UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-02383
AB BOND FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Joseph J. Mantineo
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 221-5672
Date of fiscal year end: December 31, 2020
Date of reporting period: June 30, 2020
ITEM 1. REPORTS TO STOCKHOLDERS.
JUN 06.30.20
SEMI-ANNUAL REPORT
AB FLEXFEETM HIGH YIELD PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT |
Dear Shareholder,
We are pleased to provide this report for AB FlexFee High Yield Portfolio (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
August 13, 2020
This report provides management’s discussion of fund performance for AB FlexFee High Yield Portfolio for the semi-annual reporting period ended June 30, 2020.
The Fund’s investment objective is to seek to maximize total return consistent with prudent investment management.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB FLEXFEE HIGH YIELD PORTFOLIO1 | ||||||||
Advisor Class Shares | -3.93% | 0.35% | ||||||
Markit iBoxx USD Liquid High Yield Index | -5.18% | -1.29% |
1 | Includes the impact of proceeds received and credited to the Fund resulting from class-action settlements, which enhanced the performance of the Fund for the six- and 12-month periods ended June 30, 2020, by 0.00% and 0.01%, respectively. |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Markit iBoxx USD Liquid High Yield Index, for the six- and 12-month periods ended June 30, 2020.
The Fund outperformed the benchmark for both periods. The Fund’s performance-based advisory fee was being accrued between its mid-point and maximum rates. (The actual advisory fee payable by the Fund for its current performance period will be determined based on the Fund’s performance relative to the benchmark as of the end of such performance period, which is from January 1, 2020 to December 31, 2020.)
In the six-month period, industry allocation in energy and the use of total return swap derivatives contributed most, relative to the benchmark, partially offset by exposure to high-yield credit default swaps, the consumer noncyclical sector, commercial mortgage-backed securities and the technology sector. Yield-curve positioning also contributed, from focusing on the intermediate part of the curve. Security selection added to performance, as energy, industrials—other and finance holdings exceeded losses in the media and services sectors. Currency decisions did not have a meaningful impact on overall performance.
In the 12-month period, industry allocation in energy, total return swaps and banking was the primary contributor, partially offset by high-yield credit default swaps, consumer noncyclical, commercial mortgage-backed securities and technology. Yield-curve positioning also contributed, from
2 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
positioning in the intermediate part of the curve. Security selection contributed within the consumer cyclical—other, energy and basic industry sectors, which exceeded losses in media and services. Currency decisions did not have a meaningful impact on overall performance.
During both periods, the Fund utilized derivatives in the form of futures to hedge duration and interest-rate risk and interest rate swaps to hedge duration risk. Currency forwards were used to hedge foreign currency exposure and to take active currency risk. Credit default swaps, both single name and index, were used to take active exposure as well as to hedge investment-grade and high-yield credit risk taken through cash bonds. Total return swaps were used to create synthetic high-yield exposure. Written and purchased swaptions were used to manage and/or to actively take yield-curve positions. Purchased and written equity options were used to hedge portfolio exposure, while purchased currency options were used to hedge foreign currency exposure.
MARKET REVIEW AND INVESTMENT STRATEGY
Global fixed-income markets were volatile over the six-month period ended June 30, 2020. The unprecedented amount of monetary and fiscal stimulus enacted by central banks and governments to combat market illiquidity and cushion the negative economic impact of COVID-19 set the stage for a rebound in risk assets following the sell-off that started in March. Government bonds rallied as interest rates were slashed. Investment-grade corporate bonds advanced as markets recovered and companies flooded the market with record new issuance. High-yield corporates and emerging-market sovereign bonds ended the period with losses, despite a strong showing in the second quarter. The US dollar advanced against most developed- and emerging-market currencies. The Swiss franc and the yen, which are also considered safe haven currencies, advanced against the US dollar.
The Fund’s Senior Investment Management Team (the “Team”) continues to seek to maximize total return, utilizing a high-yield strategy with a global, multi-sector approach. The Team invests in corporate bonds from US and non-US issuers and government bonds from developed and emerging markets, primarily focusing on lower-rated bonds (“junk bonds”), although it may also invest in investment-grade bonds.
INVESTMENT POLICIES
At least 80% of the Fund’s net assets will, under normal circumstances, be invested in fixed-income securities rated Ba1 or lower by Moody’s Investors Service or BB+ or lower by S&P Global Ratings or Fitch Ratings (commonly known as “junk bonds”), unrated securities considered by the Adviser to be of comparable quality, and related
(continued on next page)
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 3 |
derivatives. The Fund may invest in fixed-income securities with a range of maturities from short- to long-term. The Fund may also invest in equity securities.
In selecting securities for purchase or sale by the Fund, the Adviser attempts to take advantage of inefficiencies that it believes exist in the global debt markets. These inefficiencies arise from investor behavior, market complexity, and the investment limitations to which investors are subject. The Adviser combines quantitative analysis with fundamental credit and economic research in seeking to exploit these inefficiencies.
The Fund will most often invest in securities of US issuers, but may also purchase fixed-income securities of foreign issuers, including securities denominated in foreign currencies and securities of emerging-market issuers. The Adviser may or may not hedge any foreign currency exposure through the use of currency-related derivatives.
The Fund expects to use derivatives, such as options, futures contracts, forwards and swaps, to a significant extent. Derivatives may provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Fund’s exposure. The Fund may, for example, use credit default and interest rate swaps to gain exposure to the fixed-income markets or particular fixed-income securities and, as noted above, may use currency-related derivatives. The Adviser may use derivatives to effectively leverage the Fund by creating aggregate market exposure substantially in excess of the Fund’s net assets.
4 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Markit iBoxx USD Liquid High Yield Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Markit iBoxx USD Liquid High Yield Index consists of USD high-yield bond issues with more than $400 million outstanding, selected to provide a balanced representation of the broad USD high-yield liquid corporate bond universe. An investor cannot invest directly in an index or average, and their results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility, due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 5 |
DISCLOSURES AND RISKS (continued)
fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Leverage Risk: To the extent the Fund uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.
Illiquid Investments Risk: Illiquid investments risk exists when certain investments are or become difficult to purchase or sell. Difficulty in selling such investments may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of illiquid investments risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Illiquid investments risk may be higher in a rising interest-rate environment, when the value and liquidity of fixed-income securities generally decline.
Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. Some
6 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
Performance information prior to July 26, 2016 shown in this report reflects the historical performance of the AB High-Yield Portfolio, a series of The AB Pooling Portfolios (the “Accounting Survivor”), adjusted to reflect the expense ratio of Advisor Class shares of the Fund as of July 26, 2016. Upon completion of a reorganization of the Accounting Survivor into the Fund on July 26, 2016, the Fund assumed the performance and financial history of the Accounting Survivor. At the time of the reorganization, the Accounting Survivor and the Fund had substantially similar investment objectives and strategies.
Effective February 26, 2018, the Fund implemented a performance-based, or fulcrum, advisory fee. Accordingly, performance information shown prior to February 26, 2018 does not reflect performance fee adjustments and would have been different if the Fund had been managed under the performance (fulcrum) fee arrangement. Effective February 26, 2018, all previously offered shares of the Fund, including Class Z shares, were converted to Advisor Class shares.
All fees and expenses related to the operation of the Fund have been deducted. Performance assumes reinvestment of distributions and does not account for taxes.
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HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | SEC Yields1 | ||||||||||
ADVISOR CLASS SHARES2 | 4.76% | |||||||||||
1 Year | 0.35% | 0.35% | ||||||||||
5 Years | 4.14% | 4.14% | ||||||||||
10 Years | 6.71% | 6.71% |
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
SEC Returns (reflects applicable | ||||
ADVISOR CLASS SHARES | ||||
1 Year | 0.35% | |||
5 Years | 4.14% | |||
10 Years | 6.71% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratio as 1.85% for Advisor Class shares, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratio, exclusive of the Fund’s advisory fees, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs to 0.10% for Advisor Class shares. These waivers/reimbursements may not be terminated before April 30, 2021. Any fees waived and expenses borne by the Adviser through December 31, 2019 under the expense limitation in effect prior to that date may be reimbursed by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne, provided that no reimbursement payment will be made that would cause the Fund’s total other expenses to exceed the expense limitation. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratio shown above may differ from the expense ratio in the Financial Highlights section since they are based on different time periods.
1 | SEC yields are calculated based on SEC guidelines for the 30-day period ended June 30, 2020. |
2 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. |
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EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Beginning Account Value 1/1/2020 | Ending Account Value 6/30/2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 960.70 | $ | 3.07 | 0.63 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,021.73 | $ | 3.17 | 0.63 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
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PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $40.0
1 | All data are as of June 30, 2020. The Fund’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). “Other” represents less than 0.1% weightings in the following security types: Quasi-Sovereigns, Rights and Warrants. |
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PORTFOLIO OF INVESTMENTS
June 30, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
CORPORATES – NON-INVESTMENT GRADE – 66.9% | ||||||||||||
Industrial – 60.2% | ||||||||||||
Basic – 6.2% | ||||||||||||
Advanced Drainage Systems, Inc. | U.S.$ | 28 | $ | 28,221 | ||||||||
Arconic Corp. | 34 | 34,131 | ||||||||||
Berry Global, Inc. | 8 | 8,048 | ||||||||||
CF Industries, Inc. | 27 | 29,131 | ||||||||||
5.15%, 03/15/2034 | 23 | 24,620 | ||||||||||
5.375%, 03/15/2044 | 73 | 78,863 | ||||||||||
Cleveland-Cliffs, Inc. | 7 | 6,783 | ||||||||||
9.875%, 10/17/2025(a) | 152 | 159,130 | ||||||||||
Commercial Metals Co. | 50 | 51,016 | ||||||||||
5.375%, 07/15/2027 | 45 | 46,302 | ||||||||||
ERP Iron Ore, LLC | 7 | 5,959 | ||||||||||
FMG Resources (August 2006) Pty Ltd. | 121 | 122,637 | ||||||||||
5.125%, 03/15/2023-05/15/2024(a) | 100 | 103,615 | ||||||||||
Freeport-McMoRan, Inc. | 128 | 128,747 | ||||||||||
5.25%, 09/01/2029 | 128 | 130,947 | ||||||||||
Graphic Packaging International LLC | 26 | 26,318 | ||||||||||
4.75%, 07/15/2027(a) | 28 | 29,531 | ||||||||||
Grinding Media, Inc./Moly-Cop AltaSteel Ltd. | 106 | 105,847 | ||||||||||
Illuminate Buyer LLC/Illuminate Holdings IV, Inc. | 13 | 13,553 | ||||||||||
Joseph T Ryerson & Son, Inc. | 135 | 137,492 | ||||||||||
Kaiser Aluminum Corp. | 21 | 21,787 | ||||||||||
Kraton Polymers LLC/Kraton Polymers Capital Corp. | 65 | 65,328 | ||||||||||
Magnetation LLC/Mag Finance Corp. | 60 | – 0 | – | |||||||||
NOVA Chemicals Corp. | 54 | 47,510 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Novelis Corp. | U.S.$ | 53 | $ | 52,926 | ||||||||
OCI NV | 210 | 212,557 | ||||||||||
Olin Corp. | 41 | 36,293 | ||||||||||
5.625%, 08/01/2029 | 57 | 52,455 | ||||||||||
Peabody Energy Corp. | 96 | 62,581 | ||||||||||
6.375%, 03/31/2025(a) | 30 | 16,410 | ||||||||||
PolyOne Corp. | 23 | 23,673 | ||||||||||
Reynolds Group Issuer, Inc./Reynolds Group Issuer LLC/Reynolds Group Issuer Lu | 108 | 108,534 | ||||||||||
7.00%, 07/15/2024(a) | 117 | 117,512 | ||||||||||
Sealed Air Corp. | 35 | 36,748 | ||||||||||
5.50%, 09/15/2025(a) | 33 | 35,723 | ||||||||||
6.875%, 07/15/2033(a) | 19 | 22,397 | ||||||||||
SPCM SA | 58 | 58,956 | ||||||||||
United States Steel Corp. | 93 | 95,297 | ||||||||||
Valvoline, Inc. | 87 | 85,299 | ||||||||||
WR Grace & Co-Conn | 14 | 14,181 | ||||||||||
WR Grace & Co.-Conn | 23 | 24,251 | ||||||||||
5.625%, 10/01/2024(a) | 24 | 25,612 | ||||||||||
|
| |||||||||||
2,486,921 | ||||||||||||
|
| |||||||||||
Capital Goods – 6.4% | ||||||||||||
ARD Finance SA | EUR | 120 | 129,288 | |||||||||
Ball Corp. | U.S.$ | 50 | 51,557 | |||||||||
Bombardier, Inc. | 183 | 135,190 | ||||||||||
6.00%, 10/15/2022(a) | 98 | 69,219 | ||||||||||
6.125%, 01/15/2023(a) | 5 | 3,424 | ||||||||||
7.50%, 12/01/2024-03/15/2025(a) | 111 | 72,188 | ||||||||||
7.875%, 04/15/2027(a) | 10 | 6,518 | ||||||||||
Clean Harbors, Inc. | 11 | 11,400 |
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PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Colfax Corp. | U.S.$ | 14 | $ | 14,440 | ||||||
6.375%, 02/15/2026(a) | 11 | 11,495 | ||||||||
Cornerstone Building Brands, Inc. | 53 | 53,508 | ||||||||
Crown Cork & Seal Co., Inc. | 20 | 23,303 | ||||||||
Energizer Holdings, Inc. | 40 | 39,206 | ||||||||
EnerSys | 80 | 79,372 | ||||||||
Gates Global LLC/Gates Corp. | 132 | 129,690 | ||||||||
GFL Environmental, Inc. | 20 | 20,848 | ||||||||
8.50%, 05/01/2027(a) | 23 | 25,014 | ||||||||
Granite US Holdings Corp. | 18 | 17,597 | ||||||||
Griffon Corp. | 120 | 118,601 | ||||||||
Harsco Corp. | 14 | 14,058 | ||||||||
JELD-WEN, Inc. | 6 | 5,759 | ||||||||
Mauser Packaging Solutions Holding Co. | 24 | 23,595 | ||||||||
7.25%, 04/15/2025(a) | 34 | 30,785 | ||||||||
Moog, Inc. | 55 | 53,644 | ||||||||
Mueller Water Products, Inc. | 44 | 45,531 | ||||||||
RBS Global, Inc./Rexnord LLC | 97 | 97,446 | ||||||||
Signature Aviation US Holdings, Inc. | 65 | 58,730 | ||||||||
5.375%, 05/01/2026(a) | 50 | 50,040 | ||||||||
SPX FLOW, Inc. | 68 | 69,861 | ||||||||
Stevens Holding Co., Inc. | 20 | 20,942 | ||||||||
Summit Materials LLC/Summit Materials Finance Corp. | 55 | 54,849 | ||||||||
Terex Corp. | 92 | 84,444 | ||||||||
Tervita Corp. | 35 | 28,086 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
TransDigm, Inc. | U.S.$ | 214 | $ | 186,739 | ||||||||
6.25%, 03/15/2026(a) | 151 | 150,556 | ||||||||||
6.375%, 06/15/2026 | 27 | 24,634 | ||||||||||
6.50%, 07/15/2024-05/15/2025 | 74 | 69,867 | ||||||||||
8.00%, 12/15/2025(a) | 35 | 36,764 | ||||||||||
Triumph Group, Inc. | 11 | 9,350 | ||||||||||
7.75%, 08/15/2025 | 57 | 43,412 | ||||||||||
Trivium Packaging Finance BV | EUR | 100 | 110,403 | |||||||||
Vertical US Newco, Inc. | U.S.$ | 200 | 200,000 | |||||||||
Wesco Distribution, Inc. | 48 | 50,604 | ||||||||||
7.25%, 06/15/2028(a) | 33 | 34,976 | ||||||||||
|
| |||||||||||
2,566,933 | ||||||||||||
|
| |||||||||||
Communications - Media – 6.2% | ||||||||||||
CCO Holdings LLC/CCO Holdings Capital Corp. | 40 | 40,952 | ||||||||||
5.375%, 05/01/2025(a) | 12 | 12,568 | ||||||||||
5.75%, 02/15/2026(a) | 65 | 67,384 | ||||||||||
Clear Channel Worldwide Holdings, Inc. | 32 | 30,733 | ||||||||||
CSC Holdings LLC | 253 | 260,378 | ||||||||||
5.875%, 09/15/2022 | 85 | 89,130 | ||||||||||
6.625%, 10/15/2025(a) | 3 | 2,725 | ||||||||||
DISH DBS Corp. | 115 | 117,098 | ||||||||||
6.75%, 06/01/2021 | 242 | 246,637 | ||||||||||
7.75%, 07/01/2026 | 32 | 33,913 | ||||||||||
DISH Network Corp. | 27 | 24,769 | ||||||||||
iHeartCommunications, Inc. | 35 | 32,337 | ||||||||||
6.375%, 05/01/2026 | 5 | 5,086 | ||||||||||
8.375%, 05/01/2027 | 33 | 30,444 | ||||||||||
Lamar Media Corp. | 80 | 75,801 | ||||||||||
4.875%, 01/15/2029(a) | 8 | 8,086 | ||||||||||
LCPR Senior Secured Financing DAC | 200 | 204,180 | ||||||||||
Meredith Corp. | 187 | 156,287 | ||||||||||
National CineMedia LLC | 21 | 14,495 | ||||||||||
5.875%, 04/15/2028(a) | 80 | 66,936 |
14 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
�� | Principal Amount (000) | U.S. $ Value | ||||||||||
| ||||||||||||
Scripps Escrow, Inc. | U.S.$ | 46 | $ | 43,587 | ||||||||
Sinclair Television Group, Inc. | 9 | 8,191 | ||||||||||
5.50%, 03/01/2030(a) | 20 | 18,467 | ||||||||||
5.625%, 08/01/2024(a) | 59 | 56,742 | ||||||||||
Sirius XM Radio, Inc. | 33 | 33,191 | ||||||||||
4.625%, 05/15/2023-07/15/2024(a) | 137 | 140,049 | ||||||||||
5.00%, 08/01/2027(a) | 94 | 95,943 | ||||||||||
5.375%, 07/15/2026(a) | 35 | 36,239 | ||||||||||
5.50%, 07/01/2029(a) | 82 | 86,328 | ||||||||||
Summer BC Holdco B SARL | EUR | 100 | 107,024 | |||||||||
TEGNA, Inc. | U.S.$ | 177 | 165,752 | |||||||||
Univision Communications, Inc. | 94 | 90,978 | ||||||||||
6.625%, 06/01/2027(a) | 50 | 47,738 | ||||||||||
9.50%, 05/01/2025(a) | 25 | 26,753 | ||||||||||
|
| |||||||||||
2,476,921 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 3.3% | ||||||||||||
Altice France SA/France | 185 | 192,600 | ||||||||||
CenturyLink, Inc. | 120 | 119,834 | ||||||||||
Series G | 65 | 69,070 | ||||||||||
Series S | 34 | 34,768 | ||||||||||
GTT Communications, Inc. | 6 | 3,152 | ||||||||||
Hughes Satellite Systems Corp. | 30 | 31,294 | ||||||||||
7.625%, 06/15/2021 | 19 | 19,819 | ||||||||||
Intelsat Jackson Holdings SA | 158 | 90,826 | ||||||||||
8.50%, 10/15/2024(a)(d)(j) | 47 | 28,289 | ||||||||||
9.50%, 09/30/2022(a) | 25 | 27,789 | ||||||||||
Intrado Corp. | 19 | 15,135 | ||||||||||
Level 3 Financing, Inc. | 60 | 60,005 | ||||||||||
5.375%, 01/15/2024 | 53 | 53,428 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Nexstar Broadcasting, Inc. | U.S.$ | 21 | $ | 20,850 | ||||||||
Sprint Capital Corp. | 91 | 130,158 | ||||||||||
Sprint Communications, Inc. | 38 | 40,064 | ||||||||||
Sprint Corp. | 73 | 82,301 | ||||||||||
T-Mobile USA, Inc. | 4 | 4,225 | ||||||||||
Telecom Italia Capital SA | 56 | 63,202 | ||||||||||
7.20%, 07/18/2036 | 33 | 38,594 | ||||||||||
7.721%, 06/04/2038 | 93 | 116,912 | ||||||||||
Zayo Group Holdings, Inc. | 36 | 34,235 | ||||||||||
6.125%, 03/01/2028(a) | 39 | 37,910 | ||||||||||
Zayo Group LLC/Zayo Capital, Inc. | 1 | 838 | ||||||||||
|
| |||||||||||
1,315,298 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 4.4% |
| |||||||||||
Adient US LLC | 69 | 74,309 | ||||||||||
Allison Transmission, Inc. | 35 | 35,147 | ||||||||||
5.875%, 06/01/2029(a) | 30 | 31,215 | ||||||||||
American Axle & Manufacturing, Inc. | 68 | 66,684 | ||||||||||
6.875%, 07/01/2028 | 52 | 51,477 | ||||||||||
Clarios Global LP/Clarios US Finance Co. | 34 | 35,055 | ||||||||||
8.50%, 05/15/2027(a) | 120 | 120,759 | ||||||||||
Cooper-Standard Automotive, Inc. | 21 | 13,329 | ||||||||||
Dana Financing Luxembourg SARL | 87 | 90,140 | ||||||||||
Dealer Tire LLC/DT Issuer LLC | 20 | 18,592 | ||||||||||
Exide International Holdings LP (Superpriority Lien) | 39 | 34,330 | ||||||||||
Exide Technologies | 39 | 3,851 | ||||||||||
(First Lien) | 13 | – 0 | – |
16 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Ford Motor Co. | U.S.$ | 128 | $ | 135,335 | ||||||||
9.00%, 04/22/2025 | 36 | 38,918 | ||||||||||
Ford Motor Credit Co. LLC | 221 | 209,353 | ||||||||||
3.219%, 01/09/2022 | 221 | 214,923 | ||||||||||
Garrett LX I SARL/Garrett Borrowing LLC | EUR | 200 | 185,868 | |||||||||
IHO Verwaltungs GmbH | 100 | 111,835 | ||||||||||
Meritor, Inc. | U.S.$ | 30 | 30,480 | |||||||||
6.25%, 06/01/2025(a) | 8 | 8,108 | ||||||||||
Navistar International Corp. | 107 | 101,451 | ||||||||||
Tenneco, Inc. | 122 | 83,040 | ||||||||||
Titan International, Inc. | 38 | 24,859 | ||||||||||
Truck Hero, Inc. | 47 | 46,992 | ||||||||||
|
| |||||||||||
1,766,050 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 1.3% | ||||||||||||
AMC Entertainment Holdings, Inc. | 7 | 2,064 | ||||||||||
5.875%, 11/15/2026 | 31 | 9,898 | ||||||||||
Cedar Fair LP | 15 | 13,567 | ||||||||||
Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp. | 70 | 66,264 | ||||||||||
Cedar Fair LP/Canada’s Wonderland Co./Magnum Management Corp./Millennium Op 5.375%, 04/15/2027 | 39 | 34,905 | ||||||||||
5.50%, 05/01/2025(a) | 92 | 92,377 | ||||||||||
Mattel, Inc. | 30 | 31,116 | ||||||||||
NCL Corp., Ltd. | 98 | 59,917 | ||||||||||
SeaWorld Parks & Entertainment, Inc. | 33 | 33,469 | ||||||||||
Six Flags Entertainment Corp. | 61 | 54,580 | ||||||||||
Six Flags Theme Parks, Inc. | 23 | 23,875 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Vail Resorts, Inc. | U.S.$ | 17 | $ | 17,781 | ||||||||
Viking Cruises Ltd. | 43 | 25,653 | ||||||||||
VOC Escrow Ltd. | 69 | 51,956 | ||||||||||
|
| |||||||||||
517,422 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 5.8% | ||||||||||||
Adams Homes, Inc. | 58 | 56,884 | ||||||||||
Ashton Woods USA LLC/Ashton Woods Finance Co. | 20 | 19,910 | ||||||||||
Beazer Homes USA, Inc. | 19 | 18,148 | ||||||||||
6.75%, 03/15/2025 | 28 | 28,045 | ||||||||||
7.25%, 10/15/2029 | 22 | 21,343 | ||||||||||
Boyd Gaming Corp. | 29 | 24,942 | ||||||||||
8.625%, 06/01/2025(a) | 34 | 35,545 | ||||||||||
Brookfield Residential Properties, Inc./Brookfield Residential US Corp. | 16 | 13,346 | ||||||||||
6.25%, 09/15/2027(a) | 120 | 114,686 | ||||||||||
Caesars Entertainment Corp. | 11 | 18,379 | ||||||||||
Colt Merger Sub, Inc. | 78 | 77,732 | ||||||||||
Eldorado Resorts, Inc. | 37 | 38,680 | ||||||||||
Five Point Operating Co. LP/Five Point Capital Corp. | 146 | 139,685 | ||||||||||
Forestar Group, Inc. | 58 | 56,016 | ||||||||||
8.00%, 04/15/2024(a) | 37 | 38,286 | ||||||||||
Hilton Domestic Operating Co., Inc. | 95 | 91,891 | ||||||||||
4.875%, 01/15/2030 | 17 | 16,740 | ||||||||||
5.125%, 05/01/2026 | 30 | 29,866 | ||||||||||
5.375%, 05/01/2025(a) | 10 | 9,958 | ||||||||||
5.75%, 05/01/2028(a) | 11 | 11,147 | ||||||||||
Hilton Grand Vacations Borrower LLC/Hilton Grand Vacations Borrower, Inc. | 28 | 28,280 | ||||||||||
Installed Building Products, Inc. | 40 | 40,362 |
18 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
K. Hovnanian Enterprises, Inc. | U.S.$ | 61 | $ | 38,856 | ||||||
KB Home | 16 | 15,711 | ||||||||
7.00%, 12/15/2021 | 22 | 23,265 | ||||||||
7.50%, 09/15/2022 | 10 | 11,082 | ||||||||
Marriott Ownership Resorts, Inc. | 20 | 20,425 | ||||||||
Marriott Ownership Resorts, Inc./ILG LLC | 89 | 89,945 | ||||||||
Mattamy Group Corp. | 80 | 77,132 | ||||||||
5.25%, 12/15/2027(a) | 19 | 18,940 | ||||||||
Meritage Homes Corp. | 29 | 31,096 | ||||||||
MGM Resorts International | 27 | 24,868 | ||||||||
5.50%, 04/15/2027 | 66 | 63,789 | ||||||||
5.75%, 06/15/2025 | 3 | 2,976 | ||||||||
6.00%, 03/15/2023 | 70 | 70,607 | ||||||||
7.75%, 03/15/2022 | 16 | 16,323 | ||||||||
Scientific Games International, Inc. | 30 | 23,952 | ||||||||
Shea Homes LP/Shea Homes Funding Corp. | 100 | 94,609 | ||||||||
6.125%, 04/01/2025(a) | 58 | 58,834 | ||||||||
Stars Group Holdings BV/Stars Group US Co-Borrower LLC | 57 | 60,014 | ||||||||
Sugarhouse HSP Gaming Prop Mezz LP/Sugarhouse HSP Gaming Finance Corp. | 16 | 15,756 | ||||||||
Taylor Morrison Communities, Inc. | 31 | 32,121 | ||||||||
5.875%, 06/15/2027(a) | 86 | 89,309 | ||||||||
Taylor Morrison Communities, Inc./Taylor Morrison Holdings II, Inc. | 17 | 18,067 | ||||||||
5.875%, 04/15/2023(a) | 8 | 8,220 | ||||||||
Twin River Worldwide Holdings, Inc. | 22 | 20,902 | ||||||||
Wyndham Destinations, Inc. | 67 | 62,305 | ||||||||
Wyndham Hotels & Resorts, Inc. | 81 | 78,696 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Wynn Las Vegas LLC/Wynn Las Vegas Capital Corp. | U.S.$ | 4 | $ | 3,458 | ||||||||
5.50%, 03/01/2025(a) | 236 | 216,847 | ||||||||||
Wynn Resorts Finance LLC/Wynn Resorts Capital Corp. | 86 | 76,856 | ||||||||||
|
| |||||||||||
2,294,832 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Restaurants – 1.0% | ||||||||||||
1011778 BC ULC/New Red Finance, Inc. | 70 | 68,607 | ||||||||||
5.75%, 04/15/2025(a) | 66 | 69,361 | ||||||||||
Golden Nugget, Inc. | 51 | 36,516 | ||||||||||
8.75%, 10/01/2025(a) | 14 | 8,234 | ||||||||||
IRB Holding Corp. | 120 | 114,675 | ||||||||||
7.00%, 06/15/2025(a) | 26 | 26,776 | ||||||||||
Yum! Brands, Inc. | 57 | 61,473 | ||||||||||
|
| |||||||||||
385,642 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 2.4% | ||||||||||||
Asbury Automotive Group, Inc. | 10 | 9,702 | ||||||||||
