Restricted & Illiquid
Securities | | Acquisition
Date | | | Cost | | | Market
Value | | | Percentage
of
Net Assets | |
Bellemeade Re II Ltd.
Series 2016-1A, Class M2B
8.052%, 4/25/26 | | | 4/29/16 | | | $ | 111,731 | | | $ | 114,230 | | | | 0.22 | % |
Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 1M2
6.802%, 11/25/25 | | | 9/28/15 | | | | 47,832 | | | | 54,142 | | | | 0.10 | % |
Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 2M2
7.052%, 11/25/25 | | | 9/28/15 | | | | 20,384 | | | | 24,177 | | | | 0.05 | % |
| (g) | | Inverse interest only security. |
Currency Abbreviations:
ARS—Argentine Peso
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
CZK—Czech Koruna
EUR—Euro
GBP—Great British Pound
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NZD—New Zealand Dollar
PEN—Peruvian Sol
PLN—Polish Zloty
RUB—Russian Ruble
SEK—Swedish Krona
TRY—Turkish Lira
TWD—New Taiwan Dollar
USD—United States Dollar
21
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Glossary:
ABS—Asset-Backed Securities
ARPP7DRR—Argentina Central Bank 7-Day Repo Reference Rate
BA—Banker’s Acceptance
BKBM—Bank Bill Benchmark (New Zealand)
BOBL—Bundesobligationen
CBT—Chicago Board of Trade
CDX-CMBX.NA—North American Commercial Mortgage-Backed Index
CMBS—Commercial Mortgage-Backed Securities
CPI—Consumer Price Index
EURIBOR—Euro Interbank Offered Rate
LIBOR—London Interbank Offered Rates
REIT—Real Estate Investment Trust
REMICs—Real Estate Mortgage Investment Conduits
STIBOR—Stockholm Interbank Offered Rate
TBA—To Be Announced
TIPS—Treasury Inflation Protected Security
See notes to financial statements.
22
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value (cost $58,391,827) | | $ | 58,999,382 | |
Cash collateral due from broker | | | 191,626 | |
Foreign currencies, at value (cost $2,133,757) | | | 2,166,396 | |
Interest receivable | | | 249,792 | |
Receivable for capital stock sold | | | 65,314 | |
Unrealized appreciation on forward currency exchange contracts | | | 46,531 | |
Upfront premiums paid on credit default swaps | | | 36,246 | |
Unrealized appreciation on credit default swaps | | | 21,749 | |
Receivable for variation margin on futures | | | 8,361 | |
Receivable for investment securities sold | | | 7,813 | |
| | | | |
Total assets | | | 61,793,210 | |
| | | | |
LIABILITIES | | | | |
Due to custodian | | | 5,315 | |
Payable for investment securities purchased | | | 8,148,281 | |
Upfront premiums received on credit default swaps | | | 217,673 | |
Unrealized depreciation on credit default swaps | | | 173,133 | |
Unrealized depreciation on forward currency exchange contracts | | | 111,484 | |
Advisory fee payable | | | 20,281 | |
Administrative fee payable | | | 13,644 | |
Payable for variation margin on exchange traded swaps | | | 7,374 | |
Distribution fee payable | | | 3,156 | |
Payable for capital stock redeemed | | | 1,662 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 132,828 | |
| | | | |
Total liabilities | | | 8,834,928 | |
| | | | |
NET ASSETS | | $ | 52,958,282 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 5,030 | |
Additional paid-in capital | | | 51,073,637 | |
Undistributed net investment income | | | 788,345 | |
Accumulated net realized gain on investment and foreign currency transactions | | | 641,790 | |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 449,480 | |
| | | | |
| | $ | 52,958,282 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 38,172,191 | | | | 3,614,560 | | | $ | 10.56 | |
| B | | $ | 14,786,091 | | | | 1,415,189 | | | $ | 10.45 | |
See notes to financial statements.
23
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Interest | | $ | 1,775,697 | |
Dividends | | | 11,317 | |
Other income | | | 3,971 | |
| | | | |
| | | 1,790,985 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 250,190 | |
Distribution fee—Class B | | | 39,026 | |
Transfer agency—Class A | | | 4,017 | |
Transfer agency—Class B | | | 1,572 | |
Custodian | | | 136,570 | |
Audit and tax | | | 80,220 | |
Administrative | | | 53,914 | |
Directors’ fees | | | 28,561 | |
Legal | | | 27,994 | |
Printing | | | 25,790 | |
Miscellaneous | | | 6,484 | |
| | | | |
Total expenses | | | 654,338 | |
| | | | |
Net investment income | | | 1,136,647 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain (loss) on: | | | | |
Investment transactions | | | 331,327 | |
Forward currency exchange contracts | | | (129,911 | ) |
Futures | | | 139,638 | |
Swaps | | | 135,268 | |
Swaptions written | | | 9,636 | |
Foreign currency transactions | | | (157,397 | ) |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 619,630 | |
Forward currency exchange contracts | | | (90,036 | ) |
Futures | | | 67,221 | |
Swaps | | | (177,048 | ) |
Swaptions written | | | (5,271 | ) |
Foreign currency denominated assets and liabilities | | | 30,411 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 773,468 | |
| | | | |
Contributions from Affiliates (see Note B) | | | 286 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 1,910,401 | |
| | | | |
See notes to financial statements.
24
| | |
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 1,136,647 | | | $ | 1,592,498 | |
Net realized gain on investment and foreign currency transactions | | | 328,561 | | | | 725,272 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 444,907 | | | | 653,981 | |
Contributions from Affiliates (see Note B) | | | 286 | | | | –0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 1,910,401 | | | | 2,971,751 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (1,298,457 | ) | | | (1,406,468 | ) |
Class B | | | (477,217 | ) | | | (466,376 | ) |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | (377,042 | ) | | | (589,257 | ) |
Class B | | | (150,631 | ) | | | (215,377 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net decrease | | | (4,860,694 | ) | | | (7,317,811 | ) |
| | | | | | | | |
Total decrease | | | (5,253,640 | ) | | | (7,023,538 | ) |
NET ASSETS | | | | | | | | |
Beginning of period | | | 58,211,922 | | | | 65,235,460 | |
| | | | | | | | |
End of period (including undistributed net investment income of $788,345 and $1,728,835, respectively) | | $ | 52,958,282 | | | $ | 58,211,922 | |
| | | | | | | | |
See notes to financial statements.
25
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Intermediate Bond Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
26
| | |
| | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss
27
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Mortgage Pass-Throughs | | $ | –0 | – | | $ | 11,151,779 | | | $ | –0 | – | | $ | 11,151,779 | |
Corporates—Investment Grade | | | –0 | – | | | 10,986,141 | | | | –0 | – | | | 10,986,141 | |
Asset-Backed Securities | | | –0 | – | | | 5,628,160 | | | | 1,409,964 | | | | 7,038,124 | |
Commercial Mortgage-Backed Securities | | | –0 | – | | | 4,369,630 | | | | 774,281 | | | | 5,143,911 | |
Governments—Treasuries | | | –0 | – | | | 4,995,339 | | | | –0 | – | | | 4,995,339 | |
Collateralized Mortgage Obligations | | | –0 | – | | | 4,254,027 | | | | 46,791 | | | | 4,300,818 | |
Inflation-Linked Securities | | | –0 | – | | | 3,277,879 | | | | –0 | – | | | 3,277,879 | |
Corporates—Non-Investment Grade | | | –0 | – | | | 1,871,468 | | | | –0 | – | | | 1,871,468 | |
Agencies | | | –0 | – | | | 1,583,373 | | | | –0 | – | | | 1,583,373 | |
Emerging Markets—Treasuries | | | –0 | – | | | 488,255 | | | | –0 | – | | | 488,255 | |
Quasi-Sovereigns | | | –0 | – | | | 378,416 | | | | –0 | – | | | 378,416 | |
Local Governments—US Municipal Bonds | | | –0 | – | | | 312,890 | | | | –0 | – | | | 312,890 | |
Emerging Markets—Corporate Bonds | | | –0 | – | | | 130,385 | | | | –0 | – | | | 130,385 | |
Preferred Stocks | | | –0 | – | | | 116,250 | | | | –0 | – | | | 116,250 | |
Short-Term Investments: | | | | | | | | | | | | | | | | |
Agency Discount Notes | | | –0 | – | | | 2,766,950 | | | | –0 | – | | | 2,766,950 | |
Governments—Treasuries | | | –0 | – | | | 2,663,816 | | | | –0 | – | | | 2,663,816 | |
Time Deposits | | | –0 | – | | | 1,793,588 | | | | –0 | – | | | 1,793,588 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | –0 | – | | | 56,768,346 | | | | 2,231,036 | | | | 58,999,382 | |
Other Financial Instruments(a): | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Futures | | | 55,810 | | | | –0 | – | | | –0 | – | | | 55,810 | (b) |
Forward Currency Exchange Contracts | | | –0 | – | | | 46,531 | | | | –0 | – | | | 46,531 | |
Centrally Cleared Interest Rate Swaps | | | –0 | – | | | 56,630 | | | | –0 | – | | | 56,630 | (b) |
Credit Default Swaps | | | –0 | – | | | 40,676 | | | | –0 | – | | | 40,676 | |
Liabilities: | | | | | | | | | | | | | | | | |
Futures | | | (33,709 | ) | | | –0 | – | | | –0 | – | | | (33,709 | )(b) |
Forward Currency Exchange Contracts | | | –0 | – | | | (111,484 | ) | | | –0 | – | | | (111,484 | ) |
Centrally Cleared Interest Rate Swaps | | | –0 | – | | | (50,051 | ) | | | –0 | – | | | (50,051 | )(b) |
Credit Default Swaps | | | –0 | – | | | (373,487 | ) | | | –0 | – | | | (373,487 | ) |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 22,101 | | | $ | 56,377,161 | | | $ | 2,231,036 | | | $ | 58,630,298 | |
| | | | | | | | | | | | | | | | |
| (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. |
28
| | |
| | | AB Variable Products Series Fund |
| (b) | | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. Exchange-traded swaps with upfront premiums are presented here as market value. |
| (c) | | There were no transfers between Level 1 and Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
| | | | | | | | | | | | |
| | | Asset-Backed
Securities | | | Commercial
Mortgage-
Backed
Securities | | | Collateralized
Mortgage
Obligations | |
Balance as of 12/31/16 | | $ | 699,392 | | | $ | 1,500,896 | | | $ | –0 | – |
Accrued discounts/(premiums) | | | 56 | | | | (379 | ) | | | –0 | – |
Realized gain (loss) | | | 3,692 | | | | (47,808 | ) | | | –0 | – |
Change in unrealized appreciation/depreciation | | | 2,120 | | | | 43,593 | | | | 2,335 | |
Purchases/Payups | | | 1,214,552 | | | | 185,000 | | | | –0 | – |
Sales/Paydowns | | | (509,848 | ) | | | (907,021 | ) | | | –0 | – |
Transfers in to Level 3 | | | –0 | – | | | –0 | – | | | 44,456 | |
Transfers out of Level 3 | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | |
Balance as of 12/31/17 | | $ | 1,409,964 | | | $ | 774,281 | | | $ | 46,791 | |
| | | | | | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(a) | | $ | 2,586 | | | $ | 7,769 | | | $ | 2,335 | |
| | | | | | | | | | | | |
| | | |
| | | Total | | | | | | | |
Balance as of 12/31/16 | | $ | 2,200,288 | | | | | | | | | |
Accrued discounts/(premiums) | | | (323 | ) | | | | | | | | |
Realized gain (loss) | | | (44,116 | ) | | | | | | | | |
Change in unrealized appreciation/depreciation | | | 48,048 | | | | | | | | | |
Purchases/Payups | | | 1,399,552 | | | | | | | | | |
Sales/Paydowns | | | (1,416,869 | ) | | | | | | | | |
Transfers in to Level 3 | | | 44,456 | (b) | | | | | | | | |
Transfers out of Level 3 | | | –0 | – | | | | | | | | |
| | | | | | | | | | | | |
Balance as of 12/31/17 | | $ | 2,231,036 | | | | | | | | | |
| | | | | | | | | | | | |
Net change in unrealized appreciation/depreciation from investments held as of 12/31/17(a) | | $ | 12,690 | | | | | | | | | |
| | | | | | | | | | | | |
| (a) | | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations. |
| (b) | | There were de minimis transfers under 1% of net assets during the reporting period. |
As of December 31, 2017, all Level 3 securities were priced by third party vendors.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
29
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund 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.
30
| | |
| | | AB Variable Products Series Fund |
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, .40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
On November 2, 2017, the Board of Directors of the Fund approved the fee schedule of an amended investment advisory agreement, to be effective on January 30, 2018. The amendment implements an additional advisory fee breakpoint, applicable to Portfolio assets in excess of $8 billion. The revised fee rates are .45% of the first $2.5 billion, .40% of the next $2.5 billion up to $5 billion, .35% of excess over $5 billion up to $8 billion and .30% in excess over $8 billion.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,914.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $286 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $2,254, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 11,857,464 | | | $ | 14,570,051 | |
U.S. government securities | | | 108,356,611 | | | | 110,763,868 | |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 58,391,827 | |
| | | | |
Gross unrealized appreciation | | $ | 1,462,192 | |
Gross unrealized depreciation | | | (840,962 | ) |
| | | | |
Net unrealized appreciation | | $ | 621,230 | |
| | | | |
31
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2017, the Portfolio held futures for hedging and non-hedging purposes.
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
32
| | |
| | | AB Variable Products Series Fund |
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.
During the year ended December 31, 2017, the Portfolio held purchased swaptions for hedging purposes.
During the year ended December 31, 2017, the Portfolio held written swaptions for hedging purposes.
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Portfolio may also enter into swaps for non-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
33
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Portfolio may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended December 31, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same referenced obligations with the same counterparty. As of December 31, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
34
| | |
| | | AB Variable Products Series Fund |
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the year ended December 31, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty tables below.
During the year ended December 31, 2017, the Portfolio had entered into the following derivatives:
| | | | | | | | | | | | |
| | | Asset Derivatives | | | Liability Derivatives | |
Derivative Type | | Statement of
Assets and Liabilities
Location | | Fair Value | | | Statement of
Assets and Liabilities
Location | | Fair Value | |
Interest rate contracts | | Receivable/Payable for variation margin on futures | | $ | 55,810 | * | | Receivable/Payable for variation margin on futures | | $ | 33,709 | * |
Interest rate contracts | | Receivable/Payable for variation margin on exchange traded swaps | | | 56,662 | * | | Receivable/Payable for variation margin on exchange traded swaps | | | 50,066 | * |
Foreign currency contracts | | Unrealized appreciation on forward currency exchange contracts | | | 46,531 | | | Unrealized depreciation on forward currency exchange contracts | | | 111,484 | |
Credit contracts | | Unrealized appreciation on credit default swaps | | | 21,749 | | | Unrealized depreciation on credit default swaps | | | 173,133 | |
| | | | | | | | | | | | |
Total | | | | $ | 180,752 | | | | | $ | 368,392 | |
| | | | | | | | | | | | |
| * | | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. |
35
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | |
Derivative Type | | Location of Gain or (Loss) on Derivatives
Within Statement of Operations | | Realized Gain or
(Loss) on
Derivatives | | | Change in Unrealized
Appreciation or
(Depreciation) | |
Interest rate contracts | | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | | $ | 139,638 | | | $ | 67,221 | |
Foreign currency contracts | | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | | | (129,911 | ) | | | (90,036 | ) |
Interest rate contracts | | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | | | (4,898 | ) | | | (652 | ) |
Interest rate contracts | | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | | | 9,636 | | | | (5,271 | ) |
Interest rate contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 5,424 | | | | 26,917 | |
Credit contracts | | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | | | 129,844 | | | | (203,965 | ) |
| | | | | | | | | | |
Total | | | | $ | 149,733 | | | $ | (205,786 | ) |
| | | | | | | | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Futures: | | | | |
Average original value of buy contracts | | $ | 11,269,764 | |
Average original value of sale contracts | | $ | 8,790,311 | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 2,428,634 | |
Average principal amount of sale contracts | | $ | 7,483,075 | |
Purchased Swaptions: | | | | |
Average monthly cost | | $ | 4,886 | (a) |
Swaptions Written: | | | | |
Average notional amount | | $ | 3,430,000 | (b) |
Centrally Cleared Interest Rate Swaps: | | | | |
Average notional amount | | $ | 12,951,015 | |
Credit Default Swaps: | | | | |
Average notional amount of buy contracts | | $ | 1,126,846 | |
Average notional amount of sale contracts | | $ | 2,324,955 | |
Centrally Cleared Credit Default Swaps: | | | | |
Average notional amount of buy contracts | | $ | 600,000 | (b) |
Average notional amount of sale contracts | | $ | 698,052 | (c) |
| (a) | | Positions were open for two months during the year. |
| (b) | | Positions were open for one month during the year. |
| (c) | | Positions were open for nine months during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
36
| | |
| | | AB Variable Products Series Fund |
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Received* | | | Security
Collateral
Received* | | | Net Amount of
Derivatives
Assets | |
OTC Derivatives: | |
Bank of America, NA | | $ | 671 | | | $ | (671 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Citibank, NA | | | 14,717 | | | | (14,717 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 40,676 | | | | (40,676 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Deutsche Bank AG | | | 5,515 | | | | (5,515 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Goldman Sachs Bank USA/Goldman Sachs International | | | 18,422 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 18,422 | |
HSBC Bank USA | | | 2,640 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 2,640 | |
Standard Chartered Bank | | | 4,264 | | | | (4,264 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
State Street Bank & Trust Co. | | | 302 | | | | (302 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 87,207 | | | $ | (66,145 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 21,062 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Liabilities
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net
Amount of
Derivatives
Liabilities | |
OTC Derivatives: | |
Bank of America, NA | | $ | 9,845 | | | $ | (671 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 9,174 | |
Citibank, NA | | | 37,294 | | | | (14,717 | ) | | | –0 | – | | | –0 | – | | | 22,577 | |
Citigroup Global Markets, Inc. | | | 26,246 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 26,246 | |
Credit Suisse International | | | 123,942 | | | | (40,676 | ) | | | –0 | – | | | –0 | – | | | 83,266 | |
Deutsche Bank AG | | | 69,234 | | | | (5,515 | ) | | | –0 | – | | | –0 | – | | | 63,719 | |
Goldman Sachs Bank USA/Goldman Sachs International | | | 136,545 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 136,545 | |
JPMorgan Chase Bank, NA | | | 1,976 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 1,976 | |
Morgan Stanley Capital Services LLC | | | 5,446 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 5,446 | |
Royal Bank of Scotland PLC | | | 19,581 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 19,581 | |
Standard Chartered Bank | | | 12,029 | | | | (4,264 | ) | | | –0 | – | | | –0 | – | | | 7,765 | |
State Street Bank & Trust Co. | | | 42,833 | | | | (302 | ) | | | –0 | – | | | –0 | – | | | 42,531 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 484,971 | | | $ | (66,145 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 418,826 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
37
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
3. TBA and Dollar Rolls
The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the year ended December 31, 2017, the Portfolio earned drop income of $137,585 which is included in interest income in the accompanying statement of operations.
NOTE E: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
| | | | | |
| | | | | |
Class A | |
Shares sold | | | 71,422 | | | | 137,696 | | | | | | | $ | 762,494 | | | $ | 1,484,595 | |
Shares issued in reinvestment of dividends and distributions | | | 159,268 | | | | 183,938 | | | | | | | | 1,675,499 | | | | 1,995,725 | |
Shares redeemed | | | (576,733 | ) | | | (832,622 | ) | | | | | | | (6,173,251 | ) | | | (9,095,889 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (346,043 | ) | | | (510,988 | ) | | | | | | $ | (3,735,258 | ) | | $ | (5,615,569 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 106,949 | | | | 143,982 | | | | | | | $ | 1,130,081 | | | $ | 1,560,346 | |
Shares issued in reinvestment of dividends and distributions | | | 60,254 | | | | 63,478 | | | | | | | | 627,848 | | | | 681,753 | |
Shares redeemed | | | (272,822 | ) | | | (366,495 | ) | | | | | | | (2,883,365 | ) | | | (3,944,341 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (105,619 | ) | | | (159,035 | ) | | | | | | $ | (1,125,436 | ) | | $ | (1,702,242 | ) |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 81% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE F: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to the full maturity of a fixed-income security.
38
| | |
| | | AB Variable Products Series Fund |
Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the real value of the Portfolio’s assets can decline as can the real value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio’s invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Prepayment Risk—The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of portfolio shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in
39
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE H: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 1,775,674 | | | $ | 2,677,478 | |
Net long-term capital gains | | | 527,673 | | | | –0 | – |
| | | | | | | | |
Total taxable distributions paid | | $ | 2,303,347 | | | $ | 2,677,478 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 794,243 | |
Undistributed capital gains | | | 444,890 | |
Other losses | | | (10,313 | )(a) |
Unrealized appreciation/(depreciation) | | | 650,795 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 1,879,615 | |
| | | | |
| (a) | | As of December 31, 2017, the Portfolio had cumulative deferred loss on straddles of $10,313. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax treatment of swaps and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of swaps, foreign currency reclassifications, paydown gain/loss reclassifications, and contributions from Affiliates, resulted in a net decrease in undistributed net investment income, a net increase in accumulated net realized gain on investment and foreign currency transactions, and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE I: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
NOTE J: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
40
| | |
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $10.65 | | | | $10.63 | | | | $11.37 | | | | $11.22 | | | | $12.30 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .23 | | | | .28† | | | | .27 | | | | .28 | | | | .32 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | .14 | | | | .23 | | | | (.27 | ) | | | .44 | | | | (.59 | ) |
Contributions from Affiliates | | | .00 | (b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | .37 | | | | .51 | | | | –0 | – | | | .72 | | | | (.27 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.36 | ) | | | (.35 | ) | | | (.40 | ) | | | (.41 | ) | | | (.45 | ) |
Distributions from net realized gain on investment transactions | | | (.10 | ) | | | (.14 | ) | | | (.34 | ) | | | (.16 | ) | | | (.36 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.46 | ) | | | (.49 | ) | | | (.74 | ) | | | (.57 | ) | | | (.81 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $10.56 | | | | $10.65 | | | | $10.63 | | | | $11.37 | | | | $11.22 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 3.52 | %* | | | 4.71 | %†* | | | .01 | %* | | | 6.48 | % | | | (2.16 | )%* |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $38,172 | | | | $42,183 | | | | $47,554 | | | | $56,437 | | | | $61,848 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses | | | 1.11 | % | | | 1.06 | % | | | .96 | % | | | .88 | % | | | .77 | % |
Net investment income | | | 2.11 | % | | | 2.60 | %† | | | 2.44 | % | | | 2.46 | % | | | 2.74 | % |
Portfolio turnover rate ** | | | 216 | % | | | 156 | % | | | 230 | % | | | 262 | % | | | 217 | % |
See footnote summary on page 42.
41
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $10.54 | | | | $10.53 | | | | $11.26 | | | | $11.11 | | | | $12.17 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .20 | | | | .25† | | | | .24 | | | | .25 | | | | .29 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | .14 | | | | .22 | | | | (.26 | ) | | | .43 | | | | (.58 | ) |
Contributions from Affiliates | | | .00 | (b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | .34 | | | | .47 | | | | (.02 | ) | | | .68 | | | | (.29 | ) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.33 | ) | | | (.32 | ) | | | (.37 | ) | | | (.37 | ) | | | (.41 | ) |
Distributions from net realized gain on investment transactions | | | (.10 | ) | | | (.14 | ) | | | (.34 | ) | | | (.16 | ) | | | (.36 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.43 | ) | | | (.46 | ) | | | (.71 | ) | | | (.53 | ) | | | (.77 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $10.45 | | | | $10.54 | | | | $10.53 | | | | $11.26 | | | | $11.11 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 3.28 | %* | | | 4.36 | %†* | | | (.18 | )%* | | | 6.22 | % | | | (2.34 | )%* |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $14,786 | | | | $16,029 | | | | $17,681 | | | | $19,891 | | | | $22,450 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses | | | 1.36 | % | | | 1.32 | % | | | 1.21 | % | | | 1.13 | % | | | 1.02 | % |
Net investment income | | | 1.87 | % | | | 2.36 | %† | | | 2.19 | % | | | 2.21 | % | | | 2.49 | % |
Portfolio turnover rate ** | | | 216 | % | | | 156 | % | | | 230 | % | | | 262 | % | | | 217 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Amount is less than $.005. |
| (c) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | |
Net Investment
Income Per Share | | Net Investment
Income Ratio | | Total Return |
| $.03 | | .28% | | .29% |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2013 by 0.03%, 0.03%, 0.03% and 0.02%, respectively. |
| ** | | The Portfolio accounts for dollar roll transactions as purchases and sales. |
42
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Intermediate Bond Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Intermediate Bond Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Intermediate Bond Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
43
| | |
| | |
| | |
| INTERMEDIATE BOND PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| |
| |
| |
| |
| | |
| | |
| OFFICERS | | |
Michael Canter(2), Vice President Shawn E. Keegan(2), Vice President Douglas J. Peebles(2), Vice President Greg J. Wilensky(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
CUSTODIANAND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the Adviser’s U.S. Core Fixed Income Investment Team. Messrs. Canter, Keegan, Peebles and Wilensky are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
44
| | |
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.,## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey,## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
45
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.,## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin,## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen,## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
46
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND
OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
Garry L. Moody,## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner,## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | None |
| | | | | | | | |
| * | The address for 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. |
47
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| INTERMEDIATE BOND PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*, AGE | | PRINCIPAL POSITION(S) HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith 57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Michael Canter 48 | | Vice President | | Senior Vice President of the Adviser**, with which she has been associated since prior to 2013. He is also the Director of US Multi-Sector and Securitized Assets. |
| | | | |
Shawn E. Keegan 46 | | Vice President | | Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Douglas J. Peebles 52 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of AB Fixed Income. |
| | | | |
Greg J. Wilensky 50 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Director of US Multi-Sector Fixed Income, US Inflation-Linked Fixed Income and Stable Value Investments. |
| | | | |
Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo 58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke 57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio’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 Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
48
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| INTERMEDIATE BOND PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) approved the continuance of the Company’s Advisory Agreement with the Adviser, as proposed to be amended to add an additional breakpoint to the advisory fee schedule (as so amended, the “Advisory Agreement”), in respect of AB Intermediate Bond Portfolio (the “Fund”) at a meeting held on October 31-November 2, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the proposed advisory fee, in which the Senior Officer concluded that the proposed contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the proposed advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the proposed advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating
49
| | |
| INTERMEDIATE BOND PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
to its subsidiaries that provide transfer agency and distribution services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended July 31, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; (iv) must service, and be marketed to, retail investors and financial intermediaries; and (v) requires a larger sales support infrastructure. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category
50
| | |
| | | AB Variable Products Series Fund |
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 proposed advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
51
VPS-IB-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
| + | | INTERNATIONAL GROWTH PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| INTERNATIONAL GROWTH | | |
| PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—International Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in an international portfolio of equity securities of companies selected by the Adviser for their growth potential within various market sectors. Examples of the types of market sectors in which the Portfolio may invest include, but are not limited to, information technology (which includes telecommunications), health care, financial services, infrastructure, energy and natural resources, and consumer groups.
The Portfolio invests, under normal circumstances, in the equity securities of companies located in at least three countries (and normally substantially more) other than the United States. The Portfolio invests in securities of companies in both developed- and emerging-market countries. Geographic distribution of the Portfolio’s investments among countries or regions also will be a product of the stock selection process rather than a pre-determined allocation.
The Portfolio may also invest in synthetic foreign equity securities, which are various types of warrants used internationally that entitle a holder to buy or sell underlying securities. The Adviser expects that normally the Portfolio’s portfolio will tend to emphasize investments in larger capitalization companies, although the Portfolio may invest in smaller or medium capitalization companies.
The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 4 shows the Portfolio’s performance compared to its primary benchmark, the Morgan Stanley Capital International (“MSCI”) World Index ex-US (net), and the Morgan Stanley Capital International All Country World Index (“MSCI ACWI”) ex-US (net) for the one-, five- and 10-year periods ended December 31, 2017.
All class shares of the Portfolio outperformed the benchmark for the annual period ended December 31, 2017. Outperformance relative to the benchmark was mainly attributable to stock selection in, and an overweight to the technology sector. The sector outperformed all others during 2017. Detracting was stock selection in the industrials sector and cash holdings in a rising market. Security selection contributed in Austria and China, and detracted in France and Sweden.
The Portfolio utilized derivatives in the form of currency forwards for hedging purposes, which added to absolute performance for the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period marked one of the strongest for global stock market performance since the 2008 financial crisis. Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. Japanese stocks outperformed, while European equities trailed. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
The Portfolio’s exposures remain focused on secular growth themes, supported by companies with attractive fundamentals. The Portfolio’s Senior Investment Management Team (the “Team”) continues to favor companies with strong organic revenue growth over those that are exposed to more macro-cyclical shifts in the market. The Team has positioned the Portfolio to be ready to take advantage of any market dislocations.
1
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| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI World Index ex-US and the MSCI ACWI ex-US are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI World Index ex-US (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets, excluding the US. The MSCI ACWI ex-US (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed and emerging markets, excluding the US. 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
(Disclosures, Risks and Note about Historical Performance continued on next page)
2
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| | |
| | |
| | | AB Variable Products Series Fund |
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
3
| | |
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| |
| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| International Growth Portfolio Class A2 | | | 35.02% | | | | 6.73% | | | | 0.82% | |
| International Growth Portfolio Class B2 | | | 34.63% | | | | 6.46% | | | | 0.57% | |
| Primary benchmark: MSCI World Index ex-US (net) | | | 24.21% | | | | 7.46% | | | | 1.87% | |
| MSCI ACWI ex-US (net) | | | 27.19% | | | | 6.80% | | | | 1.84% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.01%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.27% and 1.52% for Class A and Class B 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.
INTERNATIONAL GROWTH PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in International Growth Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 2-3.
4
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| INTERNATIONAL GROWTH PORTFOLIO |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,099.70 | | | $ | 6.56 | | | | 1.24 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,018.95 | | | $ | 6.31 | | | | 1.24 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,098.30 | | | $ | 7.88 | | | | 1.49 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,017.69 | | | $ | 7.58 | | | | 1.49 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
5
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
Apollo Hospitals Enterprise Ltd. | | $ | 2,261,999 | | | | 3.2 | % |
Siemens AG (REG) | | | 2,243,013 | | | | 3.1 | |
HDFC Bank Ltd. | | | 2,148,727 | | | | 3.0 | |
Kingspan Group PLC | | | 2,100,195 | | | | 2.9 | |
AIA Group Ltd. | | | 1,847,426 | | | | 2.6 | |
Roche Holding AG | | | 1,830,672 | | | | 2.6 | |
Partners Group Holding AG | | | 1,760,945 | | | | 2.5 | |
Vestas Wind Systems A/S | | | 1,753,765 | | | | 2.4 | |
ams AG | | | 1,703,126 | | | | 2.4 | |
Schneider Electric SE (Paris) | | | 1,699,848 | | | | 2.4 | |
| | | | | | | | | |
| | | $ | 19,349,716 | | | | 27.1 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Financials | | $ | 15,252,921 | | | | 21.4 | % |
Information Technology | | | 10,267,478 | | | | 14.4 | |
Industrials | | | 10,098,010 | | | | 14.2 | |
Consumer Staples | | | 9,591,086 | | | | 13.4 | |
Health Care | | | 6,948,610 | | | | 9.8 | |
Consumer Discretionary | | | 5,192,082 | | | | 7.3 | |
Utilities | | | 3,611,045 | | | | 5.1 | |
Materials | | | 2,477,407 | | | | 3.5 | |
Telecommunication Services | | | 2,063,990 | | | | 2.9 | |
Real Estate | | | 1,278,546 | | | | 1.8 | |
Short-Term Investments | | | 4,385,996 | | | | 6.2 | |
| | | | | | | | | |
Total Investments | | $ | 71,167,171 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
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 Portfolio’s prospectus.
