UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORMN-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number:811-05398
AB VARIABLE PRODUCTS SERIES FUND, INC.
(Exact name of registrant as specified in charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of principal executive offices) (Zip code)
Joseph J. Mantineo
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800)221-5672
Date of fiscal year end: December 31, 2018
Date of reporting period: December 31, 2018
ITEM 1. REPORTS TO STOCKHOLDERS.
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | BALANCED WEALTH STRATEGY PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
BALANCED WEALTH STRATEGY | ||
PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Balanced Wealth Strategy Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
Effective May 1, 2018, the Portfolio amended its principal strategies by eliminating the static targets for allocation of investments among asset classes, changing the securities selection strategies used for the equity portion of the Portfolio, and broadening the types of real asset securities in which the Portfolio will invest. The performance shown in the report for periods prior to May 1, 2018 is based on the Portfolio’s prior principal strategies and may not be representative of the Portfolio’s performance under its current principal strategies.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to maximize total return consistent with the Adviser’s determination of reasonable risk. The Portfolio invests in a portfolio of equity and fixed-income securities that is designed as a solution for investors who seek a moderate tilt toward equity returns but also want the risk diversification offered by fixed-income securities and the broad diversification of their equity risk across styles, capitalization ranges and geographic regions. Under normal circumstances, the Portfolio will invest at least 25% of its total assets in equity securities and at least 25% of its total assets in fixed-income securities with a goal of providing moderate upside potential without excessive volatility. The Portfolio also seeks exposure to real assets by investing in real estate-related equity securities (including real estate investment trusts “REITs”), natural resource equity securities and inflation-sensitive equity securities, which are equity securities of companies that the Adviser believes maintain or grow margins in rising inflation environments, including equity securities of utilities and infrastructure-related companies (“inflation-sensitive equities”). The Portfolio pursues a global strategy, typically investing in securities of issuers located in the United States and in other countries throughout the world, including emerging-market countries.
The Adviser expects that the Portfolio will normally invest a greater percentage of its total assets in equity securities than in fixed-income securities, and will generally invest in equity securities both directly and through underlying investment companies advised by the Adviser (“Underlying Portfolios”). A significant portion of the Portfolio’s assets are expected to be invested directly in USlarge-cap equity securities, primarily common stocks, in accordance with the Adviser’s US Strategic Equities investment strategy (“US Strategic Equities”). Under US Strategic Equities, portfolio managers of the Adviser that specialize in various investment disciplines identify high-convictionlarge-cap equity securities based on their fundamental investment research for potential investment by the Portfolio. These securities are then assessed in terms of both this fundamental research and quantitative analysis in creating the equity portion of the Portfolio’s portfolio. In applying the quantitative analysis, the Adviser considers a number of metrics that historically have provided some indication of favorable future returns, including metrics related to valuation, quality, investor behavior and corporate behavior.
In addition, the Portfolio seeks to achieve exposure to internationallarge-cap equity securities through investments in the International Strategic Equities Portfolio of Bernstein Fund, Inc. (“Bernstein International Strategic Equities Portfolio”) and the International Portfolio of Sanford C. Bernstein Fund, Inc. (“SCB International Portfolio”), each a registered investment company advised by the Adviser. Bernstein International Strategic Equities Portfolio and SCB International Portfolio focus on investing innon-USlarge-cap andmid-cap equity securities. Bernstein International Strategic Equities Portfolio follows a strategy similar to US Strategic Equities, but in the international context. In managing SCB International Portfolio, the Adviser selects stocks by drawing on the capabilities of its separate investment teams specializing in different investment disciplines, including value, growth, stability and others. The Portfolio also invests in other Underlying Portfolios to efficiently gain exposure to certain other types of equity securities, including small- andmid-cap and emerging-market equity securities. The Adviser selects an Underlying Portfolio based on the segment of the equity market to which the Underlying Portfolio provides exposure, its investment philosophy, and how it complements and diversifies the Portfolio’s overall portfolio.
In selecting fixed-income investments, the Adviser may draw on the capabilities of separate investment teams that specialize in different areas that are generally defined by the maturity of the debt securities and/or their ratings, and which may include subspecialties (such as inflation-indexed securities). These fixed-income teams draw on the resources and expertise of the Adviser’s internal fixed-income research staff, which includes over 50 dedicated fixed-income research analysts and economists. The Portfolio’s fixed-income securities will primarily be investment-grade debt securities, but are expected to include lower-rated securities (“junk bonds”) and preferred stock.
The Portfolio expects to enter into derivative transactions, such as options, futures contracts, forwards and swaps.
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AB Variable Products Series Fund |
Derivatives may provide a more efficient and economical exposure to market segments than direct investments, and may also be a more efficient way to alter the Portfolio’s exposure. The Portfolio may, for example, use credit default, interest rate and total return swaps to establish exposure to the fixed-income markets or particular fixed-income securities and, as noted below, may use currency-related derivatives to hedge foreign currency exposure.
The Adviser may employ currency hedging strategies in the Portfolio or the Underlying Portfolios, including the use of currency-related derivatives, to seek to reduce currency risk in the Portfolio or the Underlying Portfolios, but it is not required to do so. The Adviser will generally employ currency hedging strategies more frequently in the fixed-income portion of the Portfolio than in the equity portion.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Morgan Stanley Capital International All Country World Index (“MSCI ACWI”) (net), and the Bloomberg Barclays Global Aggregate Bond Index (USD hedged), for theone-, five- and10-year periods ended December 31, 2018. The table also includes the Portfolio’s previous benchmark, the Standard & Poor’s (“S&P”) 500 Index.
For the annual period, all share classes of the Portfolio outperformed the primary benchmark, but underperformed the Bloomberg Barclays Global Aggregate Bond Index and the S&P 500 Index. The Portfolio’s overall allocation of 60% US stocks and 40%non-US stocks contributed to performance, relative to the benchmark, as US and developed markets outperformed emerging markets. Within regional allocations, positive stock selection in USlarge-cap stocks, internationalsmall-cap stocks and USsmall/mid-cap growth stocks contributed, while stock selection in USsmall-cap, USsmall/mid-cap value, international markets and emerging markets detracted. Diversifiers, including REITS, commodity producers and inflation-sensitive equities detracted from returns. Fixed-income holdings made a positive contribution.
During the annual period, the Portfolio utilized derivatives for hedging and investment purposes, including futures, forwards, Consumer Price Index swaps and purchased swaptions, which detracted from absolute returns; credit default swaps, interest rate swaps and written swaptions contributed.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the period as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment, and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during the period as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
This environment produced a mirror image performance for bonds. Global bonds ended 2018 in positive territory, staging a significant comeback in the fourth quarter on rising volatility and the flight to quality.
The Portfolio’s Senior Investment Management Team seeks improved equity risk control by utilizing a blend of US, emerging- and international-market equities as well as diversifiers in the form of real estate, natural resources and pricing power equities. The Portfolio also features a global fixed-income component to benefit from international bond diversification and the low correlation of fixed income and equities. The blended equity and fixed-income exposures, combined with an emphasis on companies with historical and projected stable earnings and higher profitability, offers the potential to achieve higher risk-adjusted returns.
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BALANCED WEALTH STRATEGY PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
All indices are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI ACWI (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed and emerging markets. The Bloomberg Barclays Global Aggregate Bond Index (USD hedged) represents the performance of the global investment-grade developed fixed-income markets, hedged to the US dollar. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns reflect the reinvestment of dividends after deduction ofnon-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Allocation Risk: The allocation of investments among the different investment styles, such as growth or value, equity or debt securities, or US ornon-US securities may have a more significant effect on the Portfolio’s net asset value (“NAV”) when one of these investment strategies is performing more poorly than others.
Foreign(Non-US) Risk: Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. These risks may be heightened with respect to investments in emerging-market countries, where there may be an increased amount of economic, political and social instability.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments in securities denominated in foreign currencies or reduce the Portfolio’s returns.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest-rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security 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 Security Risk: Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest-rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Capitalization Risk: Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Investment in Other Investment Companies Risk: As with other investments, investments in other investment companies are subject to market and selection risk. In addition, Contractholders invested in the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies (to the extent these expenses are not waived or reimbursed by the Adviser).