4.75%, 03/01/2030(a) | 6 | 5,851 | ||||||||||
Burlington Coat Factory Warehouse Corp. | 20 | 20,848 | ||||||||||
Dufry One BV | EUR | 103 | 96,768 | |||||||||
FirstCash, Inc. | U.S.$ | 7 | 7,027 | |||||||||
Group 1 Automotive, Inc. | 5 | 4,988 | ||||||||||
L Brands, Inc. | 20 | 15,809 | ||||||||||
5.625%, 02/15/2022-10/15/2023 | 109 | 103,596 | ||||||||||
6.75%, 07/01/2036 | 48 | 39,978 | ||||||||||
6.875%, 07/01/2025(a) | 4 | 4,133 | ||||||||||
6.875%, 11/01/2035 | 88 | 73,375 | ||||||||||
7.50%, 06/15/2029 | 17 | 14,941 | ||||||||||
Murphy Oil USA, Inc. | 2 | 2,416 | ||||||||||
Penske Automotive Group, Inc. | 14 | 13,990 | ||||||||||
5.50%, 05/15/2026 | 52 | 52,110 | ||||||||||
5.75%, 10/01/2022 | 19 | 19,071 | ||||||||||
PetSmart, Inc. | 142 | 139,818 |
20 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Rite Aid Corp. | U.S.$ | 14 | $ | 13,605 | ||||||||
7.50%, 07/01/2025(a) | 76 | 76,222 | ||||||||||
Sonic Automotive, Inc. | 20 | 19,577 | ||||||||||
Staples, Inc. | 123 | 96,876 | ||||||||||
10.75%, 04/15/2027(a) | 61 | 36,194 | ||||||||||
TPro Acquisition Corp. | 16 | 15,654 | ||||||||||
William Carter Co. (The) | 25 | 25,757 | ||||||||||
5.625%, 03/15/2027(a) | 44 | 45,311 | ||||||||||
|
| |||||||||||
953,617 | ||||||||||||
|
| |||||||||||
Consumer Non - Cyclical – 6.8% | ||||||||||||
Acadia Healthcare Co., Inc. | 43 | 43,327 | ||||||||||
Air Medical Group Holdings, Inc. | 43 | 40,969 | ||||||||||
Albertsons Cos., Inc./Safeway, Inc./New Albertsons LP/Albertsons LLC | 84 | 83,995 | ||||||||||
5.75%, 03/15/2025 | 59 | 60,262 | ||||||||||
6.625%, 06/15/2024 | 55 | 56,802 | ||||||||||
Avantor, Inc. | 39 | 41,900 | ||||||||||
Bausch Health Americas, Inc. | 189 | 201,533 | ||||||||||
Bausch Health Cos., Inc. | 46 | 46,607 | ||||||||||
6.25%, 02/15/2029(a) | 77 | 77,429 | ||||||||||
7.25%, 05/30/2029(a) | 30 | 31,497 | ||||||||||
9.00%, 12/15/2025(a) | 103 | 111,078 | ||||||||||
CD&R Smokey Buyer, Inc. | 14 | 14,577 | ||||||||||
Chobani LLC/Chobani Finance Corp., Inc. | 25 | 24,325 | ||||||||||
CHS/Community Health Systems, Inc. | 134 | 126,120 | ||||||||||
6.625%, 02/15/2025(a) | 99 | 94,407 | ||||||||||
8.625%, 01/15/2024(a) | 25 | 24,463 | ||||||||||
DaVita, Inc. | 118 | 120,644 | ||||||||||
5.125%, 07/15/2024 | 85 | 86,486 | ||||||||||
Encompass Health Corp. | 30 | 30,752 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Envision Healthcare Corp. | U.S.$ | 41 | $ | 20,190 | ||||||
Hadrian Merger Sub, Inc. | 65 | 59,113 | ||||||||
HCA, Inc. | 33 | 35,852 | ||||||||
5.625%, 09/01/2028 | 35 | 39,033 | ||||||||
5.875%, 02/15/2026 | 54 | 59,188 | ||||||||
Hill-Rom Holdings, Inc. | 18 | 18,411 | ||||||||
Immucor, Inc. | 20 | 17,847 | ||||||||
Kronos Acquisition Holdings, Inc. | 50 | 47,708 | ||||||||
LifePoint Health, Inc. | 18 | 16,961 | ||||||||
Mallinckrodt International Finance SA/Mallinckrodt CB LLC | 10 | 1,594 | ||||||||
MEDNAX, Inc. | 44 | 43,664 | ||||||||
6.25%, 01/15/2027(a) | 92 | 92,011 | ||||||||
Newell Brands, Inc. | 45 | 47,196 | ||||||||
Par Pharmaceutical, Inc. | 26 | 26,670 | ||||||||
Post Holdings, Inc. | 58 | 56,868 | ||||||||
5.625%, 01/15/2028(a) | 54 | 55,765 | ||||||||
Radiology Partners, Inc. | 37 | 34,860 | ||||||||
RegionalCare Hospital Partners Holdings, Inc./LifePoint Health, Inc. | 156 | 160,920 | ||||||||
Spectrum Brands, Inc. | 36 | 36,940 | ||||||||
Tenet Healthcare Corp. | 2 | 1,932 | ||||||||
5.125%, 11/01/2027(a) | 104 | 102,883 | ||||||||
6.25%, 02/01/2027(a) | 33 | 32,730 | ||||||||
6.75%, 06/15/2023 | 98 | 97,245 | ||||||||
7.00%, 08/01/2025 | 4 | 3,898 | ||||||||
7.50%, 04/01/2025(a) | 58 | 61,669 | ||||||||
8.125%, 04/01/2022 | 146 | 152,975 | ||||||||
US Renal Care, Inc. | 57 | 58,700 |
22 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Vizient, Inc. | U.S.$ | 10 | $ | 10,476 | ||||||||
|
| |||||||||||
2,710,472 | ||||||||||||
|
| |||||||||||
Energy – 8.9% | ||||||||||||
Antero Resources Corp. | 30 | 17,806 | ||||||||||
5.375%, 11/01/2021 | 42 | 38,839 | ||||||||||
5.625%, 06/01/2023 | 50 | 32,308 | ||||||||||
Apache Corp. | 98 | 84,765 | ||||||||||
4.375%, 10/15/2028 | 59 | 52,231 | ||||||||||
5.35%, 07/01/2049 | 38 | 30,271 | ||||||||||
Berry Petroleum Co. LLC | 127 | 98,428 | ||||||||||
Callon Petroleum, Co. | ||||||||||||
6.25%, 04/15/2023 | 52 | 19,782 | ||||||||||
8.25%, 07/15/2025 | 8 | 2,916 | ||||||||||
CHC Group LLC/CHC Finance Ltd. | 65 | 9,776 | ||||||||||
Cheniere Energy Partners LP | 16 | 16,155 | ||||||||||
5.625%, 10/01/2026 | 68 | 67,490 | ||||||||||
CITGO Petroleum Corp. | 16 | 15,949 | ||||||||||
7.00%, 06/15/2025(a) | 50 | 50,057 | ||||||||||
Comstock Resources Inc. | 105 | 95,130 | ||||||||||
DCP Midstream Operating LP | 35 | 35,325 | ||||||||||
Denbury Resources, Inc. | 52 | 20,290 | ||||||||||
Diamond Offshore Drilling, Inc. | 68 | 7,670 | ||||||||||
7.875%, 08/15/2025(d)(j) | 62 | 6,200 | ||||||||||
EnLink Midstream Partners LP | 39 | 29,965 | ||||||||||
4.40%, 04/01/2024 | 11 | 9,149 | ||||||||||
4.85%, 07/15/2026 | 107 | 79,336 | ||||||||||
EP Energy LLC/Everest Acquisition Finance, Inc. | 73 | 7 | ||||||||||
8.00%, 11/29/2024(a)(d)(j) | 16 | 278 | ||||||||||
9.388%, 05/01/2024(a)(d)(j) | 101 | 17 | ||||||||||
EQM Midstream Partners LP | 53 | 50,474 | ||||||||||
EQT Corp. | 82 | 81,703 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
Genesis Energy LP/Genesis Energy Finance Corp. | U.S.$ | 45 | $ | 39,543 | ||||||
6.25%, 05/15/2026 | 21 | 18,058 | ||||||||
6.50%, 10/01/2025 | 35 | 30,062 | ||||||||
7.75%, 02/01/2028 | 12 | 10,560 | ||||||||
Global Partners LP/GLP Finance Corp. | 66 | 62,154 | ||||||||
Gulfport Energy Corp. | 125 | 64,796 | ||||||||
6.375%, 05/15/2025-01/15/2026 | 52 | 25,294 | ||||||||
Hess Midstream Operations LP | 95 | 94,109 | ||||||||
HighPoint Operating Corp. | 35 | 8,625 | ||||||||
Hilcorp Energy I LP/Hilcorp Finance Co. | 107 | 89,321 | ||||||||
Indigo Natural Resources LLC | 62 | 57,582 | ||||||||
Moss Creek Resources Holdings, Inc. | 48 | 25,422 | ||||||||
Murphy Oil Corp. | 21 | 16,299 | ||||||||
Nabors Industries Ltd. | 36 | 22,477 | ||||||||
7.50%, 01/15/2028(a) | 37 | 22,851 | ||||||||
Nabors Industries, Inc. | 1 | 421 | ||||||||
5.75%, 02/01/2025 | 30 | 12,139 | ||||||||
NGL Energy Partners LP/NGL Energy Finance Corp. | 147 | 122,388 | ||||||||
Noble Holding International Ltd. | 8 | 165 | ||||||||
7.95%, 04/01/2025 | 20 | 472 | ||||||||
Occidental Petroleum Corp. | 214 | 198,698 | ||||||||
2.90%, 08/15/2024 | 25 | 21,365 | ||||||||
3.40%, 04/15/2026 | 8 | 6,546 | ||||||||
3.50%, 06/15/2025 | 23 | 19,465 | ||||||||
5.55%, 03/15/2026 | 272 | 247,577 | ||||||||
6.20%, 03/15/2040 | 69 | 57,696 | ||||||||
8.50%, 07/15/2027 | 42 | 42,121 | ||||||||
8.875%, 07/15/2030 | 42 | 42,029 | ||||||||
Parkland Corp./Canada | 89 | 91,523 |
24 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
| ||||||||||
PDC Energy, Inc. | U.S.$ | 113 | $ | 102,756 | ||||||
QEP Resources, Inc. | 31 | 21,099 | ||||||||
5.375%, 10/01/2022 | 34 | 25,619 | ||||||||
Range Resources Corp. | 50 | 44,506 | ||||||||
SandRidge Energy, Inc. | 29 | – 0 | – | |||||||
8.125%, 10/15/2022(b)(d)(e) | 47 | – 0 | – | |||||||
SM Energy Co. | 2 | 1,094 | ||||||||
5.625%, 06/01/2025 | 34 | 18,022 | ||||||||
6.125%, 11/15/2022 | 24 | 17,505 | ||||||||
Sunoco LP/Sunoco Finance Corp. | 40 | 39,843 | ||||||||
5.50%, 02/15/2026 | 184 | 178,715 | ||||||||
5.875%, 03/15/2028 | 16 | 15,936 | ||||||||
6.00%, 04/15/2027 | 2 | 2,002 | ||||||||
Targa Resources Partners LP/Targa Resources Partners Finance Corp. | 42 | 39,789 | ||||||||
6.50%, 07/15/2027 | 70 | 70,793 | ||||||||
Transocean Phoenix 2 Ltd. | 33 | 31,045 | ||||||||
Transocean Poseidon Ltd. | 50 | 44,143 | ||||||||
Transocean, Inc. | 87 | 23,972 | ||||||||
7.50%, 01/15/2026(a) | 18 | 9,811 | ||||||||
8.00%, 02/01/2027(a) | 89 | 49,157 | ||||||||
Vantage Drilling International | 46 | – 0 | – | |||||||
Vine Oil & Gas LP/Vine Oil & Gas Finance Corp. | 92 | 55,423 | ||||||||
Weatherford International Ltd. | 10 | 6,926 | ||||||||
Western Midstream Operating LP | 72 | 68,482 | ||||||||
3.95%, 06/01/2025 | 33 | 30,957 | ||||||||
4.00%, 07/01/2022 | 31 | 30,918 | ||||||||
4.05%, 02/01/2030 | 49 | 47,133 | ||||||||
4.50%, 03/01/2028 | 91 | 86,165 | ||||||||
4.65%, 07/01/2026 | 41 | 39,311 | ||||||||
4.75%, 08/15/2028 | 12 | 11,505 | ||||||||
5.45%, 04/01/2044 | 26 | 21,675 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Whiting Petroleum Corp. | U.S.$ | 9 | $ | 1,562 | ||||||||
|
| |||||||||||
3,537,939 | ||||||||||||
|
| |||||||||||
Other Industrial – 1.3% | ||||||||||||
American Builders & Contractors Supply Co., Inc. | 84 | 81,558 | ||||||||||
5.875%, 05/15/2026(a) | 39 | 39,077 | ||||||||||
Belden, Inc. | EUR | 100 | 109,541 | |||||||||
H&E Equipment Services, Inc. | U.S.$ | 20 | 20,254 | |||||||||
IAA, Inc. | 39 | 40,318 | ||||||||||
KAR Auction Services, Inc. | 83 | 81,674 | ||||||||||
Laureate Education, Inc. | 29 | 30,389 | ||||||||||
Rexel SA | EUR | 100 | 111,813 | |||||||||
Univar Solutions USA, Inc./Washington | U.S.$ | 17 | 17,174 | |||||||||
|
| |||||||||||
531,798 | ||||||||||||
|
| |||||||||||
Services – 3.3% | ||||||||||||
ADT Security Corp. (The) | 42 | 38,418 | ||||||||||
Allied Universal Holdco LLC/Allied Universal Finance Corp. | 34 | 35,681 | ||||||||||
9.75%, 07/15/2027(a) | 105 | 110,620 | ||||||||||
Aptim Corp. | 55 | 20,900 | ||||||||||
APX Group, Inc. | 131 | 130,286 | ||||||||||
Aramark Services, Inc. | 73 | 69,337 | ||||||||||
6.375%, 05/01/2025(a) | 66 | 68,148 | ||||||||||
Carriage Services, Inc. | 30 | 31,515 | ||||||||||
eDreams ODIGEO SA | EUR | 102 | 93,729 | |||||||||
Garda World Security Corp. | U.S.$ | 35 | 34,474 | |||||||||
9.50%, 11/01/2027(a) | 59 | 62,454 | ||||||||||
Gartner, Inc. | 38 | 38,385 |
26 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Korn Ferry | U.S.$ | 50 | $ | 48,500 | ||||||||
Monitronics International, Inc. | 14 | – 0 | – | |||||||||
Nielsen Co. Luxembourg SARL (The) | 60 | 59,229 | ||||||||||
Nielsen Finance LLC/Nielsen Finance Co. | 30 | 29,892 | ||||||||||
Prime Security Services Borrower LLC/Prime Finance, Inc. | 55 | 56,324 | ||||||||||
5.75%, 04/15/2026(a) | 30 | 31,103 | ||||||||||
6.25%, 01/15/2028(a) | 102 | 96,161 | ||||||||||
Refinitiv US Holdings, Inc. | 23 | 24,376 | ||||||||||
8.25%, 11/15/2026(a) | 43 | 46,544 | ||||||||||
Ritchie Bros Auctioneers, Inc. | 12 | 12,336 | ||||||||||
Sabre GLBL, Inc. | 44 | 40,465 | ||||||||||
9.25%, 04/15/2025(a) | 24 | 25,269 | ||||||||||
Verscend Escrow Corp. | 109 | 117,437 | ||||||||||
|
| |||||||||||
1,321,583 | ||||||||||||
|
| |||||||||||
Technology – 1.4% | ||||||||||||
Ascend Learning LLC | 19 | 19,258 | ||||||||||
Banff Merger Sub, Inc. | 78 | 78,575 | ||||||||||
Boxer Parent Co., Inc. | 7 | 7,339 | ||||||||||
CDW LLC/CDW Finance Corp. | 28 | 28,177 | ||||||||||
CommScope, Inc. | 47 | 47,862 | ||||||||||
8.25%, 03/01/2027(a) | 60 | 61,630 | ||||||||||
Conduent Finance, Inc./Conduent Business Services LLC | 0 | ** | 151 | |||||||||
Dell International LLC/EMC Corp. | 40 | 41,496 | ||||||||||
Genesys Telecommunications Laboratories, Inc./Greeneden Lux 3 SARL/Greeneden US Ho | 7 | 7,263 | ||||||||||
Microchip Technology, Inc. | 32 | 32,149 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
NCR Corp. | U.S.$ | 24 | $ | 23,969 | ||||||||
6.125%, 09/01/2029(a) | 56 | 55,905 | ||||||||||
8.125%, 04/15/2025(a) | 30 | 31,810 | ||||||||||
Presidio Holdings, Inc. | 5 | 4,885 | ||||||||||
8.25%, 02/01/2028(a) | 5 | 4,989 | ||||||||||
Rackspace Hosting, Inc. | 47 | 47,085 | ||||||||||
Science Applications International Corp. | 15 | 14,902 | ||||||||||
Solera LLC/Solera Finance, Inc. | 47 | 48,148 | ||||||||||
Xerox Corp. | 18 | 18,002 | ||||||||||
|
| |||||||||||
573,595 | ||||||||||||
|
| |||||||||||
Transportation - Services – 1.5% | ||||||||||||
Algeco Global Finance PLC | EUR | 100 | 107,975 | |||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | U.S.$ | 45 | 34,381 | |||||||||
10.50%, 05/15/2025(a) | 13 | 14,524 | ||||||||||
Europcar Mobility Group | EUR | 100 | 84,661 | |||||||||
Herc Holdings, Inc. | U.S.$ | 31 | 31,152 | |||||||||
Hertz Corp. (The) | 29 | 9,024 | ||||||||||
6.00%, 01/15/2028(a)(d)(j) | 89 | 27,788 | ||||||||||
6.25%, 10/15/2022(d)(j) | 20 | 6,226 | ||||||||||
7.125%, 08/01/2026(a)(d)(j) | 3 | 936 | ||||||||||
United Rentals North America, Inc. | 2 | 2,051 | ||||||||||
5.875%, 09/15/2026 | 50 | 52,389 | ||||||||||
6.50%, 12/15/2026 | 125 | 131,275 | ||||||||||
XPO Logistics, Inc. | 74 | 75,170 | ||||||||||
6.75%, 08/15/2024(a) | 28 | 29,331 | ||||||||||
|
| |||||||||||
606,883 | ||||||||||||
|
| |||||||||||
24,045,906 | ||||||||||||
|
| |||||||||||
Financial Institutions – 5.9% | ||||||||||||
Banking – 0.4% | ||||||||||||
Alliance Data Systems Corp. | 84 | 75,500 |
28 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Discover Financial Services | U.S.$ | 93 | $ | 95,761 | ||||||||
Societe Generale SA | 3 | 3,341 | ||||||||||
|
| |||||||||||
174,602 | ||||||||||||
|
| |||||||||||
Brokerage – 0.5% | ||||||||||||
Lehman Brothers Holdings, Inc. | 423 | 4,742 | ||||||||||
LPL Holdings, Inc. | 73 | 73,926 | ||||||||||
NFP Corp. | 63 | 62,131 | ||||||||||
7.00%, 05/15/2025(a) | 18 | 18,900 | ||||||||||
8.00%, 07/15/2025(a) | 31 | 30,668 | ||||||||||
|
| |||||||||||
190,367 | ||||||||||||
|
| |||||||||||
Finance – 1.9% | ||||||||||||
CNG Holdings, Inc. | 32 | 28,017 | ||||||||||
Compass Group Diversified Holdings LLC | 3 | 3,060 | ||||||||||
Curo Group Holdings Corp. | 109 | 87,188 | ||||||||||
Enova International, Inc. | 96 | 86,680 | ||||||||||
goeasy Ltd. | 67 | 66,651 | ||||||||||
Navient Corp. | 45 | 44,846 | ||||||||||
5.50%, 01/25/2023 | 79 | 75,868 | ||||||||||
5.875%, 03/25/2021 | 1 | 573 | ||||||||||
6.50%, 06/15/2022 | 54 | 53,042 | ||||||||||
6.75%, 06/15/2026 | 30 | 28,446 | ||||||||||
7.25%, 01/25/2022-09/25/2023 | 72 | 70,519 | ||||||||||
SLM Corp. | 21 | 20,275 | ||||||||||
Springleaf Finance Corp. | 48 | 49,317 | ||||||||||
8.875%, 06/01/2025 | 100 | 106,870 | ||||||||||
TMX Finance LLC/TitleMax Finance Corp. | 50 | 41,980 | ||||||||||
|
| |||||||||||
763,332 | ||||||||||||
|
| |||||||||||
Insurance – 1.4% | ||||||||||||
Acrisure LLC/Acrisure Finance, Inc. | 79 | 75,467 | ||||||||||
8.125%, 02/15/2024(a) | 44 | 45,731 | ||||||||||
10.125%, 08/01/2026(a) | 40 | 43,029 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Alliant Holdings Intermediate LLC/Alliant Holdings Co-Issuer | U.S.$ | 70 | $ | 69,501 | ||||||||
Genworth Holdings, Inc. | 30 | 28,435 | ||||||||||
7.625%, 09/24/2021 | 17 | 15,872 | ||||||||||
HUB International Ltd. | 40 | 39,887 | ||||||||||
Polaris Intermediate Corp. | 243 | 213,598 | ||||||||||
USI, Inc./NY | 7 | 7,056 | ||||||||||
|
| |||||||||||
538,576 | ||||||||||||
|
| |||||||||||
Other Finance – 0.2% |
| |||||||||||
Intrum AB | EUR | 100 | 98,306 | |||||||||
|
| |||||||||||
REITS – 1.5% |
| |||||||||||
Brookfield Property REIT, Inc./BPR Cumulus LLC/BPR Nimbus LLC/GGSI Sellco LL | U.S.$ | 231 | 195,162 | |||||||||
Diversified Healthcare Trust | 39 | 32,331 | ||||||||||
6.75%, 12/15/2021 | 9 | 8,821 | ||||||||||
9.75%, 06/15/2025 | 49 | 52,662 | ||||||||||
GEO Group, Inc. (The) | 8 | 6,181 | ||||||||||
MGM Growth Properties Operating Partnership LP/MGP Finance Co-Issuer, Inc. | 89 | 92,137 | ||||||||||
5.75%, 02/01/2027 | 59 | 61,035 | ||||||||||
Realogy Group LLC/Realogy Co-Issuer Corp. | 27 | 25,646 | ||||||||||
9.375%, 04/01/2027(a) | 135 | 125,983 | ||||||||||
|
| |||||||||||
599,958 | ||||||||||||
|
| |||||||||||
2,365,141 | ||||||||||||
|
| |||||||||||
Utility – 0.8% |
| |||||||||||
Electric – 0.8% |
| |||||||||||
Calpine Corp. | 50 | 50,479 | ||||||||||
Talen Energy Supply LLC | 0 | ** | 195 | |||||||||
6.50%, 06/01/2025 | 101 | 67,402 | ||||||||||
7.25%, 05/15/2027(a) | 44 | 44,155 |
30 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Texas Competitive/TCEH | U.S.$ | 59 | $ | – 0 | – | |||||||
Vistra Operations Co. LLC | 157 | 161,096 | ||||||||||
|
| |||||||||||
323,327 | ||||||||||||
|
| |||||||||||
Total Corporates – Non-Investment Grade (cost $28,074,098) | 26,734,374 | |||||||||||
|
| |||||||||||
CORPORATES – INVESTMENT | ||||||||||||
Industrial – 8.3% |
| |||||||||||
Basic – 0.2% |
| |||||||||||
ArcelorMittal SA | 45 | 53,103 | ||||||||||
Arconic Corp. | 20 | 20,679 | ||||||||||
Glencore Finance Canada Ltd. | 5 | 5,185 | ||||||||||
|
| |||||||||||
78,967 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.1% |
| |||||||||||
General Electric Co. | 40 | 31,562 | ||||||||||
Howmet Aerospace, Inc. | 4 | 4,268 | ||||||||||
Westinghouse Air Brake Technologies Corp. | 7 | 7,136 | ||||||||||
|
| |||||||||||
42,966 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.4% | ||||||||||||
Qwest Corp. | 78 | 82,659 | ||||||||||
7.25%, 09/15/2025 | 55 | 62,410 | ||||||||||
|
| |||||||||||
145,069 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.8% |
| |||||||||||
General Motors Co. | 33 | 35,043 | ||||||||||
General Motors Financial Co., Inc. | 15 | 15,305 | ||||||||||
3.70%, 05/09/2023 | 19 | 19,540 | ||||||||||
4.25%, 05/15/2023 | 19 | 19,821 | ||||||||||
4.30%, 07/13/2025 | 16 | 16,741 | ||||||||||
5.10%, 01/17/2024 | 22 | 23,567 | ||||||||||
5.25%, 03/01/2026 | 7 | 7,629 | ||||||||||
5.65%, 01/17/2029 | 52 | 58,551 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Harley-Davidson Financial Services, Inc. | U.S.$ | 36 | $ | 36,773 | ||||||||
Lear Corp. | 56 | 56,708 | ||||||||||
Nissan Motor Acceptance Corp. | 6 | 5,885 | ||||||||||
2.80%, 01/13/2022(a) | 4 | 3,943 | ||||||||||
3.45%, 03/15/2023(a) | 4 | 3,980 | ||||||||||
|
| |||||||||||
303,486 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.9% | ||||||||||||
Carnival Corp. | 147 | 159,484 | ||||||||||
Royal Caribbean Cruises Ltd. | 53 | 54,458 | ||||||||||
11.50%, 06/01/2025(a) | 93 | 97,185 | ||||||||||
Silversea Cruise Finance Ltd. | 34 | 32,132 | ||||||||||
|
| |||||||||||
343,259 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 1.7% | ||||||||||||
Lennar Corp. | 42 | 43,784 | ||||||||||
4.75%, 11/29/2027 | 72 | 78,096 | ||||||||||
6.25%, 12/15/2021(a) | 1 | 753 | ||||||||||
8.375%, 01/15/2021 | 20 | 20,619 | ||||||||||
Marriott International, Inc./MD | 16 | 17,387 | ||||||||||
MDC Holdings, Inc. | 87 | 91,426 | ||||||||||
PulteGroup, Inc. | 4 | 4,365 | ||||||||||
6.00%, 02/15/2035 | 57 | 66,051 | ||||||||||
7.875%, 06/15/2032 | 17 | 22,371 | ||||||||||
Standard Industries, Inc./NJ | 104 | 105,439 | ||||||||||
5.375%, 11/15/2024(a) | 68 | 69,869 | ||||||||||
6.00%, 10/15/2025(a) | 39 | 39,669 | ||||||||||
Toll Brothers Finance Corp. | 93 | 100,238 | ||||||||||
5.875%, 02/15/2022 | 35 | 36,709 | ||||||||||
|
| |||||||||||
696,776 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.1% | ||||||||||||
Sysco Corp. | 13 | 15,213 | ||||||||||
5.95%, 04/01/2030 | 8 | 10,053 | ||||||||||
|
| |||||||||||
25,266 | ||||||||||||
|
|
32 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Energy – 2.1% | ||||||||||||
Cenovus Energy, Inc. | U.S.$ | 61 | $ | 52,479 | ||||||||
6.75%, 11/15/2039 | 1 | 1,430 | ||||||||||
Energy Transfer Operating LP | 56 | 60,696 | ||||||||||
Hess Corp. | 36 | 41,963 | ||||||||||
Marathon Oil Corp. | 34 | 36,248 | ||||||||||
Marathon Petroleum Corp. | 35 | 37,725 | ||||||||||
4.70%, 05/01/2025 | 35 | 39,182 | ||||||||||
MPLX LP | 59 | 65,871 | ||||||||||
ONEOK, Inc. | 77 | 75,521 | ||||||||||
5.85%, 01/15/2026 | 35 | 40,005 | ||||||||||
Parsley Energy LLC/Parsley Finance Corp. | 59 | 58,128 | ||||||||||
PBF Holding Co. LLC/PBF Finance Corp. | 83 | 88,559 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 38 | 38,899 | ||||||||||
4.50%, 12/15/2026 | 27 | 28,616 | ||||||||||
4.65%, 10/15/2025 | 44 | 47,005 | ||||||||||
Sunoco Logistics Partners Operations LP | 7 | 7,372 | ||||||||||
WPX Energy, Inc. | 150 | 131,985 | ||||||||||
|
| |||||||||||
851,684 | ||||||||||||
|
| |||||||||||
Services – 0.2% | ||||||||||||
Expedia Group, Inc. | 11 | 11,686 | ||||||||||
7.00%, 05/01/2025(a) | 64 | 67,029 | ||||||||||
|
| |||||||||||
78,715 | ||||||||||||
|
| |||||||||||
Technology – 0.5% | ||||||||||||
Broadcom, Inc. | 68 | 73,951 | ||||||||||
Dell International LLC/EMC Corp. | 33 | 37,890 | ||||||||||
Nokia Oyj | 16 | 16,336 | ||||||||||
6.625%, 05/15/2039 | 64 | 74,009 | ||||||||||
|
| |||||||||||
202,186 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Transportation - Airlines – 1.0% | ||||||||||||
Delta Air Lines, Inc. | U.S.$ | 85 | $ | 87,739 | ||||||||
Mileage Plus Holdings LLC/Mileage Plus Intellectual Property Assets Ltd. | 248 | 248,253 | ||||||||||
Southwest Airlines Co. | 41 | 42,117 | ||||||||||
5.25%, 05/04/2025 | 42 | 44,229 | ||||||||||
|
| |||||||||||
422,338 | ||||||||||||
|
| |||||||||||
Transportation - Services – 0.3% | ||||||||||||
Aviation Capital Group LLC | 42 | 40,230 | ||||||||||
3.50%, 11/01/2027(a) | 16 | 13,183 | ||||||||||
3.875%, 05/01/2023(a) | 25 | 23,725 | ||||||||||
4.125%, 08/01/2025(a) | 16 | 14,390 | ||||||||||
4.375%, 01/30/2024(a) | 25 | 23,211 | ||||||||||
4.875%, 10/01/2025(a) | 6 | 5,503 | ||||||||||
|
| |||||||||||
120,242 | ||||||||||||
|
| |||||||||||
3,310,954 | ||||||||||||
|
| |||||||||||
Financial Institutions – 4.5% | ||||||||||||
Banking – 2.0% | ||||||||||||
Ally Financial, Inc. | 48 | 53,573 | ||||||||||
Barclays Bank PLC | 15 | 17,775 | ||||||||||
BNP Paribas SA | 58 | 59,205 | ||||||||||
CIT Group, Inc. | 37 | 35,894 | ||||||||||
4.75%, 02/16/2024 | 45 | 45,605 | ||||||||||
5.25%, 03/07/2025 | 32 | 33,197 | ||||||||||
Citigroup, Inc. | 38 | 40,335 | ||||||||||
Series U | 70 | 65,712 | ||||||||||
Series V | 41 | 36,612 | ||||||||||
Credit Agricole SA | EUR | 100 | 114,456 | |||||||||
Goldman Sachs Group, Inc. (The) | U.S.$ | 44 | 40,663 | |||||||||
JPMorgan Chase & Co. | 80 | 76,674 |
34 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Series HH | U.S.$ | 49 | $ | 43,684 | ||||||||
Lloyds Banking Group PLC | GBP | 8 | 9,407 | |||||||||
Royal Bank of Scotland Group PLC | U.S.$ | 117 | 120,743 | |||||||||
|
| |||||||||||
793,535 | ||||||||||||
|
| |||||||||||
Brokerage – 0.1% | ||||||||||||
Charles Schwab Corp. (The) | 58 | 61,551 | ||||||||||
|
| |||||||||||
Finance – 0.9% | ||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust | 161 | 143,863 | ||||||||||
3.875%, 01/23/2028 | 162 | 146,611 | ||||||||||
Air Lease Corp. | 43 | 42,447 | ||||||||||
3.00%, 02/01/2030 | 4 | 3,707 | ||||||||||
3.625%, 04/01/2027 | 14 | 13,697 | ||||||||||
3.875%, 07/03/2023 | 2 | 2,031 | ||||||||||
4.25%, 02/01/2024 | 10 | 10,226 | ||||||||||
Series G | 2 | 2,018 | ||||||||||
|
| |||||||||||
364,600 | ||||||||||||
|
| |||||||||||
Insurance – 1.0% | ||||||||||||
ACE Capital Trust II | 20 | 29,249 | ||||||||||
Allstate Corp. (The) | 10 | 12,732 | ||||||||||
Centene Corp. | 109 | 112,434 | ||||||||||
4.75%, 01/15/2025 | 24 | 24,544 | ||||||||||
5.375%, 08/15/2026(a) | 82 | 85,318 | ||||||||||
Liberty Mutual Group, Inc. | 61 | 73,180 | ||||||||||
Prudential Financial, Inc. | 20 | 20,471 | ||||||||||
5.625%, 06/15/2043 | 50 | 53,100 | ||||||||||
|
| |||||||||||
411,028 | ||||||||||||
|
| |||||||||||
REITS – 0.5% | ||||||||||||
MPT Operating Partnership LP/MPT Finance Corp. | 45 | 45,316 | ||||||||||
5.00%, 10/15/2027 | 73 | 75,116 | ||||||||||
5.25%, 08/01/2026 | 40 | 41,224 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 35 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.50%, 05/01/2024 | U.S.$ | 26 | $ | 26,573 | ||||||||
|
| |||||||||||
188,229 | ||||||||||||
|
| |||||||||||
1,818,943 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 5,129,897 | |||||||||||
|
| |||||||||||
BANK LOANS – 5.3% | ||||||||||||
Industrial – 4.8% | ||||||||||||
Basic – 0.1% | ||||||||||||
Illuminate Buyer, LLC | 20 | 19,670 | ||||||||||
Nouryon Finance B.V. (fka AkzoNobel) | 10 | 9,004 | ||||||||||
|
| |||||||||||
28,674 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.6% | ||||||||||||
Apex Tool Group, LLC | 58 | 51,725 | ||||||||||
Brookfield WEC Holdings Inc. (fka Westinghouse Electric Company LLC) | 29 | 27,761 | ||||||||||
BWay Holding Company | 84 | 75,420 | ||||||||||
Granite US Holdings Corporation | 56 | 48,354 | ||||||||||
Honeywell Technologies SARL | 28 | 26,151 | ||||||||||
|
| |||||||||||
229,411 | ||||||||||||
|
| |||||||||||
Communications - Media – 0.2% | ||||||||||||
Clear Channel Outdoor Holdings, Inc. | 12 | 10,767 | ||||||||||
iHeartCommunications, Inc. (fka Clear Channel Communications, Inc.) | 20 | 18,291 | ||||||||||
Nielsen Finance LLC | 20 | 19,775 |
36 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Univision Communications Inc. | U.S.$ | 53 | $ | 48,693 | ||||||||
|
| |||||||||||
97,526 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.1% | ||||||||||||
West Corporation | 29 | 24,736 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.1% | ||||||||||||
Navistar, Inc. | 10 | 8,992 | ||||||||||
Panther BF Aggregator 2 L P | 50 | 47,144 | ||||||||||
|
| |||||||||||
56,136 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.1% | ||||||||||||
Seaworld Parks & Entertainment, Inc. (fka SW Acquisitions Co., Inc.) | 24 | 21,456 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Other – 0.7% | ||||||||||||
Caesars Resort Collection, LLC (fka Caesars Growth Properties Holdings, LLC) | 38 | 33,561 | ||||||||||
Flutter Entertainment plc | 5 | 4,992 | ||||||||||
Golden Nugget Online Gaming, Inc. | 10 | 10,500 | ||||||||||
Playtika Holding Corp. | 134 | 133,241 | ||||||||||
Ply Gem Midco, Inc. | 20 | 18,736 | ||||||||||
Scientific Games International, Inc. | 16 | 13,659 | ||||||||||
3.058% (LIBOR 3 Month + 2.75%), 08/14/2024(n) | 0 | ** | 178 | |||||||||
3.612% (LIBOR 3 Month + 2.75%), 08/14/2024(n) | 63 | 55,832 | ||||||||||
|
| |||||||||||
270,699 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 37 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Consumer Cyclical - Restaurants – 0.1% | ||||||||||||
IRB Holding Corp. (fka Arby’s/Buffalo Wild Wings) | U.S.$ | 6 | $ | 5,627 | ||||||||
Whatabrands LLC | 15 | 14,592 | ||||||||||
|
| |||||||||||
20,219 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.2% | ||||||||||||
Bass Pro Group, LLC | 17 | 16,295 | ||||||||||
PetSmart, Inc. | 44 | 43,283 | ||||||||||