6
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| COUNTRY BREAKDOWN1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COUNTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
India | | $ | 8,660,470 | | | | 12.2 | % |
France | | | 7,018,369 | | | | 9.9 | |
Japan | | | 5,787,565 | | | | 8.1 | |
Germany | | | 5,615,692 | | | | 7.9 | |
Switzerland | | | 5,189,744 | | | | 7.3 | |
China | | | 4,994,658 | | | | 7.0 | |
Ireland | | | 4,980,596 | | | | 7.0 | |
United Kingdom | | | 4,342,377 | | | | 6.1 | |
Sweden | | | 3,088,746 | | | | 4.3 | |
Denmark | | | 2,780,874 | | | | 3.9 | |
Hong Kong | | | 2,206,419 | | | | 3.1 | |
United States | | | 2,138,715 | | | | 3.0 | |
Austria | | | 1,703,126 | | | | 2.4 | |
Other | | | 8,273,824 | | | | 11.6 | |
Short-Term Investments | | | 4,385,996 | | | | 6.2 | |
| | | | | | | | | |
Total Investments | | $ | 71,167,171 | | | | 100.0 | % |
| 1 | | All data are as of December 31, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. “Other” country weightings represent 2.3% or less in the following countries: Belgium, Brazil, Indonesia, Netherlands, Peru, Philippines and Taiwan. |
7
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
COMMON STOCKS–93.6% | | | | | | | | | | | | |
| | | | | | | | | | | | |
FINANCIALS–21.4% | | | | | | | | | | | | |
BANKS–9.7% | | | | | | | | | | | | |
Credicorp Ltd. | | | | | | | 8,020 | | | $ | 1,663,588 | |
HDFC Bank Ltd. | | | | | | | 72,450 | | | | 2,148,727 | |
Svenska Handelsbanken AB–Class A | | | | | | | 106,240 | | | | 1,451,879 | |
Swedbank AB–Class A | | | | | | | 67,850 | | | | 1,636,867 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,901,061 | |
| | | | | | | | | | | | |
CAPITAL MARKETS–2.5% | | | | | | | | | | | | |
Partners Group Holding AG(a) | | | | | | | 2,570 | | | | 1,760,945 | |
| | | | | | | | | | | | |
CONSUMER FINANCE–2.0% | | | | | | | | | | | | |
Bharat Financial Inclusion Ltd.(b) | | | | | | | 92,040 | | | | 1,442,300 | |
| | | | | | | | | | | | |
INSURANCE–4.9% | | | | | | | | | | | | |
AIA Group Ltd. | | | | | | | 217,200 | | | | 1,847,426 | |
Prudential PLC | | | | | | | 64,605 | | | | 1,654,555 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,501,981 | |
| | | | | | | | | | | | |
THRIFTS & MORTGAGE FINANCE–2.3% | | | | | | | | | | | | |
Housing Development Finance Corp., Ltd. | | | | | | | 61,487 | | | | 1,646,634 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 15,252,921 | |
| | | | | | | | | | | | |
INFORMATION TECHNOLOGY–14.4% | | | | | | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–2.8% | | | | | | | | | | | | |
Halma PLC | | | | | | | 55,098 | | | | 936,179 | |
Horiba Ltd. | | | | | | | 17,200 | | | | 1,035,531 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 1,971,710 | |
| | | | | | | | | | | | |
INTERNET SOFTWARE & SERVICES–3.3% | | | | | | | | | | | | |
Alibaba Group Holding Ltd. (Sponsored ADR)(b) | | | | | | | 5,030 | | | | 867,323 | |
Tencent Holdings Ltd. | | | | | | | 28,500 | | | | 1,475,100 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,342,423 | |
| | | | | | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–8.3% | | | | | | | | | | | | |
ams AG(b) | | | | | | | 18,800 | | | | 1,703,126 | |
ASML Holding NV | | | | | | | 6,160 | | | | 1,070,967 | |
Disco Corp. | | | | | | | 3,200 | | | | 709,246 | |
Infineon Technologies AG | | | | | | | 45,710 | | | | 1,244,875 | |
Taiwan Semiconductor Manufacturing Co., Ltd. | | | | | | | 160,000 | | | | 1,225,131 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,953,345 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,267,478 | |
| | | | | | | | | | | | |
INDUSTRIALS–14.1% | | | | | | | | | | | | |
BUILDING PRODUCTS–4.3% | | | | | | | | | | | | |
Cie de Saint-Gobain | | | | | | | 17,990 | | | | 990,102 | |
Kingspan Group PLC | | | | | | | 47,930 | | | | 2,100,195 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,090,297 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–1.8% | | | | | | | | | | | | |
China Everbright International Ltd. | | | | | | | 919,000 | | | $ | 1,311,087 | |
| | | | | | | | | | | | |
ELECTRICAL EQUIPMENT–4.8% | | | | | | | | | | | | |
Schneider Electric SE (Paris)(b) | | | | | | | 20,050 | | | | 1,699,848 | |
Vestas Wind Systems A/S | | | | | | | 25,380 | | | | 1,753,765 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,453,613 | |
| | | | | | | | | | | | |
INDUSTRIAL CONGLOMERATES–3.2% | | | | | | | | | | | | |
Siemens AG (REG) | | | | | | | 16,200 | | | | 2,243,013 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 10,098,010 | |
| | | | | | | | | | | | |
CONSUMER STAPLES–13.4% | | | | | | | | | | | | |
FOOD & STAPLES RETAILING–1.9% | | | | | | | | | | | | |
Tsuruha Holdings, Inc. | | | | | | | 10,100 | | | | 1,371,882 | |
| | | | | | | | | | | | |
FOOD PRODUCTS–6.3% | | | | | | | | | | | | |
Glanbia PLC | | | | | | | 76,590 | | | | 1,369,257 | |
Kerry Group PLC–Class A | | | | | | | 13,470 | | | | 1,511,144 | |
Nestle SA (REG) | | | | | | | 18,588 | | | | 1,598,127 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 4,478,528 | |
| | | | | | | | | | | | |
HOUSEHOLD PRODUCTS–3.6% | | | | | | | | | | | | |
Reckitt Benckiser Group PLC | | | | | | | 12,790 | | | | 1,193,224 | |
Unicharm Corp. | | | | | | | 53,400 | | | | 1,386,642 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,579,866 | |
| | | | | | | | | | | | |
PERSONAL PRODUCTS–1.6% | | | | | | | | | | | | |
Godrej Consumer Products Ltd. | | | | | | | 74,200 | | | | 1,160,810 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 9,591,086 | |
| | | | | | | | | | | | |
HEALTH CARE–9.7% | | | | | | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–2.2% | | | | | | | | | | | | |
Essilor International Cie Generale d’Optique SA | | | | | | | 11,342 | | | | 1,562,264 | |
| | | | | | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–3.2% | | | | | | | | | | | | |
Apollo Hospitals Enterprise Ltd. | | | | | | | 119,990 | | | | 2,261,999 | |
| | | | | | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–1.0% | | | | | | | | | | | | |
Gerresheimer AG | | | | | | | 8,890 | | | | 735,256 | |
| | | | | | | | | | | | |
PHARMACEUTICALS–3.3% | | | | | | | | | | | | |
Roche Holding AG | | | | | | | 7,240 | | | | 1,830,672 | |
Vectura Group PLC(b) | | | | | | | 351,400 | | | | 558,419 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,389,091 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 6,948,610 | |
| | | | | | | | | | | | |
8
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
CONSUMER DISCRETIONARY–7.3% | | | | | | | | | | | | |
AUTO COMPONENTS–5.0% | | | | | | | | | | | | |
Aptiv PLC | | | | | | | 18,210 | | | $ | 1,544,754 | |
Delphi Technologies PLC(b) | | | | | | | 11,320 | | | | 593,961 | |
Valeo SA | | | | | | | 18,930 | | | | 1,410,110 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,548,825 | |
| | | | | | | | | | | | |
HOUSEHOLD DURABLES–1.8% | | | | | | | | | | | | |
Panasonic Corp. | | | | | | | 88,000 | | | | 1,284,264 | |
| | | | | | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–0.5% | | | | | | | | | | | | |
Crystal International Group Ltd.(b)(c) | | | | | | | 371,000 | | | | 358,993 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 5,192,082 | |
| | | | | | | | | | | | |
UTILITIES–5.1% | | | | | | | | | | | | |
MULTI-UTILITIES–1.9% | | | | | | | | | | | | |
Suez | | | | | | | 77,190 | | | | 1,356,045 | |
| | | | | | | | | | | | |
WATER UTILITIES–3.2% | | | | | | | | | | | | |
Beijing Enterprises Water Group Ltd.(b) | | | | | | | 1,736,000 | | | | 1,341,148 | |
Cia de Saneamento Basico do Estado de Sao Paulo | | | | | | | 88,300 | | | | 913,852 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,255,000 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 3,611,045 | |
| | | | | | | | | | | | |
MATERIALS–3.5% | | | | | | | | | | | | |
CHEMICALS–3.5% | | | | | | | | | | | | |
Chr Hansen Holding A/S | | | | | | | 10,950 | | | | 1,027,109 | |
Umicore SA | | | | | | | 30,630 | | | | 1,450,298 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,477,407 | |
| | | | | | | | | | | | |
TELECOMMUNICATION SERVICES–2.9% | | | | | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–2.9% | | | | | | | | | | | | |
Deutsche Telekom AG (REG) | | | | | | | 78,780 | | | | 1,392,548 | |
Telekomunikasi Indonesia Persero Tbk PT | | | | | | | 2,051,500 | | | | 671,442 | |
| | | | | | | | | | | | |
| | | | | | | | | | | 2,063,990 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Company | | | | | Shares | | | U.S. $ Value | |
| | | | | | | | | | | | |
REAL ESTATE–1.8% | | | | | | | | | | | | |
REAL ESTATE MANAGEMENT & DEVELOPMENT–1.8% | | | | | | | | | | | | |
SM Prime Holdings, Inc. | | | | | | | 1,702,000 | | | $ | 1,278,546 | |
| | | | | | | | | | | | |
Total Common Stocks
(cost $49,557,430) | | | | | | | | | | | 66,781,175 | |
| | | | | | | | | | | | |
| | | | | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–6.2% | | | | | | | | | | | | |
TIME DEPOSIT–6.2% | | | | | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $4,385,996) | | U.S.$ | | | | | 4,386 | | | | 4,385,996 | |
| | | | | | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned–99.8%
(cost $53,943,426) | | | | | | | | | | | 71,167,171 | |
| | | | | | | | | | | | |
| | | | | | Shares | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–2.4% | | | | | | | | | | | | |
INVESTMENT COMPANIES–2.4% | | | | | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(d)(e)(f)
(cost $1,756,788) | | | | | | | 1,756,788 | | | | 1,756,788 | |
| | | | | | | | | | | | |
TOTAL INVESTMENTS–102.2%
(cost $55,700,214) | | | | | | | | | | | 72,923,959 | |
Other assets less liabilities–(2.2)% | | | | | | | | | | | (1,599,072 | ) |
| | | | | | | | | | | | |
NET ASSETS–100.0% | | | | | | | | | | $ | 71,324,887 | |
| | | | | | | | | | | | |
9
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to Deliver (000) | | | In Exchange For (000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | | BRL | | | | 880 | | | | USD | | | | 266 | | | | 1/03/18 | | | $ | 449 | |
Bank of America, NA | | | BRL | | | | 1,265 | | | | USD | | | | 381 | | | | 1/03/18 | | | | (333 | ) |
Bank of America, NA | | | USD | | | | 648 | | | | BRL | | | | 2,145 | | | | 1/03/18 | | | | (1,779 | ) |
Bank of America, NA | | | USD | | | | 589 | | | | RUB | | | | 35,245 | | | | 1/25/18 | | | | 20,293 | |
Bank of America, NA | | | USD | | | | 265 | | | | BRL | | | | 880 | | | | 2/02/18 | | | | (309 | ) |
Bank of America, NA | | | CNY | | | | 5,041 | | | | USD | | | | 754 | | | | 2/07/18 | | | | (18,712 | ) |
Bank of America, NA | | | INR | | | | 62,017 | | | | USD | | | | 946 | | | | 3/12/18 | | | | (19,040 | ) |
Bank of America, NA | | | USD | | | | 401 | | | | INR | | | | 25,921 | | | | 3/12/18 | | | | 2,415 | |
Barclays Bank PLC | | | USD | | | | 1,086 | | | | CNY | | | | 7,222 | | | | 2/07/18 | | | | 20,296 | |
Barclays Bank PLC | | | CHF | | | | 903 | | | | USD | | | | 913 | | | | 2/14/18 | | | | (16,126 | ) |
Barclays Bank PLC | | | USD | | | | 538 | | | | GBP | | | | 401 | | | | 2/14/18 | | | | 3,746 | |
Barclays Bank PLC | | | USD | | | | 588 | | | | TWD | | | | 17,474 | | | | 3/08/18 | | | | 5,644 | |
Barclays Bank PLC | | | INR | | | | 56,854 | | | | USD | | | | 867 | | | | 3/12/18 | | | | (17,694 | ) |
Citibank, NA | | | EUR | | | | 1,913 | | | | USD | | | | 2,266 | | | | 2/14/18 | | | | (35,166 | ) |
Citibank, NA | | | USD | | | | 2,517 | | | | AUD | | | | 3,289 | | | | 2/14/18 | | | | 49,033 | |
Citibank, NA | | | USD | | | | 522 | | | | AUD | | | | 668 | | | | 2/14/18 | | | | (802 | ) |
Citibank, NA | | | USD | | | | 5,071 | | | | JPY | | | | 572,042 | | | | 2/14/18 | | | | 16,140 | |
Citibank, NA | | | USD | | | | 1,042 | | | | ZAR | | | | 15,236 | | | | 2/14/18 | | | | 181,191 | |
Credit Suisse International | | | BRL | | | | 2,145 | | | | USD | | | | 648 | | | | 1/03/18 | | | | 1,779 | |
Credit Suisse International | | | USD | | | | 663 | | | | BRL | | | | 2,145 | | | | 1/03/18 | | | | (16,842 | ) |
Credit Suisse International | | | USD | | | | 2,532 | | | | KRW | | | | 2,835,083 | | | | 1/18/18 | | | | 124,880 | |
Credit Suisse International | | | SEK | | | | 7,930 | | | | USD | | | | 948 | | | | 2/14/18 | | | | (21,173 | ) |
Credit Suisse International | | | USD | | | | 719 | | | | GBP | | | | 534 | | | | 2/14/18 | | | | 3,240 | |
Credit Suisse International | | | INR | | | | 366,116 | | | | USD | | | | 5,528 | | | | 3/12/18 | | | | (171,422 | ) |
Deutsche Bank AG | | | USD | | | | 3,899 | | | | CAD | | | | 4,945 | | | | 2/14/18 | | | | 37,130 | |
JPMorgan Chase Bank, NA | | | EUR | | | | 685 | | | | USD | | | | 811 | | | | 2/14/18 | | | | (12,525 | ) |
JPMorgan Chase Bank, NA | | | USD | | | | 757 | | | | HKD | | | | 5,910 | | | | 2/14/18 | | | | (43 | ) |
Royal Bank of Scotland PLC | | | EUR | | | | 1,159 | | | | USD | | | | 1,364 | | | | 2/14/18 | | | | (30,365 | ) |
Royal Bank of Scotland PLC | | | USD | | | | 2,520 | | | | GBP | | | | 1,906 | | | | 2/14/18 | | | | 56,684 | |
Standard Chartered Bank | | | USD | | | | 121 | | | | KRW | | | | 137,035 | | | | 1/18/18 | | | | 7,400 | |
Standard Chartered Bank | | | USD | | | | 537 | | | | MXN | | | | 10,410 | | | | 2/14/18 | | | | (11,505 | ) |
Standard Chartered Bank | | | USD | | | | 165 | | | | TWD | | | | 4,948 | | | | 3/08/18 | | | | 2,539 | |
State Street Bank & Trust Co. | | | CAD | | | | 234 | | | | USD | | | | 183 | | | | 2/14/18 | | | | (3,665 | ) |
State Street Bank & Trust Co. | | | CHF | | | | 288 | | | | USD | | | | 293 | | | | 2/14/18 | | | | (3,002 | ) |
State Street Bank & Trust Co. | | | EUR | | | | 4,258 | | | | USD | | | | 5,010 | | | | 2/14/18 | | | | (111,732 | ) |
State Street Bank & Trust Co. | | | GBP | | | | 122 | | | | USD | | | | 161 | | | | 2/14/18 | | | | (3,539 | ) |
State Street Bank & Trust Co. | | | HKD | | | | 6,085 | | | | USD | | | | 781 | | | | 2/14/18 | | | | 1,852 | |
State Street Bank & Trust Co. | | | JPY | | | | 52,752 | | | | USD | | | | 472 | | | | 2/14/18 | | | | 2,768 | |
State Street Bank & Trust Co. | | | JPY | | | | 39,712 | | | | USD | | | | 352 | | | | 2/14/18 | | | | (1,496 | ) |
State Street Bank & Trust Co. | | | SEK | | | | 6,485 | | | | USD | | | | 776 | | | | 2/14/18 | | | | (16,888 | ) |
State Street Bank & Trust Co. | | | USD | | | | 280 | | | | AUD | | | | 369 | | | | 2/14/18 | | | | 8,177 | |
State Street Bank & Trust Co. | | | USD | | | | 142 | | | | CAD | | | | 182 | | | | 2/14/18 | | | | 2,812 | |
State Street Bank & Trust Co. | | | USD | | | | 1,776 | | | | EUR | | | | 1,498 | | | | 2/14/18 | | | | 25,512 | |
State Street Bank & Trust Co. | | | USD | | | | 331 | | | | GBP | | | | 249 | | | | 2/14/18 | | | | 6,031 | |
State Street Bank & Trust Co. | | | USD | | | | 22 | | | | HKD | | | | 175 | | | | 2/14/18 | | | | (5 | ) |
State Street Bank & Trust Co. | | | USD | | | | 255 | | | | JPY | | | | 28,833 | | | | 2/14/18 | | | | 901 | |
State Street Bank & Trust Co. | | | USD | | | | 1,033 | | | | JPY | | | | 115,538 | | | | 2/14/18 | | | | (5,323 | ) |
State Street Bank & Trust Co. | | | USD | | | | 293 | | | | NOK | | | | 2,374 | | | | 2/14/18 | | | | (3,752 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | $ | 57,674 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
10
| | |
| | | AB Variable Products Series Fund |
| (a) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (b) | | Non-income producing security. |
| (c) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security is considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2017, the market value of this security amounted to $358,993 or 0.5% of net assets. |
| (d) | | Affiliated investments. |
| (e) | | The rate shown represents the 7-day yield as of period end. |
| (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. |
Currency Abbreviations:
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NOK—Norwegian Krone
RUB—Russian Ruble
SEK—Swedish Krona
TWD—New Taiwan Dollar
USD—United States Dollar
ZAR—South African Rand
Glossary:
ADR—American Depositary Receipt
REG—Registered Shares
See notes to financial statements.
11
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| STATEMENT OF ASSETS & LIABILITIES |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $53,943,426) | | $ | 71,167,171 | (a) |
Affiliated issuers (cost $1,756,788—investment of cash collateral for securities loaned) | | | 1,756,788 | |
Foreign currencies, at value (cost $63,269) | | | 64,046 | |
Unrealized appreciation on forward currency exchange contracts | | | 580,912 | |
Dividends and interest receivable | | | 149,896 | |
Receivable for capital stock sold | | | 105,876 | |
| | | | |
Total assets | | | 73,824,689 | |
| | | | |
LIABILITIES | | | | |
Payable for collateral received on securities loaned | | | 1,756,788 | |
Unrealized depreciation on forward currency exchange contracts | | | 523,238 | |
Advisory fee payable | | | 44,911 | |
Payable for investment securities purchased and foreign currency transactions | | | 35,405 | |
Administrative fee payable | | | 13,617 | |
Distribution fee payable | | | 8,618 | |
Payable for capital stock redeemed | | | 7,079 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses and other liabilities | | | 110,049 | |
| | | | |
Total liabilities | | | 2,499,802 | |
| | | | |
NET ASSETS | | $ | 71,324,887 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 3,108 | |
Additional paid-in capital | | | 53,813,435 | |
Undistributed net investment income | | | 270,908 | |
Accumulated net realized loss on investment and foreign currency transactions | | | (45,898 | ) |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 17,283,334 | |
| | | | |
| | $ | 71,324,887 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 30,318,370 | | | | 1,309,800 | | | $ | 23.15 | |
| B | | $ | 41,006,517 | | | | 1,798,166 | | | $ | 22.80 | |
| (a) | | Includes securities on loan with a value of $1,672,555 (see Note E). |
See notes to financial statements.
12
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $94,062) | | $ | 1,008,222 | |
Affiliated issuers | | | 3,150 | |
Interest | | | 3,637 | |
Securities lending income | | | 5,810 | |
Other income | | | 3,370 | |
| | | | |
| | | 1,024,189 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 501,404 | |
Distribution fee—Class B | | | 95,168 | |
Transfer agency—Class A | | | 2,408 | |
Transfer agency—Class B | | | 3,182 | |
Custodian | | | 95,767 | |
Audit and tax | | | 66,037 | |
Administrative | | | 53,558 | |
Printing | | | 38,752 | |
Directors’ fees | | | 28,561 | |
Legal | | | 28,006 | |
Miscellaneous | | | 12,301 | |
| | | | |
Total expenses | | | 925,144 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (663 | ) |
| | | | |
Net expenses | | | 924,481 | |
| | | | |
Net investment income | | | 99,708 | |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain (loss) on: | | | | |
Investment transactions | | | 11,940,413 | |
Forward currency exchange contracts | | | (208,347 | ) |
Foreign currency transactions | | | 30,868 | |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments(a) | | | 7,074,701 | |
Forward currency exchange contracts | | | 401,112 | |
Foreign currency denominated assets and liabilities | | | 27,902 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 19,266,649 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 19,366,357 | |
| | | | |
| (a) | | Net of increase in accrued foreign capital gains taxes of $434. |
See notes to financial statements.
13
| | |
|
| INTERNATIONAL GROWTH PORTFOLIO |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 99,708 | | | $ | 311,652 | |
Net realized gain on investment and foreign currency transactions | | | 11,762,934 | | | | 913,421 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 7,503,715 | | | | (5,935,975 | ) |
| | | | | | | | |
Net increase (decrease) in net assets from operations | | | 19,366,357 | | | | (4,710,902 | ) |
DIVIDENDS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (329,359 | ) | | | –0 | – |
Class B | | | (356,101 | ) | | | –0 | – |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net decrease | | | (6,244,113 | ) | | | (10,057,214 | ) |
| | | | | | | | |
Total increase (decrease) | | | 12,436,784 | | | | (14,768,116 | ) |
NET ASSETS | | | | | | | | |
Beginning of period | | | 58,888,103 | | | | 73,656,219 | |
| | | | | | | | |
End of period (including undistributed net investment income of $270,908 and $936,774, respectively) | | $ | 71,324,887 | | | $ | 58,888,103 | |
| | | | | | | | |
See notes to financial statements.
14
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB International Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
15
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks: | | | | | | | | | | | | | | | | |
Financials | | $ | 1,663,588 | | | $ | 13,589,333 | | | $ | –0 | – | | $ | 15,252,921 | |
Information Technology | | | 867,323 | | | | 9,400,155 | | | | –0 | – | | | 10,267,478 | |
Industrials | | | –0 | – | | | 10,098,010 | | | | –0 | – | | | 10,098,010 | |
Consumer Staples | | | 2,880,401 | | | | 6,710,685 | | | | –0 | – | | | 9,591,086 | |
Health Care | | | 558,419 | | | | 6,390,191 | | | | –0 | – | | | 6,948,610 | |
Consumer Discretionary | | | 2,497,708 | | | | 2,694,374 | | | | –0 | – | | | 5,192,082 | |
Utilities | | | 913,852 | | | | 2,697,193 | | | | –0 | – | | | 3,611,045 | |
Materials | | | 1,027,109 | | | | 1,450,298 | | | | –0 | – | | | 2,477,407 | |
Telecommunication Services | | | –0 | – | | | 2,063,990 | | | | –0 | – | | | 2,063,990 | |
Real Estate | | | 1,278,546 | | | | –0 | – | | | –0 | – | | | 1,278,546 | |
Short-Term Investments | | | –0 | – | | | 4,385,996 | | | | –0 | – | | | 4,385,996 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 1,756,788 | | | | –0 | – | | | –0 | – | | | 1,756,788 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 13,443,734 | | | | 59,480,225 | (a) | | | –0 | – | | | 72,923,959 | |
16
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Other Financial Instruments(b): | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Forward Currency Exchange Contracts | | $ | –0 | – | | $ | 580,912 | | | $ | –0 | – | | $ | 580,912 | |
Liabilities: | | | | | | | | | | | | | | | | |
Forward Currency Exchange Contracts | | | –0 | – | | | (523,238 | ) | | | –0 | – | | | (523,238 | ) |
| | | | | | | | | | | | | | | | |
Total(c)(d) | | $ | 13,443,734 | | | $ | 59,537,899 | | | $ | –0 | – | | $ | 72,981,633 | |
| | | | | | | | | | | | | | | | |
| (a) | | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
| (b) | | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
| (c) | | There were deminimis transfers under 1% of net assets from Level 1 to Level 2 during the reporting period. |
| (d) | | An amount of $1,905,351 was transferred from Level 2 to Level 1 as the above mentioned foreign equity fair valuation by the third party vendor was not applied during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
17
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,558.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $56,705, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
18
| | |
| | | AB Variable Products Series Fund |
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 32,509,071 | | | $ | 40,678,122 | |
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 | | $ | 55,746,113 | |
| | | | |
Gross unrealized appreciation | | $ | 18,371,476 | |
Gross unrealized depreciation | | | (1,183,644 | ) |
| | | | |
Net unrealized appreciation | | $ | 17,187,832 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging purposes.
The Portfolio 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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
19
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty table below.
During the year ended December 31, 2017, the Portfolio 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 | | $ | 580,912 | | | Unrealized depreciation on forward currency exchange contracts | | $ | 523,238 | |
| | | | | | | | | | | | |
Total | | | | $ | 580,912 | | | | | $ | 523,238 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
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 | | $ | (208,347 | ) | | $ | 401,112 | |
| | | | | | | | | | |
Total | | | | $ | (208,347 | ) | | $ | 401,112 | |
| | | | | | | | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017:
| | | | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 20,926,204 | |
Average principal amount of sale contracts | | $ | 16,310,914 | |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Received* | | | Security
Collateral
Received* | | | Net Amount of
Derivatives Assets | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 23,157 | | | $ | (23,157 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Barclays Bank PLC | | | 29,686 | | | | (29,686 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Citibank, NA | | | 246,364 | | | | (35,968 | ) | | | –0 | – | | | –0 | – | | | 210,396 | |
Credit Suisse International | | | 129,899 | | | | (129,899 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Deutsche Bank AG | | | 37,130 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 37,130 | |
Royal Bank of Scotland PLC | | | 56,684 | | | | (30,365 | ) | | | –0 | – | | | –0 | – | | | 26,319 | |
Standard Chartered Bank | | | 9,939 | | | | (9,939 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
State Street Bank & Trust Co. | | | 48,053 | | | | (48,053 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 580,912 | | | $ | (307,067 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 273,845 | ^ |
| | | | | | | | | | | | | | | | | | | | |
20
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Liabilities
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount of
Derivatives Liabilities | |
OTC Derivatives: | | | | | | | | | | | | | | | | | | | | |
Bank of America, NA | | $ | 40,173 | | | $ | (23,157 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 17,016 | |
Barclays Bank PLC | | | 33,820 | | | | (29,686 | ) | | | –0 | – | | | –0 | – | | | 4,134 | |
Citibank, NA | | | 35,968 | | | | (35,968 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 209,437 | | | | (129,899 | ) | | | –0 | – | | | –0 | – | | | 79,538 | |
JPMorgan Chase Bank, NA | | | 12,568 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 12,568 | |
Royal Bank of Scotland PLC | | | 30,365 | | | | (30,365 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Standard Chartered Bank | | | 11,505 | | | | (9,939 | ) | | | –0 | – | | | –0 | – | | | 1,566 | |
State Street Bank & Trust Co. | | | 149,402 | | | | (48,053 | ) | | | –0 | – | | | –0 | – | | | 101,349 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 523,238 | | | $ | (307,067 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 216,171 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $1,672,555 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,756,788. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $5,810 and $3,150 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver
21
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
amounted to $663. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 2,304 | | | $ | 13,872 | | | $ | 14,419 | | | $ | 1,757 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 97,457 | | | | 49,300 | | | | | | | $ | 2,078,227 | | | $ | 888,299 | |
Shares issued in reinvestment of dividends | | | 15,198 | | | | –0 | – | | | | | | | 329,359 | | | | –0 | – |
Shares redeemed | | | (304,481 | ) | | | (325,011 | ) | | | | | | | (6,242,518 | ) | | | (5,899,125 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (191,826 | ) | | | (275,711 | ) | | | | | | $ | (3,834,932 | ) | | $ | (5,010,826 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 523,356 | | | | 234,251 | | | | | | | $ | 10,934,597 | | | $ | 4,158,386 | |
Shares issued in reinvestment of dividends | | | 16,664 | | | | –0 | – | | | | | | | 356,101 | | | | –0 | – |
Shares redeemed | | | (663,245 | ) | | | (518,336 | ) | | | | | | | (13,699,879 | ) | | | (9,204,774 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (123,225 | ) | | | (284,085 | ) | | | | | | $ | (2,409,181 | ) | | $ | (5,046,388 | ) |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 78% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the
22
| | |
| | | AB Variable Products Series Fund |
Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 685,460 | | | $ | –0 | – |
| | | | | | | | |
Total taxable distributions paid | | $ | 685,460 | | | $ | –0 | – |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 318,597 | |
Undistributed capital gains | | $ | –0 | –(a) |
Unrealized appreciation/(depreciation) | | | 17,189,747 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 17,508,344 | |
| | | | |
| (a) | | During the fiscal year, the Portfolio utilized $11,590,202 of capital loss carry forwards to offset current year net realized gains. The Portfolio also had $20,876,851 of capital loss carryforwards expire during the fiscal year. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of passive foreign investment companies (PFICs), foreign currency reclassifications, and the expiration of capital loss carryforwards resulted in a net decrease in undistributed net investment income, a net decrease in accumulated net realized loss on investment and foreign currency transactions, 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 Portfolio’s financial statements through this date.
23
| | |
|
| INTERNATIONAL GROWTH PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $17.34 | | | | $18.62 | | | | $19.04 | | | | $19.27 | | | | $17.13 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .06 | (b) | | | .11 | (b)† | | | .15 | | | | .24 | | | | .21 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 6.00 | | | | (1.39 | ) | | | (.50 | ) | | | (.47 | ) | | | 2.11 | |
Contributions from Affiliates | | | –0 | – | | | –0 | – | | | –0 | – | | | .00 | (c) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 6.06 | | | | (1.28 | ) | | | (.35 | ) | | | (.23 | ) | | | 2.32 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.25 | ) | | | –0 | – | | | (.07 | ) | | | –0 | – | | | (.18 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $23.15 | | | | $17.34 | | | | $18.62 | | | | $19.04 | | | | $19.27 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d) | | | 35.02 | %* | | | (6.87 | )%†* | | | (1.87 | )% | | | (1.19 | )% | | | 13.60 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $30,318 | | | | $26,045 | | | | $33,090 | | | | $38,924 | | | | $102,467 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.24 | % | | | 1.27 | % | | | 1.11 | % | | | 1.07 | % | | | .94 | % |
Expenses, before waivers/reimbursements | | | 1.24 | % | | | 1.27 | % | | | 1.11 | % | | | 1.07 | % | | | .94 | % |
Net investment income | | | .30 | %(b) | | | .60 | %(b)† | | | .78 | % | | | 1.20 | % | | | 1.15 | % |
Portfolio turnover rate | | | 52 | % | | | 52 | % | | | 17 | % | | | 29 | % | | | 31 | % |
See footnote summary on page 25.
24
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $17.09 | | | | $18.39 | | | | $18.81 | | | | $19.08 | | | | $16.96 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .01 | (b) | | | .07 | (b)† | | | .10 | | | | .20 | | | | .16 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 5.90 | | | | (1.37 | ) | | | (.51 | ) | | | (.47 | ) | | | 2.09 | |
Contributions from Affiliates | | | –0 | – | | | –0 | – | | | –0 | – | | | .00 | (c) | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 5.91 | | | | (1.30 | ) | | | (.41 | ) | | | (.27 | ) | | | 2.25 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.20 | ) | | | –0 | – | | | (.01 | ) | | | –0 | – | | | (.13 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $22.80 | | | | $17.09 | | | | $18.39 | | | | $18.81 | | | | $19.08 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d) | | | 34.63 | %* | | | (7.07 | )%†* | | | (2.17 | )% | | | (1.41 | )% | | | 13.32 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $41,007 | | | | $32,843 | | | | $40,566 | | | | $47,884 | | | | $54,643 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.49 | % | | | 1.52 | % | | | 1.36 | % | | | 1.36 | % | | | 1.19 | % |
Expenses, before waivers/reimbursements | | | 1.49 | % | | | 1.52 | % | | | 1.36 | % | | | 1.36 | % | | | 1.19 | % |
Net investment income | | | .04 | %(b) | | | .37 | %(b)† | | | .52 | % | | | 1.02 | % | | | .92 | % |
Portfolio turnover rate | | | 52 | % | | | 52 | % | | | 17 | % | | | 29 | % | | | 31 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and 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. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment Income Per Share | | | Net Investment Income Ratio | | | Total Return | |
| $ | .04 | | | | .22 | % | | | .23 | % |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017 and December 31, 2016 by 0.01% and 0.09%, respectively. |
See notes to financial statements.
25
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| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB International Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB International Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB International Growth Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
26
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| | |
| | |
| 2017 TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the earnings of the Portfolio for the taxable year ended December 31, 2017.
The Portfolio intends to make an election to pass through foreign taxes to its shareholders. For the taxable year ended December 31, 2017, $73,059 of foreign taxes may be passed through and the associated foreign source income for information reporting purposes is $915,246.
27
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| | |
| INTERNATIONAL GROWTH | | |
| PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| |
| | |
| | |
| OFFICERS | | |
Daniel C. Roarty(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the Global Growth and Thematic Investment Team. Mr. Roarty is the investment professional with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
28
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| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST
ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr., ## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership experience and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
29
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST
ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Michael J. Downey, ## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
| | | | | | | | |
William H. Foulk, Jr., ## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin, ## 69 (2006) | | Private Investor since prior to 2012. 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 Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
30
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST
ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Carol C. McMullen, ## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
| | | | | | | | |
Garry L. Moody, ## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner, ## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | None |
| * | The address for the Portfolio’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. |
31
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith
57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Daniel C. Roarty 46 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. He is also Chief Investment Officer of Thematic and Sustainable Equities. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | | The Adviser, ABIS and ABI 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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
32
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| INTERNATIONAL GROWTH PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts
33
| | |
| INTERNATIONAL GROWTH PORTFOLIO |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. 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.
34
| | |
| | | AB Variable Products Series Fund |
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
35
VPS-IG-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
| + | | INTERNATIONAL VALUE PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| | |
| INTERNATIONAL VALUE PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—International Value Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of established companies selected from more than 40 industries and more than 40 developed- and emerging-market countries. These countries currently include the developed nations in Europe and the Far East, Canada, Australia and emerging-market countries worldwide. Under normal market conditions, the Portfolio invests significantly, at least 40%—unless market conditions are not deemed favorable by the Adviser, in securities of non-US companies. In addition, the Portfolio invests, under normal circumstances, in the equity securities of companies located in at least three countries.
The Portfolio invests in companies that are determined by the Adviser to be undervalued, using a fundamental value approach. In selecting securities for the Portfolio, the Adviser uses its fundamental and quantitative research to identify companies whose stocks are priced low in relation to their perceived long-term earnings power.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. The Adviser evaluates currency and equity positions separately and may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge a portion of its currency risk, the Portfolio may from time to time invest in currency-related derivatives, including forward currency exchange contracts, futures, options on futures, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments. The Portfolio may invest in depositary receipts, instruments of supranational entities denominated in the currency of any country, securities of multinational companies and “semi-governmental securities”, and enter into forward commitments.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its benchmark, the Morgan Stanley Capital International Europe, Australasia and Far East (“MSCI EAFE”) Index (net), for the one-, five- and 10-year periods ended December 31, 2017.
During the annual period, all share classes of the Portfolio outperformed the benchmark. Security selection was the primary driver of relative returns, as gains from selection within the financials, transportation, energy and technology sectors outweighed losses from selection within industrials and health care. Country selection (a result of bottom-up security analysis combined with fundamental research) also contributed because of overweights to Japan, Korea and China, while an overweight to Russia was negative. Sector selection detracted, as losses from an overweight to telecommunications outweighed gains from an overweight to technology and underweight to health care.
The Portfolio used derivatives in the form of forwards for hedging and investment purposes, which added to absolute returns during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
International equities advanced over the annual period ended December 31, 2017. Stocks gained on strong economic data and global growth. However, investor enthusiasm was tempered early on by questions around the timeliness of the US administration’s pro-growth agenda and concerns regarding the election cycle in Europe. A significant decline in the price of oil and geopolitical tensions weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half year highs, pushing stocks higher, especially in emerging markets. Japanese stocks outperformed, while European equities trailed. In December, tax reform passed in the US, buoying market sentiment globally.
Central bank actions were important during the period, as the US Federal Reserve continued its process of monetary policy normalization and other central banks followed suit; the European Central Bank announced plans to begin tapering the pace of its monthly asset purchases and the Bank of England hiked rates for the first time in more than a decade. Other central banks in Europe and emerging markets generally maintained an easing bias, as global inflation remained low.
1
| | |
| | | AB Variable Products Series Fund |
The Portfolio’s Senior Investment Management Team (the “Team”) has continued to identify opportunities against a changing market backdrop. The Team has flexibility to adjust the Portfolio’s positions in real time when warranted, and to maintain conviction through short-term volatility. As markets face new uncertainties, the Team believes that this disciplined approach is the best way to capture the long-term potential for equities.
2
| | |
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
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 reflect the reinvestment of dividends after the 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as value, 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: When the Portfolio borrows money or otherwise leverages its portfolio, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase agreements, forward commitments, or by borrowing money.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
(Disclosures and Risks continued on next page)
3
| | |
| | |
| DISCLOSURES AND RISKS | | |
| (continued) | | AB Variable Products Series Fund |
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
| | |
|
| INTERNATIONAL VALUE PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| International Value Portfolio Class A2 | | | 25.42% | | | | 8.11% | | | | -1.04% | |
| International Value Portfolio Class B2 | | | 25.09% | | | | 7.85% | | | | -1.29% | |
| MSCI EAFE Index (net) | | | 25.03% | | | | 7.90% | | | | 1.94% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.01%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 0.86% and 1.11% for Class A and Class B 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.