(Disclosures, Risks and Note About Historical Performance continued on next page)
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DISCLOSURES AND RISKS | ||
(continued) | AB Variable Products Series Fund |
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Real Assets Risk: The Portfolio’s investments in securities linked to real assets involve significant risks, including financial, operating, and competitive risks. Investments in securities linked to real assets expose the Portfolio to adverse macroeconomic conditions, such as a rise in interest rates or a downturn in the economy in which the asset is located. Changes in inflation rates or in the market’s inflation expectations may adversely affect the market value of inflation-sensitive equities. The Portfolio’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
Active Trading Risk: The Portfolio expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Portfolio’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Contractholders.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
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BALANCED WEALTH STRATEGY PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Balanced Wealth Strategy Portfolio Class A | -6.17% | 4.43% | 8.24% | |||||||||
Balanced Wealth Strategy Portfolio Class B | -6.41% | 4.16% | 7.96% | |||||||||
Primary Benchmark: MSCI ACWI (net)2 | -9.42% | 4.26% | 9.46% | |||||||||
Bloomberg Barclays Global Aggregate Bond Index (USD hedged) | 1.76% | 3.44% | 3.78% | |||||||||
S&P 500 Index | -4.38% | 8.49% | 13.12% | |||||||||
1 Average annual returns. 2 Effective May 1, 2018, in connection with the changes in investment strategy, the broad-based index used for comparison with the Portfolio’s performance has changed from the S&P 500 Index to the MSCI ACWI (net) because the new index more closely reflects the Portfolio’s equity investments.
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.97% and 1.22% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios to 0.74% and 0.99% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2019 and may be extended by the Adviser for additionalone-year terms. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 to 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Balanced Wealth Strategy Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages3-4.
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BALANCED WEALTH STRATEGY PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 936.70 | $ | 2.88 | 0.59 | % | $ | 3.95 | 0.81 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,022.23 | $ | 3.01 | 0.59 | % | $ | 4.13 | 0.81 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 935.90 | $ | 4.10 | 0.84 | % | $ | 5.17 | 1.06 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.97 | $ | 4.28 | 0.84 | % | $ | 5.40 | 1.06 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
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BALANCED WEALTH STRATEGY PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
SECURITY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
U.S. Treasury Notes 1.25%, 5/31/19 | $ | 4,053,988 | 1.7 | % | ||||
Microsoft Corp. | 2,909,981 | 1.2 | ||||||
Alphabet, Inc. | 2,903,114 | 1.2 | ||||||
Japanese Government CPI Linked Bond, Series 23, 0.10%, 3/10/28 | 2,591,953 | 1.1 | ||||||
Royal Dutch Shell PLC | 2,468,058 | 1.0 | ||||||
Apple, Inc. | 2,211,830 | 0.9 | ||||||
Brazil Letras do Tesouro Nacional, Series LTN, Zero Coupon, 7/01/19 | 2,122,905 | 0.9 | ||||||
French Republic Government Bond OAT 0.50%, 5/25/25 | 1,718,703 | 0.7 | ||||||
Berkshire Hathaway, Inc. | 1,701,432 | 0.7 | ||||||
JPMorgan Chase & Co. | 1,684,824 | 0.7 | ||||||
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$ | 24,366,788 | 10.1 | % |
SECURITY TYPE BREAKDOWN2
December 31, 2018 (unaudited)
SECURITY TYPE | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Common Stocks | $ | 154,130,781 | 62.6 | % | ||||
Corporates—Investment Grade | 22,309,405 | 9.1 | ||||||
Governments—Treasuries | 20,471,597 | 8.3 | ||||||
Mortgage Pass-Throughs | 7,688,060 | 3.1 | ||||||
Inflation-Linked Securities | 7,001,215 | 2.8 | ||||||
Collateralized Mortgage Obligations | 5,580,681 | 2.3 | ||||||
Corporates—Non-Investment Grade | 5,374,069 | 2.2 | ||||||
Commercial Mortgage-Backed Securities | 5,336,470 | 2.2 | ||||||
Emerging Markets—Treasuries | 2,341,251 | 0.9 | ||||||
Covered Bonds | 2,333,090 | 0.9 | ||||||
Asset-Backed Securities | 1,917,401 | 0.8 | ||||||
Collateralized Loan Obligations | 1,355,132 | 0.6 | ||||||
Governments—Sovereign Agencies | 1,289,495 | 0.5 | ||||||
Other3 | 3,240,379 | 1.3 | ||||||
Short-Term Investments | 5,831,756 | 2.4 | ||||||
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Total Investments | $ | 246,200,782 | 100.0 | % |
1 | Long-term investments. Table shown includes investments of Underlying Portfolios. |
2 | The Portfolio’s security type breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). Table shown includes investments of Underlying Portfolios. |
3 | “Other” represents less than 0.3% weightings in the following security types: Emerging Markets—Corporate Bonds, Emerging Markets—Sovereigns, Equity Linked Notes, Governments—Sovereign Bonds, Investment Companies, Local Governments—Provincial Bonds, Local Governments—US Municipal Bonds, Preferred Stocks, Quasi-Sovereigns and Rights. |
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BALANCED WEALTH STRATEGY PORTFOLIO | ||
COUNTRY BREAKDOWN1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COUNTRY | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
United States | $ | 132,807,186 | 54.0 | % | ||||
Japan | 18,547,269 | 7.5 | ||||||
United Kingdom | 12,456,686 | 5.1 | ||||||