Serta Simmons Bedding, LLC | 28 | 3,719 | ||||||||||
Specialty Building Products Holdings, LLC | 42 | 39,923 | ||||||||||
|
| |||||||||||
103,220 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.9% | ||||||||||||
Aldevron, L.L.C. | 67 | 65,887 | ||||||||||
Alphabet Holding Company, Inc. (fka Nature’s Bounty) | 54 | 48,240 | ||||||||||
BI-LO, LLC | 77 | 75,982 | ||||||||||
Chobani, LLC (Chobani Idaho, LLC) | 39 | 37,885 | ||||||||||
Envision Healthcare Corporation | 28 | 18,363 | ||||||||||
Froneri International Limited | 10 | 9,475 | ||||||||||
Global Medical Response, Inc. | 21 | 20,171 |
38 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
5.250% (LIBOR 3 Month + 4.25%), 03/14/2025(n) | U.S.$ | 16 | $ | 15,155 | ||||||||
LifePoint Health, Inc. (fka Regionalcare Hospital Partners Holdings, Inc.) | 32 | 29,527 | ||||||||||
U.S. Renal Care, Inc. | 60 | 57,160 | ||||||||||
|
| |||||||||||
377,845 | ||||||||||||
|
| |||||||||||
Energy – 0.3% | ||||||||||||
California Resources Corporation | 55 | 2,490 | ||||||||||
Chesapeake Energy Corporation | 79 | 45,312 | ||||||||||
CITGO Petroleum Corporation | 35 | 33,570 | ||||||||||
Triton Solar US Acquisition Co. | 71 | 60,019 | ||||||||||
|
| |||||||||||
141,391 | ||||||||||||
|
| |||||||||||
Other Industrial – 0.1% | ||||||||||||
American Tire Distributors, Inc. | 15 | 9,874 | ||||||||||
Core & Main LP | 5 | 4,633 | ||||||||||
Dealer Tire, LLC | 20 | 18,971 | ||||||||||
Rockwood Service Corporation | 3 | 3,272 | ||||||||||
|
| |||||||||||
36,750 | ||||||||||||
|
| |||||||||||
Services – 0.4% | ||||||||||||
Amentum Government Services Holdings LLC | 20 | 19,592 | ||||||||||
Garda World Security Corporation | 10 | 9,422 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 39 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Parexel International Corporation | U.S.$ | 9 | $ | 8,573 | ||||||||
Pi Lux Finco SARL | 100 | 71,000 | ||||||||||
Refinitiv US Holdings Inc. (fka Financial & Risk US Holdings, Inc.) | 15 | 14,416 | ||||||||||
Verscend Holding Corp. | 26 | 25,437 | ||||||||||
|
| |||||||||||
148,440 | ||||||||||||
|
| |||||||||||
Technology – 0.9% | ||||||||||||
athenahealth, Inc. | 72 | 69,153 | ||||||||||
Avaya Inc. | 36 | 33,447 | ||||||||||
Boxer Parent Company Inc. (fka BMC Software, Inc.) | 59 | 55,845 | ||||||||||
MTS Systems Corporation | 10 | 9,564 | ||||||||||
Pitney Bowes Inc. | 40 | 32,864 | ||||||||||
Presidio Holdings Inc. | 15 | 14,665 | ||||||||||
Solera, LLC (Solera Finance, Inc.) | 58 | 56,198 | ||||||||||
Veritas US Inc. | 85 | 77,965 | ||||||||||
|
| |||||||||||
349,701 | ||||||||||||
|
| |||||||||||
Transportation - Airlines – 0.0% | ||||||||||||
Delta Air Lines, Inc. | 10 | 9,794 | ||||||||||
|
| |||||||||||
1,915,998 | ||||||||||||
|
|
40 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Financial Institutions – 0.4% | ||||||||||||
Finance – 0.1% | ||||||||||||
Ellie Mae, Inc. | U.S.$ | 36 | $ | 34,462 | ||||||||
Jefferies Finance LLC | 8 | 7,467 | ||||||||||
|
| |||||||||||
41,929 | ||||||||||||
|
| |||||||||||
Insurance – 0.3% | ||||||||||||
Hub International Limited | 68 | 66,619 | ||||||||||
Sedgwick Claims Management Services, Inc. (Lightning Cayman Merger Sub, Ltd.) | 50 | 48,136 | ||||||||||
|
| |||||||||||
114,755 | ||||||||||||
|
| |||||||||||
156,684 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Granite Generation LLC | 9 | 8,310 | ||||||||||
4.750% (LIBOR 1 Month + 3.75%), 11/09/2026(n) | 47 | 45,643 | ||||||||||
6.000% (PRIME 3 Month + 2.75%), 11/09/2026(n) | 0 | ** | 8 | |||||||||
|
| |||||||||||
53,961 | ||||||||||||
|
| |||||||||||
Total Bank Loans | 2,126,643 | |||||||||||
|
| |||||||||||
GOVERNMENTS – TREASURIES – 1.2% | ||||||||||||
Mexico – 0.2% | ||||||||||||
Mexican Bonos | MXN | 1,202 | 53,734 | |||||||||
Series M 20 | 480 | 25,139 | ||||||||||
|
| |||||||||||
78,873 | ||||||||||||
|
| |||||||||||
Russia – 0.2% | ||||||||||||
Russian Federal Bond – OFZ | RUB | 3,986 | 57,839 | |||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 41 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
United States – 0.8% | ||||||||||||
U.S. Treasury Notes | U.S.$ | 300 | $ | 322,406 | ||||||||
|
| |||||||||||
Total Governments – Treasuries | 459,118 | |||||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 1.1% | ||||||||||||
Industrial – 1.0% | ||||||||||||
Basic – 0.4% | ||||||||||||
Eldorado Gold Corp. | 93 | 99,582 | ||||||||||
First Quantum Minerals Ltd. | 58 | 55,656 | ||||||||||
|
| |||||||||||
155,238 | ||||||||||||
|
| |||||||||||
Communications - Telecommunications – 0.5% | ||||||||||||
Sable International Finance Ltd. | 200 | 204,076 | ||||||||||
|
| |||||||||||
Consumer Cyclical - Retailers – 0.0% | ||||||||||||
K2016470219 (South Africa) Ltd. | 1 | 2 | ||||||||||
3.00%, 12/31/2022(f)(h) | 16 | 42 | ||||||||||
K2016470260 (South Africa) Ltd. | 7 | 6 | ||||||||||
|
| |||||||||||
50 | ||||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.0% | ||||||||||||
Tonon Luxembourg SA | 2 | 63 | ||||||||||
Virgolino de Oliveira Finance SA | 96 | 962 | ||||||||||
|
| |||||||||||
1,025 | ||||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Petrobras Global Finance BV | 19 | 18,840 | ||||||||||
5.999%, 01/27/2028 | 27 | 28,085 | ||||||||||
|
| |||||||||||
46,925 | ||||||||||||
|
| |||||||||||
407,314 | ||||||||||||
|
| |||||||||||
Utility – 0.1% | ||||||||||||
Electric – 0.1% | ||||||||||||
Terraform Global Operating LLC | 28 | 27,505 | ||||||||||
|
|
42 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Financial Institutions – 0.0% | ||||||||||||
Insurance – 0.0% | ||||||||||||
Ambac LSNI LLC | U.S.$ | 7 | $ | 7,365 | ||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 442,184 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 0.6% | ||||||||||||
Other ABS - Fixed Rate – 0.4% | ||||||||||||
DB Master Finance LLC | 57 | 58,541 | ||||||||||
Taco Bell Funding LLC | 16 | 16,492 | ||||||||||
Wendy’s Funding LLC | 69 | 71,748 | ||||||||||
|
| |||||||||||
146,781 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Fixed Rate – 0.2% | ||||||||||||
CWABS Asset-Backed Certificates Trust | 48 | 48,630 | ||||||||||
GSAA Home Equity Trust | 69 | 29,331 | ||||||||||
|
| |||||||||||
77,961 | ||||||||||||
|
| |||||||||||
Home Equity Loans - Floating Rate – 0.0% | ||||||||||||
Lehman XS Trust | 12 | 12,178 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 236,920 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 0.4% | ||||||||||||
Risk Share Floating Rate – 0.4% | ||||||||||||
Federal Home Loan Mortgage Corp Structured Agency Credit Risk Debt Notes | 11 | 9,419 |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 43 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
| ||||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | U.S.$ | 38 | $ | 30,267 | ||||||||
Series 2014-DN1, Class M3 | 36 | 31,378 | ||||||||||
Series 2014-HQ2, Class M3 | 54 | 55,029 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 23 | 20,495 | ||||||||||
Series 2015-C03, Class 2M2 | 1 | 1,169 | ||||||||||
|
| |||||||||||
147,757 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate – 0.0% | ||||||||||||
Alternative Loan Trust | 5 | 3,585 | ||||||||||
CSMC Mortgage-Backed Trust | 6 | 3,852 | ||||||||||
|
| |||||||||||
7,437 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 155,194 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
COMMON STOCKS – 0.3% | ||||||||||||
Consumer Staples – 0.1% | ||||||||||||
Food & Staples Retailing – 0.1% | ||||||||||||
Southeastern Grocers, Inc. Npv(b)(d)(e) | 828 | 38,916 | ||||||||||
|
| |||||||||||
Energy – 0.1% | ||||||||||||
Energy Equipment & Services – 0.1% | ||||||||||||
Tervita Corp.(d) | 12,129 | 34,039 | ||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels – 0.0% | ||||||||||||
CHC Group LLC(d)(k) | 1,219 | 610 | ||||||||||
Edcon Ltd.(b)(e) | 8,218 | – 0 | – | |||||||||
K201640219 (South Africa) Ltd. A Shares(b)(d)(e) | 191,574 | – 0 | – | |||||||||
K201640219 (South Africa) Ltd. B Shares(b)(d)(e) | 30,276 | – 0 | – |
44 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
Paragon Offshore Ltd. – Class A(d)(e) | 267 | $ | 27 | |||||||||
Paragon Offshore Ltd. – Class B(d)(e) | 401 | 1,203 | ||||||||||
Vantage Drilling International(d) | 235 | 1,527 | ||||||||||
|
| |||||||||||
3,367 | ||||||||||||
|
| |||||||||||
37,406 | ||||||||||||
|
| |||||||||||
Information Technology – 0.1% | ||||||||||||
Software – 0.1% | ||||||||||||
Avaya Holdings Corp.(d) | 1,370 | 16,933 | ||||||||||
Monitronics International, Inc.(b)(d)(e) | 578 | 1,932 | ||||||||||
|
| |||||||||||
18,865 | ||||||||||||
|
| |||||||||||
Communication Services – 0.0% | ||||||||||||
Media – 0.0% | ||||||||||||
DISH Network Corp. – Class A(d) | 100 | 3,451 | ||||||||||
iHeartMedia, Inc. – Class A(d) | 1,033 | 8,626 | ||||||||||
|
| |||||||||||
12,077 | ||||||||||||
|
| |||||||||||
Consumer Discretionary – 0.0% | ||||||||||||
Auto Components – 0.0% | ||||||||||||
ATD New Holdings, Inc.(d)(e) | 1,009 | 10,342 | ||||||||||
Exide Corp.(b)(e) | 20,356 | – 0 | – | |||||||||
Exide Technologies(b)(d)(e) | 511 | – 0 | – | |||||||||
|
| |||||||||||
10,342 | ||||||||||||
|
| |||||||||||
Materials – 0.0% | ||||||||||||
Containers & Packaging – 0.0% | ||||||||||||
Westrock Co. | 6 | 169 | ||||||||||
|
| |||||||||||
Metals & Mining – 0.0% | ||||||||||||
BIS Industries Holdings Ltd.(b)(d)(e) | 21,027 | – 0 | – | |||||||||
Constellium SE(d) | 1,317 | 10,115 | ||||||||||
Neenah Enterprises, Inc.(b)(d)(e) | 4,481 | – 0 | – | |||||||||
|
| |||||||||||
10,115 | ||||||||||||
|
| |||||||||||
10,284 | ||||||||||||
|
| |||||||||||
Industrials – 0.0% | ||||||||||||
Construction & Engineering – 0.0% | ||||||||||||
Willscot Corp. | 508 | 6,243 | ||||||||||
|
| |||||||||||
Total Common Stocks | 134,133 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
EMERGING MARKETS – TREASURIES – 0.2% |
| |||||||||||
Brazil – 0.2% | ||||||||||||
Brazil Notas do Tesouro Nacional | BRL | 349 | 66,613 | |||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 45 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Principal Amount (000) | U.S. $ Value | ||||||||||
| ||||||||||||
South Africa – 0.0% | ||||||||||||
Republic of South Africa Government Bond | ZAR | 283 | $ | 17,370 | ||||||||
|
| |||||||||||
Total Emerging Markets – Treasuries | 83,983 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.2% | ||||||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||||||
Citigroup Commercial Mortgage Trust | U.S.$ | 15 | 11,887 | |||||||||
GS Mortgage Securities Trust | 29 | 23,370 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 29 | 22,903 | ||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 58,160 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS – 0.1% | ||||||||||||
Industrial – 0.1% | ||||||||||||
Consumer Cyclical - Other – 0.0% | ||||||||||||
Hovnanian Enterprises, Inc. 7.625% | 490 | 1,872 | ||||||||||
|
| |||||||||||
Trading Companies & Distributors – 0.1% | ||||||||||||
WESCO International, Inc. | 1,425 | 37,791 | ||||||||||
|
| |||||||||||
39,663 | ||||||||||||
|
| |||||||||||
Utility – 0.0% | ||||||||||||
Electric – 0.0% | ||||||||||||
SCE Trust III | 423 | 9,162 | ||||||||||
|
| |||||||||||
Total Preferred Stocks | 48,825 | |||||||||||
|
|
46 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Company | Principal Amount (000) | U.S. $ Value | ||||||||||
| ||||||||||||
LOCAL GOVERNMENTS – US MUNICIPAL BONDS – 0.1% | ||||||||||||
United States – 0.1% | ||||||||||||
State of California | U.S.$ | 25 | $ | 45,470 | ||||||||
7.95%, 03/01/2036 | 0 | ** | 6 | |||||||||
|
| |||||||||||
Total Local Governments – US Municipal Bonds (cost $24,803) | 45,476 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES – 0.1% | ||||||||||||
Funds and Investment Trusts – 0.1% | ||||||||||||
iShares MSCI Global Metals & Mining Producers ETF(o) | 805 | 19,747 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
QUASI-SOVEREIGNS – 0.1% | ||||||||||||
Quasi-Sovereign Bonds – 0.1% | ||||||||||||
United States – 0.1% | ||||||||||||
Citgo Holding, Inc. | U.S.$ | 18 | 17,937 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
WARRANTS – 0.0% | ||||||||||||
Avaya Holdings Corp., expiring 12/15/2022(d) | 1,210 | 1,452 | ||||||||||
Battalion Oil Corp., expiring 10/08/2022(d)(e) | 7 | – 0 | – | |||||||||
Halcon Resources Corp., | 2 | – 0 | – | |||||||||
iHeart Media, Inc., expiring 05/01/2039(d) | 12 | 92 | ||||||||||
SandRidge Energy, Inc., A-CW22, expiring 10/04/2022(d) | 1,975 | 6 | ||||||||||
SandRidge Energy, Inc., B-CW22, expiring 10/04/2022(d) | 830 | 4 | ||||||||||
Willscot Corp., expiring 11/29/2022(b)(d)(e) | 787 | 1,600 | ||||||||||
|
| |||||||||||
Total Warrants | 3,154 | |||||||||||
|
| |||||||||||
RIGHTS – 0.0% | ||||||||||||
Vistra Energy Corp., expiring 12/31/2049(d)(e) | 3,442 | 2,840 | ||||||||||
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 47 |
PORTFOLIO OF INVESTMENTS (continued)
Company | Shares | U.S. $ Value | ||||||||||
| ||||||||||||
SHORT-TERM INVESTMENTS – 4.2% | ||||||||||||
Investment Companies – 4.2% | ||||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, | 1,688,908 | $ | 1,688,908 | |||||||||
|
| |||||||||||
Total Investments – 93.6% | 37,387,493 | |||||||||||
Other assets less liabilities – 6.4% | 2,578,912 | |||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 39,966,405 | ||||||||||
|
|
FUTURES (see Note C)
Description | Number of Contracts | Expiration Month | Current Notional | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
Purchased Contracts |
| |||||||||||||||
E-Mini Russell 2000 Index Futures | 1 | September 2020 | $ | 71,880 | $ | 4,194 | ||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 21 | September 2020 | 2,640,586 | 5,742 | ||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 13 | September 2020 | 1,809,234 | 4,320 | ||||||||||||
Sold Contracts |
| |||||||||||||||
Euro-OAT Futures | 1 | September 2020 | 188,354 | (2,798 | ) | |||||||||||
|
| |||||||||||||||
$ | 11,458 | |||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note C)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||
Brown Brothers Harriman & Co. | CAD | 53 | USD | 38 | 08/06/2020 | $ | (850 | ) | ||||||||
Brown Brothers Harriman & Co. | EUR | 1,609 | USD | 1,822 | 08/06/2020 | 12,932 | ||||||||||
Brown Brothers Harriman & Co. | USD | 349 | EUR | 310 | 08/06/2020 | (772 | ) | |||||||||
Brown Brothers Harriman & Co. | MXN | 1,467 | USD | 65 | 08/07/2020 | 1,863 | ||||||||||
Morgan Stanley Capital Services LLC | BRL | 380 | USD | 72 | 07/02/2020 | 1,917 | ||||||||||
Morgan Stanley Capital Services LLC | BRL | 380 | USD | 69 | 07/02/2020 | (484 | ) | |||||||||
Morgan Stanley Capital Services LLC | USD | 69 | BRL | 380 | 07/02/2020 | 484 | ||||||||||
Morgan Stanley Capital Services LLC | USD | 70 | BRL | 380 | 07/02/2020 | (27 | ) | |||||||||
Morgan Stanley Capital Services LLC | RUB | 4,120 | USD | 55 | 07/14/2020 | (2,629 | ) | |||||||||
Morgan Stanley Capital Services LLC | BRL | 380 | USD | 70 | 08/04/2020 | 73 | ||||||||||
|
| |||||||||||||||
$ | 12,507 | |||||||||||||||
|
|
48 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note C)
| Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at June 30, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 06/20/2021* | (5.00 | )% | Quarterly | 4.29 | % | EUR | 13 | $ | (122 | ) | $ | (321 | ) | $ | 199 | |||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||
CDX-NAHY Series 33, 5 Year Index, 12/20/2024* | 5.00 | Quarterly | 5.21 | USD | 2,313 | (15,586 | ) | 144,024 | (159,610 | ) | ||||||||||||||||||
CDX-NAHY Series 34, 5 Year Index, 06/20/2025* | 5.00 | Quarterly | 5.22 | USD | 570 | (4,437 | ) | (979 | ) | (3,458 | ) | |||||||||||||||||
Ford Motor Company, 4.346%, 12/08/2026, 0620/2023* | 5.00 | Quarterly | 4.64 | USD | 103 | 1,132 | (17,208 | ) | 18,340 | |||||||||||||||||||
Ford Motor Company, 4.346%, 12/08/2026, 0620/2023* | 5.00 | Quarterly | 4.64 | USD | 57 | 626 | (10,754 | ) | 11,380 | |||||||||||||||||||
iTraxx Europe Crossover Series 25, 5 Year Index, 06/20/2021* | 5.00 | Quarterly | 4.29 | EUR | 13 | 122 | 531 | (409 | ) | |||||||||||||||||||
iTraxx Europe Crossover Series 33, 5 Year Index, 06/20/2025* | 5.00 | Quarterly | 3.81 | EUR | 330 | 19,604 | (4,317 | ) | 23,921 | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 1,339 | $ | 110,976 | $ | (109,637 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 49 |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
USD | 1,770 | 03/06/2023 | 3 Month LIBOR | 2.714% | | Quarterly/ Semi-Annual | $ | 132,900 | $ | — | $ | 132,900 | ||||||||||||||
USD | 2,835 | 09/02/2025 | 2.248% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (299,841 | ) | (8,311 | ) | (291,530 | ) | ||||||||||||||
USD | 961 | 01/15/2026 | 1.978% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (91,778 | ) | 5,398 | (97,176 | ) | |||||||||||||||
USD | 651 | 02/16/2026 | 1.625% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (49,467 | ) | 7,434 | (56,901 | ) | |||||||||||||||
USD | 150 | 03/31/2026 | 1.693% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (11,978 | ) | — | (11,978 | ) | |||||||||||||||
USD | 100 | 05/03/2026 | 1.770% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (8,253 | ) | — | (8,253 | ) | |||||||||||||||
USD | 800 | 06/01/2026 | 1.714% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (63,446 | ) | 32,362 | (95,808 | ) | |||||||||||||||
USD | 4,650 | 04/28/2027 | 3 Month LIBOR | 2.330% | | Quarterly/ Semi-Annual | 603,046 | 16,658 | 586,388 | |||||||||||||||||
USD | ��350 | 05/03/2027 | 2.285% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (44,576 | ) | 112 | (44,688 | ) | |||||||||||||||
USD | 940 | 03/06/2028 | 2.876% | 3 Month LIBOR | | Semi-Annual/ Quarterly | (178,451 | ) | — | (178,451 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | (11,844 | ) | $ | 53,653 | $ | (65,497 | ) | |||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note C)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at June 30, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 05/11/2063* | (5.00 | )% | Monthly | 25.00 | % | USD | 180 | $ | 90,678 | $ | 22,054 | $ | 68,624 | |||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | (3.00 | ) | Monthly | 21.20 | USD | 192 | 59,981 | 19,816 | 40,165 | |||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||
BNP Paribas SA |
| |||||||||||||||||||||||||||
Altice France SA, 6/20/2024* | 5.00 | Quarterly | 2.18 | EUR | 70 | 8,683 | 5,006 | 3,677 | ||||||||||||||||||||
Credit Suisse International |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 5.00 | Monthly | 25.00 | USD | 29 | (14,609 | ) | (3,503 | ) | (11,106 | ) | |||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 5.00 | Monthly | 25.00 | USD | 69 | (34,760 | ) | (7,734 | ) | (27,026 | ) | |||||||||||||||||
International Game Technology, 4.750%, 02/15/2023, 06/20/2022* | 5.00 | Quarterly | 2.08 | EUR | 100 | 6,533 | 5,175 | 1,358 |
50 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at June 30, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid/ (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | % | Monthly | 21.20 | % | USD | 252 | $ | (78,767 | ) | $ | (16,999 | ) | $ | (61,768 | ) | ||||||||||||
CDX-CMBX.NA.BBB- Series 6, 05/11/2063* | 3.00 | Monthly | 21.20 | USD | 75 | (23,443 | ) | (4,928 | ) | (18,515 | ) | |||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 03/15/2025, 12/20/2023* | 5.00 | Quarterly | 10.43 | USD | 10 | (1,437 | ) | 447 | (1,884 | ) | ||||||||||||||||||
Avis Budget Car Rental LLC, 5.250%, 03/15/2025, 12/20/2023* | 5.00 | Quarterly | 10.43 | USD | 20 | (2,874 | ) | 1,399 | (4,273 | ) | ||||||||||||||||||
CDX-CMBX.NA.BB Series 6, 5/11/2063* | 5.00 | Monthly | 25.00 | USD | 163 | (82,066 | ) | (28,704 | ) | (53,362 | ) | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | (72,081 | ) | $ | (7,971 | ) | $ | (64,110 | ) | ||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
TOTAL RETURN SWAPS (see Note C)
Counterparty & | Rate Paid/ Received | Payment Frequency | Current Notional (000) | Maturity Date | Unrealized Appreciation/ (Depreciation) | |||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||
iBoxx USD Contingent Convertible Liquid Developed Market AT1 | | 3 Month LIBOR | | Quarterly | USD | 772 | 12/20/2020 | $ | 185,808 | |||||||||||
JPMorgan Chase Bank, NA |
| |||||||||||||||||||
iBoxx $ Liquid High Yield Index | | 3 Month LIBOR | | Quarterly | USD | 1,667 | 09/20/2020 | (38,169 | ) | |||||||||||
Pay Total Return on Reference Obligation |
| |||||||||||||||||||
Barclays Bank PLC iBoxx $ Liquid High Yield Index | | 3 Month LIBOR | | Quarterly | USD | 1,804 | 12/20/2020 | (84,044 | ) | |||||||||||
|
| |||||||||||||||||||
$ | 63,595 | |||||||||||||||||||
|
|
** | Principal amount less than 500. |
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 51 |
PORTFOLIO OF INVESTMENTS (continued)
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2020, the aggregate market value of these securities amounted to $19,075,323 or 47.7% of net assets. |
(b) | Fair valued by the Adviser. |
(c) | Defaulted matured security. |
(d) | Non-income producing security. |
(e) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(f) | Pay-In-Kind Payments (PIK). The issuer may pay cash interest and/or interest in additional debt securities. Rates shown are the rates in effect at June 30, 2020. |
(g) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at June 30, 2020. |
(h) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.32% of net assets as of June 30, 2020, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
DB Master Finance LLC | 09/14/2017 | $ | 56,695 | $ | 58,541 | 0.15 | % | |||||||||
Exide International Holdings LP(Superpriority Lien) | 06/18/2019 | 36,105 | 34,330 | 0.09 | % | |||||||||||
Exide Technologies(Exchange Priority) | 05/23/2017 | 36,578 | 3,851 | 0.01 | % | |||||||||||
Exide Technologies(First Lien) | 05/23/2017 | 10,624 | – 0 | – | 0.00 | % | ||||||||||
K2016470219 South Africa Ltd. | 03/13/2015 | 16,285 | 44 | 0.00 | % | |||||||||||
K2016470260 (South Africa) Ltd. | 12/22/2016 | 7,246 | 6 | 0.00 | % | |||||||||||
Magnetation LLC/Mag Finance Corp. | 02/19/2015 | 36,767 | – 0 | – | 0.00 | % | ||||||||||
Terraform Global Operating LLC | 02/08/2018 | 28,036 | 27,505 | 0.07 | % | |||||||||||
Tonon Luxembourg SA | 05/03/2019 | 4,501 | 63 | 0.00 | % | |||||||||||
Virgolino de Oliveira Finance SA | 02/13/2013 | 96,161 | 962 | 0.00 | % |
(i) | Convertible security. |
(j) | Defaulted. |
(k) | Restricted and illiquid security. |
Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
CHC Group LLC | 3/10/17 | $ | 62,260 | $ | 610 | 0.00 | % | |||||||||
CHC Group LLC/CHC Finance Ltd. Series AI | 3/10/17 | 63,050 | 9,776 | 0.02 | % |
52 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
(l) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(m) | This position or a portion of this position represents an unsettled loan purchase. The coupon rate will be determined at the time of settlement and will be based upon the London-Interbank Offered Rate (“LIBOR”) plus a premium which was determined at the time of purchase. |
(n) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at June 30, 2020. |
(o) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
(p) | The rate shown represents the 7-day yield as of period end. |
(q) | Affiliated investments. |
Currency Abbreviations:
BRL – Brazilian Real
CAD – Canadian Dollar
EUR – Euro
GBP – Great British Pound
MXN – Mexican Peso
RUB – Russian Ruble
USD – United States Dollar
ZAR – South African Rand
Glossary:
ABS – Asset-Backed Securities
CBT – Chicago Board of Trade
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAHY – North American High Yield Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
ETF – Exchange Traded Fund
LIBOR – London Interbank Offered Rates
MSCI – Morgan Stanley Capital International
OAT – Obligations Assimilables du Trésor
REIT – Real Estate Investment Trust
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 53 |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020 (unaudited)
Assets | ||||
Investments in securities, at value | $ | 35,698,585 | ||
Affiliated issuers (cost $1,688,908) | 1,688,908 | |||
Cash | 31,497 | |||
Cash collateral due from broker | 622,357 | |||
Foreign currencies, at value (cost $30,747) | 30,215 | |||
Receivable for capital stock sold | 2,886,986 | |||
Unaffiliated interest receivable | 532,772 | |||
Unrealized appreciation on total return swaps | 185,808 | |||
Market value of credit default swaps (net premiums paid $52,051) | 165,875 | |||
Receivable for investment securities sold | 27,306 | |||
Receivable for variation margin on centrally cleared swaps | 19,313 | |||
Unrealized appreciation on forward currency exchange contracts | 17,269 | |||
Receivable for newly entered total return swaps | 3,161 | |||
Affiliated dividends receivable | 368 | |||
Receivable for terminated total return swaps | 41 | |||
|
| |||
Total assets | 41,910,461 | |||
|
| |||
Liabilities | ||||
Payable for investment securities purchased | 948,810 | |||
Cash collateral received from broker | 300,000 | |||
Market value of credit default swaps (net premiums received $60,022) | 237,956 | |||
Unrealized depreciation on total return swaps | 122,213 | |||
Dividends payable | 90,408 | |||
Advisory fee payable | 31,026 | |||
Payable for capital stock redeemed | 18,226 | |||
Unrealized depreciation on forward currency exchange contracts | 4,762 | |||
Directors’ fee payable | 3,884 | |||
Payable for variation margin on futures | 1,866 | |||
Payable for variation margin on centrally cleared swaps | 1,396 | |||
Transfer Agent fee payable | 1,284 | |||
Accrued expenses and other liabilities | 182,225 | |||
|
| |||
Total liabilities | 1,944,056 | |||
|
| |||
Net Assets | $ | 39,966,405 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 4,452 | ||
Additional paid-in capital | 52,278,764 | |||
Accumulated loss | (12,316,811 | ) | ||
|
| |||
$ | 39,966,405 | |||
|
|
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
Advisor | $ | 39,966,405 | 4,451,989 | $ | 8.98 | |||||||
|
See notes to financial statements.