INTERNATIONAL VALUE PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 to 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the International Value Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
5
| | |
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,090.00 | | | $ | 4.48 | | | | 0.85 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.92 | | | $ | 4.33 | | | | 0.85 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,088.80 | | | $ | 5.79 | | | | 1.10 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,019.66 | | | $ | 5.60 | | | | 1.10 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
Royal Dutch Shell PLC—Class A | | $ | 18,753,726 | | | | 3.9 | % |
Nippon Telegraph & Telephone Corp. | | | 16,577,161 | | | | 3.4 | |
British American Tobacco PLC | | | 15,655,207 | | | | 3.2 | |
BT Group PLC | | | 12,558,373 | | | | 2.6 | |
Yahoo Japan Corp. | | | 11,606,746 | | | | 2.4 | |
Japan Airlines Co., Ltd. | | | 10,818,440 | | | | 2.2 | |
Airbus SE | | | 10,737,741 | | | | 2.2 | |
Credit Suisse Group AG (REG) | | | 10,675,154 | | | | 2.2 | |
Mitsubishi UFJ Financial Group, Inc. | | | 10,627,277 | | | | 2.2 | |
Sanofi | | | 10,378,382 | | | | 2.1 | |
| | | | | | | | | |
| | | $ | 128,388,207 | | | | 26.4 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Financials | | $ | 88,832,678 | | | | 18.4 | % |
Consumer Discretionary | | | 71,459,641 | | | | 14.8 | |
Consumer Staples | | | 52,733,220 | | | | 10.9 | |
Materials | | | 52,108,698 | | | | 10.8 | |
Telecommunication Services | | | 49,820,625 | | | | 10.3 | |
Industrials | | | 48,591,818 | | | | 10.1 | |
Information Technology | | | 47,377,531 | | | | 9.8 | |
Energy | | | 38,559,568 | | | | 8.0 | |
Health Care | | | 26,066,963 | | | | 5.4 | |
Utilities | | | 4,554,021 | | | | 0.9 | |
Real Estate | | | 2,683,015 | | | | 0.6 | |
Short-Term Investments | | | 192,897 | | | | 0.0 | |
| | | | | | | | | |
Total Investments | | $ | 482,980,675 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
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 Portfolio’s prospectus.
7
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| COUNTRY BREAKDOWN1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COUNTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Japan | | $ | 150,499,463 | | | | 31.2 | % |
United Kingdom | | | 78,011,742 | | | | 16.2 | |
France | | | 49,488,708 | | | | 10.2 | |
Germany | | | 23,328,740 | | | | 4.8 | |
Norway | | | 22,460,982 | | | | 4.7 | |
Australia | | | 20,057,495 | | | | 4.2 | |
South Korea | | | 17,877,269 | | | | 3.7 | |
Canada | | | 17,525,977 | | | | 3.6 | |
Hong Kong | | | 14,385,778 | | | | 3.0 | |
Denmark | | | 13,859,561 | | | | 2.9 | |
Finland | | | 13,455,447 | | | | 2.8 | |
China | | | 11,810,800 | | | | 2.4 | |
Switzerland | | | 10,675,154 | | | | 2.2 | |
Other | | | 39,350,662 | | | | 8.1 | |
Short-Term Investments | | | 192,897 | | | | 0.0 | |
| | | | | | | | | |
Total Investments | | $ | 482,980,675 | | | | 100.0 | % |
| 1 | | All data are as of December 31, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 1.8% or less in the following countries: Argentina, Austria, Brazil, Israel, Netherlands, Portugal and Spain. |
8
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–99.4% | | | | | | | | |
| | | | | | | | |
FINANCIALS–18.3% | | | | | | | | |
BANKS–12.0% | | | | | | | | |
Australia & New Zealand Banking Group Ltd. | | | 205,590 | | | $ | 4,586,516 | |
Barclays PLC | | | 2,187,860 | | | | 5,988,982 | |
BNP Paribas SA | | | 119,790 | | | | 8,911,007 | |
BOC Hong Kong Holdings Ltd. | | | 1,498,000 | | | | 7,570,552 | |
DNB ASA | | | 374,690 | | | | 6,936,038 | |
Erste Group Bank AG(a) | | | 205,600 | | | | 8,909,789 | |
KB Financial Group, Inc. | | | 80,120 | | | | 4,741,750 | |
Mitsubishi UFJ Financial Group, Inc. | | | 1,460,200 | | | | 10,627,277 | |
| | | | | | | | |
| | | | | | | 58,271,911 | |
| | | | | | | | |
CAPITAL MARKETS–2.2% | | | | | | | | |
Credit Suisse Group AG (REG)(a) | | | 598,527 | | | | 10,675,154 | |
| | | | | | | | |
CONSUMER FINANCE–1.0% | | | | | | | | |
Hitachi Capital Corp. | | | 193,600 | | | | 4,854,892 | |
| | | | | | | | |
INSURANCE–3.1% | | | | | | | | |
Allianz SE (REG) | | | 43,680 | | | | 9,996,067 | |
PICC Property & Casualty Co., Ltd.–Class H | | | 2,628,000 | | | | 5,034,654 | |
| | | | | | | | |
| | | | | | | 15,030,721 | |
| | | | | | | | |
| | | | | | | 88,832,678 | |
| | | | | | | | |
CONSUMER DISCRETIONARY–14.7% | | | | | | | | |
AUTO COMPONENTS–4.2% | | | | | | | | |
Faurecia | | | 98,930 | | | | 7,710,113 | |
Hankook Tire Co., Ltd.(a) | | | 94,604 | | | | 4,819,833 | |
Magna International, Inc. (New York)–Class A | | | 140,470 | | | | 7,960,435 | |
| | | | | | | | |
| | | | | | | 20,490,381 | |
| | | | | | | | |
AUTOMOBILES–3.4% | | | | | | | | |
Honda Motor Co., Ltd. | | | 231,600 | | | | 7,903,929 | |
Peugeot SA | | | 363,930 | | | | 7,391,862 | |
Subaru Corp. | | | 31,600 | | | | 1,001,967 | |
| | | | | | | | |
| | | | | | | 16,297,758 | |
| | | | | | | | |
HOUSEHOLD DURABLES–3.1% | | | | | | | | |
Nikon Corp. | | | 259,400 | | | | 5,219,961 | |
Panasonic Corp. | | | 686,300 | | | | 10,015,798 | |
| | | | | | | | |
| | | | | | | 15,235,759 | |
| | | | | | | | |
LEISURE PRODUCTS–1.0% | | | | | | | | |
Amer Sports Oyj(a) | | | 176,470 | | | | 4,884,377 | |
| | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–3.0% | | | | | | | | |
HUGO BOSS AG | | | 65,660 | | | | 5,571,784 | |
Pandora A/S | | | 82,610 | | | | 8,979,582 | |
| | | | | | | | |
| | | | | | | 14,551,366 | |
| | | | | | | | |
| | | | | | | 71,459,641 | |
| | | | | | | | |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
CONSUMER STAPLES–10.9% | | | | | | | | |
BEVERAGES–1.1% | | | | | | | | |
Coca-Cola Bottlers Japan, Inc. | | | 135,700 | | | $ | 4,951,510 | |
| | | | | | | | |
FOOD PRODUCTS–3.1% | | | | | | | | |
Orkla ASA | | | 786,430 | | | | 8,333,862 | |
WH Group Ltd.(b) | | | 6,037,000 | | | | 6,815,226 | |
| | | | | | | | |
| | | | | | | 15,149,088 | |
| | | | | | | | |
HOUSEHOLD PRODUCTS–1.6% | | | | | | | | |
Henkel AG & Co. KGaA (Preference Shares) | | | 58,770 | | | | 7,760,889 | |
| | | | | | | | |
TOBACCO–5.1% | | | | | | | | |
British American Tobacco PLC | | | 231,590 | | | | 15,655,207 | |
Japan Tobacco, Inc. | | | 286,200 | | | | 9,216,526 | |
| | | | | | | | |
| | | | | | | 24,871,733 | |
| | | | | | | | |
| | | | | | | 52,733,220 | |
| | | | | | | | |
MATERIALS–10.7% | | | | | | | | |
CHEMICALS–5.6% | | | | | | | | |
Air Water, Inc. | | | 233,300 | | | | 4,911,224 | |
Arkema SA | | | 35,780 | | | | 4,359,603 | |
Incitec Pivot Ltd. | | | 1,574,260 | | | | 4,770,105 | |
Johnson Matthey PLC | | | 183,410 | | | | 7,600,213 | |
Nippon Shokubai Co., Ltd. | | | 85,600 | | | | 5,770,311 | |
| | | | | | | | |
| | | | | | | 27,411,456 | |
| | | | | | | | |
METALS & MINING–5.1% | | | | | | | | |
BlueScope Steel Ltd. | | | 228,974 | | | | 2,727,206 | |
First Quantum Minerals Ltd. | | | 303,480 | | | | 4,251,617 | |
Gerdau SA (Preference Shares) | | | 1,539,800 | | | | 5,739,368 | |
Norsk Hydro ASA | | | 948,590 | | | | 7,191,082 | |
Yamato Kogyo Co., Ltd. | | | 165,300 | | | | 4,787,969 | |
| | | | | | | | |
| | | | | | | 24,697,242 | |
| | | | | | | | |
| | | | | | | 52,108,698 | |
| | | | | | | | |
TELECOMMUNICATION SERVICES–10.3% | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–8.4% | | | | | | | | |
BT Group PLC | | | 3,423,430 | | | | 12,558,373 | |
China Unicom Hong Kong Ltd.(a) | | | 5,012,000 | | | | 6,776,146 | |
Nippon Telegraph & Telephone Corp. | | | 352,600 | | | | 16,577,161 | |
TDC A/S | | | 794,094 | | | | 4,879,979 | |
| | | | | | | | |
| | | | | | | 40,791,659 | |
| | | | | | | | |
WIRELESS TELECOMMUNICATION SERVICES–1.9% | | | | | | | | |
Vodafone Group PLC | | | 2,856,370 | | | | 9,028,966 | |
| | | | | | | | |
| | | | | | | 49,820,625 | |
| | | | | | | | |
9
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
INDUSTRIALS–10.0% | | | | | | | | |
AEROSPACE & DEFENSE–3.8% | | | | | | | | |
Airbus SE | | | 108,040 | | | $ | 10,737,741 | |
BAE Systems PLC | | | 1,014,200 | | | | 7,836,044 | |
| | | | | | | | |
| | | | | | | 18,573,785 | |
| | | | | | | | |
AIRLINES–3.9% | | | | | | | | |
Japan Airlines Co., Ltd. | | | 276,900 | | | | 10,818,440 | |
Qantas Airways Ltd. | | | 2,033,555 | | | | 7,973,668 | |
| | | | | | | | |
| | | | | | | 18,792,108 | |
| | | | | | | | |
ELECTRICAL EQUIPMENT–1.0% | | | | | | | | |
Philips Lighting NV(b) | | | 127,480 | | | | 4,675,559 | |
| | | | | | | | |
MACHINERY–1.3% | | | | | | | | |
IHI Corp. | | | 197,500 | | | | 6,550,366 | |
| | | | | | | | |
| | | | | | | 48,591,818 | |
| | | | | | | | |
INFORMATION TECHNOLOGY–9.7% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–1.8% | | | | | | | | |
Nokia Oyj | | | 1,834,430 | | | | 8,571,070 | |
| | | | | | | | |
INTERNET SOFTWARE & SERVICES–2.4% | | | | | | | | |
Yahoo Japan Corp.(c) | | | 2,533,400 | | | | 11,606,746 | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.5% | | | | | | | | |
SCREEN Holdings Co., Ltd.(c) | | | 68,500 | | | | 5,571,207 | |
SUMCO Corp.(c) | | | 270,500 | | | | 6,867,093 | |
| | | | | | | | |
| | | | | | | 12,438,300 | |
| | | | | | | | |
SOFTWARE–1.3% | | | | | | | | |
Nintendo Co., Ltd. | | | 17,900 | | | | 6,445,729 | |
| | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.7% | | | | | | | | |
Samsung Electronics Co., Ltd. | | | 3,500 | | | | 8,315,686 | |
| | | | | | | | |
| | | | | | | 47,377,531 | |
| | | | | | | | |
ENERGY–7.9% | | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–7.9% | | | | | | | | |
Canadian Natural Resources Ltd. (Toronto) | | | 148,700 | | | | 5,313,925 | |
JXTG Holdings, Inc. | | | 1,504,500 | | | | 9,668,377 | |
Royal Dutch Shell PLC (Euronext Amsterdam)–Class A | | | 374,380 | | | | 12,476,218 | |
Royal Dutch Shell PLC–Class A | | | 188,044 | | | | 6,277,508 | |
YPF SA (Sponsored ADR) | | | 210,543 | | | | 4,823,540 | |
| | | | | | | | |
| | | | | | | 38,559,568 | |
| | | | | | | | |
HEALTH CARE–5.4% | | | | | | | | |
BIOTECHNOLOGY–1.1% | | | | | | | | |
Grifols SA (ADR) | | | 231,240 | | | | 5,300,021 | |
| | | | | | | | |
| | | | | | | | |
| Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
PHARMACEUTICALS–4.3% | | | | | | | | |
Indivior PLC(a) | | | 44,316 | | | $ | 243,362 | |
Ono Pharmaceutical Co., Ltd. | | | 191,300 | | | | 4,449,965 | |
Sanofi | | | 120,550 | | | | 10,378,382 | |
Teva Pharmaceutical Industries Ltd. (Sponsored ADR) | | | 300,540 | | | | 5,695,233 | |
| | | | | | | | |
| | | | | | | 20,766,942 | |
| | | | | | | | |
| | | | | | | 26,066,963 | |
| | | | | | | | |
UTILITIES–0.9% | |
ELECTRIC UTILITIES–0.8% | |
EDP–Energias de Portugal SA | | | 1,215,390 | | | | 4,207,152 | |
| | | | | | | | |
WATER UTILITIES–0.1% | |
Pennon Group PLC | | | 32,856 | | | | 346,869 | |
| | | | | | | | |
| | | | | | | 4,554,021 | |
| | | | | | | | |
REAL ESTATE–0.6% | | | | | | | | |
REAL ESTATE MANAGEMENT & DEVELOPMENT–0.6% | | | | | | | | |
Leopalace21 Corp. | | | 345,500 | | | | 2,683,015 | |
| | | | | | | | |
Total Common Stocks
(cost $402,512,201) | | | | | | | 482,787,778 | |
| | | | | | | | |
| | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–0.0% | | | | | | | | |
TIME DEPOSIT–0.0% | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $192,897) | | $ | 193 | | | | 192,897 | |
| | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned–99.4%
(cost $402,705,098) | | | | | | | 482,980,675 | |
| | | | | | | | |
| | | Shares | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–3.2% | | | | | | | | |
INVESTMENT COMPANIES–3.2% | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(d)(e)(f)
(cost $15,541,409) | | | 15,541,409 | | | | 15,541,409 | |
| | | | | | | | |
TOTAL INVESTMENTS–102.6%
(cost $418,246,507) | | | | | | | 498,522,084 | |
Other assets less liabilities–(2.6)% | | | | | | | (12,623,190 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 485,898,894 | |
| | | | | | | | |
10
| | |
| | | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
Bank of America, NA | | | BRL | | | | 7,431 | | | | USD | | | | 2,246 | | | | 1/03/18 | | | $ | 6,163 | |
Bank of America, NA | | | BRL | | | | 2,913 | | | | USD | | | | 877 | | | | 1/03/18 | | | | (1,163 | ) |
Bank of America, NA | | | USD | | | | 3,125 | | | | BRL | | | | 10,344 | | | | 1/03/18 | | | | (6,204 | ) |
Bank of America, NA | | | NOK | | | | 14,505 | | | | USD | | | | 1,821 | | | | 1/16/18 | | | | 53,279 | |
Bank of America, NA | | | USD | | | | 6,363 | | | | EUR | | | | 5,280 | | | | 1/16/18 | | | | (23,107 | ) |
Bank of America, NA | | | USD | | | | 4,222 | | | | HUF | | | | 1,096,289 | | | | 1/16/18 | | | | 14,072 | |
Bank of America, NA | | | USD | | | | 484 | | | | KRW | | | | 525,929 | | | | 1/18/18 | | | | 8,620 | |
Bank of America, NA | | | BRL | | | | 7,431 | | | | USD | | | | 2,235 | | | | 2/02/18 | | | | 2,606 | |
Bank of America, NA | | | CNY | | | | 80,015 | | | | USD | | | | 11,962 | | | | 2/07/18 | | | | (297,024 | ) |
Bank of America, NA | | | USD | | | | 9,833 | | | | EUR | | | | 8,259 | | | | 4/17/18 | | | | 141,296 | |
Barclays Bank PLC | | | CAD | | | | 19,366 | | | | USD | | | | 15,537 | | | | 1/16/18 | | | | 126,788 | |
Barclays Bank PLC | | | GBP | | | | 1,162 | | | | USD | | | | 1,536 | | | | 1/16/18 | | | | (33,519 | ) |
Barclays Bank PLC | | | ILS | | | | 7,074 | | | | USD | | | | 2,029 | | | | 1/16/18 | | | | (5,171 | ) |
Barclays Bank PLC | | | JPY | | | | 440,086 | | | | USD | | | | 3,931 | | | | 1/16/18 | | | | 23,409 | |
Barclays Bank PLC | | | NOK | | | | 9,732 | | | | USD | | | | 1,221 | | | | 1/16/18 | | | | 35,042 | |
Barclays Bank PLC | | | USD | | | | 5,783 | | | | EUR | | | | 4,922 | | | | 1/16/18 | | | | 127,045 | |
Barclays Bank PLC | | | USD | | | | 2,458 | | | | GBP | | | | 1,858 | | | | 1/16/18 | | | | 51,236 | |
Barclays Bank PLC | | | USD | | | | 1,646 | | | | JPY | | | | 184,315 | | | | 1/16/18 | | | | (9,212 | ) |
Barclays Bank PLC | | | USD | | | | 1,157 | | | | NOK | | | | 9,480 | | | | 1/16/18 | | | | (2,355 | ) |
Barclays Bank PLC | | | USD | | | | 1,204 | | | | KRW | | | | 1,312,742 | | | | 1/18/18 | | | | 26,062 | |
Barclays Bank PLC | | | USD | | | | 669 | | | | CNY | | | | 4,448 | | | | 2/07/18 | | | | 12,601 | |
BNP Paribas SA | | | USD | | | | 10,361 | | | | AUD | | | | 13,648 | | | | 1/16/18 | | | | 287,543 | |
BNP Paribas SA | | | USD | | | | 2,020 | | | | GBP | | | | 1,539 | | | | 1/16/18 | | | | 58,476 | |
BNP Paribas SA | | | USD | | | | 4,424 | | | | GBP | | | | 3,298 | | | | 4/17/18 | | | | 44,484 | |
Citibank, NA | | | EUR | | | | 9,220 | | | | USD | | | | 10,895 | | | | 1/16/18 | | | | (175,930 | ) |
Citibank, NA | | | GBP | | | | 558 | | | | USD | | | | 737 | | | | 1/16/18 | | | | (16,443 | ) |
Citibank, NA | | | USD | | | | 4,799 | | | | RUB | | | | 291,398 | | | | 1/25/18 | | | | 241,199 | |
Credit Suisse International | | | BRL | | | | 4,518 | | | | USD | | | | 1,398 | | | | 1/03/18 | | | | 35,474 | |
Credit Suisse International | | | USD | | | | 1,366 | | | | BRL | | | | 4,518 | | | | 1/03/18 | | | | (3,747 | ) |
Credit Suisse International | | | HKD | | | | 75,274 | | | | USD | | | | 9,664 | | | | 1/16/18 | | | | 26,850 | |
Credit Suisse International | | | JPY | | | | 342,732 | | | | USD | | | | 3,030 | | | | 1/16/18 | | | | (13,018 | ) |
Credit Suisse International | | | SEK | | | | 125,987 | | | | USD | | | | 15,002 | | | | 1/16/18 | | | | (368,181 | ) |
Credit Suisse International | | | USD | | | | 6,195 | | | | CHF | | | | 6,117 | | | | 1/16/18 | | | | 87,578 | |
Credit Suisse International | | | USD | | | | 11,777 | | | | CHF | | | | 11,342 | | | | 1/16/18 | | | | (127,608 | ) |
Credit Suisse International | | | USD | | | | 1,715 | | | | NOK | | | | 13,647 | | | | 1/16/18 | | | | (51,920 | ) |
Credit Suisse International | | | USD | | | | 1,269 | | | | SEK | | | | 10,295 | | | | 1/16/18 | | | | (13,405 | ) |
Credit Suisse International | | | USD | | | | 2,420 | | | | PLN | | | | 8,637 | | | | 4/17/18 | | | | 62,355 | |
Deutsche Bank AG | | | CAD | | | | 1,213 | | | | USD | | | | 977 | | | | 1/16/18 | | | | 11,505 | |
Deutsche Bank AG | | | GBP | | | | 6,503 | | | | USD | | | | 8,601 | | | | 1/16/18 | | | | (182,910 | ) |
Deutsche Bank AG | | | ILS | | | | 5,131 | | | | USD | | | | 1,454 | | | | 1/16/18 | | | | (20,998 | ) |
Goldman Sachs Bank USA | | | AUD | | | | 1,565 | | | | USD | | | | 1,225 | | | | 1/16/18 | | | | 4,050 | |
Goldman Sachs Bank USA | | | USD | | | | 26,302 | | | | EUR | | | | 22,099 | | | | 1/16/18 | | | | 233,224 | |
Goldman Sachs Bank USA | | | USD | | | | 11,541 | | | | GBP | | | | 8,739 | | | | 1/16/18 | | | | 262,965 | |
Goldman Sachs Bank USA | | | USD | | | | 885 | | | | ILS | | | | 3,079 | | | | 1/16/18 | | | | 343 | |
Goldman Sachs Bank USA | | | USD | | | | 2,196 | | | | TRY | | | | 8,253 | | | | 1/16/18 | | | | (27,898 | ) |
Goldman Sachs Bank USA | | | USD | | | | 1,041 | | | | AUD | | | | 1,384 | | | | 4/17/18 | | | | 38,681 | |
JPMorgan Chase Bank, NA | | | HUF | | | | 1,096,289 | | | | USD | | | | 4,140 | | | | 1/16/18 | | | | (95,760 | ) |
11
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | | | | | | | | | | | | | | | | | |
| Counterparty | | Contracts to
Deliver
(000) | | | In Exchange
For
(000) | | | Settlement
Date | | | Unrealized
Appreciation/
(Depreciation) | |
JPMorgan Chase Bank, NA | | | NOK | | | | 72,354 | | | | USD | | | | 9,196 | | | | 1/16/18 | | | $ | 379,979 | |
JPMorgan Chase Bank, NA | | | USD | | | | 5,712 | | | | AUD | | | | 7,314 | | | | 1/16/18 | | | | (4,855 | ) |
JPMorgan Chase Bank, NA | | | USD | | | | 11,374 | | | | CHF | | | | 11,029 | | | | 1/16/18 | | | | (46,858 | ) |
JPMorgan Chase Bank, NA | | | USD | | | | 817 | | | | ILS | | | | 2,874 | | | | 1/16/18 | | | | 9,579 | |
JPMorgan Chase Bank, NA | | | CAD | | | | 1,247 | | | | USD | | | | 972 | | | | 4/17/18 | | | | (21,173 | ) |
JPMorgan Chase Bank, NA | | | NOK | | | | 77,793 | | | | USD | | | | 9,398 | | | | 4/17/18 | | | | (105,278 | ) |
Morgan Stanley & Co., Inc. | | | ILS | | | | 4,695 | | | | USD | | | | 1,335 | | | | 4/17/18 | | | | (20,393 | ) |
Morgan Stanley & Co., Inc. | | | USD | | | | 591 | | | | AUD | | | | 771 | | | | 4/17/18 | | | | 10,007 | |
Morgan Stanley & Co., Inc. | | | USD | | | | 2,943 | | | | GBP | | | | 2,168 | | | | 4/17/18 | | | | (5,829 | ) |
Royal Bank of Scotland PLC | | | EUR | | | | 10,007 | | | | USD | | | | 11,688 | | | | 1/16/18 | | | | (327,977 | ) |
Royal Bank of Scotland PLC | | | GBP | | | | 829 | | | | USD | | | | 1,121 | | | | 1/16/18 | | | | 902 | |
Royal Bank of Scotland PLC | | | JPY | | | | 2,629,955 | | | | USD | | | | 23,531 | | | | 1/16/18 | | | | 176,951 | |
Standard Chartered Bank | | | KRW | | | | 2,286,810 | | | | USD | | | | 2,057 | | | | 1/18/18 | | | | (86,696 | ) |
State Street Bank & Trust Co. | | | CHF | | | | 499 | | | | USD | | | | 506 | | | | 1/16/18 | | | | (6,935 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 110,108 | | | | USD | | | | 985 | | | | 1/16/18 | | | | 6,842 | |
State Street Bank & Trust Co. | | | NOK | | | | 1,940 | | | | USD | | | | 246 | | | | 1/16/18 | | | | 9,514 | |
State Street Bank & Trust Co. | | | USD | | | | 1,211 | | | | AUD | | | | 1,599 | | | | 1/16/18 | | | | 36,304 | |
State Street Bank & Trust Co. | | | USD | | | | 4,916 | | | | EUR | | | | 4,153 | | | | 1/16/18 | | | | 70,445 | |
State Street Bank & Trust Co. | | | USD | | | | 1,820 | | | | GBP | | | | 1,354 | | | | 1/16/18 | | | | 8,432 | |
State Street Bank & Trust Co. | | | USD | | | | 9,663 | | | | HKD | | | | 75,274 | | | | 1/16/18 | | | | (25,255 | ) |
State Street Bank & Trust Co. | | | USD | | | | 22,752 | | | | SEK | | | | 183,295 | | | | 1/16/18 | | | | (390,246 | ) |
State Street Bank & Trust Co. | | | KRW | | | | 17,632,676 | | | | USD | | | | 15,573 | | | | 1/18/18 | | | | (952,771 | ) |
State Street Bank & Trust Co. | | | JPY | | | | 145,359 | | | | USD | | | | 1,291 | | | | 4/17/18 | | | | (6,660 | ) |
UBS AG | | | JPY | | | | 1,137,647 | | | | USD | | | | 10,261 | | | | 1/16/18 | | | | 158,801 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | $ | (585,797 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
| (a) | | Non-income producing security. |
| (b) | | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2017, the aggregate market value of these securities amounted to $11,490,785 or 2.4% of net assets. |
| (c) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (d) | | Affiliated investments. |
| (e) | | The rate shown represents the 7-day yield as of period end. |
| (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. |
12
| | |
| | | AB Variable Products Series Fund |
Currency Abbreviations:
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
HUF—Hungarian Forint
ILS—Israeli Shekel
JPY—Japanese Yen
KRW—South Korean Won
NOK—Norwegian Krone
PLN—Polish Zloty
RUB—Russian Ruble
SEK—Swedish Krona
TRY—Turkish Lira
USD—United States Dollar
Glossary:
ADR—American Depositary Receipt
REG—Registered Shares
See notes to financial statements.
13
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $402,705,098) | | $ | 482,980,675 | (a) |
Affiliated issuers (cost $15,541,409—investment of cash collateral for securities loaned) | | | 15,541,409 | |
Cash collateral due from broker | | | 824,000 | |
Foreign currencies, at value (cost $697,092) | | | 700,911 | |
Unrealized appreciation on forward currency exchange contracts | | | 2,890,702 | |
Dividends and interest receivable | | | 1,647,440 | |
Receivable for investment securities sold | | | 1,542,209 | |
Receivable for capital stock sold | | | 90,543 | |
| | | | |
Total assets | | | 506,217,889 | |
| | | | |
LIABILITIES | | | | |
Payable for collateral received on securities loaned | | | 15,541,409 | |
Unrealized depreciation on forward currency exchange contracts | | | 3,476,499 | |
Payable for capital stock redeemed | | | 387,604 | |
Advisory fee payable | | | 306,583 | |
Cash collateral due to broker | | | 300,000 | |
Distribution fee payable | | | 91,398 | |
Administrative fee payable | | | 13,618 | |
Payable for investment securities purchased and foreign currency transactions | | | 6,175 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 195,612 | |
| | | | |
Total liabilities | | | 20,318,995 | |
| | | | |
NET ASSETS | | $ | 485,898,894 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 30,060 | |
Additional paid-in capital | | | 458,893,897 | |
Undistributed net investment income | | | 3,178,512 | |
Accumulated net realized loss on investment and foreign currency transactions | | | (55,906,945 | ) |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 79,703,370 | |
| | | | |
| | $ | 485,898,894 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 53,014,136 | | | | 3,252,946 | | | $ | 16.30 | |
| B | | $ | 432,884,758 | | | | 26,806,634 | | | $ | 16.15 | |
| (a) | | Includes securities on loan with a value of $14,680,011 (see Note E). |
See notes to financial statements.
14
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $1,720,692) | | $ | 14,346,386 | |
Affiliated issuers | | | 88,145 | |
Securities lending income | | | 142,069 | |
Other income | | | 9,649 | |
| | | | |
| | | 14,586,249 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 3,734,261 | |
Distribution fee—Class B | | | 1,118,458 | |
Transfer agency—Class A | | | 712 | |
Transfer agency—Class B | | | 6,287 | |
Custodian | | | 194,663 | |
Printing | | | 110,214 | |
Audit and tax | | | 65,669 | |
Administrative | | | 53,558 | |
Legal | | | 44,872 | |
Directors’ fees | | | 28,561 | |
Miscellaneous | | | 31,268 | |
| | | | |
Total expenses | | | 5,388,523 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (18,066 | ) |
| | | | |
Net expenses | | | 5,370,457 | |
| | | | |
Net investment income | | | 9,215,792 | |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain on: | | | | |
Investment transactions | | | 36,776,164 | |
Forward currency exchange contracts | | | 2,297,570 | |
Foreign currency transactions | | | 822,900 | |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 63,958,879 | |
Forward currency exchange contracts | | | (1,787,831 | ) |
Foreign currency denominated assets and liabilities | | | 202,689 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 102,270,371 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 111,486,163 | |
| | | | |
See notes to financial statements.
15
| | |
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 9,215,792 | | | $ | 11,024,712 | |
Net realized gain (loss) on investment and foreign currency transactions | | | 39,896,634 | | | | (32,865,471 | ) |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 62,373,737 | | | | 17,903,236 | |
| | | | | | | | |
Net increase (decrease) in net assets from operations | | | 111,486,163 | | | | (3,937,523 | ) |
DIVIDENDS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (1,129,445 | ) | | | (613,805 | ) |
Class B | | | (8,153,923 | ) | | | (5,112,977 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net decrease | | | (123,775,055 | ) | | | (82,276,063 | ) |
| | | | | | | | |
Total decrease | | | (21,572,260 | ) | | | (91,940,368 | ) |
NET ASSETS | | | | | | | | |
Beginning of period | | | 507,471,154 | | | | 599,411,522 | |
| | | | | | | | |
End of period (including undistributed net investment income of $3,178,512 and $125,618, respectively) | | $ | 485,898,894 | | | $ | 507,471,154 | |
| | | | | | | | |
See notes to financial statements.
16
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB International Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
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| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | |
Common Stocks: | | | | | | | | | | | | | | | | |
Financials | | $ | –0 | – | | $ | 88,832,678 | | | $ | –0 | – | | $ | 88,832,678 | |
Consumer Discretionary | | | 7,960,435 | | | | 63,499,206 | | | | –0 | – | | | 71,459,641 | |
Consumer Staples | | | 6,815,226 | | | | 45,917,994 | | | | –0 | – | | | 52,733,220 | |
Materials | | | 8,611,220 | | | | 43,497,478 | | | | –0 | – | | | 52,108,698 | |
Telecommunication Services | | | 17,438,352 | | | | 32,382,273 | | | | –0 | – | | | 49,820,625 | |
Industrials | | | –0 | – | | | 48,591,818 | | | | –0 | – | | | 48,591,818 | |
Information Technology | | | –0 | – | | | 47,377,531 | | | | –0 | – | | | 47,377,531 | |
Energy | | | 10,137,465 | | | | 28,422,103 | | | | –0 | – | | | 38,559,568 | |
Health Care | | | 10,995,254 | | | | 15,071,709 | | | | –0 | – | | | 26,066,963 | |
Utilities | | | 4,207,152 | | | | 346,869 | | | | –0 | – | | | 4,554,021 | |
Real Estate | | | –0 | – | | | 2,683,015 | | | | –0 | – | | | 2,683,015 | |
Short-Term Investments | | | –0 | – | | | 192,897 | | | | –0 | – | | | 192,897 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 15,541,409 | | | | –0 | – | | | –0 | – | | | 15,541,409 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 81,706,513 | | | | 416,815,571 | (a) | | | –0 | – | | | 498,522,084 | |
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| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Other Financial Instruments(b): | | | | | | | | | | | | | | | | |
Assets: | |
Forward Currency Exchange Contracts | | $ | –0 | – | | $ | 2,890,702 | | | $ | –0 | – | | $ | 2,890,702 | |
Liabilities: | |
Forward Currency Exchange Contracts | | | –0 | – | | | (3,476,499 | ) | | | –0 | – | | | (3,476,499 | ) |
| | | | | | | | | | | | | | | | |
Total(c)(d) | | $ | 81,706,513 | | | $ | 416,229,774 | | | $ | –0 | – | | $ | 497,936,287 | |
| | | | | | | | | | | | | | | | |
| (a) | | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
| (b) | | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
| (c) | | There were no transfers from Level 1 to Level 2 during the reporting period. |
| (d) | | An amount of $38,355,043 was transferred from Level 2 to Level 1 as the above mentioned foreign equity fair valuation by the third party vendor was not applied during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
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| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2017, there were no expenses waived by the Adviser.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,558.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $432,456, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits
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payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 219,142,720 | | | $ | 336,753,495 | |
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 | | $ | 424,218,866 | |
| | | | |
Gross unrealized appreciation | | $ | 98,078,352 | |
Gross unrealized depreciation | | | (23,772,474 | ) |
| | | | |
Net unrealized appreciation | | $ | 74,305,878 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:
| | • | | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on 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 Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.
The Portfolio 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
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| INTERNATIONAL VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
default or termination. Under an ISDA Master Agreement, the Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by the OTC counterparty tables below.
During the year ended December 31, 2017, the Portfolio 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 | | $ | 2,890,702 | | | Unrealized depreciation on forward currency exchange contracts | | $ | 3,476,499 | |
| | | | | | | | | | | | |
Total | | | | | $2,890,702 | | | | | $ | 3,476,499 | |
| | | | | | | | | | | | |
| | | | | | | | | | |
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 | | $ | 2,297,570 | | | $ | (1,787,831 | ) |
| | | | | | | | | | |
Total | | | | $ | 2,297,570 | | | $ | (1,787,831 | ) |
| | | | | | | | | | |
| | | | |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2017: | |
Forward Currency Exchange Contracts: | | | | |
Average principal amount of buy contracts | | $ | 155,600,938 | |
Average principal amount of sale contracts | | $ | 154,944,619 | |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements and net of the related collateral received/pledged by the Portfolio as of December 31, 2017. Exchange-traded derivatives are not subject to netting arrangements and as such are excluded from the table.