France | 8,992,044 | 3.7 | ||||||
Canada | 6,658,441 | 2.7 | ||||||
Spain | 5,726,645 | 2.3 | ||||||
Switzerland | 4,929,361 | 2.0 | ||||||
China | 4,797,654 | 1.9 | ||||||
Australia | 4,777,111 | 1.9 | ||||||
Italy | 3,773,566 | 1.5 | ||||||
Brazil | 3,550,395 | 1.4 | ||||||
Germany | 3,335,247 | 1.4 | ||||||
India | 2,397,895 | 1.0 | ||||||
Other | 27,619,526 | 11.2 | ||||||
Short-Term Investments | 5,831,756 | 2.4 | ||||||
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Total Investments | $ | 246,200,782 | 100.0 | % |
1 | All data are as of December 31, 2018. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. Table shown includes investments of Underlying Portfolios. “Other” country weightings represent 0.9% or less in the following countries: Argentina, Austria, Belgium, Bermuda, Cayman Islands, Chile, Costa Rica, Denmark, Dominican Republic, Faroe Islands, Finland, Georgia, Greece, Hong Kong, Hungary, Indonesia, Ireland, Israel, Ivory Coast, Kenya, Luxembourg, Malaysia, Malta, Mexico, Netherlands, New Zealand, Norway, Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Sweden, Taiwan, Thailand, Turkey, United Arab Emirates and Vietnam. |
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BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
COMMON STOCKS–38.1% | ||||||||||||
INFORMATION TECHNOLOGY–6.3% | ||||||||||||
COMMUNICATIONS EQUIPMENT–0.6% | ||||||||||||
Cisco Systems, Inc. | 18,747 | $ | 812,308 | |||||||||
F5 Networks, Inc.(a) | 476 | 77,126 | ||||||||||
Nokia Oyj (Sponsored ADR)–Class A | 97,644 | 568,288 | ||||||||||
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1,457,722 | ||||||||||||
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ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.2% | ||||||||||||
Avnet, Inc. | 2,054 | 74,149 | ||||||||||
CDW Corp./DE | 4,828 | 391,310 | ||||||||||
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465,459 | ||||||||||||
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IT SERVICES–1.5% | ||||||||||||
Amadeus IT Group SA–Class A | 759 | 52,809 | ||||||||||
Automatic Data Processing, Inc. | 663 | 86,933 | ||||||||||
Cognizant Technology Solutions Corp.–Class A | 7,698 | 488,669 | ||||||||||
Fidelity National Information Services, Inc. | 6,768 | 694,058 | ||||||||||
Mastercard, Inc.–Class A | 575 | 108,474 | ||||||||||
Paychex, Inc. | 1,202 | 78,310 | ||||||||||
Total System Services, Inc. | 6,419 | 521,800 | ||||||||||
Visa, Inc.–Class A | 11,358 | 1,498,575 | ||||||||||
|
| |||||||||||
3,529,628 | ||||||||||||
|
| |||||||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–0.8% | ||||||||||||
Intel Corp. | 14,210 | 666,875 | ||||||||||
Texas Instruments, Inc. | 6,612 | 624,835 | ||||||||||
Xilinx, Inc. | 7,937 | 675,994 | ||||||||||
|
| |||||||||||
1,967,704 | ||||||||||||
|
| |||||||||||
SOFTWARE–2.0% | ||||||||||||
Adobe, Inc.(a) | 2,888 | 653,381 | ||||||||||
Citrix Systems, Inc. | 320 | 32,787 | ||||||||||
Dassault Systemes SE | 444 | 52,738 | ||||||||||
Fortinet, Inc.(a) | 620 | 43,666 | ||||||||||
Microsoft Corp. | 28,650 | 2,909,981 | ||||||||||
Oracle Corp. | 25,835 | 1,166,450 | ||||||||||
Trend Micro, Inc./Japan | 700 | 37,825 | ||||||||||
VMware, Inc.–Class A | 82 | 11,245 | ||||||||||
|
| |||||||||||
4,908,073 | ||||||||||||
|
| |||||||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.2% | ||||||||||||
Apple, Inc. | 14,022 | 2,211,830 | ||||||||||
HP, Inc. | 20,946 | 428,555 | ||||||||||
Xerox Corp. | 19,156 | 378,523 | ||||||||||
|
| |||||||||||
3,018,908 | ||||||||||||
|
| |||||||||||
15,347,494 | ||||||||||||
|
|
Company | Shares | U.S. $ Value | ||||||||||
REAL ESTATE–4.9% | ||||||||||||
DIVERSIFIED REAL ESTATE ACTIVITIES–0.2% | ||||||||||||
City Developments Ltd. | 10,000 | $ | 59,617 | |||||||||
Mitsubishi Estate Co., Ltd. | 3,000 | 47,200 | ||||||||||
Mitsui Fudosan Co., Ltd. | 9,300 | 206,571 | ||||||||||
Sumitomo Realty & Development Co., Ltd. | 3,400 | 124,469 | ||||||||||
UOL Group Ltd. | 6,800 | 30,926 | ||||||||||
|
| |||||||||||
468,783 | ||||||||||||
|
| |||||||||||
DIVERSIFIED REITS–0.2% | ||||||||||||
Armada Hoffler Properties, Inc. | 5,590 | 78,595 | ||||||||||
Empire State Realty Trust, Inc.–Class A | 4,050 | 57,631 | ||||||||||
Fibra Uno Administracion SA de CV | 20,370 | 22,649 | ||||||||||
GPT Group (The) | 30,470 | 114,660 | ||||||||||
H&R Real Estate Investment Trust | 4,364 | 66,010 | ||||||||||
Hulic Reit, Inc. | 53 | 82,297 | ||||||||||
Kenedix Office Investment Corp.–Class A | 8 | 51,063 | ||||||||||
Merlin Properties Socimi SA | 5,264 | 65,028 | ||||||||||
Mirvac Group | 38,500 | 60,804 | ||||||||||
|
| |||||||||||
598,737 | ||||||||||||
|
| |||||||||||
HEALTH CARE REITS–0.2% | ||||||||||||
HCP, Inc. | 5,640 | 157,525 | ||||||||||
Medical Properties Trust, Inc. | 6,890 | 110,791 | ||||||||||
Omega Healthcare Investors, Inc. | 2,330 | 81,900 | ||||||||||
Sabra Health Care REIT, Inc. | 5,250 | 86,520 | ||||||||||
|
| |||||||||||
436,736 | ||||||||||||
|
| |||||||||||
HOTEL & RESORT REITS–0.1% | ||||||||||||
Park Hotels & Resorts, Inc. | 3,980 | 103,400 | ||||||||||
RLJ Lodging Trust | 4,780 | 78,392 | ||||||||||
|
| |||||||||||
181,792 | ||||||||||||
|
| |||||||||||
INDUSTRIAL REITS–0.3% | ||||||||||||
Duke Realty Corp. | 4,870 | 126,133 | ||||||||||
Goodman Group | 9,360 | 70,114 | ||||||||||
Nippon Prologis REIT, Inc. | 29 | 61,204 | ||||||||||
Prologis, Inc. | 4,290 | 251,909 | ||||||||||
Rexford Industrial Realty, Inc. | 2,480 | 73,086 | ||||||||||
Segro PLC | 9,370 | 70,342 | ||||||||||
STAG Industrial, Inc. | 3,460 | 86,085 | ||||||||||
Tritax Big Box REIT PLC | 24,260 | 40,608 | ||||||||||
|
| |||||||||||
779,481 | ||||||||||||
|
| |||||||||||
OFFICE REITS–0.4% | ||||||||||||