54 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2020 (unaudited)
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $1,148) | $ | 1,140,578 | ||||||
Dividends | ||||||||
Affiliated issuers | 3,403 | |||||||
Unaffiliated issuers | 1,488 | $ | 1,145,469 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 97,168 | |||||||
Transfer agency-Advisor Class | 19,079 | |||||||
Custody and accounting | 66,773 | |||||||
Audit and tax | 66,396 | |||||||
Administrative | 32,170 | |||||||
Printing | 22,728 | |||||||
Legal | 17,295 | |||||||
Registration fees | 14,560 | |||||||
Directors’ fees | 11,300 | |||||||
Miscellaneous | 24,438 | |||||||
|
| |||||||
Total expenses | 371,907 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (256,663 | ) | ||||||
|
| |||||||
Net expenses | 115,244 | |||||||
|
| |||||||
Net investment income | 1,030,225 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | (461,551 | ) | ||||||
Forward currency exchange contracts | (7,389 | ) | ||||||
Futures | 172,675 | |||||||
Swaps | (68,077 | ) | ||||||
Foreign currency transactions | 12,488 | |||||||
Net change in unrealized appreciation/depreciation on: | ||||||||
Investments | (2,344,239 | ) | ||||||
Forward currency exchange contracts | 58,879 | |||||||
Futures | 25,904 | |||||||
Swaps | (235,349 | ) | ||||||
Foreign currency denominated assets and liabilities | (1,308 | ) | ||||||
|
| |||||||
Net loss on investment and foreign currency transactions | (2,847,967 | ) | ||||||
|
| |||||||
Net Decrease in Net Assets from Operations | $ | (1,817,742 | ) | |||||
|
|
See notes to financial statements.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 55 |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2020 (unaudited) | Year Ended December 31, 2019 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 1,030,225 | $ | 1,991,008 | ||||
Net realized loss on investment and foreign currency transactions | (351,854 | ) | (233,902 | ) | ||||
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | (2,496,113 | ) | 3,115,409 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (1,817,742 | ) | 4,872,515 | |||||
Distributions to Shareholders | ||||||||
Advisor Class | (1,115,585 | ) | (2,205,237 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase | 2,681,868 | 7,041,926 | ||||||
|
|
|
| |||||
Total increase (decrease) | (251,459 | ) | 9,709,204 | |||||
Net Assets | ||||||||
Beginning of period | 40,217,864 | 30,508,660 | ||||||
|
|
|
| |||||
End of period | $ | 39,966,405 | $ | 40,217,864 | ||||
|
|
|
|
See notes to financial statements.
56 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of 10 portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB FlexFee High Yield Portfolio (the “Fund”), a diversified portfolio. The Fund has authorized the issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class T, Class 1 and Class 2 shares. Class B, Class T, Class 1 and Class 2 shares have not been issued, and no shares of Class A, Class C, Class R, Class K, Class I or Class Z were outstanding as of June 30, 2020. Advisor class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board.
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are val-
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 57 |
NOTES TO FINANCIAL STATEMENTS (continued)
ued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign
58 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 59 |
NOTES TO FINANCIAL STATEMENTS (continued)
last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Bank loan prices are provided by third party pricing services and consist of a composite of the quotes received by the vendor into a consensus price. Certain bank loans are classified as Level 3, as a significant input used in the fair value measurement of these instruments is the market quotes that are received by the vendor and these inputs are not observable.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
60 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
Investments in Securities | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Corporates – Non-Investment Grade | $ | – 0 | – | $ | 26,690,234 | $ | 44,140 | # | $ | 26,734,374 | ||||||
Corporates – Investment Grade | – 0 | – | 5,129,897 | – 0 | – | 5,129,897 | ||||||||||
Bank Loans | – 0 | – | 1,742,028 | 384,615 | 2,126,643 | |||||||||||
Governments – Treasuries | – 0 | – | 459,118 | – 0 | – | 459,118 | ||||||||||
Emerging Markets – Corporate Bonds | – 0 | – | 442,121 | 63 | 442,184 | |||||||||||
Asset-Backed Securities | – 0 | – | 236,920 | – 0 | – | 236,920 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 155,194 | – 0 | – | 155,194 | ||||||||||
Common Stocks | 81,260 | 1,527 | 51,346 | # | 134,133 | |||||||||||
Emerging Markets – Treasuries | – 0 | – | 83,983 | – 0 | – | 83,983 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 58,160 | – 0 | – | 58,160 | ||||||||||
Preferred Stocks | 48,825 | – 0 | – | – 0 | – | 48,825 | ||||||||||
Local Governments – US Municipal Bonds | – 0 | – | 45,476 | – 0 | – | 45,476 | ||||||||||
Investment Companies | 19,747 | – 0 | – | – 0 | – | 19,747 | ||||||||||
Quasi-Sovereigns | – 0 | – | 17,937 | – 0 | – | 17,937 | ||||||||||
Warrants | 1,554 | – 0 | – | 1,600 | # | 3,154 | ||||||||||
Rights | – 0 | – | – 0 | – | 2,840 | 2,840 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 1,688,908 | – 0 | – | – 0 | – | 1,688,908 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 1,840,294 | 35,062,595 | 484,604 | 37,387,493 | ||||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets | ||||||||||||||||
Futures | 14,256 | – 0 | – | – 0 | – | 14,256 | † | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 17,269 | – 0 | – | 17,269 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 21,484 | – 0 | – | 21,484 | † | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 735,946 | – 0 | – | 735,946 | † | |||||||||
Credit Default Swaps | – 0 | – | 165,875 | – 0 | – | 165,875 | ||||||||||
Total Return Swaps | – 0 | – | 185,808 | – 0 | – | 185,808 | ||||||||||
Liabilities | ||||||||||||||||
Futures | (2,798 | ) | – 0 | – | – 0 | – | (2,798 | )† | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (4,762 | ) | – 0 | – | (4,762 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (20,145 | ) | – 0 | – | (20,145 | )† | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (747,790 | ) | – 0 | – | (747,790 | )† | ||||||||
Credit Default Swaps | – 0 | – | (237,956 | ) | – 0 | – | (237,956 | ) | ||||||||
Total Return Swaps | – 0 | – | (122,213 | ) | – 0 | – | (122,213 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,851,752 | $ | 35,056,111 | $ | 484,604 | $ | 37,392,467 | ||||||||
|
|
|
|
|
|
|
|
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 61 |
NOTES TO FINANCIAL STATEMENTS (continued)
# | The Fund held securities with zero market value at period end. |
* | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
† | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Corporates - Non-Investment Grade# | Bank Loans | Emerging Markets - Corporate Bonds | Common Stocks# | |||||||||||||
Balance as of 12/31/19 | $ | 87,446 | $ | 405,559 | $ | 63 | $ | 91,942 | ||||||||
Accrued discounts/ | ||||||||||||||||
(premiums) | 325 | (619 | ) | (621 | ) | – 0 | – | |||||||||
Realized gain (loss) | 2,671 | (9 | ) | – 0 | – | (19,404 | ) | |||||||||
Change in unrealized appreciation/ depreciation | (44,487 | ) | (44,255 | ) | 621 | (15,029 | ) | |||||||||
Purchases | 856 | 42,575 | – 0 | – | – 0 | – | ||||||||||
Sales | (2,671 | ) | (4,093 | ) | – 0 | – | – 0 | – | ||||||||
Transfers into level 3 | – 0 | – | 91,960 | – 0 | – | – 0 | – | |||||||||
Transfers out of level 3 | – 0 | – | (106,503 | ) | – 0 | – | (6,163 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Balance as of 6/30/2020 | $ | 44,140 | $ | 384,615 | $ | 63 | $ | 51,346 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net change in unrealized appreciation/depreciation from investments held as of 6/30/2020 | $ | (44,240 | ) | $ | (44,195 | ) | $ | 621 | $ | (35,972 | ) | |||||
|
|
|
|
|
|
|
| |||||||||
Warrants# | Rights | Total | ||||||||||||||
Balance as of 12/31/19 | $ | 4,806 | $ | 3,363 | $ | 593,179 | ||||||||||
Accrued discounts/ | ||||||||||||||||
(premiums) | – 0 | – | – 0 | – | (915 | ) | ||||||||||
Realized gain (loss) | – 0 | – | – 0 | – | (16,742 | ) | ||||||||||
Change in unrealized appreciation/depreciation | (3,206 | ) | (523 | ) | (106,879 | ) | ||||||||||
Purchases | – 0 | – | – 0 | – | 43,431 | |||||||||||
Sales | – 0 | – | – 0 | – | (6,764 | ) | ||||||||||
Transfers into level 3 | – 0 | – | – 0 | – | 91,960 | |||||||||||
Transfers out of level 3 | – 0 | – | – 0 | – | (112,666 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Balance as of 6/30/2020 | $ | 1,600 | $ | 2,840 | $ | 484,604 | ||||||||||
|
|
|
|
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 6/30/2020 | $ | (3,206 | ) | $ | (523 | ) | $ | (127,515 | ) | |||||||
|
|
|
|
|
|
# | The Fund held securities with zero market value that were sold/expired/written off during the reporting period. |
** | The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/depreciation on investments and other financial instruments in the accompanying statement of operations. |
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NOTES TO FINANCIAL STATEMENTS (continued)
The following presents information about significant unobservable inputs related to the Fund’s Level 3 investments at June 30, 2020. Securities priced (i) by third party vendors or (ii) by brokers, are excluded from the following table.
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at 6/30/20 | Valuation Technique | Unobservable Input | Input | |||||||
Corporates – Non-Investment Grade | $ | 34,330 |
| Discounted | Discount Rate on Future | 19.7% | ||||
$ | 5,959 | Recovery Analysis | Collateral Value | $85.10 | ||||||
$ | 3,851 | Residual Value Waterfall Analysis | Estimated Value Remaining | $50.6mm | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
|
| |||||||||
$ | 44,140 | |||||||||
|
| |||||||||
Common Stocks | $ | 858 | Market Approach | 10% Haircut to Last Traded Price | $3.27 | |||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
$ | – 0 | – | Qualitative Assessment | $0.00 | ||||||
|
| |||||||||
$ | 858 | |||||||||
|
| |||||||||
Warrants. | $ | 1,600 | Option Pricing Model | Exercise Price | $2.03 |
Generally, a change in the assumptions used in any input in isolation may be accompanied by a change in another input. Significant changes in any of the unobservable inputs may significantly impact the fair value measurement. A significant increase (decrease) in Exercise Price, Last Traded Price, Collateral Value and Estimated Value Remaining in insolation would be expected to result in a significant higher (lower) fair value measurement. A significant increase (decrease) in Discount Rate on Future Cash Flows in isolation would be expected to result in a significant lower (higher) fair value measurement.
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NOTES TO FINANCIAL STATEMENTS (continued)
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income.
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NOTES TO FINANCIAL STATEMENTS (continued)
6. Expense Allocations
Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Effective February 26, 2018, under an amended investment advisory agreement, the Fund calculates and accrues daily a base fee, at an annualized rate of .40% of the Fund’s average daily net assets (“Base Fee”). The advisory fee is increased or decreased from the Base Fee by a performance adjustment (“Performance Adjustment”) that depends on whether, and to what extent, the investment performance of the Advisor Class shares of the Fund (“Measuring Class”) exceeds, or is exceeded by, the performance of the Markit iBoxx USD Liquid High Yield Index (“Index”) plus .75% (“Index Hurdle”) over the Performance Period (as defined below). The Performance Adjustment is calculated and accrued daily, according to a schedule that adds or subtracts .002667% of the Fund’s average daily net assets for each .01% of absolute performance by which the performance of the Measuring Class exceeds or lags the Index Hurdle for the period from the beginning of the Performance Period through the current business day. The maximum Performance Adjustment (positive or negative) will not exceed an annualized rate of +/- .20% (“Maximum Performance Adjustment”) of the Fund’s average daily net assets, which would occur when the performance of the Measuring Class exceeds, or is exceeded by, the Index Hurdle by .75% or more for the Performance Period. On a monthly basis, the Fund will pay the Adviser the minimum fee rate of .20% on an annualized basis (Base Fee minus the Maximum Performance Adjustment) applied to the average daily net assets for the month. At the end of the Performance Period, the Fund will pay to the Adviser the total advisory fee, less the amount of any minimum fees paid during the Performance Period and any waivers described below. The period over which performance is measured (“Performance Period”) was initially from February 26, 2018 to December 31, 2019 and thereafter is each 12-month period beginning on the first day in the month of January through December 31 of the same year. In addition, the Adviser has agreed to waive its advisory fee by limiting the Fund’s accrual of the
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 65 |
NOTES TO FINANCIAL STATEMENTS (continued)
advisory fee (Base Fee plus Performance Adjustment) on any day to the amount corresponding to the maximum fee rate multiplied by the Fund’s current net assets if such amount is less than the amount that would have been accrued based on the Fund’s average daily net assets for the Performance Period. For the six months ended June 30, 2020, the Fund accrued advisory fees of $97,168, as reflected in the statement of operations, at an annual effective rate (excluding the impact from any expense waivers in effect) of .53% of the Fund’s average net assets, which reflected a .13% Performance Adjustment of $23,929.
The Adviser has contractually agreed to waive its fees and bear certain expenses to the extent necessary to limit total expenses (excluding advisory fees, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs), on an annual basis from exceeding .10% of average daily net assets (the “Expense Cap”). For the six months ended June 30, 2020, such reimbursements/ waivers amounted to $224,081. The Expense Cap will remain in effect until April 30, 2021 and then may be continued thereafter from year to year by the Adviser. Any fees waived and expenses borne by the Adviser between February 26, 2018 and December 31, 2019 are subject to repayment by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne; such waivers that are subject to repayment amount to $450,749 for the period ended October 31, 2018, $157,175 for the period ended December 31, 2018 and $484,978 for the year ended December 31, 2019. In any case, no repayment will be made that would cause the Fund’s total annual expenses (subject to the exclusions set forth above) to exceed .10% of average daily net assets.
Pursuant to the investment advisory agreement, the Fund may reimburse the Adviser for certain legal and accounting services provided to the Fund by the Adviser. For the six months ended June 30, 2020, the Adviser voluntarily agreed to waive such fees in the amount of $32,170.
The Fund compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Fund. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $9,125 for the six months ended June 30, 2020.
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and
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NOTES TO FINANCIAL STATEMENTS (continued)
bears its own expenses. The Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended June 30, 2020, such waiver amounted to $412.
A summary of the Fund’s transactions in AB mutual funds for the six months ended June 30, 2020 is as follows:
Fund | Market Value 12/31/19 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 6/30/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 2,551 | $ | 7,816 | $ | 8,678 | $ | 1,689 | $ | 3 |
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.) (“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximately 65.2% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 67 |
NOTES TO FINANCIAL STATEMENTS (continued)
Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2020, were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 14,464,737 | $ | 13,388,079 | ||||
U.S. government securities | – 0 | – | – 0 | – |
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 2,413,511 | ||
Gross unrealized depreciation | (4,265,700 | ) | ||
|
| |||
Net unrealized depreciation | $ | (1,852,189 | ) | |
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Forward Currency Exchange Contracts |
The Fund may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Fund. Risks may arise from
68 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended June 30, 2020, the Fund held forward currency exchange contracts for hedging purposes.
• | Futures |
The Fund may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Fund bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Fund may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Fund enters into futures, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the six months ended June 30, 2020, the Fund held futures for hedging and non-hedging purposes.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 69 |
NOTES TO FINANCIAL STATEMENTS (continued)
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures including by making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central
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NOTES TO FINANCIAL STATEMENTS (continued)
clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount. In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams
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NOTES TO FINANCIAL STATEMENTS (continued)
are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended June 30, 2020, the Fund held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation. In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligation with the same counterparty.
Credit default swaps may involve greater risks than if the Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the
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NOTES TO FINANCIAL STATEMENTS (continued)
payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended June 30, 2020, the Fund held credit default swaps for non-hedging purposes.
Total Return Swaps:
The Fund may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Fund is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Fund will receive a payment from or make a payment to the counterparty.
During the six months ended June 30, 2020, the Fund held total return swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a
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NOTES TO FINANCIAL STATEMENTS (continued)
settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended June 30, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 10,062 | * | Receivable/Payable for variation margin on futures | $ | 2,798 | * | ||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | | 719,288 | * | Receivable/Payable for variation margin on centrally cleared swaps | | 784,785 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | | 17,269 | Unrealized depreciation on forward currency exchange contracts | | 4,762 | ||||||
Credit contracts |
credit default swaps | | 165,875 |
credit default swaps | | 237,956 | ||||||
Credit contracts |
swaps | | 53,840 | * |
swaps | | 163,477 | * | ||||
Credit contracts | Unrealized appreciation on total return swaps | | 185,808 | Unrealized depreciation on total return swaps | | 122,213 | ||||||
Equity contracts | Receivable/Payable for variation margin on futures | | 4,194 | * | ||||||||
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| |||||||||
Total | $ | 1,156,336 | $ | 1,315,991 | ||||||||
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|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/depreciation on futures and centrally cleared swaps as reported in the portfolio of investments. |
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NOTES TO FINANCIAL STATEMENTS (continued)
Derivative Type | Location of Gain or | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/ depreciation on futures | $ | 186,437 | $ | 23,406 | |||||
Interest rate contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/ depreciation on swaps | 7,778 | (54,725 | ) | ||||||
Foreign currency contracts | Net realized gain/(loss) on forward currency exchange contracts; Net change in unrealized appreciation/ depreciation on forward currency exchange contracts | (7,389 | ) | 58,879 | ||||||
Credit contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/ depreciation on swaps | (75,855 | ) | (180,624 | ) | |||||
Equity contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/ depreciation on futures | (13,762 | ) | 2,498 | ||||||
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| |||||||
Total | $ | 97,209 | $ | (150,566 | ) | |||||
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|
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended June 30, 2020:
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 14,912 | ||
Average notional amount of sale contracts | $ | 2,655,279 | ||
Centrally Cleared Interest Rate Swaps | ||||
Average notional amount | $ | 13,207,000 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 533,342 | ||
Average notional amount of sale contracts | $ | 806,532 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 433,644 | ||
Average principal amount of sale contracts | $ | 2,343,957 | ||
Futures: | ||||
Average notional amount of buy contracts | $ | 3,730,119 | ||
Average notional amount of sale contracts | $ | 185,955 | ||
Total Return Swaps: | ||||
Average notional amount | $ | 2,486,617 |
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NOTES TO FINANCIAL STATEMENTS (continued)
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of June 30, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the tables.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
BNP Paribas SA | $ | 8,683 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 8,683 | |||||||
Brown Brothers Harriman & Co. | 14,795 | (1,622 | ) | – 0 | – | – 0 | – | 13,173 | ||||||||||||
Credit Suisse International | 97,211 | (49,369 | ) | – 0 | – | – 0 | – | 47,842 | ||||||||||||
Goldman Sachs International | 245,789 | (86,377 | ) | (159,412 | ) | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services LLC | 2,474 | (2,474 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
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| |||||||||||
Total | $ | 368,952 | $ | (139,842 | ) | $ | (159,412 | ) | $ | – 0 | – | $ | 69,698 | ^ | ||||||
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| |||||||||||
Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivative Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 84,044 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 84,044 | |||||||
Brown Brothers Harriman & Co. | 1,622 | (1,622 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Credit Suisse International | 49,369 | (49,369 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Deutsche Bank AG | 102,210 | – 0 | – | – 0 | – | – 0 | – | 102,210 | ||||||||||||
Goldman Sachs International | 86,377 | (86,377 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
JPMorgan Chase Bank, NA | 38,169 | – 0 | – | – 0 | – | – 0 | – | 38,169 | ||||||||||||
Morgan Stanley Capital Services LLC | 3,140 | (2,474 | ) | – 0 | – | – 0 | – | 666 | ||||||||||||
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| |||||||||||
Total | $ | 364,931 | $ | (139,842 | ) | $ | – 0 | – | $ | – 0 | – | $ | 225,089 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to overcollateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
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NOTES TO FINANCIAL STATEMENTS (continued)
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. Loan Participations and Assignments
The Fund may invest in direct debt instruments which are interests in amounts owed to lenders or lending syndicates by corporate, governmental, or other borrowers, either in the form of participations at the time the loan is originated (“Participations”) or by buying an interest in the loan in the secondary market from a financial institution or institutional investor (“Assignments”). A loan is often administered by a bank or other financial institution (the “Lender”) that acts as agent for all holders. The agent administers the terms of the loan as specified in the loan agreement. When investing in Participations, the Fund generally has no right to enforce compliance with the terms of the loan agreement with the borrower. In addition, when investing in Participations, the Fund has the right to receive payments of principal, interest and any fees to which it is entitled only from the Lender and only upon receipt of payments by the Lender from the borrower. As a result, the Fund may be subject to the credit risk of both the borrower and the Lender. When the Fund purchases Assignments from Lenders, it will typically acquire direct rights against the borrower on the loan. These loans may include participations in “bridge loans”, which are loans taken out by borrowers for a short period (typically less than six months) pending arrangement of more permanent financing through, for example, the issuance of bonds, frequently high-yield bonds issued for the purpose of acquisitions. The Fund may also participate in unfunded loan commitments, which are contractual obligations for investing in future Participations, and may receive a commitment fee based on the amount of the commitment. Under these arrangements, the Fund may receive a fixed rate commitment fee and, if and to the extent the borrower borrows under the facility, the Fund may receive an additional funding fee.