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| | | | | | | | | | | | | | | | | | | | |
Counterparty | | Derivative Assets
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Received* | | | Security
Collateral
Received* | | | Net Amount of
Derivatives Assets | |
OTC Derivatives: | |
Bank of America, NA | | $ | 226,036 | | | $ | (226,036 | ) | | $ | –0 | – | | $ | –0 | – | | $ | –0 | – |
Barclays Bank PLC | | | 402,183 | | | | (50,257 | ) | | | –0 | – | | | –0 | – | | | 351,926 | |
BNP Paribas SA | | | 390,503 | | | | –0 | – | | | (300,000 | ) | | | –0 | – | | | 90,503 | |
Citibank, NA | | | 241,199 | | | | (192,373 | ) | | | –0 | – | | | –0 | – | | | 48,826 | |
Credit Suisse International | | | 212,257 | | | | (212,257 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Deutsche Bank AG | | | 11,505 | | | | (11,505 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Goldman Sachs Bank USA | | | 539,263 | | | | (27,898 | ) | | | –0 | – | | | –0 | – | | | 511,365 | |
JPMorgan Chase Bank, NA | | | 389,558 | | | | (273,924 | ) | | | –0 | – | | | –0 | – | | | 115,634 | |
Morgan Stanley & Co., Inc. | | | 10,007 | | | | (10,007 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Royal Bank of Scotland PLC | | | 177,853 | | | | (177,853 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
State Street Bank & Trust Co. | | | 131,537 | | | | (131,537 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
UBS AG | | | 158,801 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 158,801 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 2,890,702 | | | $ | (1,313,647 | ) | | $ | (300,000 | ) | | $ | –0 | – | | $ | 1,277,055 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| | | | | |
Counterparty | | Derivative Liabilities
Subject to a MA | | | Derivative
Available
for Offset | | | Cash
Collateral
Pledged* | | | Security
Collateral
Pledged* | | | Net Amount of
Derivatives Liabilities | |
OTC Derivatives: | |
Bank of America, NA | | $ | 327,498 | | | $ | (226,036 | ) | | $ | –0 | – | | $ | –0 | – | | $ | 101,462 | |
Barclays Bank PLC | | | 50,257 | | | | (50,257 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Citibank, NA | | | 192,373 | | | | (192,373 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Credit Suisse International | | | 577,879 | | | | (212,257 | ) | | | –0 | – | | | –0 | – | | | 365,622 | |
Deutsche Bank AG | | | 203,908 | | | | (11,505 | ) | | | –0 | – | | | –0 | – | | | 192,403 | |
Goldman Sachs Bank USA | | | 27,898 | | | | (27,898 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
JPMorgan Chase Bank, NA | | | 273,924 | | | | (273,924 | ) | | | –0 | – | | | –0 | – | | | –0 | – |
Morgan Stanley & Co., Inc. | | | 26,222 | | | | (10,007 | ) | | | –0 | – | | | –0 | – | | | 16,215 | |
Royal Bank of Scotland PLC | | | 327,977 | | | | (177,853 | ) | | | –0 | – | | | –0 | – | | | 150,124 | |
Standard Chartered Bank | | | 86,696 | | | | –0 | – | | | –0 | – | | | –0 | – | | | 86,696 | |
State Street Bank & Trust Co. | | | 1,381,867 | | | | (131,537 | ) | | | (824,000 | ) | | | –0 | – | | | 426,330 | |
| | | | | | | | | | | | | | | | | | | | |
Total | | $ | 3,476,499 | | | $ | (1,313,647 | ) | | $ | (824,000 | ) | | $ | –0 | – | | $ | 1,338,852 | ^ |
| | | | | | | | | | | | | | | | | | | | |
| * | | 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 Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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
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| INTERNATIONAL VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
“negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $14,680,011 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $15,541,409. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $142,069 and $88,145 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $18,066. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 8,420 | | | $ | 277,366 | | | $ | 270,245 | | | $ | 15,541 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31, 2017 | | | Year Ended
December 31,
2016 | |
Class A | |
Shares sold | | | 256,719 | | | | 372,097 | | | | | | | $ | 3,886,362 | | | $ | 4,878,130 | |
Shares issued in reinvestment of dividends | | | 71,092 | | | | 45,592 | | | | | | | | 1,129,445 | | | | 613,805 | |
Shares redeemed | | | (642,841 | ) | | | (448,061 | ) | | | | | | | (9,555,629 | ) | | | (5,880,050 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (315,030 | ) | | | (30,372 | ) | | | | | | $ | (4,539,822 | ) | | $ | (388,115 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | |
Shares sold | | | 862,955 | | | | 4,035,068 | | | | | | | $ | 13,009,333 | | | $ | 50,474,996 | |
Shares issued in reinvestment of dividends | | | 518,006 | | | | 383,236 | | | | | | | | 8,153,923 | | | | 5,112,977 | |
Shares redeemed | | | (9,534,251 | ) | | | (10,536,008 | ) | | | | | | | (140,398,489 | ) | | | (137,475,921 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (8,153,290 | ) | | | (6,117,704 | ) | | | | | | $ | (119,235,233 | ) | | $ | (81,887,948 | ) |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 55% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
24
| | |
| | | AB Variable Products Series Fund |
NOTE G: Risks Involved in Investing in the Portfolio
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 9,283,368 | | | $ | 5,726,782 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 9,283,368 | | | $ | 5,726,782 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 2,824,814 | |
Accumulated capital and other losses | | | (50,169,345 | )(a) |
Unrealized appreciation/(depreciation) | | | 74,319,468 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 26,974,937 | |
| | | | |
| (a) | | As of December 31, 2017, the Portfolio had a net capital loss carryforward of $50,169,345. During the fiscal year, the Portfolio utilized $38,911,532 of capital loss carry forwards to offset current year net realized gains. The Portfolio also had $905,101,875 of capital loss carryforwards expire during the fiscal year. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of passive foreign investment companies (PFICs) and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
25
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-December 22, 2010 capital losses must be utilized prior to the earlier capital losses, which are subject to expiration. Post-December 22, 2010 capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of December 31, 2017, the Portfolio had a net short-term capital loss carryforward of $50,169,345 which will expire on December 31, 2018.
During the current fiscal year, permanent differences primarily due to foreign currency reclassifications and the expiration of capital loss carryforwards resulted in a net increase in undistributed net investment income, a net decrease in accumulated net realized loss on investment and foreign currency transactions 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 Portfolio’s financial statements through this date.
26
| | |
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $13.28 | | | | $13.52 | | | | $13.53 | | | | $14.99 | | | | $12.96 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .31 | (b) | | | .30 | (b)† | | | .30 | | | | .48 | | | | .33 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 3.06 | | | | (.37 | ) | | | .05 | | | | (1.40 | ) | | | 2.59 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 3.37 | | | | (.07 | ) | | | .35 | | | | (.92 | ) | | | 2.92 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.35 | ) | | | (.17 | ) | | | (.36 | ) | | | (.54 | ) | | | (.89 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $16.30 | | | | $13.28 | | | | $13.52 | | | | $13.53 | | | | $14.99 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 25.42 | %* | | | (.50 | )%†* | | | 2.59 | % | | | (6.21 | )% | | | 23.00 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $53,014 | | | | $47,385 | | | | $48,665 | | | | $50,504 | | | | $58,723 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | .85 | % | | | .86 | % | | | .85 | % | | | .85 | % | | | .82 | % |
Expenses, before waivers/reimbursements | | | .86 | % | | | .86 | % | | | .85 | % | | | .85 | % | | | .82 | % |
Net investment income | | | 2.05 | %(b) | | | 2.27 | %(b)† | | | 2.09 | % | | | 3.25 | % | | | 2.33 | % |
Portfolio turnover rate | | | 45 | % | | | 64 | % | | | 74 | % | | | 64 | % | | | 59 | % |
See footnote summary on page 28.
27
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $13.16 | | | | $13.41 | | | | $13.41 | | | | $14.86 | | | | $12.84 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Income From Investment Operations | |
Net investment income (a) | | | .27 | (b) | | | .27 | (b)† | | | .26 | | | | .45 | | | | .30 | |
Net realized and unrealized gain (loss)
on investment and foreign currency
transactions | | | 3.02 | | | | (.38 | ) | | | .06 | | | | (1.40 | ) | | | 2.56 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value
from operations | | | 3.29 | | | | (.11 | ) | | | .32 | | | | (.95 | ) | | | 2.86 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends | |
Dividends from net investment income | | | (.30 | ) | | | (.14 | ) | | | (.32 | ) | | | (.50 | ) | | | (.84 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $16.15 | | | | $13.16 | | | | $13.41 | | | | $13.41 | | | | $14.86 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total Return | |
Total investment return based on net asset value (c) | | | 25.09 | %* | | | (.80 | )%†* | | | 2.40 | % | | | (6.46 | )% | | | 22.73 | % |
| | | | | | | | | | | | | | | | | | | | |
| Ratios/Supplemental Data | |
Net assets, end of period (000’s omitted) | | | $432,885 | | | | $460,086 | | | | $550,746 | | | | $615,682 | | | | $743,517 | |
Ratio to average net assets of: | |
Expenses, net of waivers/reimbursements | | | 1.10 | % | | | 1.11 | % | | | 1.10 | % | | | 1.10 | % | | | 1.07 | % |
Expenses, before waivers/reimbursements | | | 1.11 | % | | | 1.11 | % | | | 1.10 | % | | | 1.10 | % | | | 1.07 | % |
Net investment income | | | 1.83 | %(b) | | | 2.04 | %(b)† | | | 1.85 | % | | | 3.06 | % | | | 2.20 | % |
Portfolio turnover rate | | | 45 | % | | | 64 | % | | | 74 | % | | | 64 | % | | | 59 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and reimbursed by the Adviser. |
| (c) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment
Income Per Share | | | Net Investment
Income Ratio | | | Total Return | |
| $ | .002 | | | | .01 | % | | | .01 | % |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017 and December 31, 2016 by 0.01% and 0.07%, respectively. |
See notes to financial statements.
28
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB International Value Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB International Value Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB International Value Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
29
| | |
| | |
| | |
| 2017 TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the earnings of the Portfolio for the taxable year ended December 31, 2017.
The Portfolio intends to make an election to pass through foreign taxes to its shareholders. For the taxable year ended December 31, 2017, $954,430 of foreign taxes may be passed through and the associated foreign source income for information reporting purposes is $11,038,350.
30
| | |
| | |
| | |
| INTERNATIONAL VALUE PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
| Marshall C. Turner, Jr.(1), Chairman | | Robert M. Keith, President and Chief Executive Officer |
| Michael J. Downey(1) | | Carol C. McMullen(1) |
| William H. Foulk, Jr.(1) | | Garry L. Moody(1) |
Nancy P. Jacklin(1) | | Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Tawhid Ali(2), Vice President Takeo Aso(2), Vice President Avi Lavi(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the International Value Senior Investment Management Team. Messrs. Ali, Aso and Lavi are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
31
| | |
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
32
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
INDEPENDENT DIRECTORS (continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and nonprofit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
| | | | | | | | |
33
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR |
INDEPENDENT DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Garry L. Moody## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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. |
34
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| | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith
57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Tawhid Ali
46 | | Vice President | | Senior Vice President of the Adviser, **with which he has been associated since prior to 2013. |
| | | | |
Takeo Aso
53 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Avi Lavi
51 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto
53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio 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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
35
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| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Value Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected
36
| | |
| | | AB Variable Products Series Fund |
by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. 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.
37
| | |
| INTERNATIONAL VALUE PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
38
VPS-IV-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
| + | | LARGE CAP GROWTH PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| | |
| LARGE CAP GROWTH PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Large Cap Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in equity securities of a limited number of large, carefully selected, high-quality US companies. The Portfolio invests primarily in the domestic equity securities of companies selected by the Adviser for their growth potential within various market sectors. The Portfolio emphasizes investments in large, seasoned companies. Under normal circumstances, the Portfolio will invest at least 80% of its net assets in common stocks of large-capitalization companies.
The Adviser expects that normally the Portfolio’s portfolio will tend to emphasize investments in securities issued by US companies, although it may invest in foreign securities. The Adviser’s research focus is on companies with high sustainable growth prospects, high or improving return on invested capital, transparent business models, and strong and lasting competitive advantages.
The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in securities. ETFs may provide more efficient and economical exposure to the types of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 1000 Growth Index, in addition to the broad market as measured by the Standard & Poor’s (“S&P”) 500 Index, for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio outperformed the primary benchmark and the broad market for the annual period. Stock selection in the health care, consumer staples and technology sectors, as well as an overweight position in technology and an underweight in consumer staples, contributed relative to the benchmark. Stock selection in the consumer discretionary, materials and industrials sectors, as well as an overweight position in health care, detracted from performance.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked one of the strongest years for global stock market performance since the 2008 financial crisis. Emerging-market equities outperformed, followed by non-US stocks. US large-cap stocks outperformed their small-cap peers, and growth outperformed value, in terms of style.
Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
The Portfolio’s Senior Investment Management Team (the “Team”) follows a bottom-up stock picking methodology that seeks to identify companies that meet its investment criteria of healthy balance sheets, competitive advantages, strong cash flow generation, transparent business models and sustainable growth. The Portfolio is conservatively positioned amid the current uncertainty in the global macro environment. The Team believes that this strategy can be beneficial in an environment which offers low growth and that still appears favorable for stock pickers, as investors increasingly reward companies for their fundamental strengths.
1
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| LARGE CAP GROWTH PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 1000® Growth Index and the S&P 500® Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 1000 Growth Index represents the performance of 1,000 large-cap growth companies within the US. 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. 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 Portfolio’s net asset value (“NAV”).
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
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| LARGE CAP GROWTH PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| |
| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Large Cap Growth Portfolio Class A2 | | | 31.98% | | | | 18.73% | | | | 9.30% | |
| Large Cap Growth Portfolio Class B2 | | | 31.67% | | | | 18.43% | | | | 9.02% | |
| Primary benchmark: Russell 1000 Growth Index | | | 30.21% | | | | 17.33% | | | | 10.00% | |
| S&P 500 Index | | | 21.83% | | | | 15.79% | | | | 8.50% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.03%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.70% and 0.95% for Class A and Class B 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.
LARGE CAP GROWTH PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Large Cap Growth Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
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| LARGE CAP GROWTH PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,128.00 | | | $ | 3.65 | | | | 0.68 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,021.78 | | | $ | 3.47 | | | | 0.68 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,126.60 | | | $ | 4.98 | | | | 0.93 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.52 | | | $ | 4.74 | | | | 0.93 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
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| LARGE CAP GROWTH PORTFOLIO | | |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
Alphabet, Inc.—Class A & Class C | | $ | 43,440,518 | | | | 10.1 | % |
Facebook, Inc.—Class A | | | 30,089,783 | | | | 7.0 | |
Visa, Inc.—Class A | | | 21,972,794 | | | | 5.1 | |
Biogen, Inc. | | | 19,338,792 | | | | 4.5 | |
Home Depot, Inc. (The) | | | 18,661,313 | | | | 4.3 | |
UnitedHealth Group, Inc. | | | 18,316,037 | | | | 4.3 | |
Apple, Inc. | | | 17,051,953 | | | | 4.0 | |
Edwards Lifesciences Corp. | | | 16,187,636 | | | | 3.8 | |
Zoetis, Inc. | | | 15,922,857 | | | | 3.7 | |
Adobe Systems, Inc. | | | 13,824,683 | | | | 3.2 | |
| | | | | | | | | |
| | | $ | 214,806,366 | | | | 50.0 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Information Technology | | $ | 166,889,403 | | | | 38.8 | % |
Health Care | | | 96,125,118 | | | | 22.4 | |
Consumer Discretionary | | | 61,649,714 | | | | 14.4 | |
Industrials | | | 36,079,743 | | | | 8.4 | |
Consumer Staples | | | 34,883,908 | | | | 8.1 | |
Financials | | | 14,414,766 | | | | 3.4 | |
Materials | | | 6,556,739 | | | | 1.5 | |
Short-Term Investments | | | 13,084,344 | | | | 3.0 | |
| | | | | | | | | |
Total Investments | | $ | 429,683,735 | | | | 100.0 | % |
| 2 | | The Portfolio’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 Portfolio’s prospectus.
5
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–97.0% | | | | | | | | |
| | | | | | | | |
INFORMATION TECHNOLOGY–38.9% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–0.7% | | | | | | | | |
Arista Networks, Inc.(a) | | | 11,609 | | | $ | 2,734,848 | |
| | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.7% | | | | | | | | |
Amphenol Corp.–Class A | | | 33,706 | | | | 2,959,387 | |
| | | | | | | | |
INTERNET SOFTWARE & SERVICES–16.1% | | | | | | | | |
Alphabet, Inc.–Class A(a) | | | 4,130 | | | | 4,350,542 | |
Alphabet, Inc.–Class C(a) | | | 33,199 | | | | 34,739,434 | |
Facebook, Inc.–Class A(a) | | | 170,519 | | | | 30,089,783 | |
| | | | | | | | |
| | | | | | | 69,179,759 | |
| | | | | | | | |
IT SERVICES–9.5% | | | | | | | | |
Cognizant Technology Solutions Corp.–Class A | | | 115,486 | | | | 8,201,816 | |
Fiserv, Inc.(a) | | | 36,230 | | | | 4,750,840 | |
PayPal Holdings, Inc.(a) | | | 80,720 | | | | 5,942,606 | |
Visa, Inc.–Class A | | | 192,710 | | | | 21,972,794 | |
| | | | | | | | |
| | | | | | | 40,868,056 | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.5% | | | | | | | | |
NVIDIA Corp. | | | 13,112 | | | | 2,537,172 | |
Texas Instruments, Inc. | | | 24,080 | | | | 2,514,915 | |
Xilinx, Inc. | | | 150,136 | | | | 10,122,169 | |
| | | | | | | | |
| | | | | | | 15,174,256 | |
| | | | | | | | |
SOFTWARE–4.4% | | | | | | | | |
Adobe Systems, Inc.(a) | | | 78,890 | | | | 13,824,683 | |
Electronic Arts, Inc.(a) | | | 48,510 | | | | 5,096,461 | |
| | | | | | | | |
| | | | | | | 18,921,144 | |
| | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–4.0% | | | | | | | | |
Apple, Inc. | | | 100,762 | | | | 17,051,953 | |
| | | | | | | | |
| | | | | | | 166,889,403 | |
| | | | | | | | |
HEALTH CARE–22.4% | | | | | | | | |
BIOTECHNOLOGY–4.5% | | | | | | | | |
Biogen, Inc.(a) | | | 60,705 | | | | 19,338,792 | |
| | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–7.8% | | | | | | | | |
Align Technology, Inc.(a) | | | 10,780 | | | | 2,395,208 | |
Danaher Corp. | | | 17,532 | | | | 1,627,320 | |
Edwards Lifesciences Corp.(a) | | | 143,622 | | | | 16,187,636 | |
Intuitive Surgical, Inc.(a) | | | 36,634 | | | | 13,369,212 | |
| | | | | | | | |
| | | | | | | 33,579,376 | |
| | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–4.3% | | | | | | | | |
UnitedHealth Group, Inc. | | | 83,081 | | | | 18,316,037 | |
| | | | | | | | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
HEALTH CARE TECHNOLOGY–1.5% | | | | | | | | |
Cerner Corp.(a) | | | 97,270 | | | $ | 6,555,025 | |
| | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–0.6% | | | | | | | | |
Mettler-Toledo International, Inc.(a) | | | 3,895 | | | | 2,413,031 | |
| | | | | | | | |
PHARMACEUTICALS–3.7% | | | | | | | | |
Zoetis, Inc. | | | 221,028 | | | | 15,922,857 | |
| | | | | | | | |
| | | | | | | 96,125,118 | |
| | | | | | | | |
CONSUMER DISCRETIONARY–14.4% | | | | | | | | |
HOTELS, RESTAURANTS & LEISURE–0.8% | | | | | | | | |
Starbucks Corp. | | | 57,630 | | | | 3,309,691 | |
| | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–0.9% | | | | | | | | |
Priceline Group, Inc. (The)(a) | | | 2,160 | | | | 3,753,518 | |
| | | | | | | | |
MEDIA–1.8% | | | | | | | | |
Comcast Corp.–Class A | | | 148,010 | | | | 5,927,801 | |
Walt Disney Co. (The) | | | 15,240 | | | | 1,638,452 | |
| | | | | | | | |
| | | | | | | 7,566,253 | |
| | | | | | | | |
MULTILINE RETAIL–1.2% | | | | | | | | |
Dollar Tree, Inc.(a) | | | 47,951 | | | | 5,145,622 | |
| | | | | | | | |
SPECIALTY RETAIL–7.9% | | | | | | | | |
Home Depot, Inc. (The) | | | 98,461 | | | | 18,661,313 | |
TJX Cos., Inc. (The) | | | 117,979 | | | | 9,020,674 | |
Ulta Salon Cosmetics & Fragrance, Inc.(a) | | | 28,610 | | | | 6,398,913 | |
| | | | | | | | |
| | | | | | | 34,080,900 | |
| | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–1.8% | | | | | | | | |
NIKE, Inc.–Class B | | | 124,600 | | | | 7,793,730 | |
| | | | | | | | |
| | | | | | | 61,649,714 | |
| | | | | | | | |
INDUSTRIALS–8.4% | | | | | | | | |
BUILDING PRODUCTS–2.7% | | | | | | | | |
Allegion PLC | | | 84,669 | | | | 6,736,266 | |
AO Smith Corp. | | | 77,476 | | | | 4,747,729 | |
| | | | | | | | |
| | | | | | | 11,483,995 | |
| | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–1.6% | | | | | | | | |
Copart, Inc.(a) | | | 163,501 | | | | 7,061,608 | |
| | | | | | | | |
INDUSTRIAL CONGLOMERATES–2.0% | | | | | | | | |
Roper Technologies, Inc. | | | 32,874 | | | | 8,514,366 | |
| | | | | | | | |
MACHINERY–1.4% | | | | | | | | |
IDEX Corp. | | | 14,480 | | | | 1,910,926 | |
WABCO Holdings, Inc.(a) | | | 29,952 | | | | 4,298,112 | |
| | | | | | | | |
| | | | | | | 6,209,038 | |
| | | | | | | | |
ROAD & RAIL–0.7% | | | | | | | | |
Union Pacific Corp. | | | 20,960 | | | | 2,810,736 | |
| | | | | | | | |
| | | | | | | 36,079,743 | |
| | | | | | | | |
6
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
CONSUMER STAPLES–8.1% | | | | | | | | |
BEVERAGES–5.0% | | | | | | | | |
Constellation Brands, Inc.—Class A | | | 37,000 | | | $ | 8,457,090 | |
Monster Beverage Corp.(a) | | | 209,258 | | | | 13,243,939 | |
| | | | | | | | |
| | | | | | | 21,701,029 | |
| | | | | | | | |
FOOD & STAPLES RETAILING–3.1% | | | | | | | | |
Costco Wholesale Corp. | | | 70,830 | | | | 13,182,879 | |
| | | | | | | | |
| | | | | | | 34,883,908 | |
| | | | | | | | |
FINANCIALS–3.3% | | | | | | | | |
CAPITAL MARKETS–3.3% | | | | | | | | |
MarketAxess Holdings, Inc. | | | 36,729 | | | | 7,410,076 | |
S&P Global, Inc. | | | 41,350 | | | | 7,004,690 | |
| | | | | | | | |
| | | | | | | 14,414,766 | |
| | | | | | | | |
MATERIALS–1.5% | | | | | | | | |
CHEMICALS–1.5% | | | | | | | | |
Ecolab, Inc. | | | 26,710 | | | | 3,583,949 | |
Sherwin-Williams Co. (The) | | | 7,250 | | | | 2,972,790 | |
| | | | | | | | |
| | | | | | | 6,556,739 | |
| | | | | | | | |
Total Common Stocks
(cost $266,127,866) | | | | | | | 416,599,391 | |
| | | | | | | | |
| | | | | | | | |
Company | | Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | |
SHORT-TERM INVESTMENTS–3.1% | | | | | | | | |
TIME DEPOSIT–3.1% | | | | | | | | |
State Street Time Deposit 0.12%, 1/02/18
(cost $13,084,344) | | $ | 13,084 | | | $ | 13,084,344 | |
| | | | | | | | |
TOTAL INVESTMENTS–100.1%
(cost $279,212,210) | | | | | | | 429,683,735 | |
Other assets less
liabilities–(0.1)% | | | | | | | (357,274 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 429,326,461 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
See notes to financial statements.
7
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | |
Investments in securities, at value (cost $279,212,210) | | $ | 429,683,735 | |
Receivable for investment securities sold | | | 1,020,113 | |
Dividends and interest receivable | | | 67,420 | |
Receivable for capital stock sold | | | 3,486 | |
| | | | |
Total assets | | | 430,774,754 | |
| | | | |
LIABILITIES | |
Payable for investment securities purchased | | | 893,172 | |
Advisory fee payable | | | 227,947 | |
Payable for capital stock redeemed | | | 154,011 | |
Distribution fee payable | | | 49,649 | |
Administrative fee payable | | | 13,644 | |
Transfer Agent fee payable | | | 105 | |
Accrued expenses | | | 109,765 | |
| | | | |
Total liabilities | | | 1,448,293 | |
| | | | |
NET ASSETS | | $ | 429,326,461 | |
| | | | |
COMPOSITION OF NET ASSETS | |
Capital stock, at par | | $ | 7,813 | |
Additional paid-in capital | | | 229,276,428 | |
Accumulated net realized gain on investment transactions | | | 49,570,695 | |
Net unrealized appreciation on investments | | | 150,471,525 | |
| | | | |
| | $ | 429,326,461 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 208,392,269 | | | | 3,698,829 | | | $ | 56.34 | |
| B | | $ | 220,934,192 | | | | 4,114,134 | | | $ | 53.70 | |
See notes to financial statements.
8
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers | | $ | 3,130,151 | |
Affiliated issuers | | | 507 | |
Interest | | | 32,412 | |
Other income | | | 7,467 | |
| | | | |
| | | 3,170,537 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 2,646,057 | |
Distribution fee—Class B | | | 575,226 | |
Transfer agency—Class A | | | 4,472 | |
Transfer agency—Class B | | | 5,034 | |
Custodian | | | 101,190 | |
Printing | | | 70,854 | |
Administrative | | | 53,914 | |
Legal | | | 42,273 | |
Audit and tax | | | 40,196 | |
Directors’ fees | | | 28,559 | |
Miscellaneous | | | 22,783 | |
| | | | |
Total expenses | | | 3,590,558 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (129 | ) |
| | | | |
Net expenses | | | 3,590,429 | |
| | | | |
Net investment loss | | | (419,892 | ) |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS | | | | |
Net realized gain on investment transactions | | | 52,939,123 | |
Net change in unrealized appreciation/depreciation of investments | | | 65,619,253 | |
| | | | |
Net gain on investment transactions | | | 118,558,376 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 118,138,484 | |
| | | | |
See notes to financial statements.
9
| | |
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment loss | | $ | (419,892 | ) | | $ | (869,666 | ) |
Net realized gain on investment transactions | | | 52,939,123 | | | | 22,457,817 | |
Net change in unrealized appreciation/depreciation of investments | | | 65,619,253 | | | | (11,055,344 | ) |
Contributions from Affiliates (see Note B) | | | –0 | – | | | 214 | |
| | | | | | | | |
Net increase in net assets from operations | | | 118,138,484 | | | | 10,533,021 | |
DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | (11,465,663 | ) | | | (20,330,760 | ) |
Class B | | | (13,633,647 | ) | | | (29,455,689 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net decrease | | | (44,751,279 | ) | | | (38,446,922 | ) |
| | | | | | | | |
Total increase (decrease) | | | 48,287,895 | | | | (77,700,350 | ) |
NET ASSETS | | | | | | | | |
Beginning of period | | | 381,038,566 | | | | 458,738,916 | |
| | | | | | | | |
End of period (including undistributed net investment income of $0 and $0, respectively) | | $ | 429,326,461 | | | $ | 381,038,566 | |
| | | | | | | | |
See notes to financial statements.
10
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Large Cap Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
11
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks(a) | | $ | 416,599,391 | | | $ | –0 | – | | $ | –0 | – | | $ | 416,599,391 | |
Short-Term Investments | | | –0 | – | | | 13,084,344 | | | | –0 | – | | | 13,084,344 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 416,599,391 | | | | 13,084,344 | | | | –0 | – | | | 429,683,735 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 416,599,391 | | | $ | 13,084,344 | | | $ | –0 | – | | $ | 429,683,735 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
12
| | |
| | | AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
13
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .60% of the first $2.5 billion, .50% of the next $2.5 billion and .45% in excess of $5 billion, of the Portfolio’s average daily net assets. Effective February 3, 2017, the advisory fee was reduced from .75% to .60% of the first $2.5 billion, .65% to .50% of the next $2.5 billion and .60% to ..45% in excess of $5 billion of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,914.
During the year ended December 31, 2016, the Adviser reimbursed the Portfolio $214 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $85,229, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
14
| | |
| | | AB Variable Products Series Fund |
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 190,468,176 | | | $ | 249,434,519 | |
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 | | $ | 279,764,179 | |
| | | | |
Gross unrealized appreciation | | $ | 150,504,807 | |
Gross unrealized depreciation | | | (585,251 | ) |
| | | | |
Net unrealized appreciation | | $ | 149,919,556 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $507 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the
15
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $129. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 1,452 | | | $ | 1,470 | | | $ | 2,922 | | | $ | 0 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 307,126 | | | | 226,292 | | | | | | | $ | 15,850,176 | | | $ | 10,252,042 | |
Shares issued in reinvestment of distributions | | | 226,684 | | | | 440,632 | | | | | | | | 11,465,663 | | | | 20,330,760 | |
Shares redeemed | | | (774,660 | ) | | | (597,453 | ) | | | | | | | (40,887,713 | ) | | | (28,081,720 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (240,850 | ) | | | 69,471 | | | | | | | $ | (13,571,874 | ) | | $ | 2,501,082 | |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 484,079 | | | | 480,054 | | | | | | | $ | 24,170,743 | | | $ | 21,711,096 | |
Shares issued in reinvestment of distributions | | | 282,504 | | | | 665,665 | | | | | | | | 13,633,647 | | | | 29,455,689 | |
Shares redeemed | | | (1,336,010 | ) | | | (2,055,480 | ) | | | | | | | (68,983,795 | ) | | | (92,114,789 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (569,427 | ) | | | (909,761 | ) | | | | | | $ | (31,179,405 | ) | | $ | (40,948,004 | ) |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 61% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
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 Portfolio’s NAV.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection
16
| | |
| | | AB Variable Products Series Fund |
with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | –0 | – | | $ | 237,824 | |
Net long-term capital gains | | | 25,099,310 | | | | 49,548,625 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 25,099,310 | | | $ | 49,786,449 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 581,110 | |
Undistributed capital gains | | | 49,541,553 | |
Unrealized appreciation/(depreciation) | | | 149,919,556 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 200,042,219 | |
| | | | |
| (a) | | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is 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 losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to an ordinary loss reclassification to reduce short term capital gains resulted in a net decrease in distributions in excess of net investment income and a net decrease in accumulated net realized gain on investment transactions. This reclassification 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 Portfolio’s financial statements through this date.
17
| | |
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $45.22 | | | | $49.50 | | | | $48.83 | | | | $42.78 | | | | $31.17 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (loss) (a) | | | .02 | (b) | | | (.03 | )(b)† | | | .02 | | | | .02 | | | | (.04 | ) |
Net realized and unrealized gain on investment transactions | | | 14.10 | | | | 1.44 | | | | 5.33 | | | | 6.03 | | | | 11.68 | |
Contributions from Affiliates | | | –0 | – | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 14.12 | | | | 1.41 | | | | 5.35 | | | | 6.05 | | | | 11.64 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – | | | (.03 | ) |
Distributions from net realized gain on investment transactions | | | (3.00 | ) | | | (5.69 | ) | | | (4.68 | ) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (3.00 | ) | | | (5.69 | ) | | | (4.68 | ) | | | –0 | – | | | (.03 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $56.34 | | | | $45.22 | | | | $49.50 | | | | $48.83 | | | | $42.78 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 31.98 | % | | | 2.63 | %† | | | 11.11 | % | | | 14.14 | % | | | 37.35 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $208,392 | | | | $178,136 | | | | $191,568 | | | | $189,620 | | | | $190,488 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | .70 | % | | | .85 | % | | | .82 | % | | | .83 | % | | | .85 | % |
Expenses, before waivers/reimbursements | | | .70 | % | | | .85 | % | | | .82 | % | | | .83 | % | | | .85 | % |
Net investment income (loss) | | | .03 | %(b) | | | (.07 | )%(b)† | | | .04 | % | | | .04 | % | | | (.11 | )% |
Portfolio turnover rate | | | 48 | % | | | 59 | % | | | 65 | % | | | 65 | % | | | 60 | % |
See footnote summary on page 19.
18
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $43.32 | | | | $47.77 | | | | $47.38 | | | | $41.62 | | | | $30.38 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment loss (a) | | | (.11 | )(b) | | | (.14 | )(b)† | | | (.10 | ) | | | (.09 | ) | | | (.13 | ) |
Net realized and unrealized gain on investment transactions | | | 13.49 | | | | 1.38 | | | | 5.17 | | | | 5.85 | | | | 11.37 | |
Contributions from Affiliates | | | –0 | – | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | 13.38 | | | | 1.24 | | | | 5.07 | | | | 5.76 | | | | 11.24 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
Distributions from net realized gain on investment transactions | | | (3.00 | ) | | | (5.69 | ) | | | (4.68 | ) | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $53.70 | | | | $43.32 | | | | $47.77 | | | | $47.38 | | | | $41.62 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 31.67 | % | | | 2.36 | %† | | | 10.86 | % | | | 13.84 | % | | | 37.00 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $220,934 | | | | $202,903 | | | | $267,171 | | | | $237,452 | | | | $230,350 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | .95 | % | | | 1.10 | % | | | 1.07 | % | | | 1.08 | % | | | 1.10 | % |
Expenses, before waivers/reimbursements | | | .95 | % | | | 1.10 | % | | | 1.07 | % | | | 1.08 | % | | | 1.10 | % |
Net investment loss | | | (.21 | )%(b) | | | (.32 | )%(b)† | | | (.21 | )% | | | (.21 | )% | | | (.36 | )% |
Portfolio turnover rate | | | 48 | % | | | 59 | % | | | 65 | % | | | 65 | % | | | 60 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and 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. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | |
Net Investment Income Per Share | | Net Investment Income Ratio | | Total Return |
$.005 | | .01% | | .01% |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.03%, 0.01%, 0.09%, 0.02% and 0.10%, respectively. |
See notes to financial statements.