Alexandria Real Estate Equities, Inc. | 1,285 | 148,083 | ||||||||||
Boston Properties, Inc. | 1,150 | 129,433 | ||||||||||
Brandywine Realty Trust | 3,450 | 44,402 | ||||||||||
CapitaLand Commercial Trust | 57,300 | 73,598 | ||||||||||
Champion REIT | 61,000 | 41,736 | ||||||||||
City Office REIT, Inc. | 2,980 | 30,545 | ||||||||||
Great Portland Estates PLC | 7,520 | 63,213 | ||||||||||
Hibernia REIT PLC | 13,800 | 19,796 |
9
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
Highwoods Properties, Inc. | 1,340 | $ | 51,845 | |||||||||
Ichigo Office REIT Investment | 54 | 47,684 | ||||||||||
Inmobiliaria Colonial Socimi SA | 4,650 | 43,347 | ||||||||||
Japan Real Estate Investment Corp. | 8 | 44,917 | ||||||||||
Kilroy Realty Corp. | 1,140 | 71,683 | ||||||||||
Mori Trust Sogo Reit, Inc. | 30 | 43,681 | ||||||||||
Nippon Building Fund, Inc. | 10 | 62,968 | ||||||||||
Orix JREIT, Inc. | 27 | 44,901 | ||||||||||
|
| |||||||||||
961,832 | ||||||||||||
|
| |||||||||||
REAL ESTATE DEVELOPMENT–0.1% | ||||||||||||
CK Asset Holdings Ltd. | 25,500 | 186,573 | ||||||||||
Instone Real Estate Group | 1,030 | 19,590 | ||||||||||
Metrovacesa SA(a)(b) | 1,880 | 23,849 | ||||||||||
|
| |||||||||||
230,012 | ||||||||||||
|
| |||||||||||
REAL ESTATE MANAGEMENT & DEVELOPMENT–0.3% | ||||||||||||
CBRE Group, Inc.–Class A(a) | 15,241 | 610,249 | ||||||||||
Daito Trust Construction Co., Ltd. | 200 | 27,381 | ||||||||||
Wharf Holdings Ltd. (The) | 1,000 | 2,607 | ||||||||||
|
| |||||||||||
640,237 | ||||||||||||
|
| |||||||||||
REAL ESTATE OPERATING COMPANIES–0.5% | ||||||||||||
Aroundtown SA | 13,590 | 112,742 | ||||||||||
Azrieli Group Ltd. | 920 | 44,014 | ||||||||||
CA Immobilien Anlagen AG | 2,120 | 67,089 | ||||||||||
Deutsche Wohnen SE | 3,960 | 180,975 | ||||||||||
Entra ASA(b) | 2,988 | 39,794 | ||||||||||
Essential Properties Realty Trust, Inc. | 6,070 | 84,009 | ||||||||||
Fabege AB | 4,480 | 59,880 | ||||||||||
Hemfosa Fastigheter AB | 6,030 | 47,584 | ||||||||||
Kungsleden AB | 4,850 | 34,496 | ||||||||||
Nyfosa AB(a) | 6,030 | 29,089 | ||||||||||
Swire Properties Ltd. | 23,000 | 80,814 | ||||||||||
TLG Immobilien AG | 1,550 | 42,882 | ||||||||||
Vonovia SE | 4,772 | 215,116 | ||||||||||
Wharf Real Estate Investment Co., Ltd. | 17,000 | 101,675 | ||||||||||
|
| |||||||||||
1,140,159 | ||||||||||||
|
| |||||||||||
REAL ESTATE SERVICES–0.0% | ||||||||||||
Unibail-Rodamco-Westfield(a) | 767 | 118,876 | ||||||||||
|
| |||||||||||
RESIDENTIAL REITS–1.3% | ||||||||||||
American Campus Communities, Inc. | 2,900 | 120,031 | ||||||||||
American Homes 4 Rent–Class A | 5,470 | 108,579 | ||||||||||
Camden Property Trust | 1,540 | 135,597 | ||||||||||
Essex Property Trust, Inc. | 653 | 160,122 | ||||||||||
Independence Realty Trust, Inc. | 8,420 | 77,296 | ||||||||||
Killam Apartment Real Estate Investment Trust | 7,660 | 89,438 | ||||||||||
Mid-America Apartment Communities, Inc. | 14,464 | $ | 1,384,205 | |||||||||
Nippon Accommodations Fund, Inc. | 11 | 53,129 | ||||||||||
Northview Apartment Real Estate Investment Trust | 2,130 | 38,194 | ||||||||||
Sun Communities, Inc. | 8,057 | 819,478 | ||||||||||
UNITE Group PLC (The) | 6,710 | 68,989 | ||||||||||
|
| |||||||||||
3,055,058 | ||||||||||||
|
| |||||||||||
RETAIL REITS–0.8% | ||||||||||||
Agree Realty Corp. | 1,210 | 71,535 | ||||||||||
British Land Co. PLC (The) | 6,840 | 46,514 | ||||||||||
Brixmor Property Group, Inc. | 6,350 | 93,282 | ||||||||||
BWP Trust | 11,120 | 27,656 | ||||||||||
Charter Hall Retail REIT | 6,350 | 20,039 | ||||||||||
Eurocommercial Properties NV | 1,510 | 46,607 | ||||||||||
Japan Retail Fund Investment Corp. | 27 | 53,880 | ||||||||||
Link REIT | 11,768 | 119,301 | ||||||||||
National Retail Properties, Inc. | 2,240 | 108,662 | ||||||||||
Regency Centers Corp. | 18,300 | 1,073,844 | ||||||||||
Simon Property Group, Inc. | 2,330 | 391,417 | ||||||||||
|
| |||||||||||
2,052,737 | ||||||||||||
|
| |||||||||||
SPECIALIZED REITS–0.5% | ||||||||||||
CubeSmart | 29,127 | 835,654 | ||||||||||
Digital Realty Trust, Inc. | 1,685 | 179,537 | ||||||||||
EPR Properties | 1,010 | 64,670 | ||||||||||
Equinix, Inc. | 180 | 63,461 | ||||||||||
MGM Growth Properties LLC–Class A | 3,040 | 80,286 | ||||||||||
National Storage Affiliates Trust | 3,490 | 92,345 | ||||||||||
Safestore Holdings PLC | 2,860 | 18,464 | ||||||||||
|
| |||||||||||
1,334,417 | ||||||||||||
|
| |||||||||||
11,998,857 | ||||||||||||
|
| |||||||||||
FINANCIALS–4.7% | ||||||||||||
BANKS–2.2% | ||||||||||||
Bank LeumiLe-Israel BM | 12,167 | 73,550 | ||||||||||
Bank of America Corp. | 56,532 | 1,392,949 | ||||||||||
Barclays PLC | 2,975 | 5,692 | ||||||||||
CIT Group, Inc. | 1,657 | 63,413 | ||||||||||
Citigroup, Inc. | 14,301 | 744,510 | ||||||||||
JPMorgan Chase & Co. | 17,259 | 1,684,824 | ||||||||||
Lloyds Banking Group PLC | 82,042 | 54,080 | ||||||||||
Wells Fargo & Co. | 29,209 | 1,345,950 | ||||||||||
|
| |||||||||||
5,364,968 | ||||||||||||
|
| |||||||||||
CAPITAL MARKETS–0.6% | ||||||||||||
Daiwa Securities Group, Inc. | 7,800 | 39,590 | ||||||||||
Goldman Sachs Group, Inc. (The) | 4,532 | 757,071 | ||||||||||
Hong Kong Exchanges & Clearing Ltd. | 1,500 | 43,363 | ||||||||||
Morgan Stanley | 2,107 | 83,543 | ||||||||||
Nomura Holdings, Inc. | 6,800 | 25,769 | ||||||||||
S&P Global, Inc. | 2,411 | 409,725 | ||||||||||
|
| |||||||||||
1,359,061 | ||||||||||||
|
|
10
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
CONSUMER FINANCE–0.2% | ||||||||||||
Ally Financial, Inc. | 862 | $ | 19,533 | |||||||||
Discover Financial Services | 1,140 | 67,237 | ||||||||||
Synchrony Financial | 18,250 | 428,145 | ||||||||||
|
| |||||||||||
514,915 | ||||||||||||
|
| |||||||||||
DIVERSIFIED FINANCIAL SERVICES–0.7% | ||||||||||||