Unfunded loan commitments and funded loans are marked to market daily.
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NOTES TO FINANCIAL STATEMENTS (continued)
As of June 30, 2020, the Fund had no unfunded loan commitments outstanding.
As of June 30, 2020, the Fund had no bridge loan commitments outstanding.
During the six months ended June 30, 2020, the Fund received no commitment fees.
During the six months ended June 30, 2020, the Fund received no additional funding fees.
NOTE D
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | Year Ended December 31, 2019 | Six Months Ended June 30, 2020 (unaudited) | Year Ended December 31, 2019 | |||||||||||||||||||||
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| |||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 838,760 | 1,524,045 | $ | 7,564,485 | $ | 14,445,357 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 50,751 | 88,873 | 448,950 | 846,590 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (612,111 | ) | (867,925 | ) | (5,331,567 | ) | (8,250,021 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase | 277,400 | 744,993 | $ | 2,681,868 | $ | 7,041,926 | ||||||||||||||||||
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At June 30, 2020, the Adviser owned 40% of the Fund’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Fund’s performance.
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The value of the Fund’s assets will fluctuate as the bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
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
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NOTES TO FINANCIAL STATEMENTS (continued)
investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility, due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates.
The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to
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NOTES TO FINANCIAL STATEMENTS (continued)
exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Fund, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments in fixed-income securities denominated in foreign currencies or reduce the Fund’s returns.
Illiquid Investments Risk—Illiquid investments risk exists when certain investments are or become difficult to purchase or sell. Difficulty in selling such investments may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of illiquid investments risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Illiquid investments risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the
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NOTES TO FINANCIAL STATEMENTS (continued)
determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect a the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting a the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the six months ended June 30, 2020.
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NOTES TO FINANCIAL STATEMENTS (continued)
NOTE G
Distributions to Shareholders
The tax character of distributions paid for the year ending December 31, 2020 will be determined at the end of the current fiscal year.
The tax character of distributions paid during the fiscal year ended December 31, 2019, period ended December 31, 2018 and year ended October 31, 2018 were as follows:
December 2019 | December 2018 | October 2018 | ||||||||||
Distributions paid from: | ||||||||||||
Ordinary income | $ | 2,205,237 | $ | 485,472 | $ | 1,565,744 | ||||||
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Total taxable distributions paid | $ | 2,205,237 | $ | 485,472 | $ | 1,565,744 | ||||||
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As of December 31, 2019, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 64,076 | ||
Accumulated capital and other losses | (9,989,755 | )(a) | ||
Unrealized appreciation/(depreciation) | 616,346 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | (9,309,333 | )(c) | |
|
|
(a) | As of December 31, 2019, the Fund had a net capital loss carryforward of $9,989,755. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the recognition for tax purposes of unrealized gains/losses on certain derivative instruments, the tax treatment of callable bonds, the tax treatment of swaps, the tax deferral of losses on wash sales, and the tax treatment of partnership investments. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the accrual of foreign capital gains tax and the tax treatment of defaulted securities. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2019, the Fund had a net short-term capital loss carryforward of $5,673,049 and a net long-term capital loss carryforward of $4,316,706, which may be carried forward for an indefinite period.
NOTE H
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
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FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | Year Ended December 31, 2019 | November 1, 2018 to December 31, 2018(a) | Year Ended October 31, | September 1, 2016 to October 31, 2016(b) | July 26, 2016(c) to August 31, 2016 | |||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, beginning of period | $ 9.63 | $ 8.90 | $ 9.36 | $ 9.71 | $ 9.46 | $ 9.44 | $ 9.36 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Income From Investment Operations | ||||||||||||||||||||||||||||
Net investment income(d)(e) | .25 | .52 | .09 | .50 | .49 | .08 | # | .05 | ||||||||||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.63 | ) | .77 | (.41 | ) | (.37 | ) | .24 | .01 | .08 | ‡ | |||||||||||||||||
Contributions from Affiliates | – 0 | – | – 0 | – | – 0 | – | .00 | (f) | .00 | (f) | – 0 | – | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net increase (decrease) in net asset value from operations | (.38 | ) | 1.29 | (.32 | ) | .13 | .73 | .09 | .13 | |||||||||||||||||||
|
| |||||||||||||||||||||||||||
Less: Dividends and Distributions |
| |||||||||||||||||||||||||||
Dividends from net investment income | (.27 | ) | (.56 | ) | (.14 | ) | (.48 | ) | (.43 | ) | (.07 | ) | (.05 | ) | ||||||||||||||
Return of capital | – 0 | – | – 0 | – | – 0 | – | – 0 | – | (.05 | ) | – 0 | – | – 0 | – | ||||||||||||||
|
| |||||||||||||||||||||||||||
Total dividends and distributions | (.27 | ) | (.56 | ) | (.14 | ) | (.48 | ) | (.48 | ) | (.07 | ) | (.05 | ) | ||||||||||||||
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ 8.98 | $ 9.63 | $ 8.90 | $ 9.36 | $ 9.71 | $ 9.46 | $ 9.44 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
Total Return | ||||||||||||||||||||||||||||
Total investment return based on net asset value(g)* | (3.93 | )% | 14.77 | %+ | (3.45 | )% | 1.32 | %** | 7.89 | %+ | .94 | %+# | 1.35 | % | ||||||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||||||||||
Net assets, end of period (000’s omitted) | $39,966 | $40,218 | $30,509 | $33,990 | $4,185 | $2,733 | $2,063 | |||||||||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||||||||||
Expenses, net of waivers/reimbursements(i)† | .63 | %^ | .29 | %++ | .29 | %^++ | .33 | %(h) | .71 | %(h) | .78 | %^ | .81 | %(h)^ | ||||||||||||||
Expenses, before waivers/reimbursements(i)† | 2.03 | %^ | 1.84 | %++ | 3.25 | %^++ | 2.56 | %(h) | 2.49 | %(h) | 3.18 | %^ | 2.41 | %(h)^ | ||||||||||||||
Net investment income(e) | 5.63 | %^ | 5.45 | % | 5.73 | %^ | 5.20 | % | 5.11 | % | 4.90 | %^# | 5.30 | %^ | ||||||||||||||
Portfolio turnover rate | 37 | % | 40 | % | 5 | % | 75 | % | 65 | % | 9 | % | 44 | % | ||||||||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||||||||||
portfolios | .00 | %^ | .01 | % | .01 | %^ | .01 | % | .01 | % | .02 | %^ | .00 | %^ |
See footnote summary on page 84.
abfunds.com | AB FLEXFEE HIGH YIELD PORTFOLIO | 83 |
FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | The Fund changed its fiscal year end from October 31 to December 31. |
(b) | The Fund changed its fiscal year end from August 31 to October 31. |
(c) | Inception date. |
(d) | Based on average shares outstanding. |
(e) | Net of expenses waived/reimbursed by the Adviser. |
(f) | Amount is less than $.005. |
(g) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return for a period of less than one year is not annualized. |
(h) | The expense ratios presented below exclude interest expense: |
Six Months Ended June 30, 2020 | Year Ended December 31, 2019 | November 1, 2018 to December 31, 2018(a) | Year Ended | September 1, 2016 to October 31, 2016(b) | July 26, 2016(c) to August 31, 2016 | |||||||||||||||||||||||
October 31, 2018 | October 31, 2017 | |||||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Net of waivers/ reimbursements | N/A | N/A | N/A | .31 | % | .70 | % | N/A | .80 | %^ | ||||||||||||||||||
Before waivers/ reimbursements | N/A | N/A | N/A | 2.54 | % | 2.54 | % | N/A | 2.40 | %^ |
(i) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2019, period ended December 31, 2018, years ended October 31, 2018, October 31, 2017 and period ended October 31, 2016, such waivers amounted to .01% , .01% (annualized), .01%, .01% and .02% (annualized), respectively. |
‡ | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Fund’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
^ | Annualized. |
* | Includes the impact of proceeds received and credited to the Fund resulting from class action settlements, which enhanced the Fund’s performance for the years ended December 31, 2019, October 31, 2018, October 31, 2017 and August 31, 2016 by .01%, .03%, .07% and .02%, respectively. |
** | Includes the impact of reimbursements from the Adviser which enhanced the Fund’s performance for the year ended October 31, 2018 by .01%. |
+ | The net asset value and total return include adjustments in accordance with accounting principles generally accepted in the United States of America for financial reporting purposes. As such, the net asset value and total return for shareholder transactions may differ from financial statements. |
# | For the year ended October 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment Income Per Share | Net Investment Income Ratio | Total Return | ||
$.003 | .20 % | .03 % |
++ | The advisory fee reflected in the Fund’s expense ratio may be higher or lower than the Base Fee plus Performance Adjustment due to the different time periods over which the fee is calculated (i.e., the financial reporting vs. the Performance Period). |
See notes to financial statements
84 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
BOARD OF DIRECTORS
Marshall C. Turner, Jr(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS
Gershon M. Distenfeld(2), Vice President William Smith(2), Vice President Jacqueline Pincus(2), Vice President Emilie D. Wrapp, Secretary | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Stephen M. Woetzel, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent Brown Brothers Harriman & Co. 50 Post Office Square Boston, MA 02110
Principal Underwriter AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105
Transfer Agent AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 | Independent Registered Public Accounting Firm Ernst & Young LLP 5 Times Square New York, NY 10036
Legal Counsel Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 |
1 | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the Adviser’s High Yield Investment Team. Messrs. Distenfeld and Smith and Ms. Pincus are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
86 | AB FLEXFEE HIGH YIELD PORTFOLIO | abfunds.com |
Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB FlexFeeTM High Yield Portfolio (formerly named AB High Yield Portfolio) (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).1
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the underlying fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the performance-based advisory fee (which consists of a base fee plus or minus a performance adjustment) and considered materials presented to them concerning the SEC’s published guidance on factors that should be considered in connection with fulcrum fee arrangements, including the following factors: (1) the fairness of the fulcrum fee; (2) selection of an appropriate index against which fund performance should be measured; (3) variations in periods used for computing average asset values and performance; (4) length of period over which performance is computed; (5) computation of performance over a rolling period; (6) performance for
1 | Following transactions completed on November 13, 2019 that may have been deemed to have been an “assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
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transitional periods; (7) computation of the performance of the fund and the index with respect to payment of dividends and capital gains distributions; and (8) avoidance of basing significant fee adjustments upon random or insignificant differences. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the performance-based 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 Fund’s former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2017 and 2018 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent
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Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency 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. The directors noted that, due to the performance fee component of the advisory fee, profitability would tend to be higher with better performance relative to the Fund’s benchmark index, which they considered to create an appropriate alignment of incentives.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their proposed relationships with the Fund, and the underlying fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to 12b-1 fees and sales charges to be received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Advisor Class shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Advisor Class shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended July 31, 2019. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
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Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds. The directors considered the Fund’s contractual effective advisory fee rate against a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to those of the Fund, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors previously discussed these matters with an independent fee consultant.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the Fund, and the different risk profile, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
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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, in some cases pending purchases of underlying securities, that the advisory fee for the Fund is for services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
In connection with their review of the Fund’s advisory fee, the directors also considered the total expense ratio of the Advisor Class shares of the Fund in comparison to a peer group and a peer universe selected by each 15(c) service provider. The Advisor Class expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the Adviser’s expense cap for the Fund. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view the expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
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 presentations from time to time by the Adviser concerning certain of its views on economies of scale. The directors also previously discussed economies of scale with an independent fee consultant. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at
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which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s asset levels (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.
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This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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NOTES
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AB FLEXFEE HIGH YIELD PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
FFHY-0152-0620
JUN 06.30.20
SEMI-ANNUAL REPORT
AB FLEXFEETM INTERNATIONAL BOND PORTFOLIO
Beginning January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on a website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling the Fund at (800) 221 5672.
You may elect to receive all future reports in paper form free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call the Fund at (800) 221 5672. Your election to receive reports in paper form will apply to all funds held in your account with your financial intermediary or, if you invest directly, to all AB Mutual Funds you hold.
Investment Products Offered | • Are Not FDIC Insured • May Lose Value • Are Not Bank Guaranteed |
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The Fund’s Form N-PORT reports are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-PORT may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
FROM THE PRESIDENT |
Dear Shareholder,
We are pleased to provide this report for AB FlexFee International Bond Portfolio (the “Fund”). Please review the discussion of Fund performance, the market conditions during the reporting period and the Fund’s investment strategy.
As always, AB strives to keep clients ahead of what’s next by:
+ | Transforming uncommon insights into uncommon knowledge with a global research scope |
+ | Navigating markets with seasoned investment experience and sophisticated solutions |
+ | Providing thoughtful investment insights and actionable ideas |
Whether you’re an individual investor or a multi-billion-dollar institution, we put knowledge and experience to work for you.
AB’s global research organization connects and collaborates across platforms and teams to deliver impactful insights and innovative products. Better insights lead to better opportunities—anywhere in the world.
For additional information about AB’s range of products and shareholder resources, please log on to www.abfunds.com.
Thank you for your investment in the AB Mutual Funds.
Sincerely,
Robert M. Keith
President and Chief Executive Officer, AB Mutual Funds
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 1 |
SEMI-ANNUAL REPORT
August 17, 2020
This report provides management’s discussion of fund performance for AB FlexFee International Bond Portfolio for the semi-annual reporting period ended June 30, 2020.
The Fund’s investment objective is to generate current income consistent with preservation of capital.
NAV RETURNS AS OF JUNE 30, 2020 (unaudited)
6 Months | 12 Months | |||||||
AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | ||||||||
Advisor Class Shares | 1.07% | 2.61% | ||||||
Bloomberg Barclays Global Aggregate ex-USD Index (USD hedged) | 2.28% | 4.00% |
INVESTMENT RESULTS
The table above shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays Global Aggregate ex-USD Index (USD hedged), for the six- and 12-month periods ended June 30, 2020.
The Fund underperformed the benchmark for both periods. The Fund’s performance-based advisory fee was being accrued at its minimum rate. (The actual advisory fee payable by the Fund for its current performance period will be determined based on the Fund’s performance relative to the benchmark as of the end of such performance period, which is from January 1, 2020 to December 31, 2020.)
In the six-month period, active currency positioning was the primary detractor, relative to the benchmark, due to shorts in Chilean and Colombian pesos, and a long position in the Polish zloty, which were partially offset by exposures to the Mexican peso and the euro. Country and yield-curve positioning also detracted, primarily from exposure in the US that was partially offset by yield-curve positioning in the 10-year part of the curve in the eurozone, a country underweight to Japan and an overweight to Canada. Sector allocation also hampered returns, as losses in derivatives including interest rate swaps and futures, along with sector exposure to eurozone high-yield corporate bonds, were greater than gains in US agency risk-sharing transactions and high-yield corporate bonds. Security selection contributed, from exposure to eurozone treasuries and investment-grade corporate bonds in the UK that exceeded a shortfall among investment-grade corporates in the eurozone.
In the 12-month period, active currency positioning was the primary detractor due to long positions in the Polish zloty and Brazilian real, and shorts in Chilean and Colombian pesos, which were partially offset by
2 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
shorts in the Mexican peso and the euro. Country and yield-curve positioning also detracted, primarily from exposure in the US that was offset by yield-curve positioning the 10-year part of the curve in the eurozone, a country underweight to Japan and an overweight to Canada. Security selection in eurozone treasuries contributed, while sector allocation did not have a meaningful impact on results during the period.
During both periods, the Fund utilized derivatives in the form of interest rate swaps, futures and interest rate swaptions to manage and hedge duration risk and/or to actively manage yield-curve positioning. Currency forwards and currency options, both written and purchased, were used to hedge foreign currency exposure and to achieve active exposure. Credit default swaps were used to hedge credit risk and as a tool to effectively gain exposure to specific sectors.
MARKET REVIEW AND INVESTMENT STRATEGY
Global fixed-income markets were volatile over the six-month period ended June 30, 2020. The unprecedented amount of monetary and fiscal stimulus enacted by central banks and governments to combat market illiquidity and cushion the negative economic impact of COVID-19 set the stage for a rebound in risk assets following the sell-off that started in March. Government bonds rallied as interest rates were slashed. Investment-grade corporate bonds advanced as markets recovered and companies flooded the market with record new issuance. High-yield corporates and emerging-market sovereign bonds ended the period with losses, despite a strong showing in the second quarter. The US dollar advanced against most developed- and emerging-market currencies. The Swiss franc and the yen, which are also considered safe haven currencies, advanced against the US dollar.
The Fund’s Senior Investment Management Team (the “Team”) continues to utilize a core fixed-income strategy with a global ex-US, multi-sector approach, and continues to pursue an attractive risk/return profile by managing currency exposure. The Team invests in investment-grade fixed-income securities, including US dollar- and local-currency-denominated debt securities, as well as select below investment-grade securities (“junk bonds”).
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 3 |
INVESTMENT POLICIES
The Fund invests primarily in fixed-income securities of non-US companies and governments. Under normal circumstances, the Fund invests at least 80% of its net assets in fixed-income securities and related derivatives. In addition, the Fund invests, under normal circumstances, in the fixed-income securities of companies located in at least three countries other than the United States. The Fund invests in a broad range of fixed-income securities in both developed and emerging markets and across all fixed-income sectors, including non-US government and corporate debt securities. Under normal circumstances, the Fund 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 Fund’s investments may be denominated in local currency or be US dollar-denominated. The Fund may invest in debt securities with a range of maturities from short- to long-term. The Fund may at times invest in mortgage-related securities.
The Adviser selects securities for purchase or sale by the Fund based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors, including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.
The Adviser seeks to actively manage the Fund’s assets in relation to market conditions and general economic conditions and adjust the Fund’s investments in an effort to best enable the Fund to achieve its investment objective. Thus, the percentage of the Fund’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.
In order to reduce the Fund’s volatility, the Adviser expects under normal circumstances to hedge the majority of the Fund’s foreign currency exposure to the US dollar through the use of foreign currency forward contracts and similar derivatives, although it will not be required to do so. The Fund may take a long position in one currency and a short position in another when it believes that the first currency will appreciate relative to the other.
(continued on next page)
4 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
The Fund expects to use derivatives, such as options, futures contracts, forwards or 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 Fund’s exposure. The Fund may, for example, use interest rate futures contracts to gain exposure to the fixed-income markets and, as noted above, may use currency derivatives to hedge foreign currency exposure.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 5 |
DISCLOSURES AND RISKS
Benchmark Disclosure
The Bloomberg Barclays Global Aggregate ex-USD 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 ex-USD Index (USD hedged) represents the performance of the global investment-grade developed fixed-income markets, excluding the United States. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.
A Word About Risk
Market Risk: The value of the Fund’s assets will fluctuate as the bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment-Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility, due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
6 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
DISCLOSURES AND RISKS (continued)
Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
Mortgage-Related Securities Risk: Investments in mortgage-related securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by non-governmental issuers may be subject to other risks, such as higher rates of default in the mortgages or risks associated with the nature and servicing of mortgages backing the securities.
Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be more difficult to trade due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments in fixed-income securities denominated in foreign currencies or reduce the Fund’s returns.
Derivatives Risk: Derivatives may be difficult to price or unwind and leveraged so that small changes may produce disproportionate losses for the Fund. Derivatives, especially over-the-counter derivatives, are also subject to counterparty risk.
Illiquid Investments Risk: Illiquid investments risk exists when certain investments are or become difficult to purchase or sell. Difficulty in selling such investments may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of illiquid investments risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Illiquid investments risk may be higher in a rising interest-rate environment, when the value and liquidity of fixed-income securities generally decline.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 7 |
DISCLOSURES AND RISKS (continued)
Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results. Some of these techniques may incorporate, or rely upon, quantitative models, but there is no guarantee that these models will generate accurate forecasts, reduce risk or otherwise perform as expected.
These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Fund will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by visiting www.abfunds.com.
All fees and expenses related to the operation of the Fund have been deducted. Net asset value (“NAV”) returns do not reflect sales charges; if sales charges were reflected, the Fund’s quoted performance would be lower. SEC returns reflect the applicable sales charges for each share class. Returns for the different share classes will vary due to different expenses associated with each class. Performance assumes reinvestment of distributions and does not account for taxes.
8 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
HISTORICAL PERFORMANCE
AVERAGE ANNUAL RETURNS AS OF JUNE 30, 2020 (unaudited)
NAV Returns | SEC Returns (reflects applicable sales charges) | |||||||
ADVISOR CLASS SHARES1 | ||||||||
1 Year | 2.61% | 2.61% | ||||||
Since Inception2 | 3.66% | 3.66% |
SEC AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
JUNE 30, 2020 (unaudited)
SEC Returns (reflects applicable sales charges) | ||||
ADVISOR CLASS SHARES | ||||
1 Year | 2.61% | |||
Since Inception2 | 3.66% |
The Fund’s current prospectus fee table shows the Fund’s total annual operating expense ratio as 1.03% for Advisor Class shares, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Fund’s annual operating expense ratio, exclusive of the Fund’s advisory fees, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs to 0.10% for Advisor Class shares. These waivers/reimbursements may not be terminated before April 30, 2021. Any fees waived and expenses borne by the Adviser through December 31, 2018 may be reimbursed by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne, provided that no reimbursement payment will be made that would cause the Fund’s total annual operating expenses to exceed these expense limitations. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratio shown above may differ from the expense ratio in the Financial Highlights section since they are based on different time periods.