19
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Large Cap Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Large Cap Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Large Cap Growth Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
20
| | |
| | |
| | |
| LARGE CAP GROWTH PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) |
| | Garry L. Moody(1) |
| | Earl D. Weiner(1) |
| | |
| | |
| | |
| OFFICERS | | |
Frank V. Caruso(2), Vice President Vincent C. Dupont(2), Vice President John H. Fogarty(2) , Vice President Karen Sesin(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the U.S. Large Cap Growth Investment Team. Messrs. Caruso, Dupont and Fogarty and Ms. Sesin are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
21
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| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE, (YEAR
FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he has been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS |
| | | | | | | | |
Marshall C. Turner, Jr.## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | |
| 96
|
| | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
| | | | | | | | |
22
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| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE, (YEAR
FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY DIRECTOR |
INDEPENDENT DIRECTORS (continued) |
| | | | | | | | |
William H. Foulk, Jr.## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
23
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| LARGE CAP GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE, (YEAR
FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER
INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY DIRECTOR |
INDEPENDENT DIRECTORS (continued) |
| | | | | | | | |
Garry L. Moody## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardlQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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 Section 2(a)(19) of the Investment Company Act of 1940, due to his position as a Senior Vice President of the Adviser. |
| ## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
24
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| | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith 57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Frank V. Caruso
61 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Vincent C. Dupont
55 | | Vice President | | Senior Vice President of the Adviser**, with which he was associated since prior to 2013. |
| | | | |
John H. Fogarty
48 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Karen Sesin
59 | | Vice President | | Senior Vice President of the Adviser**, with which she was associated since prior to 2013. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| | | | |
| * | The address for each of the Portfolio’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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
25
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| LARGE CAP GROWTH PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Large Cap Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts
26
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| | | AB Variable Products Series Fund |
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. The directors noted that the reduction in the advisory fee rate effective since February 3, 2017 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, 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective since February 3, 2017) with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with those for two other AB Funds with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the Fund’s expense ratio effective since February 3, 2017. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the
27
| | |
| LARGE CAP GROWTH PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
28
VPS-LCG-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
| + | | REAL ESTATE INVESTMENT PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| REAL ESTATE INVESTMENT | | |
| PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Real Estate Investment Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is total return from long-term growth of capital and income. Under normal circumstances, the Portfolio invests at least 80% of its net assets in the equity securities of real estate investment trusts (“REITs”), and other real estate industry companies, such as real estate operating companies. The Portfolio seeks to invest in real estate companies whose underlying portfolios are diversified geographically and by property type.
The Portfolio’s investment policies seek to emphasize investment in companies determined by the Adviser to be undervalued relative to their peers. The Portfolio may invest in mortgage-backed securities, which are securities that directly or indirectly represent participations in, or are collateralized by and payable from, mortgage loans secured by real property. These securities include mortgage pass-through certificates, real estate mortgage investment conduit certificates and collateralized mortgage obligations. The Portfolio may also invest in short-term investment-grade debt securities and other fixed-income securities.
The Portfolio invests in equity securities that include common stock, shares of beneficial interests of REITs and securities with common stock characteristics, such as preferred stock or convertible securities (“real estate equity securities”). The Portfolio may invest in foreign securities and enter into forward commitments and standby commitment agreements.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Financial Times Stock Exchange National Association of Real Estate Investment Trusts (“FTSE NAREIT”) Equity REIT Index, in addition to the broad market as measured by the Standard & Poor’s (“S&P”) 500 Index, for the one-, five- and 10-year periods ended December 31, 2017.
For the annual period, all share classes of the Portfolio underperformed the primary benchmark. Stock selection detracted relative to the benchmark, primarily from selections in the specialty and industrial/office sectors, while selection in the residential sector contributed. Sector selection contributed, primarily because of an underweight to the retail sector, partially offset by an underweight to the diversified sector.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Still-low interest rates and strong economic growth helped the US real estate market post gains during the annual period ended December 31, 2017. The FTSE NAREIT Equity REIT Index finished the annual period up 8.67%. The S&P 500 Index also posted gains, rising 21.83% during the same period.
Most segments of the US property market were characterized by balanced fundamentals. Overall, demand growth remained healthy and supply growth normalized. Thus, cash-flow growth was decelerating from above-average levels. In the industrials sector, growth in e-commerce retailing supported ongoing demand growth, which resulted in high occupancy levels and strong rent growth. Fundamentals in the self-storage sector remained reasonably healthy, though the pace of earnings growth slowed
1
| | |
| | | AB Variable Products Series Fund |
because of the increasing supply in some large cities. Demand for space at high-quality retail malls and shopping centers remained strong, though challenges faced by many retail operators posed a risk to future demand. In the residential sector, rent growth slowed significantly following recent increases in supply, especially in coastal markets. Finally, lodging demand continued to recover from subdued levels.
The Portfolio’s Senior Investment Management Team continues its search to find attractive opportunities across a range of sectors, focusing on attractively priced companies with improving fundamentals, together with the balance sheet strength to withstand periods of renewed volatility.
2
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| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The FTSE® NAREIT Equity REIT Index and the S&P® 500 Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The FTSE NAREIT Equity REIT Index (market-value weighted index based upon the last closing price of the month) represents the performance of tax-qualified REITs listed on the NYSE, AMEX and the NASDAQ. 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Real Estate Risk: The Portfolio’s investments in the real estate market have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past
(Disclosures and Risks continued on next page)
3
| | |
| | |
| DISCLOSURES AND RISKS | | |
| (continued) | | AB Variable Products Series Fund |
performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
| | |
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| |
| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Real Estate Investment Portfolio Class A | | | 6.53% | | | | 8.61% | | | | 7.71% | |
| Real Estate Investment Portfolio Class B | | | 6.37% | | | | 8.36% | | | | 7.45% | |
| Primary benchmark: FTSE NAREIT Equity REIT Index | | | 8.67% | | | | 9.83% | | | | 7.77% | |
| S&P 500 Index | | | 21.83% | | | | 15.79% | | | | 8.50% | |
1 Average annual returns. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.08% and 1.34% for Class A and Class B 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.
REAL ESTATE INVESTMENT PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Real Estate Investment Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 3-4.
5
| | |
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,024.20 | | | $ | 5.31 | | | | 1.04 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,019.96 | | | $ | 5.30 | | | | 1.04 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,022.90 | | | $ | 6.53 | | | | 1.28 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,018.75 | | | $ | 6.51 | | | | 1.28 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
American Tower Corp. | | $ | 4,011,881 | | | | 7.8 | % |
Simon Property Group, Inc. | | | 3,515,518 | | | | 6.8 | |
Crown Castle International Corp. | | | 2,509,936 | | | | 4.9 | |
Equinix, Inc. | | | 2,303,717 | | | | 4.5 | |
Welltower, Inc. | | | 1,979,421 | | | | 3.8 | |
Realty Income Corp. | | | 1,658,142 | | | | 3.2 | |
Digital Realty Trust, Inc. | | | 1,451,086 | | | | 2.8 | |
Alexandria Real Estate Equities, Inc. | | | 1,342,465 | | | | 2.6 | |
Essex Property Trust, Inc. | | | 1,329,949 | | | | 2.6 | |
STAG Industrial, Inc. | | | 1,199,240 | | | | 2.3 | |
| | | | | | | | | |
| | | $ | 21,301,355 | | | | 41.3 | % |
INDUSTRY BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| INDUSTRY | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Specialized REITs | | $ | 12,818,934 | | | | 24.8 | % |
Retail REITs | | | 8,796,154 | | | | 17.0 | |
Residential REITs | | | 7,496,868 | | | | 14.5 | |
Office REITs | | | 6,818,015 | | | | 13.2 | |
Health Care REITs | | | 4,760,983 | | | | 9.2 | |
Diversified REITs | | | 3,996,688 | | | | 7.7 | |
Industrial REITs | | | 3,585,700 | | | | 6.9 | |
Hotel & Resort REITs | | | 2,654,168 | | | | 5.1 | |
Short-Term Investments | | | 854,550 | | | | 1.6 | |
| | | | | | | | | |
Total Investments | | $ | 51,782,060 | | | | 100.0 | % |
| 2 | | The Portfolio’s industry breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The industry classifications presented herein are based on the industry categorization methodology of the Adviser.
7
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–98.3% | | | | | | | | |
| | | | | | | | |
REAL ESTATE–98.3% | | | | | | | | |
DIVERSIFIED REITs–7.7% | | | | | | | | |
Armada Hoffler Properties, Inc. | | | 53,600 | | | $ | 832,408 | |
Empire State Realty Trust, Inc.–Class A | | | 37,970 | | | | 779,524 | |
Gramercy Property Trust | | | 26,024 | | | | 693,800 | |
Liberty Property Trust | | | 19,150 | | | | 823,642 | |
Washington Real Estate Investment Trust | | | 27,870 | | | | 867,314 | |
| | | | | | | | |
| | | | | | | 3,996,688 | |
| | | | | | | | |
HEALTH CARE REITs–9.2% | | | | | | | | |
Healthcare Realty Trust, Inc. | | | 20,910 | | | | 671,629 | |
Medical Properties Trust, Inc. | | | 58,990 | | | | 812,882 | |
Sabra Health Care REIT, Inc. | | | 36,140 | | | | 678,348 | |
Ventas, Inc. | | | 10,310 | | | | 618,703 | |
Welltower, Inc. | | | 31,040 | | | | 1,979,421 | |
| | | | | | | | |
| | | | | | | 4,760,983 | |
| | | | | | | | |
HOTEL & RESORT REITs–5.1% | | | | | | | | |
MGM Growth Properties LLC–Class A | | | 17,630 | | | | 513,914 | |
Park Hotels & Resorts, Inc. | | | 29,200 | | | | 839,500 | |
RLJ Lodging Trust | | | 34,910 | | | | 766,973 | |
Summit Hotel Properties, Inc. | | | 35,048 | | | | 533,781 | |
| | | | | | | | |
| | | | | | | 2,654,168 | |
| | | | | | | | |
INDUSTRIAL REITs–6.9% | | | | | | | | |
Monmouth Real Estate Investment Corp.–Class A | | | 31,620 | | | | 562,836 | |
Prologis, Inc. | | | 13,890 | | | | 896,044 | |
Rexford Industrial Realty, Inc. | | | 31,810 | | | | 927,580 | |
STAG Industrial, Inc. | | | 43,880 | | | | 1,199,240 | |
| | | | | | | | |
| | | | | | | 3,585,700 | |
| | | | | | | | |
OFFICE REITs–13.2% | | | | | | | | |
Alexandria Real Estate Equities, Inc. | | | 10,280 | | | | 1,342,465 | |
Boston Properties, Inc. | | | 3,679 | | | | 478,380 | |
Brandywine Realty Trust | | | 41,450 | | | | 753,976 | |
Columbia Property Trust, Inc. | | | 33,996 | | | | 780,208 | |
Corporate Office Properties Trust | | | 16,630 | | | | 485,596 | |
Hudson Pacific Properties, Inc. | | | 22,230 | | | | 761,378 | |
Kilroy Realty Corp. | | | 9,940 | | | | 742,021 | |
Mack-Cali Realty Corp. | | | 21,240 | | | | 457,935 | |
SL Green Realty Corp. | | | 8,510 | | | | 858,914 | |
Vornado Realty Trust | | | 2,010 | | | | 157,142 | |
| | | | | | | | |
| | | | | | | 6,818,015 | |
| | | | | | | | |
RESIDENTIAL REITs–14.5% | | | | | | | | |
American Campus Communities, Inc. | | | 16,280 | | | | 667,968 | |
American Homes 4 Rent–Class A | | | 46,140 | | | | 1,007,698 | |
AvalonBay Communities, Inc. | | | 4,540 | | | | 809,981 | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
Camden Property Trust | | | 10,260 | | | $ | 944,536 | |
Essex Property Trust, Inc. | | | 5,510 | | | | 1,329,949 | |
Independence Realty Trust, Inc. | | | 54,610 | | | | 551,015 | |
Mid-America Apartment Communities, Inc. | | | 10,770 | | | | 1,083,031 | |
Sun Communities, Inc. | | | 11,885 | | | | 1,102,690 | |
| | | | | | | | |
| | | | | | | 7,496,868 | |
| | | | | | | | |
RETAIL REITs–17.0% | | | | | | | | |
GGP, Inc. | | | 11,860 | | | | 277,405 | |
National Retail Properties, Inc. | | | 23,110 | | | | 996,734 | |
Realty Income Corp. | | | 29,080 | | | | 1,658,142 | |
Regency Centers Corp. | | | 15,250 | | | | 1,054,995 | |
Retail Opportunity Investments Corp. | | | 32,070 | | | | 639,796 | |
Simon Property Group, Inc. | | | 20,470 | | | | 3,515,518 | |
Urban Edge Properties | | | 25,640 | | | | 653,564 | |
| | | | | | | | |
| | | | | | | 8,796,154 | |
| | | | | | | | |
SPECIALIZED REITs–24.7% | | | | | | | | |
American Tower Corp. | | | 28,120 | | | | 4,011,881 | |
Crown Castle International Corp. | | | 22,610 | | | | 2,509,936 | |
CubeSmart | | | 26,910 | | | | 778,237 | |
Digital Realty Trust, Inc. | | | 12,740 | | | | 1,451,086 | |
Equinix, Inc. | | | 5,083 | | | | 2,303,717 | |
National Storage Affiliates Trust | | | 32,512 | | | | 886,277 | |
Public Storage | | | 4,200 | | | | 877,800 | |
| | | | | | | | |
| | | | | | | 12,818,934 | |
| | | | | | | | |
Total Common Stocks
(cost $43,978,863) | | | | | | | 50,927,510 | |
| | | | | | | | |
| | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–1.7% | | | | | | | | |
TIME DEPOSIT–1.7% | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $854,551) | | $ | 855 | | | | 854,551 | |
| | | | | | | | |
TOTAL INVESTMENTS–100.0%
(cost $44,833,414) | | | | | | | 51,782,061 | |
Other assets less
liabilities–0.0% | | | | | | | 22,560 | |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 51,804,621 | |
| | | | | | | | |
Glossary:
REIT—Real Estate Investment Trust
See notes to financial statements.
8
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value (cost $44,833,414) | | $ | 51,782,061 | |
Foreign currencies, at value (cost $8,329) | | | 7,858 | |
Dividends and interest receivable | | | 222,673 | |
Receivable for capital stock sold | | | 9,118 | |
| | | | |
Total assets | | | 52,021,710 | |
| | | | |
LIABILITIES | | | | |
Payable for capital stock redeemed | | | 76,333 | |
Audit and tax fee payable | | | 51,981 | |
Custody fee payable | | | 24,886 | |
Advisory fee payable | | | 24,081 | |
Administrative fee payable | | | 13,644 | |
Printing fee payable | | | 11,235 | |
Distribution fee payable | | | 3,985 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 10,847 | |
| | | | |
Total liabilities | | | 217,089 | |
| | | | |
NET ASSETS | | $ | 51,804,621 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 5,673 | |
Additional paid-in capital | | | 41,904,883 | |
Undistributed net investment income | | | 968,675 | |
Accumulated net realized gain on investment and foreign currency transactions | | | 1,977,214 | |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 6,948,176 | |
| | | | |
| | $ | 51,804,621 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares Outstanding | | | Net Asset
Value | |
| A | | $ | 32,883,268 | | | | 3,609,215 | | | $ | 9.11 | |
| B | | $ | 18,921,353 | | | | 2,063,818 | | | $ | 9.17 | |
See notes to financial statements.
9
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers | | $ | 1,348,521 | |
Affiliated issuers | | | 1,044 | |
Interest | | | 525 | |
Other income | | | 1,207 | |
| | | | |
| | | 1,351,297 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 285,906 | |
Distribution fee—Class B | | | 45,908 | |
Transfer agency—Class A | | | 3,659 | |
Transfer agency—Class B | | | 2,005 | |
Custodian | | | 64,686 | |
Administrative | | | 53,585 | |
Audit and tax | | | 51,267 | |
Directors’ fees | | | 28,561 | |
Legal | | | 27,785 | |
Printing | | | 24,710 | |
Miscellaneous | | | 3,366 | |
| | | | |
Total expenses | | | 591,438 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (197 | ) |
| | | | |
Net expenses | | | 591,241 | |
| | | | |
Net investment income | | | 760,056 | |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain on investment transactions | | | 2,155,889 | |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 387,120 | |
Foreign currency denominated assets and liabilities | | | 586 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 2,543,595 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 3,303,651 | |
| | | | |
See notes to financial statements.
10
| | |
|
| REAL ESTATE INVESTMENT PORTFOLIO |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 760,056 | | | $ | 947,416 | |
Net realized gain on investment and foreign currency transactions | | | 2,155,889 | | | | 2,670,848 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 387,706 | | | | 50,925 | |
| | | | | | | | |
Net increase in net assets from operations | | | 3,303,651 | | | | 3,669,189 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (597,227 | ) | | | (601,091 | ) |
Class B | | | (287,437 | ) | | | (228,136 | ) |
Net realized gain on investment transactions | | | | | | | | |
Class A | | | (1,785,451 | ) | | | (1,722,127 | ) |
Class B | | | (978,421 | ) | | | (751,170 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net increase (decrease) | | | (761,253 | ) | | | 2,686,208 | |
| | | | | | | | |
Total increase (decrease) | | | (1,106,138 | ) | | | 3,052,873 | |
NET ASSETS | | | | | | | | |
Beginning of period | | | 52,910,759 | | | | 49,857,886 | |
| | | | | | | | |
End of period (including undistributed net investment income of $968,675 and $1,094,446, respectively) | | $ | 51,804,621 | | | $ | 52,910,759 | |
| | | | | | | | |
See notes to financial statements.
11
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Real Estate Investment Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is total return from long-term growth of capital and income. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
12
| | |
| | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks(a) | | $ | 50,927,510 | | | $ | –0 | – | | $ | –0 | – | | $ | 50,927,510 | |
Short-Term Investments | | | –0 | – | | | 854,551 | | | | –0 | – | | | 854,551 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 50,927,510 | | | | 854,551 | | | | –0 | – | | | 51,782,061 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 50,927,510 | | | $ | 854,551 | | | $ | –0 | – | | $ | 51,782,061 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the
13
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| REAL ESTATE INVESTMENT PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific
14
| | |
| | | AB Variable Products Series Fund |
expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,585.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $31,699, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 30,588,409 | | | $ | 33,887,125 | |
U.S. government securities | | | –0 | – | | | –0 | – |
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| REAL ESTATE INVESTMENT PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
| | | | |
Cost | | $ | 44,859,145 | |
| | | | |
Gross unrealized appreciation | | $ | 7,782,882 | |
Gross unrealized depreciation | | | (859,966 | ) |
| | | | |
Net unrealized appreciation | | $ | 6,922,916 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $1,044 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $197. 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.
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| | | AB Variable Products Series Fund |
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 0 | | | $ | 5,886 | | | $ | 5,886 | | | $ | 0 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 209,630 | | | | 431,092 | | | | | | | $ | 1,934,567 | | | $ | 4,165,931 | |
Shares issued in reinvestment of dividends and distributions | | | 270,759 | | | | 235,620 | | | | | | | | 2,382,678 | | | | 2,323,218 | |
Shares redeemed | | | (701,136 | ) | | | (798,588 | ) | | | | | | | (6,508,769 | ) | | | (7,520,220 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (220,747 | ) | | | (131,876 | ) | | | | | | $ | (2,191,524 | ) | | $ | (1,031,071 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 347,042 | | | | 582,138 | | | | | | | $ | 3,209,095 | | | $ | 5,543,108 | |
Shares issued in reinvestment of dividends and distributions | | | 142,873 | | | | 98,621 | | | | | | | | 1,265,858 | | | | 979,306 | |
Shares redeemed | | | (326,273 | ) | | | (300,705 | ) | | | | | | | (3,044,682 | ) | | | (2,805,135 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase | | | 163,642 | | | | 380,054 | | | | | | | $ | 1,430,271 | | | $ | 3,717,279 | |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 71% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Real Estate Risk—The Portfolio’s investments in the real estate market have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
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| REAL ESTATE INVESTMENT PORTFOLIO |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 1,214,271 | | | $ | 1,278,264 | |
Net long-term capital gains | | | 2,434,265 | | | | 2,024,260 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 3,648,536 | | | $ | 3,302,524 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 968,675 | |
Undistributed capital gains | | | 2,002,945 | |
Unrealized appreciation/(depreciation) | | | 6,922,445 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 9,894,065 | |
| | | | |
| (a) | | 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 losses incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of partnership investments and the redesignation of dividends resulted in a net decrease in undistributed net investment income and a net increase in accumulated net realized gain on investment and foreign currency transactions. 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 Portfolio’s financial statements through this date.
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| REAL ESTATE INVESTMENT PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $9.22 | | | | $9.08 | | | | $10.00 | | | | $11.18 | | | | $12.25 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .14 | (b) | | | .18 | (b)† | | | .18 | | | | .14 | | | | .24 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | .44 | | | | .56 | | | | (.12 | ) | | | 2.39 | | | | .24 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | .58 | | | | .74 | | | | .06 | | | | 2.53 | | | | .48 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.17 | ) | | | (.15 | ) | | | (.15 | ) | | | (.37 | ) | | | (.20 | ) |
Distributions from net realized gain on investment transactions | | | (.52 | ) | | | (.45 | ) | | | (.83 | ) | | | (3.34 | ) | | | (1.35 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.69 | ) | | | (.60 | ) | | | (.98 | ) | | | (3.71 | ) | | | (1.55 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $9.11 | | | | $9.22 | | | | $9.08 | | | | $10.00 | | | | $11.18 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 6.53 | % | | | 7.76 | %† | | | .80 | % | | | 25.35 | % | | | 4.20 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $32,883 | | | | $35,294 | | | | $35,970 | | | | $38,003 | | | | $31,576 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.05 | % | | | 1.08 | % | | | 1.07 | % | | | 1.08 | % | | | .86 | % |
Expenses, before waivers/reimbursements | | | 1.05 | % | | | 1.08 | % | | | 1.07 | % | | | 1.08 | % | | | .86 | % |
Net investment income | | | 1.54 | %(b) | | | 1.90 | %(b)† | | | 1.91 | % | | | 1.26 | % | | | 1.92 | % |
Portfolio turnover rate | | | 59 | % | | | 77 | % | | | 67 | % | | | 67 | % | | | 98 | % |
See footnote summary on page 20.
19
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| FINANCIAL HIGHLIGHTS |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | $ | 9.27 | | | $ | 9.14 | | | $ | 10.05 | | | $ | 11.22 | | | $ | 12.28 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .12 | (b) | | | .15 | (b)† | | | .16 | | | | .11 | | | | .27 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | .45 | | | | .56 | | | | (.11 | ) | | | 2.40 | | | | .18 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase in net asset value from operations | | | .57 | | | | .71 | | | | .05 | | | | 2.51 | | | | .45 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.15 | ) | | | (.13 | ) | | | (.13 | ) | | | (.34 | ) | | | (.16 | ) |
Distributions from net realized gain on investment transactions | | | (.52 | ) | | | (.45 | ) | | | (.83 | ) | | | (3.34 | ) | | | (1.35 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (.67 | ) | | | (.58 | ) | | | (.96 | ) | | | (3.68 | ) | | | (1.51 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | $ | 9.17 | | | $ | 9.27 | | | $ | 9.14 | | | $ | 10.05 | | | $ | 11.22 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 6.37 | % | | | 7.38 | %† | | | .66 | % | | | 24.96 | % | | | 3.97 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | $ | 18,921 | | | $ | 17,617 | | | $ | 13,888 | | | $ | 13,301 | | | $ | 12,394 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements | | | 1.30 | % | | | 1.34 | % | | | 1.33 | % | | | 1.33 | % | | | 1.15 | % |
Expenses, before waivers/reimbursements | | | 1.30 | % | | | 1.34 | % | | | 1.33 | % | | | 1.33 | % | | | 1.15 | % |
Net investment income | | | 1.32 | %(b) | | | 1.56 | %(b)† | | | 1.67 | % | | | 1.03 | % | | | 2.13 | % |
Portfolio turnover rate | | | 59 | % | | | 77 | % | | | 67 | % | | | 67 | % | | | 98 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and reimbursed by the Adviser. |
| (c) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment
Income Per Share | | | Net Investment
Income Ratio | | | Total
Return | |
| $ | .002 | | | | .02 | % | | | .02 | % |
20
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Real Estate Investment Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Real Estate Investment Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Real Estate Investment Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
21
| | |
| | |
| | |
| 2017 TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 1.51% of dividends paid qualify for the dividends received deduction.
22
| | |
| | |
| REAL ESTATE INVESTMENT | | |
| PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| |
| |
| |
| |
| | |
| | |
| OFFICERS | | |
Eric J. Franco(2), Vice President Ajit Ketkar(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
CUSTODIAN AND ACCOUNTING
AGENT | | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | Ernst & Young LLP 5 Times Square New York, NY 10036 |
| | |
| DISTRIBUTOR | | LEGAL COUNSEL |
AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | | Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
| 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 Portfolio’s portfolio are made by its senior management team. Messrs. Franco and Ketkar are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
23
| | |
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST
ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr., ## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
DISINTERESTED DIRECTORS
| | | | | | |
| | | | | | | | |
Michael J. Downey, ## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
24
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST
ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr., ## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin, ## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen, ## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
25
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST
ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS IN FUND COMPLEX OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
DISINTERESTED DIRECTORS
(continued) | | | | | | |
| | | | | | | | |
Garry L. Moody, ## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee and as Chairman of the Audit Committees of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner, ## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | None |
| * | The address for 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. |
26
| | |
| | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS* AND AGE | | PRINCIPAL POSITION(S) HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith 57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Eric J. Franco 57 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Ajit Ketkar 46 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo 58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke 57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | The address for each of the Portfolio’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 the adviser at (800) 227-4618, or visit www.abfunds.com for a free prospectus or SAI. |
27
| | |
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Real Estate Investment Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors
28
| | |
| | | AB Variable Products Series Fund |
focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. 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.
29
| | |
| REAL ESTATE INVESTMENT PORTFOLIO |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
30
VPS-REI-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
| + | | SMALL CAP GROWTH PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| SMALL CAP GROWTH PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Small Cap Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVES AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities with relatively smaller capitalizations as compared to the overall US market. Under normal circumstances, the Portfolio invests at least 80% of its net assets in equity securities of smaller companies. For these purposes, “smaller companies” are those that, at the time of investment, fall within the lowest 20% of the total US equity market capitalization (excluding, for purposes of this calculation, companies with market capitalizations of less than $10 million). Because the Portfolio’s definition of smaller companies is dynamic, the limits on market capitalization will change with the markets.
The Portfolio may invest in any company and industry and in any type of equity security with potential for capital appreciation. It invests in well-known and established companies and in new and less-seasoned companies. The Portfolio’s investment policies emphasize investments in companies that are demonstrating improving financial results and a favorable earnings outlook. The Portfolio may invest in foreign securities.
The Portfolio invests primarily in equity securities but may also invest in other types of securities, such as preferred stocks. The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in securities. ETFs may provide more efficient and economical exposure to the types of companies and geographic locations in which the Portfolio seeks to invest than direct investments. The Portfolio may also invest up to 20% of its total assets in rights or warrants.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 2000 Growth Index, for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio outperformed the benchmark for the annual reporting period. Stock selection drove performance relative to the benchmark, led by picks in consumer/commercial services and technology which more than offset the underperformance in energy.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Equities saw strong gains in 2017, as record corporate profits, improving economic growth and enthusiasm over tax reform propelled US equities. Small-cap growth stocks, while underperforming large-caps, delivered strong absolute performance and outperformed their value peers.
The Portfolio continues to be built from the bottom up, with an emphasis on companies that can deliver fundamental outperformance. Relative valuations for companies with this profile—positive earnings revisions and surprises—remain below the long-term average. Reflecting this bottom-up investment process, the Portfolio’s Senior Investment Management Team continued to find opportunities across most sectors. The Portfolio emphasizes secular firms that have unique growth drivers or company-specific initiatives that would support future earnings growth even in the absence of a material acceleration in economic outlook.
1
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| SMALL CAP GROWTH PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 2000® Growth Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 2000 Growth Index represents the performance of 2,000 small-cap growth companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as growth, may underperform the market generally.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
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| SMALL CAP GROWTH PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| THE PORTFOLIO VS. ITS BENCHMARK | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Small Cap Growth Portfolio Class A2 | | | 34.12% | | | | 15.06% | | | | 9.86% | |
| Small Cap Growth Portfolio Class B2 | | | 33.78% | | | | 14.77% | | | | 9.59% | |
| Russell 2000 Growth Index | | | 22.17% | | | | 15.21% | | | | 9.19% | |
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.03%. Please keep in mind that high, double-digit returns are highly unusual and cannot be sustained. Investors should also be aware that these returns were primarily achieved during favorable market conditions. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.49% and 1.74% for Class A and Class B 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.
SMALL CAP GROWTH PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 to 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Small Cap Growth Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
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| SMALL CAP GROWTH PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,154.10 | | | $ | 7.11 | | | | 1.31 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,018.60 | | | $ | 6.67 | | | | 1.31 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,152.70 | | | $ | 8.41 | | | | 1.55 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,017.39 | | | $ | 7.88 | | | | 1.55 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
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| SMALL CAP GROWTH PORTFOLIO | | |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
GrubHub, Inc. | | $ | 949,196 | | | | 1.9 | % |
Grand Canyon Education, Inc. | | | 903,358 | | | | 1.8 | |
Planet Fitness, Inc. | | | 857,369 | | | | 1.7 | |
Five Below, Inc. | | | 810,563 | | | | 1.7 | |
Teladoc, Inc. | | | 809,879 | | | | 1.6 | |
Sleep Number Corp. | | | 792,397 | | | | 1.6 | |
iRhythm Technologies, Inc. | | | 791,594 | | | | 1.6 | |
SiteOne Landscape Supply, Inc. | | | 732,485 | | | | 1.5 | |
Proofpoint, Inc. | | | 722,025 | | | | 1.5 | |
Vocera Communications, Inc. | | | 717,030 | | | | 1.5 | |
| | | | | | | | | |
| | | $ | 8,085,896 | | | | 16.4 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Information Technology | | $ | 13,434,483 | | | | 27.1 | % |
Health Care | | | 10,291,492 | | | | 20.8 | |
Consumer Discretionary | | | 8,819,789 | | | | 17.8 | |
Industrials | | | 8,677,985 | | | | 17.5 | |
Financials | | | 3,176,146 | | | | 6.4 | |
Materials | | | 1,477,584 | | | | 3.0 | |
Energy | | | 1,284,270 | | | | 2.6 | |
Consumer Staples | | | 1,250,812 | | | | 2.5 | |
Telecommunication Services | | | 394,423 | | | | 0.8 | |
Short-Term Investments | | | 713,694 | | | | 1.5 | |
| | | | | | | | | |
Total Investments | | $ | 49,520,678 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is 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 Portfolio’s prospectus.