Berkshire Hathaway, Inc.–Class B(a) | 8,333 | 1,701,432 | ||||||||||
Jefferies Financial Group, Inc. | 643 | 11,162 | ||||||||||
|
| |||||||||||
1,712,594 | ||||||||||||
|
| |||||||||||
INSURANCE–1.0% | ||||||||||||
Admiral Group PLC | 1,057 | 27,581 | ||||||||||
Ageas | 169 | 7,608 | ||||||||||
Everest Re Group Ltd. | 4,428 | 964,241 | ||||||||||
Fidelity National Financial, Inc. | 20,723 | 651,531 | ||||||||||
Japan Post Holdings Co., Ltd. | 3,600 | 41,566 | ||||||||||
Legal & General Group PLC | 10,249 | 30,197 | ||||||||||
MetLife, Inc. | 1,991 | 81,751 | ||||||||||
PICC Property & Casualty Co., Ltd.–Class H | 34,000 | 34,692 | ||||||||||
Progressive Corp. (The) | 11,969 | 722,090 | ||||||||||
|
| |||||||||||
2,561,257 | ||||||||||||
|
| |||||||||||
11,512,795 | ||||||||||||
|
| |||||||||||
HEALTH CARE–4.2% | ||||||||||||
BIOTECHNOLOGY–0.9% | ||||||||||||
AbbVie, Inc. | 806 | 74,305 | ||||||||||
Amgen, Inc. | 367 | 71,444 | ||||||||||
Biogen, Inc.(a) | 2,592 | 779,985 | ||||||||||
Celgene Corp.(a) | 847 | 54,284 | ||||||||||
Gilead Sciences, Inc. | 14,668 | 917,483 | ||||||||||
Vertex Pharmaceuticals, Inc.(a) | 2,428 | 402,344 | ||||||||||
|
| |||||||||||
2,299,845 | ||||||||||||
|
| |||||||||||
HEALTH CARE EQUIPMENT & SUPPLIES–0.5% | ||||||||||||
Cochlear Ltd. | 322 | 39,455 | ||||||||||
Edwards Lifesciences Corp.(a) | 3,254 | 498,415 | ||||||||||
Hoya Corp. | 700 | 42,210 | ||||||||||
Medtronic PLC | 6,045 | 549,853 | ||||||||||
|
| |||||||||||
1,129,933 | ||||||||||||
|
| |||||||||||
HEALTH CARE PROVIDERS & SERVICES–1.2% | ||||||||||||
AmerisourceBergen Corp.–Class A | 62 | 4,613 | ||||||||||
Anthem, Inc. | 4,229 | 1,110,662 | ||||||||||
CVS Health Corp. | 919 | 60,213 | ||||||||||
McKesson Corp. | 661 | 73,021 | ||||||||||
UnitedHealth Group, Inc. | 6,578 | 1,638,711 | ||||||||||
|
| |||||||||||
2,887,220 | ||||||||||||
|
| |||||||||||
PHARMACEUTICALS–1.6% | ||||||||||||
Astellas Pharma, Inc. | 3,300 | 42,163 | ||||||||||
GlaxoSmithKline PLC | 1,456 | 27,748 | ||||||||||
Johnson & Johnson | 39 | 5,033 | ||||||||||
Merck & Co., Inc. | 14,448 | 1,103,971 |
Company | Shares | U.S. $ Value | ||||||||||
Novo Nordisk A/S–Class B | 1,089 | $ | 50,015 | |||||||||
Pfizer, Inc. | 37,694 | 1,645,343 | ||||||||||
Roche Holding AG | 312 | 77,457 | ||||||||||
Sanofi | 837 | 72,610 | ||||||||||
Shionogi & Co., Ltd. | 500 | 28,538 | ||||||||||
Zoetis, Inc. | 9,309 | 796,291 | ||||||||||
|
| |||||||||||
3,849,169 | ||||||||||||
|
| |||||||||||
10,166,167 | ||||||||||||
|
| |||||||||||
CONSUMER DISCRETIONARY–3.7% | ||||||||||||
AUTO COMPONENTS–0.3% | ||||||||||||
Magna International, Inc.–Class A | 15,814 | 718,746 | ||||||||||
|
| |||||||||||
AUTOMOBILES – 0.1% | ||||||||||||
Ford Motor Co. | 10,003 | 76,523 | ||||||||||
General Motors Co. | 1,402 | 46,897 | ||||||||||
|
| |||||||||||
123,420 | ||||||||||||
|
| |||||||||||
HOTELS, RESTAURANTS & LEISURE–0.4% | ||||||||||||
Compass Group PLC | 1,376 | 28,958 | ||||||||||
McDonald’s Corp. | 4,253 | 755,205 | ||||||||||
Starbucks Corp. | 1,437 | 92,543 | ||||||||||
|
| |||||||||||
876,706 | ||||||||||||
|
| |||||||||||
HOUSEHOLD DURABLES–0.0% | ||||||||||||
Berkeley Group Holdings PLC | 922 | 40,894 | ||||||||||
Electrolux AB–Class B | 2,241 | 47,237 | ||||||||||
Nikon Corp. | 700 | 10,427 | ||||||||||
|
| |||||||||||
98,558 | ||||||||||||
|
| |||||||||||
INTERNET & DIRECT MARKETING RETAIL–0.3% | ||||||||||||
Amazon.com, Inc.(a) | 50 | 75,098 | ||||||||||
Booking Holdings, Inc.(a) | 360 | 620,071 | ||||||||||
Expedia Group, Inc. | 664 | 74,800 | ||||||||||
Rakuten, Inc. | 3,700 | 24,822 | ||||||||||
|
| |||||||||||
794,791 | ||||||||||||
|
| |||||||||||
MULTILINE RETAIL–0.2% | ||||||||||||
Dollar General Corp. | 4,095 | 442,588 | ||||||||||
Next PLC | 1,033 | 52,597 | ||||||||||
Target Corp. | 1,045 | 69,064 | ||||||||||
|
| |||||||||||
564,249 | ||||||||||||
|
| |||||||||||
SPECIALTY RETAIL–1.9% | ||||||||||||
AutoZone, Inc.(a) | 1,110 | 930,557 | ||||||||||
Best Buy Co., Inc. | 1,153 | 61,063 | ||||||||||
Hennes & Mauritz AB–Class B | 1,668 | 23,721 | ||||||||||
Hikari Tsushin, Inc. | 100 | 15,630 | ||||||||||
Home Depot, Inc. (The) | 8,365 | 1,437,274 | ||||||||||
Ross Stores, Inc. | 10,354 | 861,453 | ||||||||||
TJX Cos., Inc. (The) | 25,520 | 1,141,765 | ||||||||||
Ulta Salon Cosmetics & Fragrance, Inc.(a) | 1,238 | 303,112 | ||||||||||
|
| |||||||||||
4,774,575 | ||||||||||||
|
|
11
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
TEXTILES, APPAREL & LUXURY GOODS–0.5% | ||||||||||||
Burberry Group PLC | 2,499 | $ | 54,875 | |||||||||
Cie Financiere Richemont SA | 855 | 55,137 | ||||||||||
NIKE, Inc.–Class B | 14,142 | 1,048,488 | ||||||||||
|
| |||||||||||
1,158,500 | ||||||||||||
|
| |||||||||||
9,109,545 | ||||||||||||
|
| |||||||||||
COMMUNICATION SERVICES–3.7% | ||||||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES–0.6% | ||||||||||||
Deutsche Telekom AG | 1,484 | 25,223 | ||||||||||
Eurazeo SE | 749 | 53,027 | ||||||||||
Orange SA | 3,588 | 58,146 | ||||||||||
Telenor ASA | 2,817 | 54,707 | ||||||||||
Verizon Communications, Inc. | 20,756 | 1,166,902 | ||||||||||
Washington H Soul Pattinson & Co., Ltd. | 666 | 11,680 | ||||||||||
|
| |||||||||||
1,369,685 | ||||||||||||
|
| |||||||||||
ENTERTAINMENT–0.4% | ||||||||||||
Live Nation Entertainment, Inc.(a) | 917 | 45,162 | ||||||||||
Nexon Co., Ltd.(a) | 3,300 | 42,601 | ||||||||||
Ubisoft Entertainment SA(a) | 533 | 42,940 | ||||||||||
Walt Disney Co. (The) | 8,360 | 916,674 | ||||||||||
|
| |||||||||||
1,047,377 | ||||||||||||
|
| |||||||||||
INTERACTIVE MEDIA & SERVICES–1.7% | ||||||||||||
Alphabet, Inc.–Class A(a) | 32 | 33,439 | ||||||||||
Alphabet, Inc.–Class C(a) | 2,771 | 2,869,676 | ||||||||||
Facebook, Inc.–Class A(a) | 9,784 | 1,282,584 | ||||||||||