1 | This share class is offered at NAV to eligible investors and the SEC returns are the same as the NAV returns. |
2 | Inception date: 6/28/2017. |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 9 |
EXPENSE EXAMPLE
(unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including advisory fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
10 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
EXPENSE EXAMPLE (continued)
Beginning Account Value 1/1/2020 | Ending Account Value 6/30/2020 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Advisor Class | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,010.70 | $ | 1.00 | 0.20 | % | ||||||||
Hypothetical** | $ | 1,000 | $ | 1,023.87 | $ | 1.01 | 0.20 | % |
* | Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period). |
** | Assumes 5% annual return before expenses. |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 11 |
PORTFOLIO SUMMARY
June 30, 2020 (unaudited)
PORTFOLIO STATISTICS
Net Assets ($mil): $48.6
1 | All data are as of June 30, 2020. The Fund’s security type and country breakdowns are expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). “Other” country weightings represent 2.0% or less in the following: Belgium, Brazil, Chile, Colombia, Denmark, Dominican Republic, El Salvador, Germany, Indonesia, Ireland, Luxembourg, Malaysia, Mexico, Norway, Peru, Portugal, Saudi Arabia, Senegal, Singapore, South Africa, Supranational, Sweden, Switzerland and Turkey. |
12 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS
June 30, 2020 (unaudited)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
GOVERNMENTS - TREASURIES – 41.1% | ||||||||||||
Australia – 0.8% | ||||||||||||
Australia Government Bond | AUD | 470 | $ | 410,242 | ||||||||
|
| |||||||||||
Austria – 2.9% |
| |||||||||||
Republic of Austria Government Bond | EUR | 1,194 | 1,435,178 | |||||||||
|
| |||||||||||
Belgium – 1.0% |
| |||||||||||
Kingdom of Belgium Government Bond | ||||||||||||
Series 76 | ||||||||||||
1.90%, 06/22/2038(a) | 110 | 158,394 | ||||||||||
Series 84 | ||||||||||||
1.45%, 06/22/2037(a) | 244 | 328,746 | ||||||||||
|
| |||||||||||
487,140 | ||||||||||||
|
| |||||||||||
China – 1.3% |
| |||||||||||
China Government Bond | CNY | 4,590 | 623,800 | |||||||||
|
| |||||||||||
Finland – 2.5% |
| |||||||||||
Finland Government Bond | ||||||||||||
0.50%, 09/15/2027-09/15/2029(a) | EUR | 686 | 824,108 | |||||||||
0.875%, 09/15/2025(a) | 317 | 382,668 | ||||||||||
|
| |||||||||||
1,206,776 | ||||||||||||
|
| |||||||||||
France – 3.3% |
| |||||||||||
French Republic Government Bond OAT | 1,290 | 1,589,211 | ||||||||||
|
| |||||||||||
Germany – 0.8% |
| |||||||||||
Bundesrepublik Deutschland Bundesanleihe | 200 | 390,341 | ||||||||||
|
| |||||||||||
Ireland – 0.7% |
| |||||||||||
Ireland Government Bond | 283 | 342,944 | ||||||||||
|
| |||||||||||
Italy – 2.3% |
| |||||||||||
Italy Buoni Poliennali Del Tesoro | ||||||||||||
1.85%, 05/15/2024 | 70 | 82,838 | ||||||||||
2.45%, 09/01/2033(a) | 315 | 392,550 | ||||||||||
3.10%, 03/01/2040(a) | 187 | 250,227 | ||||||||||
3.25%, 09/01/2046(a) | 24 | 32,886 | ||||||||||
3.35%, 03/01/2035(a) | 139 | 190,443 |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 13 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
3.85%, 09/01/2049(a) | EUR | 8 | $ | 12,164 | ||||||||
Series CAC | ||||||||||||
2.45%, 09/01/2050(a) | 157 | 185,524 | ||||||||||
|
| |||||||||||
1,146,632 | ||||||||||||
|
| |||||||||||
Japan – 8.8% |
| |||||||||||
Japan Government Thirty Year Bond |
| |||||||||||
Series 62 |
| |||||||||||
0.50%, 03/20/2049 | JPY | 36,550 | 332,318 | |||||||||
Series 63 |
| |||||||||||
0.40%, 06/20/2049 | 56,650 | 500,718 | ||||||||||
Series 65 |
| |||||||||||
0.40%, 12/20/2049 | 36,100 | 318,140 | ||||||||||
Japan Government Twenty Year Bond |
| |||||||||||
Series 143 |
| |||||||||||
1.60%, 03/20/2033 | 42,450 | 463,586 | ||||||||||
Series 144 |
| |||||||||||
1.50%, 03/20/2033 | 34,350 | 371,220 | ||||||||||
Series 150 |
| |||||||||||
1.40%, 09/20/2034 | 126,300 | 1,359,766 | ||||||||||
Series 159 |
| |||||||||||
0.60%, 12/20/2036 | 28,450 | 275,242 | ||||||||||
Series 169 |
| |||||||||||
0.30%, 06/20/2039 | 54,500 | 495,720 | ||||||||||
Series 171 |
| |||||||||||
0.30%, 12/20/2039 | 16,400 | 149,023 | ||||||||||
|
| |||||||||||
4,265,733 | ||||||||||||
|
| |||||||||||
Malaysia – 0.7% |
| |||||||||||
Malaysia Government Bond |
| |||||||||||
Series 0114 |
| |||||||||||
4.181%, 07/15/2024 | MYR | 127 | 31,616 | |||||||||
Series 0217 |
| |||||||||||
4.059%, 09/30/2024 | 127 | 31,528 | ||||||||||
Series 0218 |
| |||||||||||
3.757%, 04/20/2023 | 233 | 56,516 | ||||||||||
Series 0310 |
| |||||||||||
4.498%, 04/15/2030 | 796 | 207,155 | ||||||||||
|
| |||||||||||
326,815 | ||||||||||||
|
| |||||||||||
Mexico – 0.2% |
| |||||||||||
Mexican Bonos | MXN | 1,910 | 93,253 | |||||||||
|
| |||||||||||
Netherlands – 0.5% |
| |||||||||||
Netherlands Government Bond |
| |||||||||||
0.25%, 07/15/2029(a) | EUR | 175 | 208,013 | |||||||||
0.75%, 07/15/2027(a) | 26 | 31,794 | ||||||||||
|
| |||||||||||
239,807 | ||||||||||||
|
|
14 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
|
| |||||||||
Portugal – 0.7% |
| |||||||||
Portugal Obrigacoes do Tesouro OT | EUR | 270 | $ | 348,744 | ||||||
|
| |||||||||
Singapore – 0.2% |
| |||||||||
Singapore Government Bond | SGD | 90 | 82,315 | |||||||
|
| |||||||||
South Korea – 2.5% |
| |||||||||
Korea Treasury Bond |
| |||||||||
Series 2503 |
| |||||||||
1.50%, 03/10/2025 | KRW | 578,340 | 489,163 | |||||||
Series 2912 | ||||||||||
1.375%, 12/10/2029 | 884,640 | 734,477 | ||||||||
|
| |||||||||
1,223,640 | ||||||||||
|
| |||||||||
Spain – 3.2% | ||||||||||
Spain Government Bond | ||||||||||
1.20%, 10/31/2040(a) | EUR | 235 | 271,186 | |||||||
2.35%, 07/30/2033(a) | 559 | 761,289 | ||||||||
4.20%, 01/31/2037(a) | 310 | 530,244 | ||||||||
|
| |||||||||
1,562,719 | ||||||||||
|
| |||||||||
United Kingdom – 6.1% | ||||||||||
United Kingdom Gilt | ||||||||||
1.50%, 07/22/2047(a) | GBP | 14 | 21,079 | |||||||
1.75%, 09/07/2037-01/22/2049(a) | 1,362 | 2,154,133 | ||||||||
3.25%, 01/22/2044(a) | 42 | 81,735 | ||||||||
4.25%, 12/07/2040(a) | 91 | 192,295 | ||||||||
4.50%, 12/07/2042(a) | 227 | 510,838 | ||||||||
|
| |||||||||
2,960,080 | ||||||||||
|
| |||||||||
United States – 2.6% | ||||||||||
U.S. Treasury Bonds | ||||||||||
2.375%, 11/15/2049 | U.S.$ | 360 | 444,600 | |||||||
3.00%, 02/15/2048 | 190 | 260,062 | ||||||||
4.50%, 08/15/2039 | 340 | 541,344 | ||||||||
|
| |||||||||
1,246,006 | ||||||||||
|
| |||||||||
Total Governments – Treasuries | 19,981,376 | |||||||||
|
| |||||||||
CORPORATES - INVESTMENT | ||||||||||
Financial Institutions – 9.8% | ||||||||||
Banking – 5.9% | ||||||||||
ABN AMRO Bank NV | EUR | 100 | 110,770 | |||||||
Bank of America Corp. | ||||||||||
Series DD | ||||||||||
6.30%, 03/10/2026(b) | U.S.$ | 29 | 32,157 |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 15 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
Series Z | ||||||||||||
6.50%, 10/23/2024(b) | U.S.$ | 49 | $ | 52,495 | ||||||||
Bank of Scotland PLC | GBP | 90 | 118,610 | |||||||||
Barclays PLC | EUR | 100 | 112,277 | |||||||||
BNP Paribas SA | GBP | 170 | 229,903 | |||||||||
CaixaBank SA | EUR | 100 | 109,211 | |||||||||
Capital One Financial Corp. | 145 | 163,695 | ||||||||||
Commonwealth Bank of Australia | U.S.$ | 230 | 258,931 | |||||||||
Cooperatieve Rabobank UA | GBP | 100 | 146,279 | |||||||||
Credit Agricole SA | EUR | 135 | 160,887 | |||||||||
Credit Suisse Group AG | 110 | 126,052 | ||||||||||
Goldman Sachs Group, Inc. (The) | ||||||||||||
1.25%, 05/01/2025(a) | 125 | 142,361 | ||||||||||
Series O | ||||||||||||
5.30%, 11/10/2026(b) | U.S.$ | 6 | 6,067 | |||||||||
Series P | ||||||||||||
5.00%, 11/10/2022(b) | 20 | 18,483 | ||||||||||
HSBC Holdings PLC | EUR | 230 | 244,315 | |||||||||
ING Groep NV | GBP | 100 | 133,859 | |||||||||
Morgan Stanley | ||||||||||||
1.875%, 03/30/2023 | EUR | 100 | 116,635 | |||||||||
Series G | ||||||||||||
1.75%, 03/11/2024 | 100 | 117,420 | ||||||||||
Royal Bank of Scotland Group PLC | 100 | 115,794 | ||||||||||
Standard Chartered PLC | U.S.$ | 100 | 80,594 | |||||||||
Truist Financial Corp. | 47 | 48,293 | ||||||||||
UBS Group AG | 200 | 203,993 | ||||||||||
|
| |||||||||||
2,849,081 | ||||||||||||
|
|
16 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
Finance – 0.4% | ||||||||||||
AerCap Ireland Capital DAC/AerCap Global Aviation Trust | U.S.$ | 150 | $ | 156,588 | ||||||||
Synchrony Financial | 20 | 20,760 | ||||||||||
|
| |||||||||||
177,348 | ||||||||||||
|
| |||||||||||
Insurance – 2.4% | ||||||||||||
Aon PLC | EUR | 100 | 124,951 | |||||||||
ASR Nederland NV | 110 | 140,187 | ||||||||||
Assicurazioni Generali SpA | 112 | 143,493 | ||||||||||
Chubb INA Holdings, Inc. | ||||||||||||
0.30%, 12/15/2024 | 100 | 111,135 | ||||||||||
0.875%, 06/15/2027 | 125 | 141,539 | ||||||||||
CNP Assurances | 100 | 129,067 | ||||||||||
Credit Agricole Assurances SA | 100 | 120,637 | ||||||||||
MetLife Capital Trust IV | U.S.$ | 100 | 127,231 | |||||||||
Nationwide Mutual Insurance Co. | 45 | 72,762 | ||||||||||
Voya Financial, Inc. | 70 | 70,007 | ||||||||||
|
| |||||||||||
1,181,009 | ||||||||||||
|
| |||||||||||
REITS – 1.1% | ||||||||||||
CyrusOne LP/CyrusOne Finance Corp. | EUR | 110 | 118,771 | |||||||||
Digital Euro Finco LLC | 120 | 145,775 | ||||||||||
Prologis Euro Finance LLC | 135 | 148,695 | ||||||||||
WPC Eurobond BV | 110 | 128,039 | ||||||||||
|
| |||||||||||
541,280 | ||||||||||||
|
| |||||||||||
4,748,718 | ||||||||||||
|
| |||||||||||
Industrial – 9.4% | ||||||||||||
Basic – 1.4% | ||||||||||||
Anglo American Capital PLC | 105 | 118,205 |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 17 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
|
| |||||||||
Glencore Finance Europe Ltd. | ||||||||||
1.875%, 09/13/2023(a) | EUR | 100 | $ | 113,710 | ||||||
3.125%, 03/26/2026(a) | GBP | 100 | 128,054 | |||||||
Inversiones CMPC SA | U.S.$ | 200 | 203,813 | |||||||
SIG Combibloc PurchaseCo SARL | EUR | 100 | 114,253 | |||||||
|
| |||||||||
678,035 | ||||||||||
|
| |||||||||
Capital Goods – 0.4% | ||||||||||
General Electric Co. | 110 | 119,090 | ||||||||
Rolls-Royce PLC | 100 | 101,677 | ||||||||
|
| |||||||||
220,767 | ||||||||||
|
| |||||||||
Communications - Media – 0.7% | ||||||||||
Comcast Corp. | 111 | 121,156 | ||||||||
Prosus NV | U.S.$ | 200 | 209,750 | |||||||
|
| |||||||||
330,906 | ||||||||||
|
| |||||||||
Communications - | ||||||||||
AT&T, Inc. | ||||||||||
1.60%, 05/19/2028 | EUR | 110 | 126,585 | |||||||
Series B | ||||||||||
2.875%, 03/02/2025(b) | 100 | 106,631 | ||||||||
Bell Canada, Inc. | CAD | 45 | 34,820 | |||||||
|
| |||||||||
268,036 | ||||||||||
|
| |||||||||
Consumer Cyclical - Automotive – 1.2% | ||||||||||
BMW Finance NV | EUR | 110 | 127,302 | |||||||
Daimler AG | 110 | 131,584 | ||||||||
General Motors Financial Co., Inc. | 125 | 137,675 | ||||||||
Harley-Davidson Financial Services, Inc. | 130 | 137,202 | ||||||||
Volkswagen Leasing GmbH | 55 | 64,831 | ||||||||
|
| |||||||||
598,594 | ||||||||||
|
| |||||||||
Consumer Non-Cyclical – 2.8% | ||||||||||
Altria Group, Inc. | 140 | 171,283 |
18 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
Anheuser-Busch InBev Worldwide, Inc. | U.S.$ | 60 | $ | 79,676 | ||||||||
BAT International Finance PLC | EUR | 110 | 121,891 | |||||||||
Baxter International, Inc. | 130 | 147,022 | ||||||||||
DH Europe Finance II SARL | 175 | 192,191 | ||||||||||
Kraft Heinz Foods Co. | 105 | 116,347 | ||||||||||
Medtronic Global Holdings SCA | 125 | 146,676 | ||||||||||
Takeda Pharmaceutical | 100 | 112,771 | ||||||||||
Takeda Pharmaceutical Co., Ltd. | 100 | 114,342 | ||||||||||
Wm Morrison Supermarkets PLC | GBP | 100 | 138,770 | |||||||||
|
| |||||||||||
1,340,969 | ||||||||||||
|
| |||||||||||
Energy – 1.3% | ||||||||||||
BG Energy Capital PLC | 75 | 113,998 | ||||||||||
Boardwalk Pipelines LP | U.S.$ | 70 | 73,670 | |||||||||
BP Capital Markets PLC | EUR | 110 | 128,629 | |||||||||
Energy Transfer Operating LP | ||||||||||||
3.75%, 05/15/2030 | U.S.$ | 82 | 81,464 | |||||||||
5.50%, 06/01/2027 | 63 | 70,375 | ||||||||||
Husky Energy, Inc. | 120 | 119,881 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | ||||||||||||
3.55%, 12/15/2029 | 19 | 18,436 | ||||||||||
3.60%, 11/01/2024 | 9 | 9,213 | ||||||||||
4.50%, 12/15/2026 | 7 | 7,419 | ||||||||||
|
| |||||||||||
623,085 | ||||||||||||
|
| |||||||||||
Technology – 0.8% | ||||||||||||
Baidu, Inc. | 200 | 210,019 | ||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 10 | 10,801 | ||||||||||
Broadcom, Inc. | 95 | 103,313 | ||||||||||
Dell International LLC/EMC Corp. | 45 | 51,483 | ||||||||||
|
| |||||||||||
375,616 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 19 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
Transportation - Services – 0.3% | ||||||||||||
Heathrow Funding Ltd. | GBP | 85 | $ | 131,602 | ||||||||
|
| |||||||||||
4,567,610 | ||||||||||||
|
| |||||||||||
Utility – 1.0% | ||||||||||||
Electric – 0.5% | ||||||||||||
Enel Finance International NV | 65 | 124,431 | ||||||||||
SSE PLC | EUR | 105 | 119,523 | |||||||||
|
| |||||||||||
243,954 | ||||||||||||
|
| |||||||||||
Natural Gas – 0.2% | ||||||||||||
Centrica PLC | GBP | 60 | 111,445 | |||||||||
|
| |||||||||||
Other Utility – 0.3% | ||||||||||||
Severn Trent Utilities Finance PLC | 100 | 140,888 | ||||||||||
|
| |||||||||||
496,287 | ||||||||||||
|
| |||||||||||
Total Corporates – Investment Grade | 9,812,615 | |||||||||||
|
| |||||||||||
QUASI-SOVEREIGNS – 8.1% | ||||||||||||
Quasi-Sovereign Bonds – 8.1% | ||||||||||||
Chile – 0.5% | ||||||||||||
Corp. Nacional del Cobre de Chile | U.S.$ | 200 | 217,500 | |||||||||
|
| |||||||||||
China – 6.6% | ||||||||||||
China Development Bank | ||||||||||||
Series 1805 | ||||||||||||
4.88%, 02/09/2028 | CNY | 8,410 | 1,305,202 | |||||||||
Series 1903 | ||||||||||||
3.30%, 02/01/2024 | 400 | 57,309 | ||||||||||
Series 1904 | 12,910 | 1,865,555 | ||||||||||
|
| |||||||||||
3,228,066 | ||||||||||||
|
| |||||||||||
Indonesia – 0.4% | ||||||||||||
Perusahaan Perseroan Persero PT Perusahaan Listrik Negara | U.S.$ | 200 | 211,687 | |||||||||
|
| |||||||||||
Mexico – 0.2% | ||||||||||||
Petroleos Mexicanos | ||||||||||||
5.95%, 01/28/2031(a) | 39 | 32,043 | ||||||||||
7.69%, 01/23/2050(a) | 65 | 54,226 | ||||||||||
|
| |||||||||||
86,269 | ||||||||||||
|
|
20 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
South Korea – 0.4% | ||||||||||||
Export-Import Bank of Korea | AUD | 270 | $ | 189,558 | ||||||||
|
| |||||||||||
Total Quasi-Sovereigns | 3,933,080 | |||||||||||
|
| |||||||||||
CORPORATES - NON-INVESTMENT | ||||||||||||
Industrial – 3.5% | ||||||||||||
Basic – 0.7% | ||||||||||||
OCI NV | EUR | 100 | 113,122 | |||||||||
Smurfit Kappa Acquisitions ULC | 100 | 116,025 | ||||||||||
WEPA Hygieneprodukte GmbH | 100 | 109,801 | ||||||||||
|
| |||||||||||
338,948 | ||||||||||||
|
| |||||||||||
Capital Goods – 0.4% | ||||||||||||
Colfax Corp. | 100 | 111,774 | ||||||||||
TransDigm, Inc. | U.S.$ | 59 | 58,826 | |||||||||
|
| |||||||||||
170,600 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Automotive – 0.7% | ||||||||||||
Ford Motor Credit Co. LLC | EUR | 100 | 107,575 | |||||||||
Panther BF Aggregator 2 LP/Panther Finance Co., Inc. | 100 | 110,694 | ||||||||||
Tenneco, Inc. | 100 | 102,203 | ||||||||||
|
| |||||||||||
320,472 | ||||||||||||
|
| |||||||||||
Consumer Cyclical - Entertainment – 0.1% |
| |||||||||||
Carnival PLC | 110 | 64,402 | ||||||||||
|
| |||||||||||
Consumer Non-Cyclical – 0.8% | ||||||||||||
Grifols SA | 110 | 120,471 | ||||||||||
IQVIA, Inc. | 150 | 167,682 | ||||||||||
Leisureworld Senior Care LP | CAD | 150 | 111,299 | |||||||||
|
| |||||||||||
399,452 | ||||||||||||
|
|
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 21 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
|
| |||||||||
Energy – 0.2% | ||||||||||
Western Midstream Operating LP | U.S.$ | 75 | $ | 72,143 | ||||||
|
| |||||||||
Other Industrial – 0.2% | ||||||||||
Rexel SA | EUR | 100 | 111,813 | |||||||
|
| |||||||||
Services – 0.4% | ||||||||||
Arena Luxembourg Finance SARL | 100 | 102,506 | ||||||||
Q-Park Holding I BV | 100 | 104,068 | ||||||||
|
| |||||||||
206,574 | ||||||||||
|
| |||||||||
1,684,404 | ||||||||||
|
| |||||||||
Financial Institutions – 0.9% | ||||||||||
Banking – 0.6% | ||||||||||
Banco Bilbao Vizcaya Argentaria SA | 200 | 218,300 | ||||||||
Discover Financial Services | U.S.$ | 73 | 75,167 | |||||||
|
| |||||||||
293,467 | ||||||||||
|
| |||||||||
Finance – 0.2% | ||||||||||
Lincoln Financing SARL | EUR | 100 | 102,647 | |||||||
|
| |||||||||
REITS – 0.1% | ||||||||||
MGM Growth Properties Operating Partnership LP/MGP Finance Co-Issuer, Inc. | U.S.$ | 69 | 71,380 | |||||||
|
| |||||||||
467,494 | ||||||||||
|
| |||||||||
Total Corporates – Non-Investment Grade | 2,151,898 | |||||||||
|
| |||||||||
GOVERNMENTS - SOVEREIGN | ||||||||||
Canada – 4.4% | ||||||||||
Canada Housing Trust No. 1 | ||||||||||
1.95%, 12/15/2025(a) | CAD | 980 | 769,675 | |||||||
1.80%, 12/15/2024(a) | 1,775 | 1,375,008 | ||||||||
|
| |||||||||
Total Governments – Sovereign Agencies | 2,144,683 | |||||||||
|
|
22 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
COVERED BONDS – 3.8% | ||||||||||||
Australia & New Zealand Banking Group Ltd. | EUR | 100 | $ | 121,482 | ||||||||
Credit Suisse AG/Guernsey | 160 | 182,019 | ||||||||||
Danske Bank A/S | 160 | 181,154 | ||||||||||
DNB Boligkreditt AS | 145 | 171,674 | ||||||||||
National Bank of Canada | 100 | 113,859 | ||||||||||
Nationwide Building Society | 250 | 302,694 | ||||||||||
Santander UK PLC | 250 | 290,843 | ||||||||||
Stadshypotek AB | 260 | 296,212 | ||||||||||
Turkiye Vakiflar Bankasi TAO | 100 | 111,542 | ||||||||||
UBS AG/London | 75 | 90,652 | ||||||||||
|
| |||||||||||
Total Covered Bonds | 1,862,131 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS - PROVINCIAL BONDS – 3.3% | ||||||||||||
Canada – 3.3% | ||||||||||||
Province of British Columbia Canada | CAD | 672 | 661,721 | |||||||||
Province of Ontario Canada | ||||||||||||
3.15%, 06/02/2022 | 316 | 244,850 | ||||||||||
3.50%, 06/02/2024 | 430 | 350,986 | ||||||||||
Province of Quebec Canada | 425 | 352,156 | ||||||||||
|
| |||||||||||
Total Local Governments - Provincial Bonds | 1,609,713 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS – 3.2% | ||||||||||||
Risk Share Floating Rate – 3.2% | ||||||||||||
Bellemeade Re Ltd. | ||||||||||||
Series 2018-2A, Class M1B | ||||||||||||
1.535% (LIBOR 1 Month + 1.35%), 08/25/2028(a)(c) | U.S.$ | 74 | 73,583 |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 23 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
|
| |||||||||
Series 2019-1A, Class M1B | ||||||||||
1.935% (LIBOR 1 Month + 1.75%), 03/25/2029(a) (c) | U.S.$ | 150 | $ | 139,642 | ||||||
Series 2019-2A, Class M2 | 150 | 138,929 | ||||||||
Connecticut Avenue Securities Trust | ||||||||||
Series 2019-R05, Class 1M2 | 41 | 40,477 | ||||||||
Series 2019-R06, Class 2M2 | 70 | 68,068 | ||||||||
Series 2019-R07, Class 1M2 | 40 | 38,773 | ||||||||
Eagle RE Ltd. | 55 | 53,278 | ||||||||
Federal Home Loan Mortgage Corp. | ||||||||||
Series 2019-HQA1, Class M2 | 27 | 26,369 | ||||||||
Series 2020-HQA2, Class M2 | 29 | 27,408 | ||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | ||||||||||
Series 2019-DNA3, Class M2 | 15 | 14,651 | ||||||||
Series 2019-DNA4, Class M2 | 33 | 32,185 | ||||||||
Federal National Mortgage Association Connecticut Avenue Securities | ||||||||||
Series 2015-C02, Class 1M2 | 144 | 145,237 | ||||||||
Series 2015-C02, Class 2M2 | 34 | 34,332 | ||||||||
Series 2015-C04, Class 2M2 | 153 | 162,484 |
24 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||
|
| |||||||||
Series 2016-C04, Class 1M2 | U.S.$ | 64 | $ | 66,626 | ||||||
Series 2016-C06, Class 1M2 | 134 | 140,090 | ||||||||
Series 2017-C01, Class 1M2 | 64 | 65,273 | ||||||||
PMT Credit Risk Transfer Trust | 130 | 118,825 | ||||||||
STACR Trust | 150 | 144,360 | ||||||||
|
| |||||||||
Total Collateralized Mortgage Obligations | 1,530,590 | |||||||||
|
| |||||||||
GOVERNMENTS - SOVEREIGN BONDS – 1.9% | ||||||||||
Chile – 0.4% | ||||||||||
Chile Government International Bond | EUR | 170 | 200,067 | |||||||
|
| |||||||||
Colombia – 0.4% | ||||||||||
Colombia Government International Bond | U.S.$ | 200 | 198,600 | |||||||
|
| |||||||||
Indonesia – 0.3% | ||||||||||
Indonesia Government International Bond | EUR | 100 | 122,005 | |||||||
|
| |||||||||
Peru – 0.3% | ||||||||||
Peruvian Government International Bond | U.S.$ | 120 | 124,650 | |||||||
|
| |||||||||
Saudi Arabia – 0.5% | ||||||||||
Saudi Government International Bond | 240 | 254,400 | ||||||||
|
| |||||||||
Total Governments – Sovereign Bonds | 899,722 | |||||||||
|
|
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 25 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
EMERGING MARKETS - | ||||||||||||
South Africa – 1.7% |
| |||||||||||
Republic of South Africa Government Bond | ZAR | 15,792 | $ | 838,832 | ||||||||
|
| |||||||||||
EMERGING MARKETS – SOVEREIGNS – 1.1% |
| |||||||||||
Brazil – 0.4% |
| |||||||||||
Brazilian Government International Bond | U.S.$ | 200 | 193,000 | |||||||||
|
| |||||||||||
Dominican Republic – 0.2% |
| |||||||||||
Dominican Republic International Bond | 110 | 110,653 | ||||||||||
|
| |||||||||||
El Salvador – 0.3% | ||||||||||||
El Salvador Government International Bond | 150 | 122,250 | ||||||||||
|
| |||||||||||
Senegal – 0.2% |
| |||||||||||
Senegal Government International Bond | EUR | 100 | 108,699 | |||||||||
|
| |||||||||||
Total Emerging Markets – Sovereigns | 534,602 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES – 0.8% | ||||||||||||
Non-Agency Floating Rate CMBS – 0.6% |
| |||||||||||
BFLD | U.S.$ | 28 | 24,914 | |||||||||
GS Mortgage Securities Corp. Trust | 165 | 157,564 | ||||||||||
Invitation Homes Trust | 115 | 108,512 | ||||||||||
|
| |||||||||||
290,990 | ||||||||||||
|
| |||||||||||
Non-Agency Fixed Rate CMBS – 0.2% | ||||||||||||
Commercial Mortgage Trust | 100 | 83,393 |
26 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
GS Mortgage Securities Trust | U.S.$ | 20 | $ | 17,800 | ||||||||
|
| |||||||||||
101,193 | ||||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 392,183 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS - REGIONAL BONDS – 0.7% | ||||||||||||
Sweden – 0.7% |
| |||||||||||
Kommuninvest I Sverige AB | SEK | 3,160 | 350,590 | |||||||||
|
| |||||||||||
LOCAL GOVERNMENTS - US MUNICIPAL BONDS – 0.6% | ||||||||||||
United States – 0.6% |
| |||||||||||
Province of Manitoba Canada | CAD | 345 | 266,381 | |||||||||
|
| |||||||||||
EMERGING MARKETS – CORPORATE BONDS – 0.4% | ||||||||||||
Industrial – 0.4% |
| |||||||||||
Consumer Non-Cyclical – 0.4% |
| |||||||||||
BRF GmbH | U.S.$ | 200 | 193,954 | |||||||||
|
| |||||||||||
Utility – 0.0% | ||||||||||||
Electric – 0.0% |
| |||||||||||
Terraform Global Operating LLC | 4 | 3,929 | ||||||||||
|
| |||||||||||
Total Emerging Markets – Corporate Bonds | 197,883 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES – 0.2% |
| |||||||||||
Other ABS – Fixed Rate – 0.2% |
| |||||||||||
SoFi Consumer Loan Program Trust | 115 | 115,693 | ||||||||||
|
| |||||||||||
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 27 |
PORTFOLIO OF INVESTMENTS (continued)
Principal Amount (000) | U.S. $ Value | |||||||||||
|
| |||||||||||
BANK LOANS – 0.2% |
| |||||||||||
Industrial – 0.2% |
| |||||||||||
Consumer Non-Cyclical – 0.1% |
| |||||||||||
LifePoint Health, Inc. (fka Regionalcare Hospital Partners Holdings, Inc.) | U.S.$ | 44 | $ | 41,009 | ||||||||
|
| |||||||||||
Technology – 0.1% | ||||||||||||
athenahealth, Inc. | 66 | 63,784 | ||||||||||
|
| |||||||||||
Total Bank Loans | 104,793 | |||||||||||
|
| |||||||||||
SUPRANATIONALS – 0.2% |
| |||||||||||
Supranational – 0.2% |
| |||||||||||
European Investment Bank | AUD | 119 | 95,552 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
SHORT-TERM INVESTMENTS – 4.3% |
| |||||||||||
Investment Companies – 2.8% |
| |||||||||||
AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB, | 1,338,223 | 1,338,223 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
Governments - Treasuries – 1.5% |
| |||||||||||
Japan – 1.5% |
| |||||||||||
Japan Treasury Discount Bill | JPY | 77,950 | 722,080 | |||||||||
|
| |||||||||||
Total Short-Term Investments | 2,060,303 | |||||||||||
|
| |||||||||||
Total Investments – 100.6% | 48,882,620 | |||||||||||
Other assets less liabilities – (0.6)% | (283,618 | ) | ||||||||||
|
| |||||||||||
Net Assets – 100.0% | $ | 48,599,002 | ||||||||||
|
|
28 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
FUTURES (see Note C)
Description | Number of Contracts | Expiration Month | Current Notional | Value and Unrealized Appreciation/ (Depreciation) | ||||||||||||
Purchased Contracts | ||||||||||||||||
3 Yr Australian Bond Futures | 13 | September 2020 | $ | 1,050,179 | $ | 447 | ||||||||||
10 Yr Canadian Bond Futures | 6 | September 2020 | 679,817 | (1,016 | ) | |||||||||||
10 Yr Mini Japan Government Bond Futures | 13 | September 2020 | 1,828,608 | (1,806 | ) | |||||||||||
Euro BTP Futures | 3 | September 2020 | 484,948 | 14,437 | ||||||||||||
Euro Buxl 30 Yr Bond Futures | 2 | September 2020 | 494,250 | 16,763 | ||||||||||||
Euro-BOBL Futures | 27 | September 2020 | 4,094,551 | 14,111 | ||||||||||||
Euro-Schatz Futures | 21 | September 2020 | 2,645,775 | 1,770 | ||||||||||||
Japan 10 Yr Bond (OSE) Futures | 2 | September 2020 | 2,814,540 | (1,019 | ) | |||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 2 | September 2020 | 278,344 | 664 | ||||||||||||
Sold Contracts | ||||||||||||||||
10 Yr Australian Bond Futures | 12 | September 2020 | 1,232,146 | (3,444 | ) | |||||||||||
Euro-Bund Futures | 13 | September 2020 | 2,578,163 | (35,008 | ) | |||||||||||
U.S. 10 Yr Ultra Futures | 12 | September 2020 | 1,889,813 | (11,242 | ) | |||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 4 | September 2020 | 883,313 | (94 | ) | |||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 15 | September 2020 | 1,886,133 | (4,102 | ) | |||||||||||
|
| |||||||||||||||
$ | (9,539 | ) | ||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note C)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Australia and New Zealand Banking Group Ltd. | USD | 688 | SGD | 974 | 08/27/2020 | $ | 11,015 | |||||||||||||||||
Bank of America, NA | USD | 849 | RUB | 61,837 | 07/14/2020 | 18,656 | ||||||||||||||||||
Barclays Bank PLC | IDR | 6,926,936 | USD | 475 | 07/23/2020 | 4 | ||||||||||||||||||
Barclays Bank PLC | INR | 28,508 | USD | 373 | 07/23/2020 | (3,806 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 178 | IDR | 2,564,153 | 07/23/2020 | (1,937 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 279 | INR | 21,907 | 07/23/2020 | 10,152 | ||||||||||||||||||
Barclays Bank PLC | USD | 180 | INR | 13,612 | 07/23/2020 | (695 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 479 | CNH | 3,394 | 08/13/2020 | 418 | ||||||||||||||||||
Barclays Bank PLC | USD | 390 | KRW | 479,920 | 08/13/2020 | 10,417 | ||||||||||||||||||
Barclays Bank PLC | TWD | 11,463 | USD | 385 | 08/20/2020 | (7,597 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 393 | TWD | 11,551 | 08/20/2020 | 2,560 | ||||||||||||||||||
BNP Paribas SA | BRL | 2,463 | USD | 450 | 07/02/2020 | (3,135 | ) |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 29 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
BNP Paribas SA | USD | 457 | BRL | 2,463 | 07/02/2020 | $ | (4,369 | ) | ||||||||||||||||
BNP Paribas SA | USD | 272 | IDR | 4,060,380 | 07/23/2020 | 7,115 | ||||||||||||||||||
BNP Paribas SA | USD | 384 | IDR | 5,473,463 | 07/23/2020 | (8,516 | ) | |||||||||||||||||
BNP Paribas SA | USD | 438 | PLN | 1,747 | 07/29/2020 | 3,164 | ||||||||||||||||||
BNP Paribas SA | USD | 601 | CAD | 805 | 08/06/2020 | (8,129 | ) | |||||||||||||||||