5
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| SMALL CAP GROWTH PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–98.7% | | | | | | | | |
| | | | | | | | |
INFORMATION TECHNOLOGY–27.2% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–1.3% | | | | | | | | |
Ciena Corp.(a) | | | 15,260 | | | $ | 319,392 | |
Lumentum Holdings, Inc.(a) | | | 6,516 | | | | 318,632 | |
| | | | | | | | |
| | | | | | | 638,024 | |
| | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.8% | | | | | | | | |
National Instruments Corp. | | | 9,660 | | | | 402,146 | |
| | | | | | | | |
INTERNET SOFTWARE & SERVICES–10.4% | | | | | | | | |
2U, Inc.(a) | | | 10,260 | | | | 661,873 | |
Cimpress NV(a)(b) | | | 4,966 | | | | 595,324 | |
CoStar Group, Inc.(a) | | | 1,690 | | | | 501,845 | |
GrubHub, Inc.(a)(b) | | | 13,220 | | | | 949,196 | |
LogMeIn, Inc. | | | 6,260 | | | | 716,770 | |
New Relic, Inc.(a) | | | 8,990 | | | | 519,352 | |
Q2 Holdings, Inc.(a) | | | 10,633 | | | | 391,826 | |
Trade Desk, Inc. (The)–Class A(a)(b) | | | 12,183 | | | | 557,129 | |
Wix.com Ltd.(a) | | | 4,067 | | | | 234,056 | |
| | | | | | | | |
| | | | | | | 5,127,371 | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–4.4% | | | | | | | | |
Advanced Energy Industries, Inc.(a) | | | 6,960 | | | | 469,661 | |
Cavium, Inc.(a) | | | 6,300 | | | | 528,129 | |
Monolithic Power Systems, Inc. | | | 5,481 | | | | 615,845 | |
Silicon Laboratories, Inc.(a) | | | 6,454 | | | | 569,888 | |
| | | | | | | | |
| | | | | | | 2,183,523 | |
| | | | | | | | |
SOFTWARE–10.3% | | | | | | | | |
Aspen Technology, Inc.(a) | | | 8,253 | | | | 546,349 | |
Blackbaud, Inc. | | | 6,158 | | | | 581,869 | |
Blackline, Inc.(a) | | | 10,501 | | | | 344,433 | |
Guidewire Software, Inc.(a) | | | 7,883 | | | | 585,392 | |
HubSpot, Inc.(a) | | | 6,570 | | | | 580,788 | |
Paylocity Holding Corp.(a) | | | 12,713 | | | | 599,545 | |
Proofpoint, Inc.(a) | | | 8,130 | | | | 722,025 | |
RingCentral, Inc.–Class A(a) | | | 13,740 | | | | 665,016 | |
Take-Two Interactive Software, Inc.(a) | | | 4,172 | | | | 458,002 | |
| | | | | | | | |
| | | | | | | 5,083,419 | |
| | | | | | | | |
| | | | | | | 13,434,483 | |
| | | | | | | | |
HEALTH CARE–20.8% | | | | | | | | |
BIOTECHNOLOGY–8.5% | | | | | | | | |
Adamas Pharmaceuticals, Inc.(a)(b) | | | 8,675 | | | | 293,996 | |
Aimmune Therapeutics, Inc.(a) | | | 7,913 | | | | 299,270 | |
Audentes Therapeutics, Inc.(a) | | | 6,259 | | | | 195,594 | |
Avexis, Inc.(a) | | | 2,730 | | | | 302,129 | |
BeiGene Ltd. (ADR)(a) | | | 2,357 | | | | 230,326 | |
Biohaven Pharmaceutical Holding Co., Ltd.(a) | | | 8,478 | | | | 228,736 | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
Blueprint Medicines Corp.(a) | | | 5,012 | | | $ | 377,955 | |
Clovis Oncology, Inc.(a) | | | 5,640 | | | | 383,520 | |
Loxo Oncology, Inc.(a) | | | 4,115 | | | | 346,401 | |
Neurocrine Biosciences, Inc.(a) | | | 3,930 | | | | 304,929 | |
NuCana PLC (ADR)(a) | | | 13,162 | | | | 133,068 | |
Prothena Corp. PLC(a)(b) | | | 5,360 | | | | 200,946 | |
Sage Therapeutics, Inc.(a) | | | 3,336 | | | | 549,473 | |
TESARO, Inc.(a)(b) | | | 2,258 | | | | 187,120 | |
Ultragenyx Pharmaceutical, Inc.(a) | | | 4,143 | | | | 192,152 | |
| | | | | | | | |
| | | | | | | 4,225,615 | |
| | | | | | | | |
HEALTH CARE EQUIPMENT & SUPPLIES–4.8% | | | | | | | | |
iRhythm Technologies, Inc.(a) | | | 14,123 | | | | 791,594 | |
Nevro Corp.(a) | | | 7,369 | | | | 508,756 | |
Penumbra, Inc.(a) | | | 6,768 | | | | 636,869 | |
Tactile Systems Technology, Inc.(a)(b) | | | 14,289 | | | | 414,095 | |
| | | | | | | | |
| | | | | | | 2,351,314 | |
| | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–1.6% | | | | | | | | |
Teladoc, Inc.(a)(b) | | | 23,239 | | | | 809,879 | |
| | | | | | | | |
HEALTH CARE TECHNOLOGY–1.5% | | | | | | | | |
Vocera Communications, Inc.(a) | | | 23,727 | | | | 717,030 | |
| | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–1.2% | | | | | | | | |
ICON PLC(a) | | | 5,282 | | | | 592,376 | |
| | | | | | | | |
PHARMACEUTICALS–3.2% | | | | | | | | |
Aerie Pharmaceuticals, Inc.(a) | | | 4,940 | | | | 295,165 | |
GW Pharmaceuticals PLC (ADR)(a)(b) | | | 1,628 | | | | 214,913 | |
Intersect ENT, Inc.(a) | | | 21,280 | | | | 689,472 | |
Medicines Co. (The)(a) | | | 7,680 | | | | 209,971 | |
Revance Therapeutics, Inc.(a) | | | 5,196 | | | | 185,757 | |
| | | | | | | | |
| | | | | | | 1,595,278 | |
| | | | | | | | |
| | | | | | | 10,291,492 | |
| | | | | | | | |
CONSUMER DISCRETIONARY–17.8% | | | | | | | | |
DISTRIBUTORS–1.3% | | | | | | | | |
Pool Corp. | | | 4,977 | | | | 645,268 | |
| | | | | | | | |
DIVERSIFIED CONSUMER SERVICES–3.1% | | | | | | | | |
Bright Horizons Family Solutions, Inc.(a) | | | 6,965 | | | | 654,710 | |
Grand Canyon Education, Inc.(a) | | | 10,090 | | | | 903,358 | |
| | | | | | | | |
| | | | | | | 1,558,068 | |
| | | | | | | | |
HOTELS, RESTAURANTS & LEISURE–5.2% | | | | | | | | |
Buffalo Wild Wings, Inc.(a) | | | 3,082 | | | | 481,871 | |
Hilton Grand Vacations, Inc.(a) | | | 14,531 | | | | 609,575 | |
Planet Fitness, Inc.(a) | | | 24,758 | | | | 857,369 | |
Vail Resorts, Inc. | | | 3,010 | | | | 639,535 | |
| | | | | | | | |
| | | | | | | 2,588,350 | |
| | | | | | | | |
6
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
INTERNET & DIRECT MARKETING RETAIL–0.9% | | | | | | | | |
Wayfair, Inc.–Class A(a)(b) | | | 5,295 | | | $ | 425,030 | |
| | | | | | | | |
MULTILINE RETAIL–1.3% | | | | | | | | |
Ollie’s Bargain Outlet Holdings, Inc.(a) | | | 11,762 | | | | 626,326 | |
| | | | | | | | |
SPECIALTY RETAIL–6.0% | | | | | | | | |
Five Below, Inc.(a) | | | 12,222 | | | | 810,563 | |
Floor & Decor Holdings, Inc.–Class A(a) | | | 13,581 | | | | 661,123 | |
Lithia Motors, Inc.–Class A | | | 6,274 | | | | 712,664 | |
Sleep Number Corp.(a) | | | 21,080 | | | | 792,397 | |
| | | | | | | | |
| | | | | | | 2,976,747 | |
| | | | | | | | |
| | | | | | | 8,819,789 | |
| | | | | | | | |
INDUSTRIALS–17.6% | | | | | | | | |
AEROSPACE & DEFENSE–1.8% | | | | | | | | |
Hexcel Corp. | | | 6,034 | | | | 373,203 | |
Mercury Systems, Inc.(a) | | | 9,630 | | | | 494,500 | |
| | | | | | | | |
| | | | | | | 867,703 | |
| | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–1.4% | | | | | | | | |
Advanced Disposal Services, Inc.(a) | | | 6,985 | | | | 167,221 | |
Tetra Tech, Inc. | | | 10,760 | | | | 518,094 | |
| | | | | | | | |
| | | | | | | 685,315 | |
| | | | | | | | |
CONSTRUCTION & ENGINEERING–1.3% | | | | | | | | |
Dycom Industries, Inc.(a) | | | 5,943 | | | | 662,229 | |
| | | | | | | | |
INDUSTRIAL CONGLOMERATES–0.8% | | | | | | | | |
Carlisle Cos., Inc. | | | 3,355 | | | | 381,296 | |
| | | | | | | | |
MACHINERY–8.4% | | | | | | | | |
Astec Industries, Inc. | | | 3,580 | | | | 209,430 | |
Gardner Denver Holdings, Inc.(a) | | | 18,199 | | | | 617,492 | |
IDEX Corp. | | | 3,842 | | | | 507,029 | |
John Bean Technologies Corp. | | | 4,800 | | | | 531,840 | |
Kennametal, Inc. | | | 14,040 | | | | 679,677 | |
Lincoln Electric Holdings, Inc. | | | 5,909 | | | | 541,146 | |
Nordson Corp. | | | 3,850 | | | | 563,640 | |
RBC Bearings, Inc.(a) | | | 3,923 | | | | 495,867 | |
| | | | | | | | |
| | | | | | | 4,146,121 | |
| | | | | | | | |
ROAD & RAIL–1.2% | | | | | | | | |
Genesee & Wyoming, Inc.–Class A(a) | | | 6,334 | | | | 498,676 | |
Saia, Inc.(a) | | | 1,335 | | | | 94,451 | |
| | | | | | | | |
| | | | | | | 593,127 | |
| | | | | | | | |
TRADING COMPANIES & DISTRIBUTORS–2.7% | | | | | | | | |
H&E Equipment Services, Inc. | | | 14,999 | | | | 609,709 | |
SiteOne Landscape Supply, Inc.(a) | | | 9,550 | | | | 732,485 | |
| | | | | | | | |
| | | | | | | 1,342,194 | |
| | | | | | | | |
| | | | | | | 8,677,985 | |
| | | | | | | | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
FINANCIALS–6.4% | | | | | | | | |
BANKS–3.5% | | | | | | | | |
Pinnacle Financial Partners, Inc. | | | 2,180 | | | $ | 144,534 | |
Sterling Bancorp/DE | | | 19,746 | | | | 485,752 | |
SVB Financial Group(a) | | | 2,332 | | | | 545,152 | |
Western Alliance Bancorp(a) | | | 10,012 | | | | 566,879 | |
| | | | | | | | |
| | | | | | | 1,742,317 | |
| | | | | | | | |
CAPITAL MARKETS–2.9% | | | | | | | | |
Hamilton Lane, Inc.–Class A | | | 9,770 | | | | 345,760 | |
Houlihan Lokey, Inc. | | | 12,260 | | | | 556,972 | |
Stifel Financial Corp. | | | 8,917 | | | | 531,097 | |
| | | | | | | | |
| | | | | | | 1,433,829 | |
| | | | | | | | |
| | | | | | | 3,176,146 | |
| | | | | | | | |
MATERIALS–3.0% | | | | | | | | |
CHEMICALS–1.6% | | | | | | | | |
Ingevity Corp.(a) | | | 2,180 | | | | 153,624 | |
PolyOne Corp. | | | 15,112 | | | | 657,372 | |
| | | | | | | | |
| | | | | | | 810,996 | |
| | | | | | | | |
CONSTRUCTION MATERIALS–1.4% | | | | | | | | |
Summit Materials, Inc.–Class A(a) | | | 21,202 | | | | 666,588 | |
| | | | | | | | |
| | | | | | | 1,477,584 | |
| | | | | | | | |
ENERGY–2.6% | | | | | | | | |
ENERGY EQUIPMENT & SERVICES–1.6% | | | | | | | | |
Forum Energy Technologies, Inc.(a) | | | 24,198 | | | | 376,279 | |
Oil States International, Inc.(a) | | | 14,831 | | | | 419,717 | |
| | | | | | | | |
| | | | | | | 795,996 | |
| | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–1.0% | | | | | | | | |
Matador Resources Co.(a) | | | 15,685 | | | | 488,274 | |
| | | | | | | | |
| | | | | | | 1,284,270 | |
| | | | | | | | |
CONSUMER STAPLES–2.5% | | | | | | | | |
FOOD & STAPLES RETAILING–1.2% | | | | | | | | |
Chefs’ Warehouse, Inc. (The)(a) | | | 29,989 | | | | 614,774 | |
| | | | | | | | |
FOOD PRODUCTS–1.3% | | | | | | | | |
Freshpet, Inc.(a)(b) | | | 33,564 | | | | 636,038 | |
| | | | | | | | |
| | | | | | | 1,250,812 | |
| | | | | | | | |
TELECOMMUNICATION SERVICES–0.8% | | | | | | | | |
DIVERSIFIED TELECOMMUNICATION SERVICES–0.8% | | | | | | | | |
Vonage Holdings Corp.(a) | | | 38,783 | | | | 394,423 | |
| | | | | | | | |
Total Common Stocks
(cost $34,897,912) | | | | | | | 48,806,984 | |
| | | | | | | | |
7
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Principal
Amount
(000) | | | U.S. $ Value | |
| | | | | | | | |
SHORT-TERM INVESTMENTS–1.5% | | | | | | | | |
TIME DEPOSIT–1.5% | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $713,694) | | $ | 714 | | | $ | 713,694 | |
| | | | | | | | |
Total Investments Before Security Lending Collateral for Securities
Loaned–100.2%
(cost $35,611,606) | | | | | | | 49,520,678 | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED–9.5% | | | | | | | | |
INVESTMENT COMPANIES–9.5% | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB,
1.12%(c)(d)(e)
(cost $4,718,120) | | | 4,718,120 | | | $ | 4,718,120 | |
| | | | | | | | |
TOTAL
INVESTMENTS–109.7%
(cost $40,329,726) | | | | | | | 54,238,798 | |
Other assets less
liabilities–(9.7)% | | | | | | | (4,804,024 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 49,434,774 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (b) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (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. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
8
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $35,611,606) | | $ | 49,520,678 | (a) |
Affiliated issuers (cost $4,718,120—investment of cash collateral for securities loaned) | | | 4,718,120 | |
Receivable for investment securities sold | | | 189,285 | |
Receivable for capital stock sold | | | 63,512 | |
Dividends and interest receivable | | | 13,441 | |
| | | | |
Total assets | | | 54,505,036 | |
| | | | |
LIABILITIES | |
Payable for collateral received on securities loaned | | | 4,718,120 | |
Payable for investment securities purchased | | | 198,995 | |
Advisory fee payable | | | 30,304 | |
Administrative fee payable | | | 13,266 | |
Payable for capital stock redeemed | | | 10,064 | |
Distribution fee payable | | | 4,810 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 94,606 | |
| | | | |
Total liabilities | | | 5,070,262 | |
| | | | |
NET ASSETS | | $ | 49,434,774 | |
| | | | |
COMPOSITION OF NET ASSETS | |
Capital stock, at par | | $ | 2,948 | |
Additional paid-in capital | | | 32,717,300 | |
Accumulated net investment loss | | | (85,761 | ) |
Accumulated net realized gain on investment transactions | | | 2,891,215 | |
Net unrealized appreciation on investments | | | 13,909,072 | |
| | | | |
| | $ | 49,434,774 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 26,038,480 | | | | 1,485,627 | | | $ | 17.53 | |
| B | | $ | 23,396,294 | | | | 1,462,010 | | | $ | 16.00 | |
| (a) | | Includes securities on loan with a value of $4,558,716 (see Note E). |
See notes to financial statements.
9
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers | | $ | 57,066 | |
Affiliated issuers | | | 20,053 | |
Interest | | | 754 | |
Other income | | | 1,118 | |
| | | | |
| | | 78,991 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 309,993 | |
Distribution fee—Class B | | | 43,483 | |
Transfer agency—Class A | | | 3,183 | |
Transfer agency—Class B | | | 2,297 | |
Custodian | | | 83,632 | |
Administrative | | | 52,817 | |
Audit and tax | | | 41,987 | |
Directors’ fees | | | 28,559 | |
Legal | | | 27,210 | |
Printing | | | 16,923 | |
Miscellaneous | | | 3,872 | |
| | | | |
Total expenses | | | 613,956 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (3,843 | ) |
| | | | |
Net expenses | | | 610,113 | |
| | | | |
Net investment loss | | | (531,122 | ) |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS | | | | |
Net realized gain on investment transactions | | | 5,252,652 | |
Net change in unrealized appreciation/depreciation of investments | | | 7,427,912 | |
| | | | |
Net gain on investment transactions | | | 12,680,564 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 12,149,442 | |
| | | | |
See notes to financial statements.
10
| | |
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | |
Net investment loss | | $ | (531,122 | ) | | $ | (361,868 | ) |
Net realized gain (loss) on investment transactions | | | 5,252,652 | | | | (1,414,916 | ) |
Net change in unrealized appreciation/depreciation of investments | | | 7,427,912 | | | | 3,789,769 | |
| | | | | | | | |
Net increase in net assets from operations | | | 12,149,442 | | | | 2,012,985 | |
DISTRIBUTION TO SHAREHOLDERS FROM | |
Net realized gain on investment transactions | |
Class A | | | –0 | – | | | (6,611,826 | ) |
Class B | | | –0 | – | | | (5,758,210 | ) |
CAPITAL STOCK TRANSACTIONS | |
Net increase (decrease) | | | (213,569 | ) | | | 2,965,494 | |
| | | | | | | | |
Total increase (decrease) | | | 11,935,873 | | | | (7,391,557 | ) |
NET ASSETS | |
Beginning of period | | | 37,498,901 | | | | 44,890,458 | |
| | | | | | | | |
End of period (including accumulated net investment loss of ($85,761) and ($345), respectively) | | $ | 49,434,774 | | | $ | 37,498,901 | |
| | | | | | | | |
See notes to financial statements.
11
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Small Cap Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
Effective February 1, 2013, the Portfolio was closed to new investors except that Contractholders of variable products with investment options that included the Portfolio as of January 31, 2013, may continue to purchase shares of the Portfolio in accordance with the procedures for the purchase of shares in the prospectus of the separate account in which they invest, including through reinvestment of dividends and capital gains distributions. Effective August 10, 2015, the Portfolio reopened to new investors.
The Portfolio may (i) make additional exceptions that, in the Adviser’s judgment, do not adversely affect the Adviser’s ability to manage the Portfolio; (ii) reject any investment or refuse any exception, including those detailed above, that the Adviser believes will adversely affect its ability to manage the Portfolio; and (iii) close and/or reopen the Portfolio to new or existing Contractholders at any time.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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
12
| | |
| | | AB Variable Products Series Fund |
more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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.
13
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | |
Common Stocks(a) | | $ | 48,806,984 | | | $ | –0 | – | | $ | –0 | – | | $ | 48,806,984 | |
Short-Term Investments | | | –0 | – | | | 713,694 | | | | –0 | – | | | 713,694 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 4,718,120 | | | | –0 | – | | | –0 | – | | | 4,718,120 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 53,525,104 | | | | 713,694 | | | | –0 | – | | | 54,238,798 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 53,525,104 | | | $ | 713,694 | | | $ | –0 | – | | $ | 54,238,798 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid.
14
| | |
| | | AB Variable Products Series Fund |
Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $52,817.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $24,783, of which $12 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average
15
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 28,122,511 | | | $ | 28,864,953 | |
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 | | $ | 41,195,958 | |
| | | | |
Gross unrealized appreciation | | | 14,392,877 | |
Gross unrealized depreciation | | | (1,350,037 | ) |
| | | | |
Net unrealized appreciation | | $ | 13,042,840 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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
16
| | |
| | | AB Variable Products Series Fund |
time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $4,558,716 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $4,718,120. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $20,053 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $3,843. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value 12/31/16 (000) | | | Purchases at Cost (000) | | | Sales Proceeds (000) | | | Market Value 12/31/17 (000) | |
| $ | 2,326 | | | $ | 24,712 | | | $ | 22,320 | | | $ | 4,718 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 75,951 | | | | 72,529 | | | | | | | $ | 1,157,881 | | | $ | 1,034,598 | |
Shares issued in reinvestment of distributions | | | –0 | – | | | 523,917 | | | | | | | | –0 | – | | | 6,611,826 | |
Shares redeemed | | | (305,172 | ) | | | (327,926 | ) | | | | | | | (4,557,787 | ) | | | (4,827,919 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (229,221 | ) | | | 268,520 | | | | | | | $ | (3,399,906 | ) | | $ | 2,818,505 | |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 543,353 | | | | 154,832 | | | | | | | $ | 7,927,078 | | | $ | 2,038,448 | |
Shares issued in reinvestment of distributions | | | –0 | – | | | 498,115 | | | | | | | | –0 | – | | | 5,758,210 | |
Shares redeemed | | | (343,471 | ) | | | (608,767 | ) | | | | | | | (4,740,741 | ) | | | (7,649,669 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase | | | 199,882 | | | | 44,180 | | | | | | | $ | 3,186,337 | | | $ | 146,989 | |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 87% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
17
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Net long-term capital gains | | $ | –0 | – | | $ | 12,370,036 | |
| | | | | | | | |
Total taxable distributions | | $ | –0 | – | | $ | 12,370,036 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed capital gains | | $ | 3,671,689 | (a) |
Unrealized appreciation/(depreciation) | | | 13,042,840 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 16,714,529 | |
| | | | |
| (a) | | During the fiscal year, the Portfolio utilized $1,139,598 of capital loss carry forwards to offset current year net realized gains. |
| (b) | | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the tax treatment of passive foreign investment companies (PFICs). |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the tax treatment of passive foreign investment companies (PFICs), the disallowance of a net operating loss, and the offset of net operating loss to realized capital gain/loss resulted in a net decrease in accumulated net investment loss, a net decrease in accumulated net realized gain on investments, 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 Portfolio’s financial statements through this date.
18
| | |
| | |
| SMALL CAP GROWTH PORTFOLIO |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $13.07 | | | | $17.31 | | | | $20.97 | | | | $23.47 | | | | $18.96 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment loss(a) | | | (.18 | )(b) | | | (.12 | )(b)† | | | (.19 | ) | | | (.15 | ) | | | (.21 | ) |
Net realized and unrealized gain (loss) on investment transactions | | | 4.64 | | | | 1.05 | | | | .18 | | | | (.30 | ) | | | 8.30 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 4.46 | | | | .93 | | | | (.01 | ) | | | (.45 | ) | | | 8.09 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
Distributions from net realized gain on investment transactions | | | –0 | – | | | (5.17 | ) | | | (3.65 | ) | | | (2.05 | ) | | | (3.58 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $17.53 | | | | $13.07 | | | | $17.31 | | | | $20.97 | | | | $23.47 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(c)* | | | 34.12 | % | | | 6.46 | %† | | | (1.25 | )% | | | (1.81 | )% | | | 45.66 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $26,039 | | | | $22,405 | | | | $25,033 | | | | $28,055 | | | | $33,510 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements(d) | | | 1.38 | % | | | 1.48 | % | | | 1.31 | % | | | 1.11 | % | | | 1.17 | % |
Expenses, before waivers/reimbursements(d) | | | 1.38 | % | | | 1.49 | % | | | 1.31 | % | | | 1.11 | % | | | 1.17 | % |
Net investment loss | | | (1.19 | )%(b) | | | (.83 | )%(b)† | | | (.92 | )% | | | (.67 | )% | | | (.96 | )% |
Portfolio turnover rate | | | 69 | % | | | 60 | % | | | 72 | % | | | 84 | % | | | 81 | % |
See footnote summary on page 20.
19
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $11.96 | | | | $16.30 | | | | $20.00 | | | | $22.54 | | | | $18.36 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment loss(a) | | | (.20 | )(b) | | | (.15 | )(b)† | | | (.22 | ) | | | (.19 | ) | | | (.25 | ) |
Net realized and unrealized gain (loss) on investment transactions | | | 4.24 | | | | .98 | | | | .17 | | | | (.30 | ) | | | 8.01 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 4.04 | | | | .83 | | | | (.05 | ) | | | (.49 | ) | | | 7.76 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Distributions | | | | | | | | | | | | | | | | | | | | |
Distributions from net realized gain on investment transactions | | | –0 | – | | | (5.17 | ) | | | (3.65 | ) | | | (2.05 | ) | | | (3.58 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $16.00 | | | | $11.96 | | | | $16.30 | | | | $20.00 | | | | $22.54 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value(c)* | | | 33.78 | % | | | 6.22 | %† | | | (1.53 | )% | | | (2.08 | )% | | | 45.33 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $23,396 | | | | $15,094 | | | | $19,857 | | | | $59,763 | | | | $38,128 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements(d) | | | 1.61 | % | | | 1.73 | % | | | 1.48 | % | | | 1.34 | % | | | 1.43 | % |
Expenses, before waivers/reimbursements(d) | | | 1.62 | % | | | 1.74 | % | | | 1.48 | % | | | 1.34 | % | | | 1.43 | % |
Net investment loss | | | (1.42 | )%(b) | | | (1.08 | )%(b)† | | | (1.10 | )% | | | (.89 | )% | | | (1.21 | )% |
Portfolio turnover rate | | | 69 | % | | | 60 | % | | | 72 | % | | | 84 | % | | | 81 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and reimbursed by the Adviser. |
| (c) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| (d) | | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio 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 Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2017, such waiver amounted to 0.01% for the Portfolio. |
| † | | For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | |
Net Investment
Income Per Share | | Net Investment
Income Ratio | | Total Return |
| $.004 | | .03% | | .03% |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.03%, 0.08%, 0.02%, 0.01% and 0.23%, respectively. |
20
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Small Cap Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Small Cap Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Small Cap Growth Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
21
| | |
| | |
| | |
| SMALL CAP GROWTH PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Bruce K. Aronow(2), Vice President N. Kumar Kirpalani(2), Vice President Samantha S. Lau(2), Vice President Wen-Tse Tseng(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
| CUSTODIANAND ACCOUNTING AGENT | | LEGAL COUNSEL |
State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
| DISTRIBUTOR | | TRANSFER AGENT |
AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | | AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 |
| | |
| INDEPENDENT REGISTERED PUBLIC | | |
| ACCOUNTING FIRM | | |
Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
| (2) | The management of, and investment decisions for, the Portfolio’s portfolio are made by the Adviser’s Small Cap Growth Investment Team. Messrs. Aronow, Kirpalani and Tseng, and Ms. Lan, members of the Adviser’s Small Cap Growth Investment Team, are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
22
| | |
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| DISINTERESTED DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr., ## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey, ## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
23
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER
PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD
BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr., ## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin, ## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen, ## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
| | | | | | | | |
24
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER
PUBLIC COMPANY
DIRECTORSHIPS
CURRENTLY HELD
BY DIRECTOR |
DISINTERESTED DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Garry L. Moody, ## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner, ## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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. |
25
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| SMALL CAP GROWTH PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith 57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Bruce K. Aronow 51 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
N. Kumar Kirpalani 64 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Samantha S. Lau 45 | | Vice President | | Senior Vice President of the Adviser**, with which she has been associated since prior to 2013. |
| | | | |
Wen-Tse Tseng 52 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo 58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke 57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | The address for each of the Portfolio’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 the Adviser at (800) 227-4618, or visit www. abfunds.com, for a free prospectus or SAI. |
26
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| SMALL CAP GROWTH PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Small Cap Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous
27
| | |
| SMALL CAP GROWTH PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, 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 may use ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund would be paid for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
28
| | |
| | | AB Variable Products Series Fund |
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 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 breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
29
VPS-SCG-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
| + | | SMALL/MID CAP VALUE PORTFOLIO |
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
| | |
| | |
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Small/Mid Cap Value Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of small- to mid-capitalization US companies. Under normal circumstances, the Portfolio invests at least 80% of its net assets in securities of small- to mid-capitalization companies. Because the Portfolio’s definition of small- to mid-capitalization companies is dynamic, the lower and upper limits on market capitalization will change with the markets. The Portfolio invests in companies that are determined by the Adviser to be undervalued, using the Adviser’s fundamental value approach. In selecting securities for the Portfolio’s portfolio, the Adviser uses its fundamental and quantitative research to identify companies whose long-term earnings power is not reflected in the current market price of their securities.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities issued by non-US companies.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its primary benchmark, the Russell 2500 Value Index, in addition to the Russell 2500 Index, which represents small/mid-cap stocks, for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio outperformed the primary benchmark but underperformed the broader Russell 2500 Index for the annual period. Stock selection in the financials, consumer discretionary, materials and health care sectors as well as overweight positions in technology and consumer discretionary, and an underweight position in real estate, were the primary contributors to performance relative to the benchmark. Stock selection in the technology and real estate sectors and an overweight position in energy detracted.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked one of the strongest years for global stock market performance since the 2008 financial crisis. Emerging-market equities outperformed, followed by non-US stocks. Large-cap stocks outperformed their small-cap peers, and growth outperformed value, in terms of style.
Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
The Portfolio’s Senior Investment Management Team (the “Team”) seeks to invest opportunistically in what it believes are undervalued companies with solid fundamentals, without sacrificing the Portfolio’s deep value discipline. The Portfolio’s emphasis continues to be at the stock-specific level, as the Team looks for companies that offer compelling valuation, strong free cash flow and significant company-level catalysts.
1
| | |
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 2500® Value Index and the Russell 2500® Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 2500 Value Index represents the performance of 2,500 small- to mid-cap value companies within the US. The Russell 2500 Index represents the performance of 2,500 small- to mid-cap cap companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as value, may underperform the market generally.
Capitalization Risk: Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
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| SMALL/MID CAP VALUE PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Small/Mid Cap Value Portfolio Class A2 | | | 13.15% | | | | 15.06% | | | | 9.87% | |
| Small/Mid Cap Value Portfolio Class B2 | | | 12.85% | | | | 14.77% | | | | 9.60% | |
| Primary benchmark: Russell 2500 Value Index | | | 10.36% | | | | 13.27% | | | | 8.82% | |
| Russell 2500 Index | | | 16.81% | | | | 14.33% | | | | 9.22% | |
1 Average annual returns. | |
2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.11%. | |
| | | | | | | | | | | | |
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.83% and 1.08% for Class A and Class B 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.
SMALL/MID CAP VALUE PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Small/Mid Cap Value Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
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| SMALL/MID CAP VALUE PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each class’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,116.10 | | | $ | 4.32 | | | | 0.81 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,021.12 | | | $ | 4.13 | | | | 0.81 | % |
| | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,114.60 | | | $ | 5.65 | | | | 1.06 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,019.86 | | | $ | 5.40 | | | | 1.06 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
CalAtlantic Group, Inc. | | $ | 12,484,182 | | | | 1.8 | % |
Reinsurance Group of America, Inc.—Class A | | | 12,383,961 | | | | 1.8 | |
Alcoa Corp. | | | 11,429,598 | | | | 1.6 | |
Zions Bancorporation | | | 11,338,648 | | | | 1.6 | |
HollyFrontier Corp. | | | 10,853,006 | | | | 1.5 | |
Huntington Bancshares, Inc./OH | | | 10,742,659 | | | | 1.5 | |
Comerica, Inc. | | | 10,168,055 | | | | 1.4 | |
American Financial Group, Inc./OH | | | 9,681,768 | | | | 1.4 | |
Quanta Services, Inc. | | | 9,680,312 | | | | 1.4 | |
RPC, Inc. | | | 9,669,998 | | | | 1.4 | |
| | | | | | | | | |
| | | $ | 108,432,187 | | | | 15.4 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
| | | | | | | | |
| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Financials | | $ | 142,767,598 | | | | 20.3 | % |
Industrials | | | 128,286,676 | | | | 18.2 | |
Consumer Discretionary | | | 112,214,402 | | | | 15.9 | |
Information Technology | | | 109,124,932 | | | | 15.5 | |
Energy | | | 60,681,596 | | | | 8.6 | |
Real Estate | | | 34,205,956 | | | | 4.8 | |
Materials | | | 34,000,964 | | | | 4.8 | |
Health Care | | | 30,069,947 | | | | 4.3 | |
Utilities | | | 27,559,747 | | | | 3.9 | |
Consumer Staples | | | 12,506,597 | | | | 1.8 | |
Short-Term Investments | | | 13,467,620 | | | | 1.9 | |
| | | | | | | | | |
Total Investments | | $ | 704,886,035 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is 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 Portfolio’s prospectus.