Kakaku.com, Inc. | 1,800 | 31,840 | ||||||||||
TripAdvisor, Inc.(a) | 910 | 49,085 | ||||||||||
|
| |||||||||||
4,266,624 | ||||||||||||
|
| |||||||||||
MEDIA–0.7% | ||||||||||||
Comcast Corp.–Class A | 44,391 | 1,511,514 | ||||||||||
Liberty Broadband Corp.(a) | 51 | 3,674 | ||||||||||
Sirius XM Holdings, Inc.(c) | 13,057 | 74,555 | ||||||||||
|
| |||||||||||
1,589,743 | ||||||||||||
|
| |||||||||||
WIRELESS TELECOMMUNICATION SERVICES–0.3% | ||||||||||||
Rogers Communications, Inc.–Class B | 1,013 | 51,911 | ||||||||||
T-Mobile US, Inc.(a) | 8,800 | 559,768 | ||||||||||
|
| |||||||||||
611,679 | ||||||||||||
|
| |||||||||||
8,885,108 | ||||||||||||
|
| |||||||||||
ENERGY–3.5% | ||||||||||||
ENERGY EQUIPMENT & SERVICES–0.2% | ||||||||||||
C&J Energy Services, Inc.(a) | 5,840 | 78,840 | ||||||||||
Halliburton Co. | 4,470 | 118,813 | ||||||||||
National Oilwell Varco, Inc. | 11,604 | 298,223 | ||||||||||
Petrofac Ltd. | 3,430 | 20,820 | ||||||||||
TMK PJSC (GDR)(b) | 4,390 | 14,136 | ||||||||||
|
| |||||||||||
530,832 | ||||||||||||
|
| |||||||||||
OIL, GAS & CONSUMABLE FUELS–3.3% | ||||||||||||
Aker BP ASA | 2,260 | $ | 56,982 | |||||||||
Anadarko Petroleum Corp. | 3,170 | 138,973 | ||||||||||
BP PLC | 66,460 | 420,139 | ||||||||||
Chevron Corp. | 13,168 | 1,432,546 | ||||||||||
Concho Resources, Inc.(a) | 620 | 63,730 | ||||||||||
ConocoPhillips | 140 | 8,729 | ||||||||||
Continental Resources, Inc./OK(a) | 1,890 | 75,959 | ||||||||||
Cosan SA | 4,600 | 39,720 | ||||||||||
Enagas SA | 149 | 4,028 | ||||||||||
EOG Resources, Inc. | 10,109 | 881,606 | ||||||||||
Exxon Mobil Corp. | 14,075 | 959,775 | ||||||||||
Gran Tierra Energy, Inc.(a) | 12,450 | 27,176 | ||||||||||
Husky Energy, Inc. | 3,175 | 32,815 | ||||||||||
Inpex Corp. | 6,100 | 54,051 | ||||||||||
JXTG Holdings, Inc. | 16,700 | 86,732 | ||||||||||
LUKOIL PJSC (Sponsored ADR) | 1,810 | 129,125 | ||||||||||
Marathon Petroleum Corp. | 9,045 | 533,746 | ||||||||||
Motor Oil Hellas Corinth Refineries SA | 4,260 | 102,587 | ||||||||||
Origin Energy Ltd.(a) | 14,220 | 64,866 | ||||||||||
PetroChina Co., Ltd.–Class H | 372,000 | 230,825 | ||||||||||
Petroleo Brasileiro SA (Preference Shares) | 7,900 | 46,078 | ||||||||||
Phillips 66 | 34 | 2,929 | ||||||||||
Repsol SA | 15,274 | 245,561 | ||||||||||
Royal Dutch Shell PLC (Sponsored ADR) | 8,827 | 529,090 | ||||||||||
Royal Dutch Shell PLC–Class A | 299 | 8,800 | ||||||||||
Royal Dutch Shell PLC–Class B | 34,580 | 1,033,855 | ||||||||||
S-Oil Corp. | 704 | 61,407 | ||||||||||
SM Energy Co. | 4,070 | 63,004 | ||||||||||
Suncor Energy, Inc. | 1,465 | 40,917 | ||||||||||
TOTAL SA | 8,160 | 430,400 | ||||||||||
Tupras Turkiye Petrol Rafinerileri AS | 3,580 | 78,865 | ||||||||||
Valero Energy Corp. | 300 | 22,491 | ||||||||||
Whiting Petroleum Corp.(a) | 1,190 | 27,001 | ||||||||||
|
| |||||||||||
7,934,508 | ||||||||||||
|
| |||||||||||
8,465,340 | ||||||||||||
|
| |||||||||||
CONSUMER STAPLES–2.7% | ||||||||||||
BEVERAGES–0.6% | ||||||||||||
Coca-Cola Amatil Ltd. | 6,372 | 36,751 | ||||||||||
Constellation Brands, Inc.–Class A | 3,129 | 503,206 | ||||||||||
PepsiCo, Inc. | 9,164 | 1,012,439 | ||||||||||
|
| |||||||||||
1,552,396 | ||||||||||||
|
| |||||||||||
FOOD & STAPLES RETAILING–1.3% | ||||||||||||
Carrefour SA | 1,608 | 27,476 | ||||||||||
Casino Guichard Perrachon SA | 181 | 7,537 | ||||||||||
Colruyt SA | 735 | 52,421 | ||||||||||
Costco Wholesale Corp. | 3,981 | 810,970 | ||||||||||
J Sainsbury PLC | 15,637 | 52,861 |
12
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
Koninklijke Ahold Delhaize NV | 2,288 | $ | 57,800 | |||||||||
Kroger Co. (The) | 2,797 | 76,917 | ||||||||||
US Foods Holding Corp.(a) | 19,470 | 616,031 | ||||||||||
Walmart, Inc. | 14,916 | 1,389,425 | ||||||||||
Woolworths Group Ltd. | 345 | 7,157 | ||||||||||
|
| |||||||||||
3,098,595 | ||||||||||||
|
| |||||||||||
FOOD PRODUCTS–0.0% | ||||||||||||
Archer-Daniels-Midland Co. | 188 | 7,702 | ||||||||||
Hershey Co. (The) | 720 | 77,170 | ||||||||||
|
| |||||||||||
84,872 | ||||||||||||
|
| |||||||||||
HOUSEHOLD PRODUCTS–0.5% | ||||||||||||
Kimberly-Clark Corp. | 730 | 83,176 | ||||||||||
Procter & Gamble Co. (The) | 11,201 | 1,029,596 | ||||||||||
|
| |||||||||||
1,112,772 | ||||||||||||
|
| |||||||||||
TOBACCO–0.3% | ||||||||||||
Altria Group, Inc. | 16,487 | 814,293 | ||||||||||
British American Tobacco PLC | 568 | 18,073 | ||||||||||
|
| |||||||||||
832,366 | ||||||||||||
|
| |||||||||||
6,681,001 | ||||||||||||
|
| |||||||||||
INDUSTRIALS–2.1% | ||||||||||||
AEROSPACE & DEFENSE–1.0% | ||||||||||||
Boeing Co. (The) | 2,699 | 870,427 | ||||||||||
Northrop Grumman Corp. | 2,603 | 637,475 | ||||||||||
Raytheon Co. | 5,205 | 798,187 | ||||||||||
Thales SA | 332 | 38,797 | ||||||||||
|
| |||||||||||
2,344,886 | ||||||||||||
|
| |||||||||||
AIR FREIGHT & LOGISTICS–0.1% | ||||||||||||
CH Robinson Worldwide, Inc. | 898 | 75,513 | ||||||||||
Expeditors International of Washington, Inc. | 1,142 | 77,759 | ||||||||||
Kuehne & Nagel International AG | 405 | 52,134 | ||||||||||
|
| |||||||||||
205,406 | ||||||||||||
|
| |||||||||||
AIRLINES–0.2% | ||||||||||||
Delta Air Lines, Inc. | 10,767 | 537,273 | ||||||||||
Japan Airlines Co., Ltd. | 1,000 | 35,441 | ||||||||||
|
| |||||||||||
572,714 | ||||||||||||
|
| |||||||||||
COMMERCIAL SERVICES & SUPPLIES–0.0% | ||||||||||||
G4S PLC | 19,800 | 49,981 | ||||||||||
|
| |||||||||||
CONSTRUCTION & ENGINEERING–0.0% | ||||||||||||
ACS Actividades de Construccion y Servicios SA | 108 | 4,180 | ||||||||||
HOCHTIEF AG | 398 | 53,751 | ||||||||||
|
| |||||||||||
57,931 | ||||||||||||
|
| |||||||||||
ELECTRICAL EQUIPMENT–0.0% | ||||||||||||
Legrand SA | 209 | 11,815 | ||||||||||
|
| |||||||||||