BNP Paribas SA | AUD | 1,038 | USD | 722 | 08/13/2020 | 5,996 | ||||||||||||||||||
BNP Paribas SA | USD | 377 | CNH | 2,674 | 08/13/2020 | 463 | ||||||||||||||||||
Brown Brothers Harriman & Co. | NOK | 4,480 | USD | 442 | 07/15/2020 | (23,711 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | GBP | 205 | USD | 251 | 07/17/2020 | (3,296 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | USD | 212 | GBP | 173 | 07/17/2020 | 2,553 | ||||||||||||||||||
Brown Brothers Harriman & Co. | USD | 274 | GBP | 217 | 07/17/2020 | (5,608 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | USD | 376 | ZAR | 6,260 | 07/17/2020 | (16,042 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | ZAR | 10,359 | USD | 603 | 07/17/2020 | 7,136 | ||||||||||||||||||
Brown Brothers Harriman & Co. | ZAR | 11,035 | USD | 612 | 07/17/2020 | (23,261 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | USD | 236 | TRY | 1,630 | 07/28/2020 | (56 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | PLN | 3,045 | USD | 724 | 07/29/2020 | (45,212 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | CAD | 912 | USD | 660 | 08/06/2020 | (11,585 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | EUR | 242 | USD | 273 | 08/06/2020 | 937 | ||||||||||||||||||
Brown Brothers Harriman & Co. | EUR | 107 | USD | 121 | 08/06/2020 | (65 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | NZD | 761 | USD | 484 | 08/06/2020 | (7,210 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | USD | 453 | EUR | 403 | 08/06/2020 | 594 | ||||||||||||||||||
Brown Brothers Harriman & Co. | USD | 526 | EUR | 465 | 08/06/2020 | (2,587 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | JPY | 19,778 | USD | 180 | 08/07/2020 | (2,817 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | MXN | 10,435 | USD | 455 | 08/07/2020 | 3,046 | ||||||||||||||||||
Brown Brothers Harriman & Co. | USD | 61 | JPY | 6,490 | 08/07/2020 | (491 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | USD | 372 | MXN | 8,375 | 08/07/2020 | (9,007 | ) | |||||||||||||||||
Brown Brothers Harriman & Co. | USD | 392 | SGD | 546 | 08/27/2020 | 146 | ||||||||||||||||||
Brown Brothers Harriman & Co. | CHF | 414 | USD | 439 | 08/28/2020 | 1,095 | ||||||||||||||||||
Brown Brothers Harriman & Co. | USD | 433 | CHF | 418 | 08/28/2020 | 9,695 |
30 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Citibank, NA | BRL | 2,458 | USD | 462 | 07/02/2020 | $ | 10,220 | |||||||||||||||||
Citibank, NA | BRL | 4,676 | USD | 854 | 07/02/2020 | (5,951 | ) | |||||||||||||||||
Citibank, NA | USD | 449 | BRL | 2,458 | 07/02/2020 | 3,128 | ||||||||||||||||||
Citibank, NA | USD | 883 | BRL | 4,676 | 07/02/2020 | (22,747 | ) | |||||||||||||||||
Citibank, NA | USD | 237 | RUB | 17,587 | 07/14/2020 | 9,626 | ||||||||||||||||||
Citibank, NA | CLP | 593,170 | USD | 722 | 07/15/2020 | 94 | ||||||||||||||||||
Citibank, NA | CLP | 316,699 | USD | 384 | 07/15/2020 | (1,421 | ) | |||||||||||||||||
Citibank, NA | COP | 906,824 | USD | 241 | 07/15/2020 | 11 | ||||||||||||||||||
Citibank, NA | USD | 925 | CLP | 710,498 | 07/15/2020 | (59,997 | ) | |||||||||||||||||
Citibank, NA | USD | 854 | NOK | 8,363 | 07/15/2020 | 15,247 | ||||||||||||||||||
Citibank, NA | GBP | 649 | USD | 821 | 07/17/2020 | 17,848 | ||||||||||||||||||
Citibank, NA | GBP | 3,398 | USD | 4,156 | 07/17/2020 | (54,744 | ) | |||||||||||||||||
Citibank, NA | INR | 10,976 | USD | 140 | 07/23/2020 | (4,471 | ) | |||||||||||||||||
Citibank, NA | BRL | 2,630 | USD | 492 | 08/04/2020 | 8,791 | ||||||||||||||||||
Citibank, NA | EUR | 519 | USD | 588 | 08/06/2020 | 3,961 | ||||||||||||||||||
Citibank, NA | USD | 107 | CNH | 760 | 08/13/2020 | 170 | ||||||||||||||||||
Citibank, NA | TWD | 21,857 | USD | 735 | 08/20/2020 | (13,537 | ) | |||||||||||||||||
Citibank, NA | CHF | 419 | USD | 437 | 08/28/2020 | (6,048 | ) | |||||||||||||||||
Credit Suisse International | NOK | 3,880 | USD | 380 | 07/15/2020 | (23,316 | ) | |||||||||||||||||
Credit Suisse International | USD | 754 | PLN | 3,044 | 07/29/2020 | 15,247 | ||||||||||||||||||
Credit Suisse International | SGD | 1,092 | USD | 770 | 08/27/2020 | (14,471 | ) | |||||||||||||||||
Deutsche Bank AG | USD | 302 | INR | 22,795 | 07/23/2020 | (570 | ) | |||||||||||||||||
Goldman Sachs Bank USA | CAD | 6,043 | USD | 4,357 | 08/06/2020 | (94,284 | ) | |||||||||||||||||
Goldman Sachs Bank USA | KRW | 1,472,536 | USD | 1,202 | 08/13/2020 | (26,005 | ) | |||||||||||||||||
Goldman Sachs Bank USA | MYR | 4,233 | USD | 1,031 | 08/13/2020 | 45,292 | ||||||||||||||||||
Goldman Sachs Bank USA | USD | 279 | MYR | 1,156 | 08/13/2020 | (9,755 | ) | |||||||||||||||||
HSBC Bank USA | CNH | 3,764 | USD | 531 | 08/13/2020 | 119 | ||||||||||||||||||
HSBC Bank USA | USD | 501 | TWD | 14,612 | 08/20/2020 | 112 | ||||||||||||||||||
JPMorgan Chase Bank, NA | GBP | 426 | USD | 528 | 07/17/2020 | (755 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | IDR | 1,180,568 | USD | 74 | 07/23/2020 | (7,317 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | EUR | 447 | USD | 507 | 08/06/2020 | 4,161 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 637 | EUR | 567 | 08/06/2020 | 442 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 672 | EUR | 595 | 08/06/2020 | (3,514 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 734 | TWD | 21,529 | 08/20/2020 | 4,174 | ||||||||||||||||||
Morgan Stanley Capital Services LLC | BRL | 4,681 | USD | 861 | 07/02/2020 | 332 | ||||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 855 | BRL | 4,681 | 07/02/2020 | 5,958 |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 31 |
PORTFOLIO OF INVESTMENTS (continued)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Morgan Stanley Capital Services LLC | SEK | 7,494 | USD | 769 | 07/15/2020 | $ | (35,621 | ) | ||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 453 | SEK | 4,221 | 07/15/2020 | 216 | ||||||||||||||||||
Morgan Stanley Capital Services LLC | GBP | 459 | USD | 566 | 07/17/2020 | (2,280 | ) | |||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 860 | BRL | 4,681 | 08/04/2020 | (893 | ) | |||||||||||||||||
Morgan Stanley Capital Services LLC | EUR | 18,768 | USD | 21,221 | 08/06/2020 | 117,531 | ||||||||||||||||||
Morgan Stanley Capital Services LLC | JPY | 556,550 | USD | 5,117 | 08/07/2020 | (40,317 | ) | |||||||||||||||||
Morgan Stanley Capital Services LLC | USD | 397 | MYR | 1,644 | 08/13/2020 | (13,948 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | COP | 1,937,899 | USD | 486 | 07/15/2020 | (28,718 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 513 | COP | 1,929,313 | 07/15/2020 | (539 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | USD | 729 | EUR | 647 | 08/06/2020 | (2,240 | ) | |||||||||||||||||
Royal Bank of Scotland PLC | CNH | 28,143 | USD | 3,971 | 08/13/2020 | (62 | ) | |||||||||||||||||
Standard Chartered Bank | IDR | 4,063,208 | USD | 252 | 07/23/2020 | (26,968 | ) | |||||||||||||||||
Standard Chartered Bank | INR | 10,777 | USD | 142 | 07/23/2020 | (393 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 487 | INR | 36,891 | 07/23/2020 | 324 | ||||||||||||||||||
Standard Chartered Bank | KRW | 454,598 | USD | 378 | 08/13/2020 | (795 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | (332,643 | ) | ||||||||||||||||||||||
|
|
INTEREST RATE SWAPTIONS WRITTEN (see Note C)
Description | Index | Counter-Party | Strike Rate | Expiration Date | Notional Amount (000) | Premiums Received | Market Value | |||||||||||||||||||||||||
Call-OTC-1 Year Interest Rate Swap | | 3 Month LIBOR | | | Citibank, NA | | 0.55 | % | 07/17/2020 | USD | 1,800 | $ | 7,853 | $ | (11,609 | ) | ||||||||||||||||
Call-OTC-1 Year Interest Rate Swap | | 3 Month LIBOR | | | Citibank, NA | | 0.46 | 07/29/2020 | 1,800 | 7,110 | (6,679 | ) | ||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||
$ | 14,963 | $ | (18,288 | ) | ||||||||||||||||||||||||||||
|
|
|
|
32 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
PORTFOLIO OF INVESTMENTS (continued)
CENTRALLY CLEARED CREDIT DEFAULT SWAP (see Note C)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at June 30, 2020 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||||||
iTraxx Australia Series 32, 5 Year Index, 12/20/2024* | (1.00 | )% | Quarterly | 0.75 | % | USD | 2,250 | $ | (25,696 | ) | $ | (32,739 | ) | $ | 7,043 | |||||||||||||||||
Sale Contracts |
| |||||||||||||||||||||||||||||||
CDX-NAIG Series 34, 5 Year Index, 06/20/2025* | 1.00 | Quarterly | 0.78 | USD | 1,980 | 22,097 | (235 | ) | 22,332 | |||||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (3,599 | ) | $ | (32,974 | ) | $ | 29,375 | |||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)
Rate Type | ||||||||||||||||||||||||||
Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||
CAD | 1,789 | 01/14/2025 | 3 Month CDOR | 1.950% | Semi-Annual/ Semi-Annual | $ | 75,159 | $ | — | $ | 75,159 | |||||||||||||||
CAD | 382 | 01/14/2050 | 2.210% | 3 Month CDOR | Semi-Annual/ Semi-Annual | (61,149 | ) | — | (61,149 | ) | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||
$ | 14,010 | $ | — | $ | 14,010 | |||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note C)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at June 30, 2020 | Notional | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Deutsche Bank AG |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 05/11/2063* | 2.00 | % | Monthly | 8.64 | % | USD | 67 | $ | (8,567 | ) | $ | (2,570 | ) | $ | (5,997 | ) | ||||||||||||||||
Morgan Stanley & Co. |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 05/11/2063* | 2.00 | % | Monthly | 8.64 | USD | 470 | (60,097 | ) | (22,097 | ) | (38,000 | ) | ||||||||||||||||||||
CDX-CMBX.NA.A Series 6, 05/11/2063* | 2.00 | % | Monthly | 8.64 | % | USD | 3 | (384 | ) | (55 | ) | (329 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (69,048 | ) | $ | (24,722 | ) | $ | (44,326 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 33 |
PORTFOLIO OF INVESTMENTS (continued)
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2020, the aggregate market value of these securities amounted to $27,061,448 or 55.7% of net assets. |
(b) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(c) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at June 30, 2020. |
(d) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.22% of net assets as of June 30, 2020, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Invitation Homes Trust Series 2018-SFR4, Class E | 10/26/2018 | $ | 115,000 | $ | 108,512 | 0.22 | % |
(e) | The stated coupon rate represents the greater of the LIBOR or the LIBOR floor rate plus a spread at June 30, 2020. |
(f) | The rate shown represents the 7-day yield as of period end. |
(g) | Affiliated investments. |
(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
CLP – Chilean Peso
CNH – Chinese Yuan Renminbi (Offshore)
CNY – Chinese Yuan Renminbi
COP – Colombian Peso
EUR – Euro
GBP – Great British Pound
IDR – Indonesian Rupiah
INR – Indian Rupee
JPY – Japanese Yen
KRW – South Korean Won
MXN – Mexican Peso
MYR – Malaysian Ringgit
NOK – Norwegian Krone
NZD – New Zealand Dollar
PLN – Polish Zloty
RUB – Russian Ruble
SEK – Swedish Krona
SGD – Singapore Dollar
TRY – Turkish Lira
TWD – New Taiwan Dollar
USD – United States Dollar
ZAR – South African Rand
Glossary:
ABS – Asset-Backed Securities
BOBL – Bundesobligationen
BTP – Buoni del Tesoro Poliennali
CBT – Chicago Board of Trade
CDOR – Canadian Dealer Offered Rate
CDX-CMBX.NA – North American Commercial Mortgage-Backed Index
CDX-NAIG – North American Investment Grade Credit Default Swap Index
CMBS – Commercial Mortgage-Backed Securities
LIBOR – London Interbank Offered Rates
OAT – Obligations Assimilables du Trésor
OSE – Osaka Securities Exchange
REIT – Real Estate Investment Trust
See notes to financial statements.
34 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
STATEMENT OF ASSETS & LIABILITIES
June 30, 2020 (unaudited)
Assets | ||||
Investments in securities, at value | $ | 47,544,397 | ||
Affiliated issuers (cost $1,338,223) | 1,338,223 | |||
Cash | 10,167 | |||
Cash collateral due from broker | 269,375 | |||
Foreign currencies, at value (cost $163,496) | 164,221 | |||
Receivable for investment securities sold | 503,725 | |||
Unaffiliated interest receivable | 384,447 | |||
Unrealized appreciation on forward currency exchange contracts | 358,166 | |||
Receivable from Adviser | 20,527 | |||
Receivable for variation margin on centrally cleared swaps | 503 | |||
Affiliated dividends receivable | 155 | |||
Receivable for capital stock sold | 31 | |||
|
| |||
Total assets | 50,593,937 | |||
|
| |||
Liabilities | ||||
Swaptions written, at value (premiums received $14,963) | 18,288 | |||
Payable for investment securities purchased and foreign currency transactions | 1,072,601 | |||
Unrealized depreciation on forward currency exchange contracts | 690,809 | |||
Market value of credit default swaps (net premiums received $24,722) | 69,048 | |||
Dividends payable | 43,615 | |||
Payable for variation margin on futures | 9,252 | |||
Directors’ fee payable | 3,505 | |||
Transfer Agent fee payable | 1,452 | |||
Accrued expenses and other liabilities | 86,365 | |||
|
| |||
Total liabilities | 1,994,935 | |||
|
| |||
Net Assets | $ | 48,599,002 | ||
|
| |||
Composition of Net Assets | ||||
Capital stock, at par | $ | 4,833 | ||
Additional paid-in capital | 48,137,452 | |||
Distributable earnings | 456,717 | |||
|
| |||
$ | 48,599,002 | |||
|
|
Net Asset Value Per Share—33 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
| ||||||||||||
Advisor | $ | 48,599,002 | 4,833,287 | $ | 10.06 | |||||||
|
See notes to financial statements.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 35 |
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2020 (unaudited)
Investment Income | ||||||||
Interest (net of foreign taxes withheld of $10,286) | $ | 422,049 | ||||||
Dividends | ||||||||
Affiliated issuers | 1,721 | $ | 423,770 | |||||
|
| |||||||
Expenses | ||||||||
Advisory fee (see Note B) | 24,012 | |||||||
Transfer agency—Advisor Class | 9,967 | |||||||
Custody and accounting | 69,788 | |||||||
Administrative | 32,997 | |||||||
Audit and tax | 27,724 | |||||||
Legal | 17,785 | |||||||
Printing | 17,282 | |||||||
Registration fees | 13,387 | |||||||
Directors’ fees | 11,009 | |||||||
Miscellaneous | 3,208 | |||||||
|
| |||||||
Total expenses | 227,159 | |||||||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (179,465 | ) | ||||||
|
| |||||||
Net expenses | 47,694 | |||||||
|
| |||||||
Net investment income | 376,076 | |||||||
|
| |||||||
Realized and Unrealized Gain (Loss) on Investment and Foreign Currency Transactions | ||||||||
Net realized gain (loss) on: | ||||||||
Investment transactions | 428,733 | (a) | ||||||
Forward currency exchange contracts | 330,433 | |||||||
Futures | 186,505 | |||||||
Swaps | (699,502 | ) | ||||||
Swaptions written | 8,373 | |||||||
Foreign currency transactions | (59,391 | ) | ||||||
Net change in unrealized appreciation/depreciation on: | ||||||||
Investments | (535,730 | )(b) | ||||||
Forward currency exchange contracts | 313,911 | |||||||
Futures | 15,416 | |||||||
Swaps | 200,153 | |||||||
Swaptions written | (3,325 | ) | ||||||
Foreign currency denominated assets and liabilities | (14,778 | ) | ||||||
|
| |||||||
Net gain on investment and foreign currency transactions | 170,798 | |||||||
|
| |||||||
Net Increase in Net Assets from Operations | $ | 546,874 | ||||||
|
|
(a) | Net of foreign capital gains taxes of $441. |
(b) | Net of increase in accrued foreign capital gains taxes of $9,440. |
See notes to financial statements.
36 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
STATEMENT OF CHANGES IN NET ASSETS
Six Months Ended June 30, 2020 (unaudited) | Year Ended December 31, 2019 | |||||||
Increase (Decrease) in Net Assets from Operations | ||||||||
Net investment income | $ | 376,076 | $ | 791,263 | ||||
Net realized gain on investment and foreign currency transactions | 195,151 | 1,145,755 | ||||||
Net change in unrealized appreciation/depreciation on investments and foreign currency denominated assets and liabilities | (24,353 | ) | 1,164,182 | |||||
|
|
|
| |||||
Net increase in net assets from operations | 546,874 | 3,101,200 | ||||||
Distributions to Shareholders | ||||||||
Advisor Class | (272,185 | ) | (1,480,236 | ) | ||||
Capital Stock Transactions | ||||||||
Net increase (decrease) | (18,819 | ) | 778,936 | |||||
|
|
|
| |||||
Total increase | 255,870 | 2,399,900 | ||||||
Net Assets | ||||||||
Beginning of period | 48,343,132 | 45,943,232 | ||||||
|
|
|
| |||||
End of period | $ | 48,599,002 | $ | 48,343,132 | ||||
|
|
|
|
See notes to financial statements.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 37 |
NOTES TO FINANCIAL STATEMENTS
June 30, 2020 (unaudited)
NOTE A
Significant Accounting Policies
AB Bond Fund, Inc. (the “Company”) is registered under the Investment Company Act of 1940 as an open-end management investment company. The Company, which is a Maryland corporation, operates as a series company comprised of 10 portfolios currently in operation. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to the AB FlexFee International Bond Portfolio (the “Fund”), a diversified portfolio. The Fund has authorized issuance of Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I, Class Z, Class T, Class 1, and Class 2 shares. Class A, Class B, Class C, Class R, Class K, Class I, Class Z, Class T, Class 1 and Class 2 shares have not been issued. Advisor Class shares are sold without an initial or contingent deferred sales charge and are not subject to ongoing distribution expenses. All eleven classes of shares have identical voting, dividend, liquidation and other rights, except that the classes bear different distribution and transfer agency expenses. Each class has exclusive voting rights with respect to its distribution plan. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”), which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the 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
38 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 39 |
NOTES TO FINANCIAL STATEMENTS (continued)
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since 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
40 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
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 expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Bank loan prices are provided by third party pricing services and consist of a composite of the quotes received by the vendor into a consensus price. Certain bank loans are classified as Level 3, as a significant input used in the fair value measurement of these instruments is the market quotes that are received by the vendor and these inputs are not observable.
Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available,
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 41 |
NOTES TO FINANCIAL STATEMENTS (continued)
which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of June 30, 2020:
Investments in | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Assets: | ||||||||||||||||
Governments-Treasuries | $ | – 0 | – | $ | 19,981,376 | $ | – 0 | – | $ | 19,981,376 | ||||||
Corporates-Investment Grade | – 0 | – | 9,812,615 | – 0 | – | 9,812,615 | ||||||||||
Quasi-Sovereigns | – 0 | – | 3,933,080 | – 0 | – | 3,933,080 | ||||||||||
Corporates-Non-Investment Grade | – 0 | – | 2,151,898 | – 0 | – | 2,151,898 | ||||||||||
Governments-Sovereign Agencies | – 0 | – | 2,144,683 | – 0 | – | 2,144,683 | ||||||||||
Covered Bonds | – 0 | – | 1,862,131 | – 0 | – | 1,862,131 | ||||||||||
Local Governments-Provincial Bonds | – 0 | – | 1,609,713 | – 0 | – | 1,609,713 | ||||||||||
Collateralized Mortgage Obligations | – 0 | – | 1,530,590 | – 0 | – | 1,530,590 | ||||||||||
Governments-Sovereign Bonds | – 0 | – | 899,722 | – 0 | – | 899,722 | ||||||||||
Emerging Markets-Treasuries | – 0 | – | 838,832 | – 0 | – | 838,832 | ||||||||||
Emerging Markets-Sovereigns | – 0 | – | 534,602 | – 0 | – | 534,602 | ||||||||||
Commercial Mortgage-Backed Securities | – 0 | – | 392,183 | – 0 | – | 392,183 | ||||||||||
Local Governments-Regional Bonds | – 0 | – | 350,590 | – 0 | – | 350,590 | ||||||||||
Local Governments-US Municipal Bonds | – 0 | – | 266,381 | – 0 | – | 266,381 | ||||||||||
Emerging Markets-Corporate Bonds | – 0 | – | 197,883 | – 0 | – | 197,883 | ||||||||||
Asset-Backed Securities | – 0 | – | 115,693 | – 0 | – | 115,693 | �� | |||||||||
Bank Loans | – 0 | – | 104,793 | – 0 | – | 104,793 | ||||||||||
Supranationals | – 0 | – | 95,552 | – 0 | – | 95,552 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 1,338,223 | – 0 | – | – 0 | – | 1,338,223 | ||||||||||
Governments-Treasuries | – 0 | – | 722,080 | – 0 | – | 722,080 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 1,338,223 | 47,544,397 | – 0 | – | 48,882,620 | |||||||||||
Other Financial Instruments*: | ||||||||||||||||
Assets | ||||||||||||||||
Futures | 48,192 | – 0 | – | – 0 | – | 48,192 | † | |||||||||
Forward Currency Exchange Contracts | – 0 | – | 358,166 | – 0 | – | 358,166 | ||||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | 22,097 | – 0 | – | 22,097 | † | |||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | 75,159 | – 0 | – | 75,159 | † | |||||||||
Liabilities | ||||||||||||||||
Futures | (57,731 | ) | – 0 | – | – 0 | – | (57,731 | )† | ||||||||
Forward Currency Exchange Contracts | – 0 | – | (690,809 | ) | – 0 | – | (690,809 | ) | ||||||||
Interest Rate Swaptions Written | – 0 | – | (18,288 | ) | – 0 | – | (18,288 | ) | ||||||||
Centrally Cleared Credit Default Swaps | – 0 | – | (25,696 | ) | – 0 | – | (25,696 | )† | ||||||||
Centrally Cleared Interest Rate Swaps | – 0 | – | (61,149 | ) | – 0 | – | (61,149 | )† | ||||||||
Credit Default Swaps | – 0 | – | (69,048 | ) | – 0 | – | (69,048 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 1,328,684 | $ | 47,134,829 | $ | – 0 | – | $ | 48,463,513 | |||||||
|
|
|
|
|
|
|
|
42 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
* | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
† | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Where applicable, centrally cleared swaps with upfront premiums are presented here at market value. |
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at the rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Fund’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 43 |
NOTES TO FINANCIAL STATEMENTS (continued)
5. Investment Income and Investment Transactions
Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income.
6. Expense Allocations
Expenses of the Company are charged proportionately to each portfolio or based on other appropriate methods.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B
Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Fund pays the Adviser an advisory fee at an annual rate of .40% of the Fund’s average daily net assets (“Base Fee”). The advisory fee is increased or decreased from the Base Fee by a performance adjustment (“Performance Adjustment”) that depends on whether, and to what extent, the investment performance of the Advisor Class shares of the Fund (“Measuring Class”) exceeds, or is exceeded by, the performance of the Bloomberg Barclays Global Aggregate ex-USD (USD Hedged) Index (“Index”) plus .70% (“Index Hurdle”) over the Performance Period (as defined below). The Performance Adjustment is calculated and accrued daily, according to a schedule that adds or subtracts .00429% of the Fund’s average daily net assets for each .01% of absolute performance by which the performance of the Measuring Class exceeds or lags the Index Hurdle for the period from the beginning of the Performance Period through the prior business day or, if the performance of the Index is made available to the Fund on a daily basis at a time sufficient to permit the calculation of the Performance Adjustment on a current-day basis while maintaining the Fund’s ability to meet applicable deadlines for publishing its daily net asset value per share, within a reasonable time after the commencement of such availability, through the current business day. The maximum Performance Adjustment (positive or negative) will not exceed an annualized rate of +/- .30% (“Maximum Performance Adjustment”) of the Fund’s average daily net assets, which
44 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
would occur when the performance of the Measuring Class exceeds, or is exceeded by, the Index Hurdle by .70% or more for the Performance Period. On a monthly basis, the Fund will pay the Adviser the minimum fee rate of .10% on an annualized basis (Base Fee minus the Maximum Performance Adjustment) applied to the average daily net assets for the month. At the end of the Performance Period, the Fund will pay to the Adviser the total advisory fee, less the amount of any minimum fees paid during the Performance Period and any waivers described below. The period over which performance is measured (“Performance Period”) is each 12-month period beginning on the first day in the month of January through December 31 of the same year. In addition, the Adviser has agreed to waive its advisory fee by limiting the Fund’s accrual of the advisory fee (Base Fee plus Performance Adjustment) on any day to the amount corresponding to the maximum fee rate multiplied by the Fund’s current net assets if such amount is less than the amount that would have been accrued based on the Fund’s average daily net assets for the Performance Period. For the six months ended June 30, 2020, the Fund accrued advisory fees of $24,012, as reflected in the statement of operations, at an annual effective rate (excluding the impact from any expense waivers in effect) of .10% of the Fund’s average net assets, which reflected a (.30)% Performance Adjustment of $(72,036).
The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total expenses (other than the advisory fee, acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs) on an annual basis from exceeding .10% of average daily net assets (the “Expense Cap”). For the six months ended June 30, 2020, such reimbursements/ waivers amounted to $146,125. The Expense Cap will remain in effect until April 30, 2021 and then may be continued thereafter from year to year by the Adviser. Any fees waived and expenses borne by the Adviser through December 31, 2018 are subject to repayment by the Fund until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne; such waivers that are subject to repayment amount to $262,859 for the period ended December 31, 2017 and $388,433 for the year ended December 31, 2018. In any case, no repayment will be made that would cause the Fund’s total annual expenses (subject to the exclusions set forth above) to exceed .10% of average daily net assets.
Pursuant to the investment advisory agreement, the Fund may reimburse the Adviser for certain legal and accounting services provided to the Fund by the Adviser. For the six months ended June 30, 2020, the Adviser voluntarily agreed to waive such fees in the amount of $32,997.
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 45 |
NOTES TO FINANCIAL STATEMENTS (continued)
The Fund compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Fund. ABIS may make payments to intermediaries that provide omnibus account services, sub-accounting services and/or networking services. Such compensation retained by ABIS amounted to $9,000 for the six months ended June 30, 2020.
The Fund may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. The Adviser has contractually agreed to waive ..10% of the advisory fee of Government Money Market Portfolio (resulting in a net advisory fee of .10%) until August 31, 2021. In connection with the investment by the Fund in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Fund in an amount equal to the Fund’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the six months ended June 30, 2020, such waiver amounted to $343.