5
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
COMMON STOCKS–98.3% | | | | | | | | |
| | | | | | | | |
FINANCIALS–20.3% | | | | | | | | |
BANKS–11.6% | | | | | | | | |
Associated Banc-Corp. | | | 326,170 | | | $ | 8,284,718 | |
BankUnited, Inc. | | | 153,230 | | | | 6,239,526 | |
Comerica, Inc. | | | 117,130 | | | | 10,168,055 | |
Fulton Financial Corp. | | | 351,200 | | | | 6,286,480 | |
Huntington Bancshares, Inc./OH | | | 737,820 | | | | 10,742,659 | |
Synovus Financial Corp. | | | 149,070 | | | | 7,146,416 | |
Texas Capital Bancshares, Inc.(a) | | | 80,570 | | | | 7,162,673 | |
Umpqua Holdings Corp. | | | 266,950 | | | | 5,552,560 | |
Webster Financial Corp. | | | 152,352 | | | | 8,556,089 | |
Zions Bancorporation | | | 223,070 | | | | 11,338,648 | |
| | | | | | | | |
| | | | | | | 81,477,824 | |
| | | | | | | | |
CONSUMER FINANCE–0.5% | | | | | |
OneMain Holdings, Inc.(a) | | | 140,680 | | | | 3,656,273 | |
| | | | | | | | |
INSURANCE–7.2% | | | | | | | | |
American Financial Group, Inc./OH | | | 89,200 | | | | 9,681,768 | |
First American Financial Corp. | | | 123,880 | | | | 6,942,235 | |
Hanover Insurance Group, Inc. (The) | | | 40,240 | | | | 4,349,139 | |
Old Republic International Corp. | | | 335,900 | | | | 7,181,542 | |
Reinsurance Group of America, Inc.–Class A | | | 79,420 | | | | 12,383,961 | |
Selective Insurance Group, Inc. | | | 110,430 | | | | 6,482,241 | |
Validus Holdings Ltd. | | | 80,112 | | | | 3,758,855 | |
| | | | | | | | |
| | | | | | | 50,779,741 | |
| | | | | | | | |
THRIFTS & MORTGAGE FINANCE–1.0% | | | | | | | | |
Essent Group Ltd.(a) | | | 157,848 | | | | 6,853,760 | |
| | | | | | | | |
| | | | | | | 142,767,598 | |
| | | | | | | | |
INDUSTRIALS–18.2% | | | | | | | | |
AEROSPACE & DEFENSE–0.6% | | | | | |
Esterline Technologies Corp.(a) | | | 57,390 | | | | 4,287,033 | |
| | | | | | | | |
AIR FREIGHT & LOGISTICS–0.9% | | | | | | | | |
Atlas Air Worldwide Holdings, Inc.(a) | | | 107,610 | | | | 6,311,326 | |
| | | | | | | | |
AIRLINES–1.8% | | | | | |
Hawaiian Holdings, Inc. | | | 79,387 | | | | 3,163,572 | |
SkyWest, Inc. | | | 178,080 | | | | 9,456,048 | |
| | | | | | | | |
| | | | | | | 12,619,620 | |
| | | | | | | | |
COMMERCIAL SERVICES & SUPPLIES–1.6% | | | | | | | | |
ABM Industries, Inc. | | | 103,540 | | | | 3,905,529 | |
Steelcase, Inc.–Class A | | | 469,244 | | | | 7,132,509 | |
| | | | | | | | |
| | | | | | | 11,038,038 | |
| | | | | | | | |
CONSTRUCTION & ENGINEERING–4.1% | | | | | | | | |
AECOM(a) | | | 206,065 | | | | 7,655,315 | |
Granite Construction, Inc. | | | 99,020 | | | | 6,280,838 | |
Quanta Services, Inc.(a) | | | 247,515 | | | | 9,680,312 | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
Tutor Perini Corp.(a) | | | 204,080 | | | $ | 5,173,428 | |
| | | | | | | | |
| | | | | | | 28,789,893 | |
| | | | | | | | |
ELECTRICAL EQUIPMENT–2.4% | | | | | |
EnerSys | | | 127,310 | | | | 8,864,595 | |
Regal Beloit Corp. | | | 101,230 | | | | 7,754,218 | |
| | | | | | | | |
| | | | | | | 16,618,813 | |
| | | | | | | | |
MACHINERY–3.4% | | | | | | | | |
Oshkosh Corp. | | | 92,640 | | | | 8,420,050 | |
SPX FLOW, Inc.(a) | | | 163,370 | | | | 7,768,243 | |
Terex Corp. | | | 161,760 | | | | 7,800,067 | |
| | | | | | | | |
| | | | | | | 23,988,360 | |
| | | | | | | | |
ROAD & RAIL–2.5% | | | | | | | | |
Ryder System, Inc. | | | 105,256 | | | | 8,859,398 | |
Werner Enterprises, Inc. | | | 235,160 | | | | 9,088,934 | |
| | | | | | | | |
| | | | | | | 17,948,332 | |
| | | | | | | | |
TRADING COMPANIES & DISTRIBUTORS–0.9% | | | | | | | | |
MRC Global, Inc.(a) | | | 395,110 | | | | 6,685,261 | |
| | | | | | | | |
| | | | | | | 128,286,676 | |
| | | | | | | | |
CONSUMER DISCRETIONARY–16.0% | | | | | | | | |
AUTO COMPONENTS–3.8% | | | | | | | | |
Cooper-Standard Holdings, Inc.(a) | | | 68,249 | | | | 8,360,503 | |
Dana, Inc. | | | 301,920 | | | | 9,664,459 | |
Lear Corp. | | | 27,497 | | | | 4,857,620 | |
Tenneco, Inc. | | | 68,760 | | | | 4,025,210 | |
| | | | | | | | |
| | | | | | | 26,907,792 | |
| | | | | | | | |
DIVERSIFIED CONSUMER SERVICES–1.9% | | | | | | | | |
Houghton Mifflin Harcourt Co.(a) | | | 446,125 | | | | 4,148,962 | |
Sotheby’s(a) | | | 181,690 | | | | 9,375,204 | |
| | | | | | | | |
| | | | | | | 13,524,166 | |
| | | | | | | | |
HOTELS, RESTAURANTS & LEISURE–2.0% | | | | | | | | |
Bloomin’ Brands, Inc. | | | 385,569 | | | | 8,228,043 | |
Brinker International, Inc.(b) | | | 153,542 | | | | 5,963,571 | |
| | | | | | | | |
| | | | | | | 14,191,614 | |
| | | | | | | | |
HOUSEHOLD DURABLES–2.6% | | | | | | | | |
CalAtlantic Group, Inc. | | | 221,390 | | | | 12,484,182 | |
PulteGroup, Inc. | | | 159,350 | | | | 5,298,388 | |
| | | | | | | | |
| | | | | | | 17,782,570 | |
| | | | | | | | |
MEDIA–0.7% | | | | | | | | |
Scholastic Corp. | | | 120,730 | | | | 4,842,480 | |
| | | | | | | | |
SPECIALTY RETAIL–3.3% | | | | | | | | |
Burlington Stores, Inc.(a) | | | 38,277 | | | | 4,709,219 | |
Caleres, Inc. | | | 155,575 | | | | 5,208,651 | |
Michaels Cos., Inc. (The)(a) | | | 366,430 | | | | 8,863,942 | |
Signet Jewelers Ltd.(b) | | | 78,960 | | | | 4,465,188 | |
| | | | | | | | |
| | | | | | | 23,247,000 | |
| | | | | | | | |
6
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
TEXTILES, APPAREL & LUXURY GOODS–1.7% | | | | | | | | |
Crocs, Inc.(a) | | | 495,140 | | | $ | 6,258,570 | |
Deckers Outdoor Corp.(a) | | | 68,040 | | | | 5,460,210 | |
| | | | | | | | |
| | | | | | | 11,718,780 | |
| | | | | | | | |
| | | | | | | 112,214,402 | |
| | | | | | | | |
INFORMATION TECHNOLOGY–15.5% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–1.6% | | | | | | | | |
Finisar Corp.(a) | | | 223,790 | | | | 4,554,126 | |
Infinera Corp.(a) | | | 433,132 | | | | 2,741,726 | |
NETGEAR, Inc.(a) | | | 64,657 | | | | 3,798,599 | |
| | | | | | | | |
| | | | | | | 11,094,451 | |
| | | | | | | | |
ELECTRONIC EQUIPMENT, INSTRUMENTS &
COMPONENTS–4.3% | | | | | | | | |
Anixter International, Inc.(a) | | | 85,440 | | | | 6,493,440 | |
Avnet, Inc. | | | 191,530 | | | | 7,588,419 | |
CDW Corp./DE | | | 122,140 | | | | 8,487,508 | |
VeriFone Systems, Inc.(a) | | | 429,500 | | | | 7,606,445 | |
| | | | | | | | |
| | | | | | | 30,175,812 | |
| | | | | | | | |
IT SERVICES–4.4% | | | | | | | | |
Amdocs Ltd. | | | 109,360 | | | | 7,160,893 | |
Booz Allen Hamilton Holding Corp. | | | 251,965 | | | | 9,607,425 | |
Convergys Corp. | | | 209,274 | | | | 4,917,939 | |
Genpact Ltd. | | | 298,790 | | | | 9,483,595 | |
| | | | | | | | |
| | | | | | | 31,169,852 | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.7% | | | | | | | | |
Cypress Semiconductor Corp. | | | 493,670 | | | | 7,523,531 | |
Integrated Device Technology, Inc.(a) | | | 78,790 | | | | 2,342,426 | |
Mellanox Technologies Ltd.(a) | | | 83,760 | | | | 5,419,272 | |
Qorvo, Inc.(a) | | | 61,440 | | | | 4,091,904 | |
| | | | | | | | |
| | | | | | | 19,377,133 | |
| | | | | | | | |
SOFTWARE–1.2% | | | | | | | | |
Verint Systems, Inc.(a) | | | 194,220 | | | | 8,128,107 | |
| | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.3% | | | | | | | | |
NCR Corp.(a) | | | 270,067 | | | | 9,179,577 | |
| | | | | | | | |
| | | | | | | 109,124,932 | |
| | | | | | | | |
ENERGY–8.6% | | | | | | | | |
ENERGY EQUIPMENT & SERVICES–3.2% | | | | | | | | |
Helix Energy Solutions Group, Inc.(a) | | | 260,700 | | | | 1,965,678 | |
Helmerich & Payne, Inc.(b) | | | 67,180 | | | | 4,342,515 | |
Oil States International, Inc.(a) | | | 233,170 | | | | 6,598,711 | |
RPC, Inc.(b) | | | 378,770 | | | | 9,669,998 | |
| | | | | | | | |
| | | | | | | 22,576,902 | |
| | | | | | | | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–5.4% | | | | | | | | |
HollyFrontier Corp. | | | 211,890 | | | $ | 10,853,006 | |
Oasis Petroleum, Inc.(a) | | | 608,960 | | | | 5,121,354 | |
QEP Resources, Inc.(a) | | | 820,590 | | | | 7,853,046 | |
SM Energy Co. | | | 353,780 | | | | 7,811,463 | |
SRC Energy, Inc.(a) | | | 758,010 | | | | 6,465,825 | |
| | | | | | | | |
| | | | | | | 38,104,694 | |
| | | | | | | | |
| | | | | | | 60,681,596 | |
| | | | | | | | |
REAL ESTATE–4.9% | | | | | | | | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–4.9% | | | | | | | | |
American Campus Communities, Inc. | | | 120,600 | | | | 4,948,218 | |
Education Realty Trust, Inc. | | | 177,530 | | | | 6,199,348 | |
Empire State Realty Trust, Inc.–Class A | | | 355,891 | | | | 7,306,442 | |
Gramercy Property Trust | | | 323,348 | | | | 8,620,458 | |
STAG Industrial, Inc. | | | 260,940 | | | | 7,131,490 | |
| | | | | | | | |
| | | | | | | 34,205,956 | |
| | | | | | | | |
MATERIALS–4.8% | | | | | | | | |
CHEMICALS–2.0% | | | | | | | | |
Ingevity Corp.(a) | | | 39,700 | | | | 2,797,659 | |
Orion Engineered Carbons SA | | | 70,000 | | | | 1,792,000 | |
Trinseo SA | | | 132,290 | | | | 9,604,254 | |
| | | | | | | | |
| | | | | | | 14,193,913 | |
| | | | | | | | |
CONTAINERS & PACKAGING–1.2% | | | | | | | | |
Graphic Packaging Holding Co. | | | 542,230 | | | | 8,377,453 | |
| | | | | | | | |
METALS & MINING–1.6% | | | | | | | | |
Alcoa Corp.(a) | | | 212,170 | | | | 11,429,598 | |
| | | | | | | | |
| | | | | | | 34,000,964 | |
| | | | | | | | |
HEALTH CARE–4.3% | | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–3.0% | | | | | | | | |
LifePoint Health, Inc.(a) | | | 148,095 | | | | 7,375,131 | |
Molina Healthcare, Inc.(a) | | | 93,720 | | | | 7,186,449 | |
WellCare Health Plans, Inc.(a) | | | 33,179 | | | | 6,672,629 | |
| | | | | | | | |
| | | | | | | 21,234,209 | |
| | | | | | | | |
LIFE SCIENCES TOOLS & SERVICES–1.3% | | | | | | | | |
ICON PLC(a) | | | 78,785 | | | | 8,835,738 | |
| | | | | | | | |
| | | | | | | 30,069,947 | |
| | | | | | | | |
UTILITIES–3.9% | | | | | | | | |
ELECTRIC UTILITIES–2.7% | | | | | | | | |
Alliant Energy Corp. | | | 158,798 | | | | 6,766,383 | |
PNM Resources, Inc. | | | 151,690 | | | | 6,135,860 | |
Portland General Electric Co. | | | 140,420 | | | | 6,400,344 | |
| | | | | | | | |
| | | | | | | 19,302,587 | |
| | | | | | | | |
GAS UTILITIES–0.5% | | | | | | | | |
Southwest Gas Holdings, Inc. | | | 44,330 | | | | 3,567,678 | |
| | | | | | | | |
7
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
MULTI-UTILITIES–0.7% | | | | | | | | |
Black Hills Corp. | | | 78,015 | | | $ | 4,689,482 | |
| | | | | | | | |
| | | | | | | 27,559,747 | |
| | | | | | | | |
CONSUMER STAPLES–1.8% | | | | | |
BEVERAGES–1.0% | | | | | | | | |
Cott Corp. | | | 415,839 | | | | 6,927,878 | |
| | | | | | | | |
FOOD PRODUCTS–0.8% | | | | | | | | |
Ingredion, Inc. | | | 39,905 | | | | 5,578,719 | |
| | | | | | | | |
| | | | | | | 12,506,597 | |
| | | | | | | | |
Total Common Stocks
(cost $521,525,311) | | | | | | | 691,418,415 | |
| | | | | | | | |
| | | Principal
Amount
(000) | | | | |
SHORT-TERM INVESTMENTS–1.9% | | | | | | | | |
TIME DEPOSIT–1.9% | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $13,467,620) | | $ | 13,468 | | | | 13,467,620 | |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | |
| | | | | | | | |
Total Investments Before Security Lending Collateral For Securities
Loaned–100.2%
(cost $534,992,931) | | | | | | $ | 704,886,035 | |
| | | | | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED–2.6% | | | | | | | | |
INVESTMENT COMPANIES–2.6% | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB,
1.12%(c)(d)(e)
(cost $18,302,352) | | | 18,302,352 | | | | 18,302,352 | |
| | | | | | | | |
TOTAL
INVESTMENTS–102.8%
(cost $553,295,283) | | | | | | | 723,188,387 | |
Other assets less liabilities–(2.8)% | | | | | | | (20,035,262 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 703,153,125 | |
| | | | | | | | |
| (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.
8
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $534,992,931) | | $ | 704,886,035 | (a) |
Affiliated issuers (cost $18,302,352—investment of cash collateral for securities loaned) | | | 18,302,352 | |
Cash | | | 11,881 | |
Dividends and interest receivable | | | 780,348 | |
Receivable for capital stock sold | | | 153,389 | |
| | | | |
Total assets | | | 724,134,005 | |
| | | | |
LIABILITIES | |
Payable for collateral received on securities loaned | | | 18,302,352 | |
Payable for investment securities purchased | | | 1,308,887 | |
Payable for capital stock redeemed | | | 675,423 | |
Advisory fee payable | | | 445,988 | |
Distribution fee payable | | | 100,095 | |
Administrative fee payable | | | 13,644 | |
Transfer Agent fee payable | | | 97 | |
Directors’ fees payable | | | 66 | |
Accrued expenses | | | 134,328 | |
| | | | |
Total liabilities | | | 20,980,880 | |
| | | | |
NET ASSETS | | $ | 703,153,125 | |
| | | | |
COMPOSITION OF NET ASSETS | |
Capital stock, at par | | $ | 32,635 | |
Additional paid-in capital | | | 478,109,974 | |
Undistributed net investment income | | | 2,188,993 | |
Accumulated net realized gain on investment transactions | | | 52,928,419 | |
Net unrealized appreciation on investments | | | 169,893,104 | |
| | | | |
| | $ | 703,153,125 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 233,652,344 | | | | 10,775,591 | | | $ | 21.68 | |
| B | | $ | 469,500,781 | | | | 21,858,980 | | | $ | 21.48 | |
| (a) | | Includes securities on loan with a value of $17,790,349 (see Note E). |
See notes to financial statements.
9
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $9,284) | | $ | 8,531,794 | |
Affiliated issuers | | | 127,154 | |
Interest | | | 12,226 | |
Securities lending income | | | 56,925 | |
Other income | | | 12,094 | |
| | | | |
| | | 8,740,193 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 5,108,548 | |
Distribution fee—Class B | | | 1,143,259 | |
Transfer agency—Class A | | | 2,482 | |
Transfer agency—Class B | | | 5,059 | |
Custodian | | | 125,712 | |
Printing | | | 104,266 | |
Administrative | | | 53,585 | |
Legal | | | 51,649 | |
Audit and tax | | | 48,848 | |
Directors’ fees | | | 28,621 | |
Miscellaneous | | | 24,323 | |
| | | | |
Total expenses | | | 6,696,352 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (24,210 | ) |
| | | | |
Net expenses | | | 6,672,142 | |
| | | | |
Net investment income | | | 2,068,051 | |
| | | | |
REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS | | | | |
Net realized gain on investment transactions | | | 54,025,680 | |
Net change in unrealized appreciation/depreciation of investments | | | 27,557,556 | |
| | | | |
Net gain on investment transactions | | | 81,583,236 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 83,651,287 | |
| | | | |
See notes to financial statements.
10
| | |
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | |
Net investment income | | $ | 2,068,051 | | | $ | 2,177,202 | |
Net realized gain on investment transactions | | | 54,025,680 | | | | 33,828,949 | |
Net change in unrealized appreciation/depreciation of investments | | | 27,557,556 | | | | 100,194,268 | |
| | | | | | | | |
Net increase in net assets from operations | | | 83,651,287 | | | | 136,200,419 | |
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM | |
Net investment income | |
Class A | | | (1,018,430 | ) | | | (1,217,914 | ) |
Class B | | | (1,111,760 | ) | | | (1,419,838 | ) |
Net realized gain on investment transactions | |
Class A | | | (10,952,926 | ) | | | (11,442,879 | ) |
Class B | | | (22,632,252 | ) | | | (23,345,088 | ) |
CAPITAL STOCK TRANSACTIONS | |
Net increase (decrease) | | | (31,401,524 | ) | | | 9,581,222 | |
| | | | | | | | |
Total increase | | | 16,534,395 | | | | 108,355,922 | |
NET ASSETS | |
Beginning of period | | | 686,618,730 | | | | 578,262,808 | |
| | | | | | | | |
End of period (including undistributed net investment income of $2,188,993 and $2,251,132, respectively) | | $ | 703,153,125 | | | $ | 686,618,730 | |
| | | | | | | | |
See notes to financial statements.
11
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Small/Mid Cap Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
12
| | |
| | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | | | | |
Common Stocks(a) | | $ | 691,418,415 | | | $ | –0 | – | | $ | –0 | – | | $ | 691,418,415 | |
Short-Term Investments | | | –0 | – | | | 13,467,620 | | | | –0 | – | | | 13,467,620 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 18,302,352 | | | | –0 | – | | | –0 | – | | | 18,302,352 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 709,720,767 | | | | 13,467,620 | | | | –0 | – | | | 723,188,387 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 709,720,767 | | | $ | 13,467,620 | | | $ | –0 | – | | $ | 723,188,387 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
13
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
14
| | |
| | | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2017, there were no expenses waived by the Adviser.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $53,585.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $305,042, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
15
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 224,541,084 | | | $ | 281,166,490 | |
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 | | $ | 554,121,764 | |
| | | | |
Gross unrealized appreciation | | $ | 185,892,111 | |
Gross unrealized depreciation | | | (16,825,488 | ) |
| | | | |
Net unrealized appreciation | | $ | 169,066,623 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $17,790,349 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $18,302,352. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $56,925 and $127,154 from the borrowers and AB Government Money
16
| | |
| | | AB Variable Products Series Fund |
Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $24,210. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 13,941 | | | $ | 206,130 | | | $ | 201,769 | | | $ | 18,302 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | |
Shares sold | | | 1,291,766 | | | | 1,402,219 | | | | | | | $ | 26,552,466 | | | $ | 25,871,037 | |
Shares issued in reinvestment of dividends and distributions | | | 629,078 | | | | 699,491 | | | | | | | | 11,971,356 | | | | 12,660,794 | |
Shares redeemed | | | (2,537,276 | ) | | | (1,778,375 | ) | | | | | | | (51,958,746 | ) | | | (32,173,563 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (616,432 | ) | | | 323,335 | | | | | | | $ | (13,434,924 | ) | | $ | 6,358,268 | |
| | | | | | | | | | | | | | | | | | | | |
Class B | |
Shares sold | | | 2,296,542 | | | | 2,989,902 | | | | | | | $ | 46,650,675 | | | $ | 55,494,983 | |
Shares issued in reinvestment of dividends and distributions | | | 1,258,294 | | | | 1,378,894 | | | | | | | | 23,744,012 | | | | 24,764,927 | |
Shares redeemed | | | (4,333,856 | ) | | | (4,293,372 | ) | | | | | | | (88,361,287 | ) | | | (77,036,956 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) | | | (779,020 | ) | | | 75,424 | | | | | | | $ | (17,966,600 | ) | | $ | 3,222,954 | |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 70% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
17
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 2,130,190 | | | $ | 3,624,690 | |
Net long-term capital gains | | | 33,585,178 | | | | 33,801,029 | |
| | | | | | | | |
Total taxable distributions | | $ | 35,715,368 | | | $ | 37,425,719 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 2,037,079 | |
Undistributed net capital gain | | | 53,754,900 | |
Unrealized appreciation/(depreciation) | | | 169,066,623 | (a) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 224,858,602 | (b) |
| | | | |
| (a) | | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
| (b) | | The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to the tax treatment of deferred dividends from real estate investment trust (REITs). |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to undistributed net investment income, accumulated net realized gain on investment and foreign currency transactions 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 Portfolio’s financial statements through this date.
18
| | |
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $20.29 | | | | $17.29 | | | | $21.95 | | | | $22.89 | | | | $17.67 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .10 | (b) | | | .10 | (b)† | | | .11 | | | | .17 | | | | .16 | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.41 | | | | 4.09 | | | | (1.11 | ) | | | 1.82 | | | | 6.41 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 2.51 | | | | 4.19 | | | | (1.00 | ) | | | 1.99 | | | | 6.57 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.09 | ) | | | (.11 | ) | | | (.17 | ) | | | (.17 | ) | | | (.13 | ) |
Distributions from net realized gain on investment transactions | | | (1.03 | ) | | | (1.08 | ) | | | (3.49 | ) | | | (2.76 | ) | | | (1.22 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (1.12 | ) | | | (1.19 | ) | | | (3.66 | ) | | | (2.93 | ) | | | (1.35 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $21.68 | | | | $20.29 | | | | $17.29 | | | | $21.95 | | | | $22.89 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 13.15 | %* | | | 25.09 | %† | | | (5.49 | )% | | | 9.20 | % | | | 38.06 | %* |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $233,652 | | | | $231,197 | | | | $191,388 | | | | $211,680 | | | | $217,146 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (d) | | | .81 | % | | | .82 | % | | | .82 | % | | | .82 | % | | | .81 | % |
Expenses, before waivers/reimbursements (d) | | | .82 | % | | | .83 | % | | | .82 | % | | | .82 | % | | | .81 | % |
Net investment income | | | .47 | %(b) | | | .53 | %(b)† | | | .56 | % | | | .75 | % | | | .77 | % |
Portfolio turnover rate | | | 33 | % | | | 57 | % | | | 42 | % | | | 45 | % | | | 56 | % |
See footnote summary on page 20.
19
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | |
| (continued) | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $20.12 | | | | $17.15 | | | | $21.79 | | | | $22.74 | | | | $17.58 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .05 | (b) | | | .05 | (b)† | | | .06 | | | | .11 | | | | .11 | |
Net realized and unrealized gain (loss) on investment transactions | | | 2.39 | | | | 4.06 | | | | (1.09 | ) | | | 1.81 | | | | 6.36 | |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 2.44 | | | | 4.11 | | | | (1.03 | ) | | | 1.92 | | | | 6.47 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends and Distributions | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.05 | ) | | | (.06 | ) | | | (.12 | ) | | | (.11 | ) | | | (.09 | ) |
Distributions from net realized gain on investment transactions | | | (1.03 | ) | | | (1.08 | ) | | | (3.49 | ) | | | (2.76 | ) | | | (1.22 | ) |
| | | | | | | | | | | | | | | | | | | | |
Total dividends and distributions | | | (1.08 | ) | | | (1.14 | ) | | | (3.61 | ) | | | (2.87 | ) | | | (1.31 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $21.48 | | | | $20.12 | | | | $17.15 | | | | $21.79 | | | | $22.74 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (c) | | | 12.85 | %* | | | 24.79 | %† | | | (5.69 | )% | | | 8.95 | % | | | 37.63 | %* |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $469,501 | | | | $455,422 | | | | $386,875 | | | | $447,378 | | | | $472,677 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (d) | | | 1.06 | % | | | 1.07 | % | | | 1.07 | % | | | 1.07 | % | | | 1.06 | % |
Expenses, before waivers/reimbursements (d) | | | 1.07 | % | | | 1.08 | % | | | 1.07 | % | | | 1.07 | % | | | 1.06 | % |
Net investment income | | | .22 | %(b) | | | .28 | %(b)† | | | .31 | % | | | .49 | % | | | .51 | % |
Portfolio turnover rate | | | 33 | % | | | 57 | % | | | 42 | % | | | 45 | % | | | 56 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and reimbursed by the Adviser. |
| (c) | | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| (d) | | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2017 and year ended December 31, 2016, such waiver amounted to less than .005% for the Portfolio. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | |
Net Investment Income Per Share | | Net Investment Income Ratio | | Total Return |
| $.001 | | .003% | | .003% |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017 and December 31, 2013 by 0.11 and 0.01%, respectively. |
See notes to financial statements.
20
| | |
| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Small/Mid Cap Value Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Small/Mid Cap Value Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Small/Mid Cap Value Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
21
| | |
| | |
| | |
| 2017 TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 100.00% of dividends paid qualify for the dividends received deduction.
22
| | |
| | |
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Joseph G. Paul(2), Vice President James W. MacGregor(2), Vice President Shri Singhvi(2) , Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| | |
| | |
| CUSTODIANAND ACCOUNTING AGENT | | LEGAL COUNSEL |
State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | | Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
| | |
DISTRIBUTOR 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 1-(800) 221-5672 |
| | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the Small/Mid-Cap Value Senior Investment Management Team. Messrs. Paul, MacGregor and Singhvi are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
23
| | |
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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
57
(2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he has been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS | | | | | | |
| | | | | | | | |
Marshall C. Turner, Jr.##
Chairman of the Board
76
(2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey##
74
(2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
24
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
INDEPENDENT DIRECTORS (continued) | | | | | | |
| | | | | | | | |
William H. Foulk, Jr.##
85
(1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin##
69
(2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002– May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen##
62
(2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
25
| | |
| SMALL/MID CAP VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*,
AGE,
(YEAR FIRST ELECTED**) | | PRINCIPAL
OCCUPATION(S)
DURING PAST FIVE YEARS
AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY
DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY
DIRECTOR |
INDEPENDENT DIRECTORS (continued) | | | | | | |
| | | | | | | | |
Garry L. Moody##
65
(2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardiQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner##
78
(2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | 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. |
26
| | |
| | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith
57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Joseph G. Paul
58 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
James W. MacGregor
50 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Shri Singhvi
44 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp
62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI **, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo
58 | | Treasurer and Chief Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke
57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | | The Adviser, ABIS and ABI 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 the Adviser at (800) 227-4618 or visit www.abfunds.com, for a free prospectus or SAI. |
27
| | |
| | |
|
| SMALL/MID CAP VALUE PORTFOLIO |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Small/Mid Cap Value Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous
28
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| | | AB Variable Products Series Fund |
factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
29
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| SMALL/MID CAP VALUE PORTFOLIO | | |
| CONTINUANCE DISCLOSURE |
| (continued) | | AB Variable Products Series Fund |
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
30
VPS-SMCV-0151-1217
DEC 12.31.17
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
Investment Products Offered
| | • | | Are Not Bank Guaranteed |
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.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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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| VALUE PORTFOLIO | | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2018
The following is an update of AB Variable Products Series Fund—Value Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2017.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of US companies with relatively large market capitalizations that the Adviser believes are undervalued. The Portfolio invests in companies that are determined by the Adviser to be undervalued using the fundamental value approach of the Adviser. The fundamental value approach seeks to identify a universe of securities that are considered to be undervalued because they are attractively priced relative to their future earnings power and dividend-paying capability.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities of non-US issuers.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its primary benchmark, the Russell 1000 Value Index, and the broad US stock market, as represented by the Standard and Poor’s (“S&P”) 500 Index, for the one-, five- and 10-year periods ended December 31, 2017.
All share classes of the Portfolio underperformed the primary benchmark for the annual period. Security selection in the health care, consumer staples and technology sectors, as well as an underweight position in materials, detracted from performance relative to the benchmark. However, security selection in the consumer discretionary, industrials and energy sectors, as well as an overweight in technology, contributed to returns.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2017 marked one of the strongest years for global stock market performance since the 2008 financial crisis. Emerging-market equities outperformed, followed by non-US stocks. Large-cap stocks outperformed their small-cap peers, and growth outperformed value, in terms of style.
Equity performance was driven by strong economic data, synchronized global growth and robust corporate earnings. Investor enthusiasm was tempered early in the period by questions around the timeliness of the Trump administration’s pro-growth agenda and concerns regarding the election cycle in Europe. Geopolitical tensions and a significant decline in the price of oil weighed on the market midperiod. However, global growth trends proved strong and oil rallied back to two-and-a-half-year highs, pushing stocks higher, especially in emerging markets. In December, tax reform was passed in the US Congress, buoying market sentiment globally.
The Portfolio has remained focused on attractively valued opportunities, which are widespread across most industry sectors and regions. The Portfolio’s Senior Investment Management Team prefers companies with robust cash flow generation and strong balance sheets, whose stocks are trading at a deep valuation discount.
1
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| VALUE PORTFOLIO | | |
| DISCLOSURES AND RISKS | | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 1000® Value Index and the S&P® 500 Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 1000 Value Index represents the performance of 1,000 large-cap value companies within the US. 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 Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as value, 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 less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your Financial Advisor or Insurance Agent Representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
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| VALUE PORTFOLIO | | |
| HISTORICAL PERFORMANCE | | AB Variable Products Series Fund |
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| THE PORTFOLIO VS. ITS BENCHMARKS | | Net Asset Value Returns | |
| PERIODS ENDED DECEMBER 31, 2017 (unaudited) | | 1 Year | | | 5 Years1 | | | 10 Years1 | |
| Value Portfolio Class A2 | | | 13.57% | | | | 12.38% | | | | 4.84% | |
| Value Portfolio Class B2 | | | 13.29% | | | | 12.09% | | | | 4.58% | |
| Primary benchmark: Russell 1000 Value Index | | | 13.66% | | | | 14.04% | | | | 7.10% | |
| S&P 500 Index | | | 21.83% | | | | 15.79% | | | | 8.50% | |
1 Average annual returns. | | | | | | | | | | | | |
2 Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2017, by 0.13%. | |
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 0.89% and 1.14% for Class A and Class B 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.
VALUE PORTFOLIO CLASS A
GROWTH OF A $10,000 INVESTMENT
12/31/2007 TO 12/31/2017 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Value Portfolio Class A shares (from 12/31/2007 to 12/31/2017) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
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| VALUE PORTFOLIO | | |
| EXPENSE EXAMPLE (unaudited) | | AB Variable Products Series Fund |
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 in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
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 second line of each classes’ table 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
July 1, 2017 | | | Ending
Account Value
December 31, 2017 | | | Expenses Paid
During Period* | | | Annualized
Expense Ratio* | |
Class A | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,102.90 | | | $ | 4.45 | | | | 0.84 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,020.97 | | | $ | 4.28 | | | | 0.84 | % |
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Class B | | | | | | | | | | | | | | | | |
Actual | | $ | 1,000 | | | $ | 1,101.40 | | | $ | 5.83 | | | | 1.10 | % |
Hypothetical (5% annual return before expenses) | | $ | 1,000 | | | $ | 1,019.66 | | | $ | 5.60 | | | | 1.10 | % |
| * | | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
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| VALUE PORTFOLIO | | |
| TEN LARGEST HOLDINGS1 | | |
| December 31, 2017 (unaudited) | | AB Variable Products Series Fund |
| | | | | | | | |
| COMPANY | | U.S. $ VALUE | | | PERCENT OF NET ASSETS | |
Bank of America Corp. | | $ | 3,584,230 | | | | 4.9 | % |
Wells Fargo & Co. | | | 3,546,647 | | | | 4.8 | |
Oracle Corp. | | | 3,092,538 | | | | 4.2 | |
American International Group, Inc. | | | 2,381,532 | | | | 3.3 | |
Synchrony Financial | | | 2,272,584 | | | | 3.1 | |
Intel Corp. | | | 2,198,139 | | | | 3.0 | |
EOG Resources, Inc. | | | 2,131,870 | | | | 2.9 | |
Philip Morris International, Inc. | | | 2,059,858 | | | | 2.8 | |
Allstate Corp. (The) | | | 2,041,950 | | | | 2.8 | |
Raytheon Co. | | | 2,009,056 | | | | 2.7 | |
| | | | | | | | | |
| | | $ | 25,318,404 | | | | 34.5 | % |
SECTOR BREAKDOWN2
December 31, 2017 (unaudited)
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| SECTOR | | U.S. $ VALUE | | | PERCENT OF TOTAL INVESTMENTS | |
Financials | | $ | 21,940,580 | | | | 29.9 | % |
Information Technology | | | 10,440,763 | | | | 14.2 | |
Energy | | | 8,795,588 | | | | 12.0 | |
Health Care | | | 7,270,889 | | | | 9.9 | |
Consumer Discretionary | | | 6,309,159 | | | | 8.6 | |
Consumer Staples | | | 5,839,743 | | | | 8.0 | |
Industrials | | | 4,547,828 | | | | 6.2 | |
Utilities | | | 3,604,136 | | | | 4.9 | |
Materials | | | 2,008,187 | | | | 2.7 | |
Telecommunication Services | | | 1,996,437 | | | | 2.7 | |
Real Estate | | | 670,735 | | | | 0.9 | |
Short-Term Investments | | | 24,883 | | | | 0.0 | |
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Total Investments | | $ | 73,448,928 | | | | 100.0 | % |
| 2 | | The Portfolio’s sector breakdown is 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 Portfolio’s prospectus.
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| VALUE PORTFOLIO | | |
| PORTFOLIO OF INVESTMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
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Company | | Shares | | | U.S. $ Value | |
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COMMON STOCKS–100.2% | | | | | | | | |
| | | | | | | | |
FINANCIALS–29.9% | | | | | | | | |
BANKS–11.5% | | | | | | | | |
Bank of America Corp. | | | 121,417 | | | $ | 3,584,230 | |
Comerica, Inc. | | | 14,818 | | | | 1,286,350 | |
Wells Fargo & Co. | | | 58,458 | | | | 3,546,647 | |
| | | | | | | | |
| | | | | | | 8,417,227 | |
| | | | | | | | |
CAPITAL MARKETS–1.8% | | | | | | | | |
Goldman Sachs Group, Inc. (The) | | | 5,263 | | | | 1,340,802 | |
| | | | | | | | |
CONSUMER FINANCE–5.7% | | | | | | | | |
Capital One Financial Corp. | | | 13,253 | | | | 1,319,734 | |
OneMain Holdings, Inc.(a) | | | 23,895 | | | | 621,031 | |
Synchrony Financial | | | 58,860 | | | | 2,272,584 | |
| | | | | | | | |
| | | | | | | 4,213,349 | |
| | | | | | | | |
INSURANCE–10.9% | | | | | | | | |
Allstate Corp. (The) | | | 19,501 | | | | 2,041,950 | |
American International Group, Inc. | | | 39,972 | | | | 2,381,532 | |
Everest Re Group Ltd. | | | 4,597 | | | | 1,017,132 | |
First American Financial Corp. | | | 15,271 | | | | 855,787 | |
FNF Group | | | 42,630 | | | | 1,672,801 | |
| | | | | | | | |
| | | | | | | 7,969,202 | |
| | | | | | | | |
| | | | | | | 21,940,580 | |
| | | | | | | | |
INFORMATION TECHNOLOGY–14.3% | | | | | | | | |
COMMUNICATIONS EQUIPMENT–1.6% | | | | | | | | |
Nokia Oyj (Sponsored ADR)–Class A | | | 240,833 | | | | 1,122,282 | |
| | | | | | | | |
IT SERVICES–1.1% | | | | | | | | |
Booz Allen Hamilton Holding Corp. | | | 21,417 | | | | 816,630 | |
| | | | | | | | |
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.0% | | | | | | | | |
Intel Corp. | | | 47,620 | | | | 2,198,139 | |
| | | | | | | | |
SOFTWARE–4.2% | | | | | | | | |
Oracle Corp. | | | 65,409 | | | | 3,092,538 | |
| | | | | | | | |
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–4.4% | | | | | | | | |
HP, Inc. | | | 72,496 | | | | 1,523,141 | |
NCR Corp.(a) | | | 17,192 | | | | 584,356 | |
Xerox Corp. | | | 37,862 | | | | 1,103,677 | |
| | | | | | | | |
| | | | | | | 3,211,174 | |
| | | | | | | | |
| | | | | | | 10,440,763 | |
| | | | | | | | |
ENERGY–12.0% | | | | | | | | |
ENERGY EQUIPMENT & SERVICES–1.8% | | | | | | | | |
RPC, Inc.(b) | | | 52,454 | | | | 1,339,151 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
OIL, GAS & CONSUMABLE FUELS–10.2% | | | | | | | | |
Canadian Natural Resources Ltd. | | | 32,861 | | | $ | 1,173,795 | |
Devon Energy Corp. | | | 28,681 | | | | 1,187,393 | |
EOG Resources, Inc. | | | 19,756 | | | | 2,131,870 | |
Hess Corp. | | | 26,587 | | | | 1,262,085 | |
Marathon Petroleum Corp. | | | 25,785 | | | | 1,701,294 | |
| | | | | | | | |
| | | | | | | 7,456,437 | |
| | | | | | | | |
| | | | | | | 8,795,588 | |
| | | | | | | | |
HEALTH CARE–9.9% | | | | | | | | |
BIOTECHNOLOGY–1.7% | | | | | | | | |
Gilead Sciences, Inc. | | | 17,016 | | | | 1,219,027 | |
| | | | | | | | |
HEALTH CARE PROVIDERS & SERVICES–6.2% | | | | | | | | |
Aetna, Inc. | | | 6,572 | | | | 1,185,523 | |
Cigna Corp. | | | 8,676 | | | | 1,762,009 | |
McKesson Corp. | | | 10,475 | | | | 1,633,576 | |
| | | | | | | | |
| | | | | | | 4,581,108 | |
| | | | | | | | |
PHARMACEUTICALS–2.0% | | | | | | | | |
Mallinckrodt PLC(a) | | | 29,125 | | | | 657,060 | |
Teva Pharmaceutical Industries Ltd. (Sponsored ADR) | | | 42,939 | | | | 813,694 | |
| | | | | | | | |
| | | | | | | 1,470,754 | |
| | | | | | | | |
| | | | | | | 7,270,889 | |
| | | | | | | | |
CONSUMER DISCRETIONARY–8.6% | | | | | | | | |
AUTO COMPONENTS–3.2% | | | | | | | | |
Lear Corp. | | | 4,218 | | | | 745,152 | |
Magna International, Inc. (New York)–Class A | | | 28,610 | | | | 1,621,329 | |
| | | | | | | | |
| | | | | | | 2,366,481 | |
| | | | | | | | |
MEDIA–4.3% | | | | | | | | |
Comcast Corp.–Class A | | | 40,726 | | | | 1,631,076 | |
Twenty-First Century Fox, Inc.–Class A | | | 43,863 | | | | 1,514,590 | |
| | | | | | | | |
| | | | | | | 3,145,666 | |
| | | | | | | | |
SPECIALTY RETAIL–1.1% | | | | | | | | |
Michaels Cos., Inc. (The)(a) | | | 32,948 | | | | 797,012 | |
| | | | | | | | |
| | | | | | | 6,309,159 | |
| | | | | | | | |
CONSUMER STAPLES–8.0% | | | | | | | | |
BEVERAGES–2.0% | | | | | | | | |
PepsiCo, Inc. | | | 11,972 | | | | 1,435,682 | |
| | | | | | | | |
FOOD PRODUCTS–1.7% | | | | | | | | |
Tyson Foods, Inc.–Class A | | | 15,669 | | | | 1,270,286 | |
| | | | | | | | |
TOBACCO–4.3% | | | | | | | | |
British American Tobacco PLC (Sponsored ADR) | | | 16,031 | | | | 1,073,917 | |
Philip Morris International, Inc. | | | 19,497 | | | | 2,059,858 | |
| | | | | | | | |
| | | | | | | 3,133,775 | |
| | | | | | | | |
| | | | | | | 5,839,743 | |
| | | | | | | | |
6
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
Company | | Shares | | | U.S. $ Value | |
| | | | | | | | |
INDUSTRIALS–6.2% | | | | | | | | |
AEROSPACE & DEFENSE–2.7% | | | | | | | | |
Raytheon Co. | | | 10,695 | | | $ | 2,009,056 | |
| | | | | | | | |
AIRLINES–1.2% | | | | | | | | |
JetBlue Airways Corp.(a) | | | 38,496 | | | | 860,001 | |
| | | | | | | | |
ELECTRICAL EQUIPMENT–0.8% | | | | | | | | |
Eaton Corp. PLC | | | 7,732 | | | | 610,905 | |
| | | | | | | | |
MACHINERY–1.5% | | | | | | | | |
Oshkosh Corp. | | | 11,749 | | | | 1,067,866 | |
| | | | | | | | |
| | | | | | | 4,547,828 | |
| | | | | | | | |
UTILITIES–4.9% | | | | | | | | |
ELECTRIC UTILITIES–3.4% | | | | | | | | |
American Electric Power Co., Inc. | | | 23,126 | | | | 1,701,380 | |
Edison International | | | 12,252 | | | | 774,816 | |
| | | | | | | | |
| | | | | | | 2,476,196 | |
| | | | | | | | |
MULTI-UTILITIES–1.5% | | | | | | | | |
NiSource, Inc. | | | 43,940 | | | | 1,127,940 | |
| | | | | | | | |
| | | | | | | 3,604,136 | |
| | | | | | | | |
MATERIALS–2.8% | | | | | | | | |
CHEMICALS–1.3% | | | | | | | | |
CF Industries Holdings, Inc. | | | 21,180 | | | | 900,997 | |
| | | | | | | | |
METALS & MINING–1.5% | | | | | | | | |
Alcoa Corp.(a) | | | 20,553 | | | | 1,107,190 | |
| | | | | | | | |
| | | | | | | 2,008,187 | |
| | | | | | | | |
TELECOMMUNICATION SERVICES–2.7% | | | | | | | | |
WIRELESS TELECOMMUNICATION SERVICES–2.7% | | | | | | | | |
T-Mobile US, Inc.(a) | | | 31,435 | | | | 1,996,437 | |
| | | | | | | | |
REAL ESTATE–0.9% | | | | | | | | |
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–0.9% | | | | | | | | |
Mid-America Apartment Communities, Inc. | | | 6,670 | | | | 670,735 | |
| | | | | | | | |
Total Common Stocks
(cost $59,140,765) | | | | | | | 73,424,045 | |
| | | | | | | | |
Company | | Principal Amount (000) | | | U.S. $ Value | |
| | | | | | | | |
SHORT-TERM INVESTMENTS–0.0% | | | | | | | | |
TIME DEPOSIT–0.0% | | | | | | | | |
State Street Time Deposit
0.12%, 1/02/18
(cost $24,883) | | $ | 25 | | | $ | 24,883 | |
| | | | | | | | |
Total Investments Before Security Lending Collateral for Securities Loaned–100.2%
(cost $59,165,648) | | | | | | | 73,448,928 | |
| | | | | | | | |
| | | Shares | | | | |
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.8% | | | | | | | | |
INVESTMENT COMPANIES–1.8% | | | | | | | | |
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 1.12%(c)(d)(e)
(cost $1,363,804) | | | 1,363,804 | | | | 1,363,804 | |
| | | | | | | | |
TOTAL INVESTMENTS–102.0%
(cost $60,529,452) | | | | | | | 74,812,732 | |
Other assets less
liabilities–(2.0)% | | | | | | | (1,500,084 | ) |
| | | | | | | | |
NET ASSETS–100.0% | | | | | | $ | 73,312,648 | |
| | | | | | | | |
| (a) | | Non-income producing security. |
| (b) | | Represents entire or partial securities out on loan. See Note E for securities lending information. |
| (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. |
Glossary:
ADR–American Depositary Receipt
See notes to financial statements.