INDUSTRIAL CONGLOMERATES–0.4% | ||||||||||||
Honeywell International, Inc. | 6,762 | $ | 893,396 | |||||||||
|
| |||||||||||
MACHINERY–0.1% | ||||||||||||
Dover Corp. | 1,002 | 71,092 | ||||||||||
Pentair PLC | 2,005 | 75,749 | ||||||||||
Volvo AB–Class B | 4,365 | 57,155 | ||||||||||
|
| |||||||||||
203,996 | ||||||||||||
|
| |||||||||||
PROFESSIONAL SERVICES–0.0% | ||||||||||||
RELX PLC (London) | 1,821 | 37,550 | ||||||||||
Wolters Kluwer NV | 704 | 41,400 | ||||||||||
|
| |||||||||||
78,950 | ||||||||||||
|
| |||||||||||
ROAD & RAIL–0.3% | ||||||||||||
Central Japan Railway Co. | 200 | 42,197 | ||||||||||
Norfolk Southern Corp. | 4,164 | 622,685 | ||||||||||
Union Pacific Corp. | 63 | 8,709 | ||||||||||
|
| |||||||||||
673,591 | ||||||||||||
|
| |||||||||||
5,092,666 | ||||||||||||
|
| |||||||||||
MATERIALS–1.3% | ||||||||||||
CHEMICALS–0.5% | ||||||||||||
Arkema SA | 125 | 10,731 | ||||||||||
BASF SE | 677 | 47,155 | ||||||||||
Covestro AG(b) | 577 | 28,576 | ||||||||||
Incitec Pivot Ltd. | 14,030 | 32,431 | ||||||||||
Johnson Matthey PLC | 2,734 | 97,619 | ||||||||||
LyondellBasell Industries NV–Class A | 8,605 | 715,591 | ||||||||||
Methanex Corp. | 1,112 | 53,482 | ||||||||||
Mosaic Co. (The) | 4,170 | 121,806 | ||||||||||
Sasol Ltd. | 1,750 | 52,004 | ||||||||||
Sherwin-Williams Co. (The) | 206 | 81,053 | ||||||||||
|
| |||||||||||
1,240,448 | ||||||||||||
|
| |||||||||||
CONSTRUCTION MATERIALS–0.0% | ||||||||||||
Grupo Cementos de Chihuahua SAB de CV | 4,000 | 20,552 | ||||||||||
|
| |||||||||||
CONTAINERS & PACKAGING–0.0% | ||||||||||||
CCL Industries, Inc.–Class B | 473 | 17,344 | ||||||||||
|
| |||||||||||
METALS & MINING–0.8% | ||||||||||||
Agnico Eagle Mines Ltd. | 4,751 | 191,752 | ||||||||||
Alcoa Corp.(a) | 4,890 | 129,976 | ||||||||||
Anglo American PLC | 1,606 | 35,911 | ||||||||||
Antofagasta PLC | 10,080 | 100,815 | ||||||||||
APERAM SA | 1,000 | 26,313 | ||||||||||
Boliden AB | 6,450 | 139,765 | ||||||||||
Detour Gold Corp.(a) | 4,710 | 39,779 | ||||||||||
First Quantum Minerals Ltd. | 10,500 | 84,911 | ||||||||||
Glencore PLC(a) | 69,620 | 258,852 | ||||||||||
Industrias Penoles SAB de CV | 2,490 | 30,409 | ||||||||||
Lundin Mining Corp. | 13,370 | 55,235 | ||||||||||
MMC Norilsk Nickel PJSC (ADR)(c) | 3,880 | 73,099 |
13
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
Newcrest Mining Ltd. | 4,290 | $ | 65,933 | |||||||||
Norsk Hydro ASA | 15,090 | 68,374 | ||||||||||
Orocobre Ltd.(a) | 5,420 | 12,328 | ||||||||||
OZ Minerals Ltd. | 6,050 | 37,509 | ||||||||||
Polyus PJSC (GDR)(b) | 1,280 | 49,809 | ||||||||||
Rio Tinto Ltd. | 389 | 21,530 | ||||||||||
Rio Tinto PLC | 1,850 | 88,601 | ||||||||||
Sumitomo Metal Mining Co., Ltd. | 1,700 | 45,525 | ||||||||||
Syrah Resources Ltd.(a) | 20,610 | 21,862 | ||||||||||
Vale SA (Sponsored ADR)–Class B | 13,220 | 174,372 | ||||||||||
Yamato Kogyo Co., Ltd. | 2,800 | 65,444 | ||||||||||
|
| |||||||||||
1,818,104 | ||||||||||||
|
| |||||||||||
3,096,448 | ||||||||||||
|
| |||||||||||
UTILITIES–1.0% | ||||||||||||
ELECTRIC UTILITIES–0.6% | ||||||||||||
American Electric Power Co., Inc. | 18,952 | 1,416,473 | ||||||||||
Exelon Corp. | 1,216 | 54,842 | ||||||||||
Power Assets Holdings Ltd. | 1,000 | 6,947 | ||||||||||
Tokyo Electric Power Co. Holdings, Inc.(a) | 5,300 | 31,482 | ||||||||||
|
| |||||||||||
1,509,744 | ||||||||||||
|
| |||||||||||
MULTI-UTILITIES–0.4% | ||||||||||||
Centrica PLC | 17,529 | 30,237 | ||||||||||
Engie SA | 4,024 | 57,817 | ||||||||||
National Grid PLC | 5,882 | 57,545 | ||||||||||
NiSource, Inc. | 32,476 | 823,267 | ||||||||||
Veolia Environnement SA | 2,599 | 53,225 | ||||||||||
|
| |||||||||||
1,022,091 | ||||||||||||
|
| |||||||||||
2,531,835 | ||||||||||||
|
| |||||||||||
TRANSPORTATION–0.0% | ||||||||||||
HIGHWAYS & RAILTRACKS–0.0% | ||||||||||||
Transurban Group | 11,084 | 90,972 | ||||||||||
|
| |||||||||||
HEALTH CARE EQUIPMENT & SERVICES–0.0% | ||||||||||||
HEALTH CARE FACILITIES–0.0% | ||||||||||||
Chartwell Retirement Residences | 4,990 | 49,966 | ||||||||||
|
| |||||||||||
CAPITAL GOODS–0.0% | ||||||||||||
INDUSTRIAL CONGLOMERATES–0.0% | ||||||||||||
Hopewell Holdings Ltd. | 8,500 | 37,378 | ||||||||||
|
| |||||||||||
BANKS–0.0% | ||||||||||||
DIVERSIFIED BANKS–0.0% | ||||||||||||
Banco Comercial Portugues SA(a) | 136,570 | 35,922 | ||||||||||
|
| |||||||||||
CONSUMER DURABLES & APPAREL–0.0% | ||||||||||||
HOMEBUILDING–0.0% | ||||||||||||
Construtora Tenda SA | 3,400 | $ | 28,115 | |||||||||
|
| |||||||||||
Total Common Stocks | 93,129,609 | |||||||||||
|
| |||||||||||
INVESTMENT COMPANIES–25.4% | ||||||||||||
FUNDS AND INVESTMENT TRUSTS–25.4%(d)(e) | ||||||||||||
AB Discovery Growth Fund, Inc.–Class Z | 298,664 | 2,777,578 | ||||||||||
AB Discovery Value Fund–Class Z | 170,241 | 2,912,819 | ||||||||||
Bernstein Fund, Inc.–International Small Cap Portfolio–Class Z | 811,956 | 7,778,538 | ||||||||||
Bernstein Fund, Inc.–International Strategic Equities Portfolio–Class Z | 2,572,450 | 27,139,351 | ||||||||||
Bernstein Fund, Inc.–Small Cap Core Portfolio–Class Z | 294,818 | 2,800,770 | ||||||||||
Sanford C. Bernstein Fund, Inc.–Emerging Markets Portfolio–Class Z | 157,507 | 3,685,667 | ||||||||||
Sanford C. Bernstein Fund, Inc.–International Portfolio–Class Z | 1,054,601 | 14,880,426 | ||||||||||
|
| |||||||||||
Total Investment Companies | 61,975,149 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
CORPORATES–INVESTMENT GRADE–9.1% |
| |||||||||||
FINANCIAL INSTITUTIONS–4.6% | ||||||||||||
BANKING–4.0% | ||||||||||||
AIB Group PLC | U.S.$ | 240 | 238,147 | |||||||||
Banco Santander SA | EUR | 200 | 234,688 | |||||||||
3.50%, 4/11/22 | U.S.$ | 200 | 195,952 | |||||||||
Bank of America Corp. | EUR | 176 | 214,644 | |||||||||