A summary of the Fund’s transactions in AB mutual funds for the six months ended June 30, 2020 is as follows:
Fund | Market Value 12/31/19 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 6/30/20 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 521 | $ | 15,607 | $ | 14,790 | $ | 1,338 | $ | 2 |
During the second quarter of 2018, AXA S.A. (“AXA”), a French holding company for the AXA Group, completed the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (now named Equitable Holdings, Inc.)(“Equitable”), through an initial public offering. Equitable is the holding company for a diverse group of financial services companies, including an approximately 65.2% economic interest in the Adviser and a 100% interest in AllianceBernstein Corporation, the general partner of the Adviser. Since the initial sale, AXA has completed additional offerings, most recently during the fourth quarter of 2019. As a result, AXA currently owns less than 10% of the outstanding shares of common stock of Equitable, and no longer owns a controlling interest in Equitable. AXA previously announced its intention to sell its entire interest in Equitable over time, subject to market conditions and other factors (the “Plan”). Most of AXA’s remaining Equitable shares are to be delivered on redemption of AXA bonds mandatorily exchangeable into Equitable shares and maturing in May 2021. AXA
46 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
retains sole discretion to determine the timing of any future sales of its remaining shares of Equitable common stock.
Sales under the Plan that were completed on November 13, 2019 resulted in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and may have been deemed to have been an “assignment” causing a termination of the Fund’s investment advisory and administration agreements. In order to ensure that investment advisory and administration services could continue uninterrupted in the event of a Change of Control Event, the Board previously approved new investment advisory and administration agreements with the Adviser, and shareholders of the Fund subsequently approved the new investment advisory agreement. These agreements became effective on November 13, 2019.
NOTE C
Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2020, were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 38,075,335 | $ | 37,813,526 | ||||
U.S. government securities | 1,230,440 | – 0 | – |
The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:
Gross unrealized appreciation | $ | 1,793,631 | ||
Gross unrealized depreciation | (1,479,250 | ) | ||
|
| |||
Net unrealized appreciation | $ | 314,381 | ||
|
|
1. Derivative Financial Instruments
The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:
• | Forward Currency Exchange Contracts |
The Fund may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale
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NOTES TO FINANCIAL STATEMENTS (continued)
commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Fund. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the six months ended June 30, 2020, the Fund held forward currency exchange contracts for hedging and non-hedging purposes.
• | Futures |
The Fund may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Fund bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Fund may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Fund enters into futures, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
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NOTES TO FINANCIAL STATEMENTS (continued)
Use of long futures subjects the Fund to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Fund to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the six months ended June 30, 2020, the Fund held futures for hedging and non-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Fund may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Fund may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Fund pays a premium whether or not the option is exercised. Additionally, the Fund bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Fund were permitted to expire without being sold or exercised, its premium would represent a loss to the Fund. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Fund writes an option, the premium received by the Fund is recorded as a liability and is subsequently adjusted to the current market value of the option written. The Fund’s maximum payment for written put options equates to the number of shares multiplied by the strike price. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract. Premiums received from written options which expire unexercised are recorded by the Fund on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the
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NOTES TO FINANCIAL STATEMENTS (continued)
premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Fund has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Fund. In writing an option, the Fund bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Fund could result in the Fund selling or buying a security or currency at a price different from the current market value.
The Fund may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return of a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. The Fund’s maximum payment for written put swaptions equates to the notional amount of the underlying swap. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
During the six months ended June 30, 2020, the Fund held purchased options for hedging and non-hedging purposes.
During the six months ended June 30, 2020, the Fund held written swaptions for hedging and non-hedging purposes.
• | Swaps |
The Fund may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures including by making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
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NOTES TO FINANCIAL STATEMENTS (continued)
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received for OTC swaps are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.
Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The
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NOTES TO FINANCIAL STATEMENTS (continued)
credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount. In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).
During the six months ended June 30, 2020, the Fund held interest rate swaps for hedging and non-hedging purposes.
Credit Default Swaps:
The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the
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NOTES TO FINANCIAL STATEMENTS (continued)
swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation. In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same referenced obligation with the same counterparty.
Credit default swaps may involve greater risks than if the Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the six months ended June 30, 2020, the Fund held credit default swaps for hedging and non-hedging purposes.
The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the OTC counterparty certain derivative financial
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NOTES TO FINANCIAL STATEMENTS (continued)
instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.
The Fund’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s OTC counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the six months ended June 30, 2020, the Fund had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 48,192 | * | Receivable/Payable for variation margin on futures | $ | 57,731 | * | ||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps |
| 75,159 | * | Receivable/Payable for variation margin on centrally cleared swaps |
| 61,149 | * | ||||
Interest rate | Swaptions written, at value |
| 18,288 |
| ||||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts |
| 358,166 |
| Unrealized depreciation on forward currency exchange contracts |
| 690,809 |
| ||||
Credit contracts | Market value of credit default swaps | 69,048 | ||||||||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 29,375 | * | |||||||||
|
|
|
| |||||||||
Total | $ | 510,892 | $ | 897,025 | ||||||||
|
|
|
|
54 | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | abfunds.com |
NOTES TO FINANCIAL STATEMENTS (continued)
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/depreciation on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/depreciation on swaps | $ | (640,873 | ) | $ | 244,845 | ||||
Interest rate contracts | Net realized gain/(loss) on futures; Net change in unrealized appreciation/depreciation on futures | 186,505 | 15,416 | |||||||
Interest rate contracts | Net realized gain/(loss) on swaptions written; Net change in unrealized appreciation/depreciation on swaptions written | 8,373 | (3,325 | ) | ||||||
Foreign currency contracts | Net realized gain/(loss) on forward currency exchange contracts; Net change in unrealized appreciation/ depreciation on forward currency exchange contracts | 330,433 | 313,911 | |||||||
Foreign currency contracts | Net realized gain/(loss) on investment transactions; Net change in unrealized appreciation/depreciation on investments | (16,995 | ) | 10,392 | ||||||
Credit contracts | Net realized gain/(loss) on swaps; Net change in unrealized appreciation/depreciation on swaps | (58,629 | ) | (44,692 | ) | |||||
|
|
|
| |||||||
Total | $ | (191,186 | ) | $ | 536,547 | |||||
|
|
|
|
abfunds.com | AB FLEXFEE INTERNATIONAL BOND PORTFOLIO | 55 |
NOTES TO FINANCIAL STATEMENTS (continued)
The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended June 30, 2020:
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 3,311,871 | ||
Average notional amount of sale contracts | $ | 3,092,200 | ||
Centrally Cleared Interest Rate Swaps | ||||
Average notional amount | $ | 3,838,233 | ||
Credit Default Swaps: | ||||
Average notional amount of sale contracts | $ | 876,857 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 14,612,783 | ||
Average principal amount of sale contracts | $ | 55,842,440 | ||
Futures: | ||||
Average notional amount of buy contracts | $ | 13,725,702 | ||
Average notional amount of sale contracts | $ | 6,278,325 | ||
Purchased Options: | ||||
Average notional amount | $ | 2,498,732 | (a) | |
Swaptions Written: | ||||
Average notional amount | $ | 2,083,333 | (b) |
(a) | Positions were open for five months during the reporting period. |
(b) | Positions were open for three months during the reporting period. |
For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of June 30, 2020. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the tables.
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
Australia & New Zealand Bank Group Ltd. | $ | 11,015 | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | $ | 11,015 | |||||||
Bank of America, NA. | 18,656 | – 0 | – | – 0 | – | – 0 | – | 18,656 | ||||||||||||
Barclays Bank PLC | 23,551 | (14,035 | ) | – 0 | – | – 0 | – | 9,516 | ||||||||||||
BNP Paribas | 16,738 | (16,738 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Brown Brothers Harriman & Co. | 25,202 | (25,202 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Citibank, NA. | 69,096 | (69,096 | ) | – 0 | – | – 0 | – | – 0 | – |
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NOTES TO FINANCIAL STATEMENTS (continued)
Counterparty | Derivative Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivative Assets | |||||||||||||||
Credit Suisse International | $ | 15,247 | $ | (15,247 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
Goldman Sachs Bank USA | 45,292 | (45,292 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
HSBC Bank USA | 231 | – 0 | – | – 0 | – | – 0 | – | 231 | ||||||||||||
JPMorgan Chase Bank, NA | 8,777 | (8,777 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Morgan Stanley Capital Services LLC/ Morgan Stanley & Co. International PLC. | 124,037 | (124,037 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
Standard Chartered Bank. | 324 | (324 | ) | – 0 | – | – 0 | – | – 0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 358,166 | $ | (318,748 | ) | $ | – 0 | – | $ | – 0 | – | $ | 39,418 | |||||||
|
|
|
|
|
|
|
|
|
|
Counterparty | Derivative Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivative Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 14,035 | $ | (14,035 | ) | $ | – 0 | – | $ | – 0 | – | $ | – 0 | – | ||||||
BNP Paribas | 24,149 | (16,738 | ) | – 0 | – | – 0 | – | 7,411 | ||||||||||||
Brown Brothers Harriman & Co. | 150,948 | (25,202 | ) | – 0 | – | – 0 | – | 125,746 | ||||||||||||
Citibank, NA. | 187,204 | (69,096 | ) | – 0 | – | – 0 | – | 118,108 | ||||||||||||
Credit Suisse International | 37,787 | (15,247 | ) | – 0 | – | – 0 | – | 22,540 | ||||||||||||
Deutsche Bank AG | 9,137 | – 0 | – | – 0 | – | – 0 | – | 9,137 | ||||||||||||
Goldman Sachs Bank USA | 130,044 | (45,292 | ) | – 0 | – | – 0 | – | 84,752 | ||||||||||||
JPMorgan Chase Bank, NA | 11,586 | (8,777 | ) | – 0 | – | – 0 | – | 2,809 | ||||||||||||
Morgan Stanley Capital Services LLC/ Morgan Stanley & Co. International PLC. | 153,540 | (124,037 | ) | – 0 | – | – 0 | – | 29,503 | ||||||||||||
Royal Bank of Scotland PLC | 31,559 | – 0 | – | – 0 | – | – 0 | – | 31,559 | ||||||||||||
Standard Chartered Bank. | 28,156 | (324 | ) | – 0 | – | – 0 | – | 27,832 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 778,145 | $ | (318,748 | ) | $ | – 0 | – | $ | – 0 | – | $ | 459,397 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over collateralization. |
^ | Net amount represents the net unrealized receivable/payable that would be due from/to the counterparty in the event of default or termination. The net from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also
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NOTES TO FINANCIAL STATEMENTS (continued)
conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE D
Capital Stock
Each class consists of 3,000,000,000 authorized shares. Transactions in capital shares for each class were as follows:
Shares | Amount | |||||||||||||||||||||||
Six Months Ended June 30, 2020 (unaudited) | Year Ended 2019 | Six Months Ended June 30, 2020 (unaudited) | Year Ended 2019 | |||||||||||||||||||||
|
| |||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||
Shares sold | 2,189 | 28,353 | $ | 21,986 | $ | 284,982 | ||||||||||||||||||
| ||||||||||||||||||||||||
Shares issued in reinvestment of dividends | 254 | 99,772 | 2,542 | 997,726 | ||||||||||||||||||||
| ||||||||||||||||||||||||
Shares redeemed | (4,350 | ) | (50,806 | ) | (43,347 | ) | (503,772 | ) | ||||||||||||||||
| ||||||||||||||||||||||||
Net increase (decrease) | (1,907 | ) | 77,319 | $ | (18,819 | ) | $ | 778,936 | ||||||||||||||||
|
At June 30, 2020, the Adviser owned 99% of the Fund’s outstanding shares. Significant transactions by such shareholder, if any, may impact the Fund’s performance.
NOTE E
Risks Involved in Investing in the Fund
Market Risk—The value of the Fund’s assets will fluctuate as the bond or stock market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events, including public health crises (including the occurrence of a contagious disease or illness), that affect large portions of the market.
Interest Rate Risk—Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk—An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full
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NOTES TO FINANCIAL STATEMENTS (continued)
principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.
Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility, due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and may be more difficult to trade than other types of securities.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater if the Fund invests a significant portion of its assets in fixed-income securities with longer maturities.
Mortgage-Related Securities Risk—Investments in mortgage-related securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Fund to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by non-governmental issuers may be subject to other risks, such as higher rates of default in the mortgages or risks associated with the nature and servicing of mortgages backing the securities.
Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be more difficult to trade or dispose of due to adverse market, economic, political, regulatory or other factors.
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NOTES TO FINANCIAL STATEMENTS (continued)
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments in fixed-income securities denominated in foreign currencies or reduce the Fund’s returns.
Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Illiquid Investments Risk—Illiquid investments risk exists when certain investments are or become difficult to purchase or sell. Difficulty in selling such investments may result in sales at disadvantageous prices affecting the value of your investment in the Fund. Causes of illiquid investments risk may include low trading volumes, large positions and heavy redemptions of Fund shares. Illiquid investments risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
LIBOR Risk—The Fund may invest in certain debt securities, derivatives or other financial instruments that utilize the London Interbank Offered Rate, or “LIBOR,” as a “benchmark” or “reference rate” for various interest rate calculations. In July 2017, the United Kingdom Financial Conduct Authority, which regulates LIBOR, announced a desire to phase out the use of LIBOR by the end of 2021. Although financial regulators and industry working groups have suggested alternative reference rates, such as European Interbank Offer Rate (“EURIBOR”), Sterling Overnight Interbank Average Rate (“SONIA”) and Secured Overnight Financing Rate (“SOFR”), global consensus on alternative rates is lacking and the process for amending existing contracts or instruments to transition away from LIBOR is underway but remains unclear. The elimination of LIBOR or changes to other reference rates or any other changes or reforms to the determination or supervision of reference rates could have an adverse impact on the market for, or value of, any securities or payments linked to those reference rates, which may adversely affect the Fund’s performance and/or net asset value. Uncertainty and risk also remain regarding the willingness and ability of issuers and lenders to include revised provisions in new and existing contracts or instruments. Consequently, the transition
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NOTES TO FINANCIAL STATEMENTS (continued)
away from LIBOR to other reference rates may lead to increased volatility and illiquidity in markets that are tied to LIBOR, fluctuations in values of LIBOR-related investments or investments in issuers that utilize LIBOR, increased difficulty in borrowing or refinancing and diminished effectiveness of hedging strategies, adversely affecting the Fund’s performance. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition may be exacerbated if the work necessary to effect an orderly transition to an alternative reference rate is not completed in a timely manner. Because the usefulness of LIBOR as a benchmark could deteriorate during the transition period, these effects could occur prior to the end of 2021.
Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.
Management Risk—The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Fund, but there is no guarantee that its techniques will produce the intended results.
NOTE F
Joint Credit Facility
A number of open-end mutual funds managed by the Adviser, including the Fund, participate in a $325 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Fund did not utilize the Facility during the six months ended June 30, 2020.
NOTE G
Distributions to Shareholders
The tax character of distributions paid for the year ending December 31, 2020 will be determined at the end of the current fiscal year.
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NOTES TO FINANCIAL STATEMENTS (continued)
The tax character of distributions paid during the fiscal years ended December 31, 2019 and December 31, 2018 were as follows:
2019 | 2018 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 1,480,236 | $ | 2,225,195 | ||||
Net long-term capital gains | – 0 | – | 80,559 | |||||
|
|
|
| |||||
Total taxable distributions paid | 1,480,236 | 2,305,754 | ||||||
Return of Capital | – 0 | – | 77,538 | |||||
|
|
|
| |||||
Total distributions paid | $ | 1,480,236 | $ | 2,383,292 | ||||
|
|
|
|
As of December 31, 2019, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital losses | $ | (452,997 | )(a) | |
Other losses | (240,491 | )(b) | ||
Unrealized appreciation/(depreciation) | 876,944 | (c) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 183,456 | (d) | |
|
|
(a) | As of December 31, 2019, the Fund had a net capital loss carryforward of $370,551. As of December 31, 2019, the Fund had a net post-October capital loss deferral of $82,446. |
(b) | As of December 31, 2019, the fund had a qualified late-year ordinary loss deferral of $240,491. |
(c) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the recognition for tax purposes of unrealized gains/losses on certain derivative instruments, the tax treatment of Treasury inflation-protected securities, the tax treatment of callable bonds, the tax treatment of swaps, and the tax deferral of losses on wash sales. |
(d) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the accrual of foreign capital gains tax and dividends payable. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2019, the Fund had a net short-term capital loss carryforward of $77,642 and a net long-term capital loss carryforward of $292,909, which may be carried forward for an indefinite period.
NOTE H
Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
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FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
Advisor Class | ||||||||||||||||
Six Months June 30, | Year Ended December 31, | June 28, 2017(a) to December 31, 2017 | ||||||||||||||
2019 | 2018 | |||||||||||||||
|
| |||||||||||||||
Net asset value, beginning of period | $ 10.00 | $ 9.66 | $ 9.97 | $ 10.00 | ||||||||||||
|
| |||||||||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income(b)(c) | .08 | .17 | .18 | .10 | ||||||||||||
Net realized and unrealized gain on investment and foreign currency transactions | .04 | .48 | .03 | .00 | (d) | |||||||||||
|
| |||||||||||||||
Net increase in net asset value from operations | .12 | .65 | .21 | .10 | ||||||||||||
|
| |||||||||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | (.06 | ) | (.31 | ) | (.48 | ) | (.13 | ) | ||||||||
Distributions from net realized gain on investment and foreign currency transactions | – 0 | – | – 0 | – | (.02 | ) | – 0 | – | ||||||||
Return of capital | – 0 | – | – 0 | – | (.02 | ) | – 0 | – | ||||||||
|
| |||||||||||||||
Total dividends and distributions | (.06 | ) | (.31 | ) | (.52 | ) | (.13 | ) | ||||||||
|
| |||||||||||||||
Net asset value, end of period | $ 10.06 | $ 10.00 | $ 9.66 | $ 9.97 | ||||||||||||
|
| |||||||||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value(e) | 1.07 | % | 6.78 | % | 2.16 | % | 1.05 | % | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $48,599 | $48,343 | $45,943 | $44,881 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements(f)† | .20 %(g) | .20 | % | .20 | %(h) | .19 | %(g) | |||||||||
Expenses, before waivers/reimbursements(f)† | .95 %(g) | 1.03 | % | 1.21 | %(h) | 2.39 | %(g) | |||||||||
Net investment income(c) | 1.57 %(g) | 1.66 | % | 1.85 | % | 1.95 | %(g) | |||||||||
Portfolio turnover rate | 82 | % | 96 | % | 85 | % | 30 | % | ||||||||
† Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||
portfolios | .00 | %(g) | .00 | % | .00 | % | .01 | %(g) |
See footnote summary on page 65.
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FINANCIAL HIGHLIGHTS (continued)
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of expenses waived/reimbursed by the Adviser. |
(d) | Amount is less than $0.005. |
(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 investment return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return for a period of less than one year is not annualized. |
(f) | In connection with the Fund’s investments in affiliated underlying portfolios, the Fund 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 underlying portfolios. The Adviser has contractually agreed to waive its fees from the Fund in an amount equal to the Fund’s pro rata share of certain acquired fund fees and expenses, and for the period ended December 31, 2017, such waiver amounted to 0.01% (annualized). |
(g) | Annualized. |
(h) | The advisory fee reflected in the Fund’s expense ratio may be higher or lower than the Base Fee plus Performance Adjustment due to the different time periods over which the fee is calculated (i.e., the financial reporting period vs. the Performance Period). |
See notes to financial statements.
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BOARD OF DIRECTORS
Marshall C. Turner, Jr(1), Chairman Jorge A. Bermudez(1) Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith, President and Chief Executive Officer Jeanette Loeb(1) Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) |
OFFICERS Scott A. DiMaggio(2), Vice President Douglas J. Peebles(2), *, Vice President Matthew S. Sheridan(2), Vice President Emilie D. Wrapp, Secretary | Michael B. Reyes, Senior Analyst Joseph J. Mantineo, Treasurer and Chief Financial Officer Phyllis J. Clarke, Controller Vincent S. Noto, Chief Compliance Officer |
Custodian and Accounting Agent Brown Brothers Harriman & Co. 50 Post Office Square Boston, MA 02110
| 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) 221-6003 |
1 | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
2 | The day-to-day management of, and investment decisions for, the Fund’s portfolio are made by the Adviser’s Global Fixed-Income Investment Team. Messrs. DiMaggio, Peebles and Sheridan are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
* | Mr. Peebles is expected to retire from the Adviser effective December 30, 2020. |
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Operation and Effectiveness of the Fund’s Liquidity Risk Management Program:
In October 2016, the Securities and Exchange Commission (“SEC”) adopted the open-end fund liquidity rule (the “Liquidity Rule”). In June 2018 the SEC adopted a requirement that funds disclose information about the operation and effectiveness of their Liquidity Risk Management Program (“LRMP”) in their reports to shareholders.
One of the requirements of the Liquidity Rule is for the Fund to designate an Administrator of the Fund’s Liquidity Risk Management Program. The Administrator of the Fund’s LRMP is AllianceBernstein L.P., the Fund’s investment adviser (the “Adviser”). The Adviser has delegated the responsibility to its Liquidity Risk Management Committee (the “Committee”). Another requirement of the Liquidity Rule is for the Fund’s Board of Directors (the “Fund Board”) to receive an annual written report from the Administrator of the LRMP, which addresses the operation of the Fund’s LRMP and assesses its adequacy and effectiveness. The Adviser provided the Fund Board with such annual report during the first quarter of 2020, which covered the period December 1, 2018 through December 31, 2019 (the “Program Reporting Period”).
The LRMP’s principal objectives include supporting the Fund’s compliance with limits on investments in illiquid assets and mitigating the risk that the Fund will be unable to meet its redemption obligations in a timely manner. Pursuant to the LRMP, the Fund classifies the liquidity of its portfolio investments into one of the four categories defined by the SEC: Highly Liquid, Moderately Liquid, Less Liquid, and Illiquid. These classifications are reported to the SEC on Form N-PORT.
During the Program Reporting Period, the Committee reviewed whether the Fund’s strategy is appropriate for an open-end structure, taking into account any holdings of less liquid and illiquid assets. If the Fund participated in derivative transactions, the exposure from such transactions were considered in the LRMP. The Committee also performed an analysis to determine whether the Fund is required to maintain a Highly Liquid Investment Minimum (“HLIM”). The Committee also incorporated the following information when determining the Fund’s reasonably anticipated trading size for purposes of liquidity monitoring: historical net redemption activity, a Fund’s concentration in an issuer, shareholder concentration, investment performance, total net assets, and distribution channels.
The Adviser informed the Fund Board that the Committee believes the Fund’s LRMP is adequately designed, has been implemented as intended, and has operated effectively since its inception. No material exceptions have been noted since the implementation of the LRMP, and there were no liquidity events that impacted the Fund or its ability to timely meet redemptions during the Program Reporting Period.
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Information Regarding the Review and Approval of the Fund’s Advisory Agreement
The disinterested directors (the “directors”) of AB Bond Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB FlexFeeTM International Bond Portfolio (the “Fund”) at a meeting held on November 4-6, 2019 (the “Meeting”).1
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including comparative analytical data prepared by the Senior Analyst for the Fund. The directors also discussed the proposed continuance in private sessions with counsel.
The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund and the underlying fund advised by the Adviser in which the Fund invests.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the performance-based advisory fee (which consists of a base fee plus or minus a performance adjustment) and considered materials presented to them concerning the SEC’s published guidance on factors that should be considered in connection with fulcrum fee arrangements, including the following factors: (1) the fairness of the fulcrum fee; (2) selection of an appropriate index against which fund performance should be measured; (3) variations in periods used for computing average asset values and performance; (4) length of period over which performance is computed; (5) computation of performance over a rolling period; (6) performance for
1 | Following transactions completed on November 13, 2019 that may have been deemed to have been an “assignment” causing termination of the Fund’s investment advisory agreement, a new investment advisory agreement, having the same terms as the prior one, was entered into by the Fund and the Adviser. |
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transitional periods; (7) computation of the performance of the fund and the index with respect to payment of dividends and capital gains distributions; and (8) avoidance of basing significant fee adjustments upon random or insignificant differences. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the performance-based 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 reimbursements from the Fund in the Fund’s latest fiscal year. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.
Costs of Services Provided and Profitability
The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for the period ended December 31, 2017 and calendar year 2018 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that
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the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors noted that the Fund was not profitable to the Adviser in the periods reviewed. The directors noted that, due to the performance fee component of the advisory fee, profitability would tend to be higher with better performance relative to the Fund’s benchmark index, which they considered to create an appropriate alignment of incentives.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their proposed relationships with the Fund, and the underlying fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to 12b-1 fees and sales charges to be received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of certain classes of the Fund’s shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Advisor Class shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Advisor Class shares against a broad-based securities market index, in each case for the 1-year period ended July 31, 2019 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning
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advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees payable by other funds. The directors considered the Fund’s contractual effective advisory fee rate against a peer group median.
The directors also considered the Adviser’s fee schedule for other clients utilizing investment strategies similar to those of the Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Fund’s Senior Analyst and noted the differences between the Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to any sub-advised funds utilizing investment strategies similar to those of the Fund, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors previously discussed these matters with an independent fee consultant.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore or sub-advisory accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund shareholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to the Fund, and the different risk profile, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most
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cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
In connection with their review of the Fund’s advisory fee, the directors also considered the total expense ratio of the Advisor Class shares of the Fund in comparison to a peer group and a peer universe selected by each 15(c) service provider. The Advisor Class expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the Adviser’s expense cap for the Fund. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view the expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
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 presentations from time to time by the Adviser concerning certain of its views on economies of scale. The directors also previously discussed economies of scale with an independent fee consultant. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s asset levels (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.
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This page is not part of the Shareholder Report or the Financial Statements.
AB FAMILY OF FUNDS
US EQUITY
CORE
Core Opportunities Fund
FlexFee™ US Thematic Portfolio
Select US Equity Portfolio
GROWTH
Concentrated Growth Fund
Discovery Growth Fund
FlexFee™ Large Cap Growth Portfolio
Growth Fund
Large Cap Growth Fund
Small Cap Growth Portfolio
VALUE
Discovery Value Fund
Equity Income Fund
Relative Value Fund
Small Cap Value Portfolio
Value Fund
INTERNATIONAL/ GLOBAL EQUITY
CORE
FlexFee™ International Strategic Core Portfolio
Global Core Equity Portfolio
International Portfolio
International Strategic Core Portfolio
Sustainable Global Thematic Fund
Tax-Managed International Portfolio
Tax-Managed Wealth Appreciation Strategy
Wealth Appreciation Strategy
INTERNATIONAL/ GLOBAL EQUITY (continued)
GROWTH
Concentrated International Growth Portfolio
FlexFee™ Emerging Markets Growth Portfolio
Sustainable International Thematic Fund
VALUE
All China Equity Portfolio
International Value Fund
FIXED INCOME
MUNICIPAL
High Income Municipal Portfolio
Intermediate California Municipal Portfolio
Intermediate Diversified Municipal Portfolio
Intermediate New York Municipal Portfolio
Municipal Bond Inflation Strategy
Tax-Aware Fixed Income Opportunities Portfolio1
National Portfolio
Arizona Portfolio
California Portfolio
Massachusetts Portfolio
Minnesota Portfolio
New Jersey Portfolio
New York Portfolio
Ohio Portfolio
Pennsylvania Portfolio
Virginia Portfolio
FIXED INCOME (continued)
TAXABLE
Bond Inflation Strategy
FlexFee™ High Yield Portfolio
FlexFee™ International Bond Portfolio
Global Bond Fund
High Income Fund
Income Fund
Intermediate Duration Portfolio
Limited Duration High Income Portfolio
Short Duration Income Portfolio
Short Duration Portfolio
Total Return Bond Portfolio
ALTERNATIVES
All Market Real Return Portfolio
Global Real Estate Investment Fund
Select US Long/Short Portfolio
Unconstrained Bond Fund
MULTI-ASSET
All Market Income Portfolio
All Market Total Return Portfolio
Conservative Wealth Strategy
Emerging Markets Multi-Asset Portfolio
Global Risk Allocation Fund
Tax-Managed All Market Income Portfolio
CLOSED-END FUNDS
AllianceBernstein Global High Income Fund
AllianceBernstein National Municipal Income Fund
We also offer Government Money Market Portfolio, which serves as the money market fund exchange vehicle for the AB mutual funds. You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The Fund may impose a fee upon sale of your shares or may temporarily suspend your ability to sell shares if the Fund’s liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund’s sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.
1 | Prior to February 5, 2020, Tax-Aware Fixed Income Opportunities Portfolio was named Tax-Aware Fixed Income Portfolio. |
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AB FLEXFEE INTERNATIONAL BOND PORTFOLIO
1345 Avenue of the Americas
New York, NY 10105
800 221 5672
FFIB-0152-0620
ITEM 2. CODE OF ETHICS.
Not applicable when filing a semi-annual report to shareholders.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable when filing a semi-annual report to shareholders.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable when filing a semi-annual report to shareholders.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the registrant.
ITEM 6. INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.
Not applicable to the registrant.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. DISCLOSURE OF SECURITIES LENDING ACTIVITIES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 13. EXHIBITS.
The following exhibits are attached to this Form N-CSR:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AB Bond Fund, Inc.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President | ||
Date: | August 26, 2020 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President | ||
Date: | August 26, 2020 | |
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer | ||
Date: | August 26, 2020 |