7
| | |
| VALUE PORTFOLIO | | |
| STATEMENT OF ASSETS & LIABILITIES | | |
| December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
ASSETS | | | | |
Investments in securities, at value | | | | |
Unaffiliated issuers (cost $59,165,648) | | $ | 73,448,928 | (a) |
Affiliated issuers (cost $1,363,804—investment of cash collateral for securities loaned) | | | 1,363,804 | |
Dividends and interest receivable | | | 91,259 | |
| | | | |
Total assets | | | 74,903,991 | |
| | | | |
LIABILITIES | | | | |
Payable for collateral received on securities loaned | | | 1,363,804 | |
Payable for capital stock redeemed | | | 61,360 | |
Advisory fee payable | | | 34,334 | |
Distribution fee payable | | | 15,432 | |
Administrative fee payable | | | 13,266 | |
Transfer Agent fee payable | | | 97 | |
Accrued expenses | | | 103,050 | |
| | | | |
Total liabilities | | | 1,591,343 | |
| | | | |
NET ASSETS | | $ | 73,312,648 | |
| | | | |
COMPOSITION OF NET ASSETS | | | | |
Capital stock, at par | | $ | 4,262 | |
Additional paid-in capital | | | 58,831,139 | |
Undistributed net investment income | | | 630,352 | |
Accumulated net realized loss on investment and foreign currency transactions | | | (436,519 | ) |
Net unrealized appreciation on investments and foreign currency denominated assets and liabilities | | | 14,283,414 | |
| | | | |
| | $ | 73,312,648 | |
| | | | |
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
| | | | | | | | | | | | |
| Class | | Net Assets | | | Shares
Outstanding | | | Net Asset
Value | |
| A | | $ | 1,363,457 | | | | 78,721 | | | $ | 17.32 | |
| B | | $ | 71,949,191 | | | | 4,183,211 | | | $ | 17.20 | |
| (a) | | Includes securities on loan with a value of $1,339,151 (see Note E). |
See notes to financial statements.
8
| | |
| VALUE PORTFOLIO | | |
| STATEMENT OF OPERATIONS | | |
| Year Ended December 31, 2017 | | AB Variable Products Series Fund |
| | | | |
INVESTMENT INCOME | | | | |
Dividends | | | | |
Unaffiliated issuers (net of foreign taxes withheld of $23,506) | | $ | 1,454,376 | |
Affiliated issuers | | | 9,321 | |
Interest | | | 291 | |
Securities lending income | | | 12,792 | |
Other income | | | 1,477 | |
| | | | |
| | | 1,478,257 | |
| | | | |
EXPENSES | | | | |
Advisory fee (see Note B) | | | 416,715 | |
Distribution fee—Class B | | | 186,256 | |
Transfer agency—Class A | | | 86 | |
Transfer agency—Class B | | | 5,145 | |
Custodian | | | 64,829 | |
Administrative | | | 52,817 | |
Audit and tax | | | 42,953 | |
Legal | | | 28,858 | |
Directors’ fees | | | 28,561 | |
Printing | | | 17,110 | |
Miscellaneous | | | 5,461 | |
| | | | |
Total expenses | | | 848,791 | |
Less: expenses waived and reimbursed by the Adviser (see Note E) | | | (1,720 | ) |
| | | | |
Net expenses | | | 847,071 | |
| | | | |
Net investment income | | | 631,186 | |
| | | | |
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | | | | |
Net realized gain (loss) on: | | | | |
Investment transactions | | | 4,814,017 | |
Foreign currency transactions | | | (58 | ) |
Net change in unrealized appreciation/depreciation of: | | | | |
Investments | | | 3,965,517 | |
Foreign currency denominated assets and liabilities | | | 134 | |
| | | | |
Net gain on investment and foreign currency transactions | | | 8,779,610 | |
| | | | |
Contributions from Affiliates (see Note B) | | | 16,161 | |
| | | | |
NET INCREASE IN NET ASSETS FROM OPERATIONS | | $ | 9,426,957 | |
| | | | |
See notes to financial statements.
9
| | |
| | |
| VALUE PORTFOLIO | | |
| STATEMENT OF CHANGES IN NET ASSETS | | AB Variable Products Series Fund |
| | | | | | | | |
| | | Year Ended
December 31, 2017 | | | Year Ended
December 31, 2016 | |
INCREASE IN NET ASSETS FROM OPERATIONS | | | | | | | | |
Net investment income | | $ | 631,186 | | | $ | 855,120 | |
Net realized gain on investment and foreign currency transactions | | | 4,813,959 | | | | 2,281,421 | |
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | | | 3,965,651 | | | | 5,303,897 | |
Contributions from Affiliates (see Note B) | | | 16,161 | | | | –0 | – |
| | | | | | | | |
Net increase in net assets from operations | | | 9,426,957 | | | | 8,440,438 | |
DIVIDENDS TO SHAREHOLDERS FROM | | | | | | | | |
Net investment income | | | | | | | | |
Class A | | | (15,850 | ) | | | (26,317 | ) |
Class B | | | (838,398 | ) | | | (1,126,104 | ) |
CAPITAL STOCK TRANSACTIONS | | | | | | | | |
Net decrease | | | (16,468,635 | ) | | | (12,516,691 | ) |
| | | | | | | | |
Total decrease | | | (7,895,926 | ) | | | (5,228,674 | ) |
NET ASSETS | | | | | | | | |
Beginning of period | | | 81,208,574 | | | | 86,437,248 | |
| | | | | | | | |
End of period (including undistributed net investment income of $630,352 and $853,472, respectively) | | $ | 73,312,648 | | | $ | 81,208,574 | |
| | | | | | | | |
See notes to financial statements.
10
| | |
| VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| December 31, 2017 | | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
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. Each Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are 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 Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
11
| | |
| VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio 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 Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
| | • | | Level 1—quoted prices in active markets for identical investments |
| | • | | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
| | • | | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
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 Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2017:
| | | | | | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Total | |
Investments in Securities: | | | | | | | | | | | | | | | | |
Assets: | |
Common Stocks(a) | | $ | 73,424,045 | | | $ | –0 | – | | $ | –0 | – | | $ | 73,424,045 | |
Short-Term Investments | | | –0 | – | | | 24,883 | | | | –0 | – | | | 24,883 | |
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | | | 1,363,804 | | | | –0 | – | | | –0 | – | | | 1,363,804 | |
| | | | | | | | | | | | | | | | |
Total Investments in Securities | | | 74,787,849 | | | | 24,883 | | | | –0 | – | | | 74,812,732 | |
Other Financial Instruments(b) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | |
Total(c) | | $ | 74,787,849 | | | $ | 24,883 | | | $ | –0 | – | | $ | 74,812,732 | |
| | | | | | | | | | | | | | | | |
| (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. |
| (c) | | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
12
| | |
| | | AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
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 Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
13
| | |
| VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2017, there were no expenses waived by the Adviser.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2017, the reimbursement for such services amounted to $52,817.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $16,161 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,163 for the year ended December 31, 2017.
Brokerage commissions paid on investment transactions for the year ended December 31, 2017 amounted to $24,954, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
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| | | AB Variable Products Series Fund |
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2017 were as follows:
| | | | | | | | |
| | | Purchases | | | Sales | |
Investment securities (excluding U.S. government securities) | | $ | 27,210,428 | | | $ | 43,533,291 | |
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 | | $ | 60,965,971 | |
| | | | |
Gross unrealized appreciation | | $ | 16,954,118 | |
Gross unrealized depreciation | | | (3,107,357 | ) |
| | | | |
Net unrealized appreciation | | $ | 13,846,761 | |
| | | | |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2017.
2. Currency Transactions
The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio 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 Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio 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 Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, 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. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2017, the Portfolio had securities on loan with a value of $1,339,151 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,363,804. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $12,792 and $9,321 from the borrowers and AB Government Money Market Portfolio, respectively, for the year ended December 31, 2017; these amounts are reflected in the statement of operations. In
15
| | |
| VALUE PORTFOLIO | | |
| NOTES TO FINANCIAL STATEMENTS | | |
| (continued) | | AB Variable Products Series Fund |
connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2017, such waiver amounted to $1,720. 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.
A summary of the Portfolio transactions in shares of AB Government Money Market Portfolio for the year ended December 31, 2017 is as follows:
| | | | | | | | | | | | | | |
Market Value
12/31/16
(000) | | | Purchases
at Cost
(000) | | | Sales
Proceeds
(000) | | | Market Value
12/31/17
(000) | |
| $ | 0 | | | $ | 30,746 | | | $ | 29,382 | | | $ | 1,364 | |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | SHARES | | | | | | AMOUNT | |
| | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | | | | | | Year Ended
December 31,
2017 | | | Year Ended
December 31,
2016 | |
Class A | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 15,153 | | | | 20,996 | | | | | | | $ | 246,774 | | | $ | 289,276 | |
Shares issued in reinvestment of dividends | | | 1,012 | | | | 1,819 | | | | | | | | 15,850 | | | | 26,317 | |
Shares redeemed | | | (31,966 | ) | | | (25,654 | ) | | | | | | | (507,161 | ) | | | (367,008 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (15,801 | ) | | | (2,839 | ) | | | | | | $ | (244,537 | ) | | $ | (51,415 | ) |
| | | | | | | | | | | | | | | | | | | | |
Class B | | | | | | | | | | | | | | | | | | | | |
Shares sold | | | 240,673 | | | | 204,676 | | | | | | | $ | 3,804,324 | | | $ | 2,867,293 | |
Shares issued in reinvestment of dividends | | | 53,882 | | | | 78,310 | | | | | | | | 838,398 | | | | 1,126,104 | |
Shares redeemed | | | (1,302,389 | ) | | | (1,169,102 | ) | | | | | | | (20,866,820 | ) | | | (16,458,673 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net decrease | | | (1,007,834 | ) | | | (886,116 | ) | | | | | | $ | (16,224,098 | ) | | $ | (12,465,276 | ) |
| | | | | | | | | | | | | | | | | | | | |
At December 31, 2017, certain shareholders of the Portfolio owned 89% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in
16
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| | | AB Variable Products Series Fund |
connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the year ended December 31, 2017.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2017 and December 31, 2016 were as follows:
| | | | | | | | |
| | | 2017 | | | 2016 | |
Distributions paid from: | | | | | | | | |
Ordinary income | | $ | 854,248 | | | $ | 1,152,421 | |
| | | | | | | | |
Total taxable distributions paid | | $ | 854,248 | | | $ | 1,152,421 | |
| | | | | | | | |
As of December 31, 2017, the components of accumulated earnings/(deficit) on a tax basis were as follows:
| | | | |
Undistributed ordinary income | | $ | 630,352 | |
Accumulated capital and other losses | | | 0 | (a) |
Unrealized appreciation/(depreciation) | | | 13,846,895 | (b) |
| | | | |
Total accumulated earnings/(deficit) | | $ | 14,477,247 | |
| | | | |
| (a) | | During the fiscal year, the Portfolio utilized $4,833,099 of capital loss carryforwards to offset current year net realized gains. The Portfolio also had $3,501,135 of capital loss carryforwards expire during the fiscal year. |
| (b) | | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is 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 losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2017, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the expiration of capital loss carryforwards, and contributions from the Adviser, resulted in a net decrease in undistributed net investment income, a net decrease in accumulated net realized loss on investment and foreign currency transactions, 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 Portfolio’s financial statements through this date.
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| VALUE PORTFOLIO | | |
| FINANCIAL HIGHLIGHTS | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS A | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $15.47 | | | | $14.11 | | | | $15.50 | | | | $14.22 | | | | $10.63 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .17 | (b) | | | .19 | (b)† | | | .21 | | | | .26 | | | | .19 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 1.91 | | | | 1.42 | | | | (1.26 | ) | | | 1.31 | | | | 3.70 | |
Contributions from Affiliates | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 2.08 | | | | 1.61 | | | | (1.05 | ) | | | 1.57 | | | | 3.89 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.23 | ) | | | (.25 | ) | | | (.34 | ) | | | (.29 | ) | | | (.30 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $17.32 | | | | $15.47 | | | | $14.11 | | | | $15.50 | | | | $14.22 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 13.57 | % | | | 11.55 | %† | | | (6.95 | )% | | | 11.10 | % | | | 36.85 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $1,364 | | | | $1,463 | | | | $1,373 | | | | $2,050 | | | | $2,205 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (e) | | | .87 | % | | | .88 | % | | | .81 | % | | | .79 | % | | | .73 | % |
Expenses, before waivers/reimbursements (e) | | | .87 | % | | | .89 | % | | | .81 | % | | | .79 | % | | | .73 | % |
Net investment income | | | 1.08 | %(b) | | | 1.30 | %(b)† | | | 1.38 | % | | | 1.74 | % | | | 1.51 | % |
Portfolio turnover rate | | | 36 | % | | | 68 | % | | | 83 | % | | | 42 | % | | | 44 | % |
See footnote summary on page 19.
18
| | |
| | | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
| | | | | | | | | | | | | | | | | | | | |
| | | CLASS B | |
| | | Year Ended December 31, | |
| | | 2017 | | | 2016 | | | 2015 | | | 2014 | | | 2013 | |
Net asset value, beginning of period | | | $15.36 | | | | $14.00 | | | | $15.37 | | | | $14.10 | | | | $10.54 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Income From Investment Operations | | | | | | | | | | | | | | | | | | | | |
Net investment income (a) | | | .13 | (b) | | | .15 | (b)† | | | .17 | | | | .22 | | | | .16 | |
Net realized and unrealized gain (loss) on investment and foreign currency transactions | | | 1.89 | | | | 1.42 | | | | (1.25 | ) | | | 1.29 | | | | 3.66 | |
Contributions from Affiliates | | | .00 | (c) | | | –0 | – | | | –0 | – | | | –0 | – | | | –0 | – |
| | | | | | | | | | | | | | | | | | | | |
Net increase (decrease) in net asset value from operations | | | 2.02 | | | | 1.57 | | | | (1.08 | ) | | | 1.51 | | | | 3.82 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Less: Dividends | | | | | | | | | | | | | | | | | | | | |
Dividends from net investment income | | | (.18 | ) | | | (.21 | ) | | | (.29 | ) | | | (.24 | ) | | | (.26 | ) |
| | | | | | | | | | | | | | | | | | | | |
Net asset value, end of period | | | $17.20 | | | | $15.36 | | | | $14.00 | | | | $15.37 | | | | $14.10 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Total Return | | | | | | | | | | | | | | | | | | | | |
Total investment return based on net asset value (d)* | | | 13.29 | % | | | 11.29 | %† | | | (7.17 | )% | | | 10.77 | % | | | 36.49 | % |
| | | | | | | | | | | | | | | | | | | | |
Ratios/Supplemental Data | | | | | | | | | | | | | | | | | | | | |
Net assets, end of period (000’s omitted) | | | $71,949 | | | | $79,746 | | | | $85,064 | | | | $112,143 | | | | $132,271 | |
Ratio to average net assets of: | | | | | | | | | | | | | | | | | | | | |
Expenses, net of waivers/reimbursements (e) | | | 1.12 | % | | | 1.13 | % | | | 1.06 | % | | | 1.04 | % | | | .98 | % |
Expenses, before waivers/reimbursements (e) | | | 1.12 | % | | | 1.14 | % | | | 1.06 | % | | | 1.04 | % | | | .98 | % |
Net investment income | | | .83 | %(b) | | | 1.06 | %(b)† | | | 1.14 | % | | | 1.51 | % | | | 1.28 | % |
Portfolio turnover rate | | | 36 | % | | | 68 | % | | | 83 | % | | | 42 | % | | | 44 | % |
| (a) | | Based on average shares outstanding. |
| (b) | | Net of expenses waived and reimbursed by the Adviser. |
| (c) | | Amount is less than $.0005. |
| (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. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
| (e) | | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2016, such waiver amounted to less than .005% for the Portfolio. |
| † | | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
| | | | | | | | | | |
Net Investment Income Per Share | | | Net Investment Income Ratio | | | Total Return | |
| $ | .003 | | | | .02 | % | | | .02 | % |
| * | | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.13%, 0.02%, 0.17%, 0.04% and 0.07%, respectively. |
See notes to financial statements.
19
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| | |
| REPORT OF INDEPENDENT REGISTERED | | |
| PUBLIC ACCOUNTING FIRM | | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Value Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Value Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2017, 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 AB Value Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2017, 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 Fund’s management. Our responsibility is to express an opinion on the Portfolio’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 Fund 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 Fund is not required to have, nor were we engaged to perform, an audit of the Fund’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 Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2018
20
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| | |
| 2017 TAX INFORMATION (unaudited) | | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2017. For corporate shareholders, 100% of dividends paid qualify for the dividends received deduction.
21
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| VALUE PORTFOLIO | | AB Variable Products Series Fund |
| | |
| BOARD OF DIRECTORS | | |
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) William H. Foulk, Jr.(1) Nancy P. Jacklin(1) | | Robert M. Keith, President and
Chief Executive Officer Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
| | |
| | |
| OFFICERS | | |
Cem Inal(2), Vice President Joseph G. Paul(2), Vice President Emilie D. Wrapp, Secretary | | Joseph J. Mantineo, Treasurer and
Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
| |
| |
| |
| |
| |
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| | |
| CUSTODIANAND ACCOUNTING AGENT | | LEGAL COUNSEL |
| State Street Bank and Trust Company | | Seward & Kissel LLP |
State Street Corporation CCB/5 1 Iron Street | | One Battery Park Plaza New York, NY 10004 |
| Boston, MA 02210 | | |
| | |
| DISTRIBUTOR | | TRANSFER AGENT |
| AllianceBernstein Investments, Inc. | | AllianceBernstein Investor Services, Inc. |
| 1345 Avenue of the Americas | | P.O. Box 786003 |
| New York, NY 10105 | | San Antonio, TX 78278-6003 |
| | Toll-free 1-(800) 221-5672 |
| | |
| INDEPENDENT REGISTERED PUBLIC | | |
| ACCOUNTING FIRM | | |
| Ernst & Young LLP | | |
| 5 Times Square | | |
| New York, NY 10036 | | |
| (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 Portfolio’s portfolio are made by the U.S. Value Senior Investment Management Team. Messrs. Inal and Paul are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
22
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| VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN 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 57 (2010) | | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he has been associated since prior to 2004. | | | 96 | | | None |
| | | | | | | | |
| INDEPENDENT DIRECTORS |
| | | | | | | | |
Marshall C. Turner, Jr.## Chairman of the Board 76 (2005) | | Private Investor since prior to 2013. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | | | 96 | | | Xilinx, Inc. (programmable logic semi-conductors) since 2007 |
| | | | | | | | |
Michael J. Downey## 74 (2005) | | Private Investor since prior to 2013. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | | | 96 | | | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2013 |
| | | | | | | | |
23
| | |
| VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY DIRECTOR |
INDEPENDENT DIRECTORS (continued) |
| | | | | | | | |
William H. Foulk, Jr.## 85 (1990) | | Investment Adviser and an Independent Consultant since prior to 2013. Previously, he was Senior Manager of Barrett Associates, Inc., a registered investment adviser. He was formerly Deputy Comptroller and Chief Investment Officer of the State of New York and, prior thereto, Chief Investment Officer of the New York Bank for Savings. He has served as a director or trustee of various AB Funds since 1983, and was Chairman of the Independent Directors Committees of the AB Funds from 2003 until early February 2014. He served as Chairman of such AB Funds from 2003 through December 2013. He is also active in a number of mutual fund related organizations and committees. | | | 96 | | | None |
| | | | | | | | |
Nancy P. Jacklin## 69 (2006) | | Private Investor since prior to 2013. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chairman of the Governance and Nominating Committees of the AB Funds since August 2014. | | | 96 | | | None |
| | | | | | | | |
Carol C. McMullen## 62 (2016) | | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | | | 96 | | | None |
24
| | |
| | | AB Variable Products Series Fund |
| | | | | | | | |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | | PORTFOLIOS
IN FUND
COMPLEX
OVERSEEN BY DIRECTOR | | | OTHER PUBLIC
COMPANY
DIRECTORSHIPS
CURRENTLY
HELD BY DIRECTOR |
INDEPENDENT DIRECTORS (continued) |
| | | | | | | | |
Garry L. Moody## 65 (2008) | | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995- 2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardlQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | | | 96 | | | None |
| | | | | | | | |
Earl D. Weiner## 78 (2007) | | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | | | 96 | | | None |
| * | The address for each of the Portfolio’s disinterested Directors is c/o AllianceBernstein L.P., 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. |
25
| | |
| VALUE PORTFOLIO | | |
| MANAGEMENT OF THE FUND | | |
| (continued) | | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
| | | | |
NAME, ADDRESS*
AND AGE | | PRINCIPAL POSITION(S)
HELD WITH FUND | | PRINCIPAL OCCUPATION
DURING PAST FIVE YEARS |
Robert M. Keith 57 | | President and Chief Executive Officer | | See biography above. |
| | | | |
Joseph G. Paul 58 | | Vice President | | Senior Vice President of the Adviser**, with which he has been associated since prior to 2013. |
| | | | |
Cem Inal 49 | | Vice President | | Senior Vice President of the Adviser,** with which he has been associated since prior to 2013. |
| | | | |
Emilie D. Wrapp 62 | | Secretary | | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2013. |
| | | | |
Joseph J. Mantineo 58 | | Treasurer and Chief
Financial Officer | | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2013. |
| | | | |
Phyllis J. Clarke 57 | | Controller | | Vice President of ABIS**, with which she has been associated since prior to 2013. |
| | | | |
Vincent S. Noto 53 | | Chief Compliance Officer | | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since prior to 2013. |
| * | | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
| ** | | The Adviser, ABIS and ABI 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 the Adviser at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
26
| | |
| | |
| VALUE PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Value Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected
27
| | |
| VALUE PORTFOLIO | | |
| CONTINUANCE DISCLOSURE | | |
| (continued) | | AB Variable Products Series Fund |
by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute 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 the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the
28
| | |
| | | AB Variable Products Series Fund |
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 by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
29
VPS-VAL-0151-1217
(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 William H. Foulk, Jr., 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 auditor 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 multi-class distribution testing, advice and education on accounting and auditing issues, and consent letters; and (iii) tax compliance, tax advice and tax return preparation.
| | | | | | | | | | | | | | | | |
| | | | | | Audit Fees | | | Audit - Related
Fees | | | Tax Fees | |
AB Balanced Wealth Strategy Portfolio | | | 2016 | | | | 72,197 | | | | — | | | | 32,868 | |
| | | 2017 | | | | 72,197 | | | | 45 | | | | 20,394 | |
| | | | |
AB Global Thematic Growth Portfolio | | | 2016 | | | | 41,926 | | | | — | | | | 21,746 | |
| | | 2017 | | | | 41,926 | | | | 22 | | | | 10,459 | |
| | | | |
AB Growth Portfolio | | | 2016 | | | | 31,404 | | | | — | | | | 9,796 | |
| | | 2017 | | | | 31,404 | | | | — | | | | 8,888 | |
| | | | |
AB Growth & Income Portfolio | | | 2016 | | | | 31,404 | | | | — | | | | 10,520 | |
| | | 2017 | | | | 31,404 | | | | 246 | | | | 13,642 | |
| | | | |
AB Intermediate Bond Portfolio | | | 2016 | | | | 67,988 | | | | — | | | | 10,871 | |
| | | 2017 | | | | 67,988 | | | | — | | | | 10,055 | |
| | | | |
AB International Growth Portfolio | | | 2016 | | | | 41,926 | | | | — | | | | 29,222 | |
| | | 2017 | | | | 41,926 | | | | 5 | | | | 13,972 | |
| | | | |
AB International Value Portfolio | | | 2016 | | | | 41,926 | | | | — | | | | 28,088 | |
| | | 2017 | | | | 41,926 | | | | 70 | | | | 13,396 | |
| | | | |
AB Large Cap Growth Portfolio | | | 2016 | | | | 31,404 | | | | — | | | | 8,723 | |
| | | 2017 | | | | 31,404 | | | | 70 | | | | 8,950 | |
| | | | |
AB Real Estate Investment Portfolio | | | 2016 | | | | 35,613 | | | | — | | | | 18,325 | |
| | | 2017 | | | | 35,613 | | | | — | | | | 17,016 | |
| | | | |
AB Small Cap Growth Portfolio | | | 2016 | | | | 31,404 | | | | — | | | | 8,669 | |
| | | 2017 | | | | 31,404 | | | | — | | | | 8,906 | |
| | | | |
AB Small/Mid Cap Value Portfolio | | | 2016 | | | | 35,613 | | | | — | | | | 16,559 | |
| | | 2017 | | | | 35,613 | | | | 108 | | | | 13,357 | |
| | | | |
AB Value Portfolio | | | 2016 | | | | 31,404 | | | | — | | | | 9,735 | |
| | | 2017 | | | | 31,404 | | | | 10 | | | | 9,902 | |
| | | | |
AB Dynamic Asset Allocation Portfolio | | | 2016 | | | | 85,147 | | | | — | | | | 24,683 | |
| | | 2017 | | | | 85,147 | | | | 93 | | | | 24,471 | |
| | | | |
AB Global Bond Portfolio | | | 2016 | | | | 36,029 | | | | — | | | | 7,836 | |
| | | 2017 | | | | 36,029 | | | | — | | | | 9,359 | |
| | | | |
AB Multi-Manager Alternative Strategies Portfolio | | | 2016 | | | | 21,415 | | | | — | | | | 6,132 | |
| | | 2017 | | | | — | | | | — | | | | — | |
| | | | |
AB Global Risk Allocation-Moderate Portfolio | | | 2016 | | | | 36,029 | | | | — | | | | 8,573 | |
| | | 2017 | | | | 36,029 | | | | 19 | | | | 10,187 | |
(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 | | | Pre-approved by the
Audit Committee
(Portion Comprised of
Audit Related Fees)
(Portion Comprised of
Tax Fees) | |
AB Balanced Wealth Strategy Portfolio | | | 2016 | | | $ | 439,318 | | | | 32,868 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (32,868 | ) |
| | | 2017 | | | $ | 743,554 | | | | 20,439 | |
| | | | | | | | | | | (45 | ) |
| | | | | | | | | | | (20,394 | ) |
AB Global Thematic Growth Portfolio | | | 2016 | | | $ | 428,196 | | | | 21,746 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (21,746 | ) |
| | | 2017 | | | $ | 733,596 | | | | 10,481 | |
| | | | | | | | | | | (22 | ) |
| | | | | | | | | | | (10,459 | ) |
AB Growth Portfolio | | | 2016 | | | $ | 416,246 | | | | 9,796 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (9,796 | ) |
| | | 2017 | | | $ | 732,003 | | | | 8,888 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (8,888 | ) |
AB Growth & Income Portfolio | | | 2016 | | | $ | 416,970 | | | | 10,520 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (10,520 | ) |
| | | 2017 | | | $ | 737,003 | | | | 13,888 | |
| | | | | | | | | | | (246 | ) |
| | | | | | | | | | | (13,642 | ) |
AB Intermediate Bond Portfolio | | | 2016 | | | $ | 417,321 | | | | 10,871 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (10,871 | ) |
| | | 2017 | | | $ | 733,170 | | | | 10,055 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (10,055 | ) |
AB International Growth Portfolio | | | 2016 | | | $ | 435,672 | | | | 29,222 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (29,222 | ) |
| | | 2017 | | | $ | 737,092 | | | | 13,977 | |
| | | | | | | | | | | (5 | ) |
| | | | | | | | | | | (13,972 | ) |
| | | | | | | | | | | | |
AB International Value Portfolio | | | 2016 | | | $ | 434,538 | | | | 28,088 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (28,088 | ) |
| | | 2017 | | | $ | 736,581 | | | | 13,466 | |
| | | | | | | | | | | (70 | ) |
| | | | | | | | | | | (13,396 | ) |
AB Large Cap Growth Portfolio | | | 2016 | | | $ | 415,173 | | | | 8,723 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (8,723 | ) |
| | | 2017 | | | $ | 732,135 | | | | 9,020 | |
| | | | | | | | | | | (70 | ) |
| | | | | | | | | | | (8,950 | ) |
AB Real Estate Investment Portfolio | | | 2016 | | | $ | 424,775 | | | | 18,325 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (18,325 | ) |
| | | 2017 | | | $ | 740,131 | | | | 17,016 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (17,016 | ) |
AB Small Cap Growth Portfolio | | | 2016 | | | $ | 415,119 | | | | 8,669 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (8,669 | ) |
| | | 2017 | | | $ | 732,021 | | | | 8,906 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (8,906 | ) |
AB Small/Mid Cap Value Portfolio | | | 2016 | | | $ | 423,009 | | | | 16,559 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (16,559 | ) |
| | | 2017 | | | $ | 736,580 | | | | 13,465 | |
| | | | | | | | | | | (108 | ) |
| | | | | | | | | | | (13,357 | ) |
AB Value Portfolio | | | 2016 | | | $ | 416,185 | | | | 9,735 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (9,735 | ) |
| | | 2017 | | | $ | 733,027 | | | | 9,912 | |
| | | | | | | | | | | (10 | ) |
| | | | | | | | | | | (9,902 | ) |
AB Dynamic Asset Allocation Portfolio | | | 2016 | | | $ | 431,133 | | | | 24,683 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (24,683 | ) |
| | | 2017 | | | $ | 747,679 | | | | 24,564 | |
| | | | | | | | | | | (93 | ) |
| | | | | | | | | | | (24,471 | ) |
AB Global Bond Portfolio | | | 2016 | | | $ | 414,286 | | | | 7,836 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (7,836 | ) |
| | | 2017 | | | $ | 732,474 | | | | 9,359 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (9,359 | ) |
AB Multi-Manager Alternative Strategies Portfolio | | | 2016 | | | $ | 412,582 | | | | 6,132 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (6,132 | ) |
| | | 2017 | | | $ | — | | | | — | |
| | | | | | | | | | | — | |
| | | | | | | | | | | — | |
AB Global Risk Allocation-Moderate Portfolio | | | 2016 | | | $ | 415,023 | | | | 8,573 | |
| | | | | | | | | | | — | |
| | | | | | | | | | | (8,573 | ) |
| | | 2017 | | | $ | 733,321 | | | | 10,206 | |
| | | | | | | | | | | (19 | ) |
| | | | | | | | | | | (10,187 | ) |
(h) The Audit Committee of the Fund has considered whether the provision of any non-audit services not pre-approved by the Audit Committee provided by the Fund’s independent registered public accounting firm to the Adviser and Service Affiliates is compatible with maintaining the auditor’s independence.
| ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable to the registrant.
| ITEM 6. | SCHEDULE OF INVESTMENTS. |
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT
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
Not applicable to the registrant.
| ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. |
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
| ITEM 11. | CONTROLS AND PROCEDURES. |
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant’s internal controls over financial reporting that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
The following exhibits are attached to this Form N-CSR:
| | |
EXHIBIT NO. | | DESCRIPTION OF EXHIBIT |
| |
12 (a) (1) | | Code of ethics that is subject to the disclosure of Item 2 hereof |
| |
12 (b) (1) | | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
12 (b) (2) | | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
12 (c) | | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AB Variable Products Series Fund, Inc.
| | |
| |
| By: | | /s/ Robert M. Keith |
| | Robert M. Keith President |
| | |
| Date: | | February 14, 2018 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | |
| By: | | /s/ Robert M. Keith |
| | Robert M. Keith President |
| Date: | | February 14, 2018 |
| |
| By: | | /s/ Joseph J. Mantineo |
| | Joseph J. Mantineo |
| | Treasurer and Chief Financial Officer |
| Date: | | February 14, 2018 |