4.45%, 3/03/26 | U.S.$ | 49 | 48,431 | |||||||||
Series DD | 50 | 50,820 | ||||||||||
Series Z | 77 | 78,999 |
14
AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
Bank of Ireland Group PLC | U.S.$ | 335 | $ | 328,575 | ||||||||
Bank of New York Mellon Corp. (The) | 95 | 92,994 | ||||||||||
Barclays Bank PLC | EUR | 50 | 64,251 | |||||||||
Barclays PLC | U.S.$ | 275 | 267,729 | |||||||||
BNP Paribas SA | 215 | 209,550 | ||||||||||
7.625%, 3/30/21(b)(f) | 225 | 229,099 | ||||||||||
CaixaBank SA | EUR | 300 | 336,636 | |||||||||
Capital One Financial Corp. | U.S.$ | 265 | 250,300 | |||||||||
Citigroup, Inc. | EUR | 108 | 121,563 | |||||||||
3.875%, 3/26/25 | U.S.$ | 235 | 225,412 | |||||||||
4.044%, 6/01/24 | 293 | 293,255 | ||||||||||
Compass Bank | 265 | 253,865 | ||||||||||
5.50%, 4/01/20 | 314 | 318,898 | ||||||||||
Cooperatieve Rabobank UA | 320 | 314,298 | ||||||||||
Credit Agricole SA/London | 260 | 255,388 | ||||||||||
Credit Suisse Group Funding Guernsey Ltd. | 385 | 378,128 | ||||||||||
Goldman Sachs Group, Inc. (The) | EUR | 185 | 218,310 | |||||||||
3.75%, 5/22/25 | U.S.$ | 186 | 177,825 | |||||||||
HSBC Holdings PLC | EUR | 160 | 186,519 | |||||||||
4.292%, 9/12/26 | U.S.$ | 338 | 332,088 | |||||||||
6.00%, 9/29/23(b)(f) | EUR | 200 | 242,578 | |||||||||
JPMorgan Chase & Co. | U.S.$ | 265 | 256,080 | |||||||||
Series Z | 150 | 148,313 | ||||||||||
Lloyds Banking Group PLC | EUR | 210 | 231,334 | |||||||||
4.582%, 12/10/25 | U.S.$ | 200 | 188,348 | |||||||||
Morgan Stanley | 175 | 177,986 | ||||||||||
Series G | EUR | 342 | 380,071 | |||||||||
1.75%, 3/11/24 | 182 | 213,264 | ||||||||||
4.35%, 9/08/26 | U.S.$ | 520 | 504,379 | |||||||||
Nationwide Building Society | U.S.$ | 290 | $ | 263,491 | ||||||||
Nordea Bank Abp | 240 | 236,623 | ||||||||||
Santander Holdings USA, Inc. | 265 | 250,155 | ||||||||||
Santander UK PLC | 200 | 195,916 | ||||||||||
Standard Chartered PLC | 335 | 331,379 | ||||||||||
UBS Group Funding Switzerland AG | 305 | 303,271 | ||||||||||
US Bancorp | 116 | 108,990 | ||||||||||
|
| |||||||||||
9,948,542 | ||||||||||||
|
| |||||||||||
FINANCE–0.1% | ||||||||||||
Synchrony Financial | 192 | 174,273 | ||||||||||
|
| |||||||||||
INSURANCE–0.3% | ||||||||||||
Allianz SE | EUR | 200 | 225,401 | |||||||||
Aviva PLC | 166 | 183,610 | ||||||||||
Series E | 125 | 159,249 | ||||||||||
Caisse Nationale de Reassurance Mutuelle Agricole Groupama | 100 | 127,064 | ||||||||||
MetLife, Inc. | U.S.$ | 70 | 105,836 | |||||||||
|
| |||||||||||
801,160 | ||||||||||||
|
| |||||||||||
REITS–0.2% | ||||||||||||
American Tower Corp. | 70 | 69,961 | ||||||||||
Host Hotels & Resorts LP | 10 | 9,753 | ||||||||||
Welltower, Inc. | 238 | 234,023 | ||||||||||
WPC Eurobond BV | EUR | 148 | 162,388 | |||||||||
|
| |||||||||||
476,125 | ||||||||||||
|
| |||||||||||
11,400,100 | ||||||||||||
|
| |||||||||||
INDUSTRIAL–4.0% | ||||||||||||
BASIC–0.4% | ||||||||||||
DowDuPont, Inc. | U.S.$ | 185 | 189,153 | |||||||||
Eastman Chemical Co. | 84 | 80,960 |
15
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
Glencore Finance Europe Ltd. | EUR | 110 | $ | 125,702 | ||||||||
Series E | 125 | 137,168 | ||||||||||
Glencore Funding LLC | U.S.$ | 72 | 71,286 | |||||||||
SABIC Capital II BV | 335 | 333,837 | ||||||||||
Yamana Gold, Inc. | 142 | 138,527 | ||||||||||
|
| |||||||||||
1,076,633 | ||||||||||||
|
| |||||||||||
CAPITAL GOODS–0.0% | ||||||||||||
General Electric Co. | 68 | 52,220 | ||||||||||
Wabtec Corp. | 67 | 64,580 | ||||||||||
|
| |||||||||||
116,800 | ||||||||||||
|
| |||||||||||
COMMUNICATIONS–MEDIA–0.2% | ||||||||||||
Charter Communications Operating LLC/Charter Communications Operating Capital | 165 | 163,781 | ||||||||||
Cox Communications, Inc. | 91 | 87,591 | ||||||||||
Time Warner Cable LLC | 165 | 166,094 | ||||||||||
|
| |||||||||||
417,466 | ||||||||||||
|
| |||||||||||
COMMUNICATIONS–TELECOMMUNICATIONS–0.6% | ||||||||||||
AT&T, Inc. | EUR | 100 | 121,530 | |||||||||
3.40%, 5/15/25 | U.S.$ | 575 | 541,667 | |||||||||
4.125%, 2/17/26 | 345 | 337,369 | ||||||||||
Rogers Communications, Inc. | CAD | 46 | 34,585 | |||||||||
Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC | U.S.$ | 200 | 196,310 | |||||||||
Vodafone Group PLC | 78 | 76,708 | ||||||||||
4.125%, 5/30/25 | 171 | 168,946 | ||||||||||
|
| |||||||||||
1,477,115 | ||||||||||||
|
| |||||||||||
CONSUMER CYCLICAL–AUTOMOTIVE–0.2% |
| |||||||||||
General Motors Financial Co., Inc. | 50 | 47,246 | ||||||||||
Volkswagen Bank GmbH | EUR | 200 | $ | 221,675 | ||||||||
Volkswagen International Finance NV | 100 | 108,624 | ||||||||||
Volkswagen Leasing GmbH | 120 | 142,900 | ||||||||||
|
| |||||||||||
520,445 | ||||||||||||
|
| |||||||||||
CONSUMER CYCLICAL–ENTERTAINMENT–0.2% | ||||||||||||
Carnival Corp. | U.S.$ | 310 | 364,684 | |||||||||
|
| |||||||||||
CONSUMERNON-CYCLICAL–0.8% |
| |||||||||||
Becton Dickinson and Co. | 66 | 63,817 | ||||||||||
Biogen, Inc. | 251 | 250,194 | ||||||||||
Cigna Corp. | 92 | 91,775 | ||||||||||
4.125%, 11/15/25(b) | 110 | 109,766 | ||||||||||
CVS Health Corp. | 120 | 118,775 | ||||||||||
4.30%, 3/25/28 | 120 | 117,439 | ||||||||||
Philip Morris International, Inc. | EUR | 193 | 213,587 | |||||||||
Reynolds American, Inc. | U.S.$ | 145 | 139,467 | |||||||||
Takeda Pharmaceutical Co., Ltd. | EUR | 285 | 328,344 | |||||||||
4.40%, 11/26/23(b) | U.S.$ | 275 | 278,132 | |||||||||
Tyson Foods, Inc. | 206 | 204,646 | ||||||||||
|
| |||||||||||
1,915,942 | ||||||||||||
|
| |||||||||||
ENERGY–0.9% | ||||||||||||
Encana Corp. | 140 | 139,962 | ||||||||||
Enterprise Products Operating LLC | 278 | 271,598 | ||||||||||
Hess Corp. | 199 | 182,423 | ||||||||||
Kinder Morgan Energy Partners LP | 302 | 301,779 | ||||||||||
Marathon Petroleum Corp. | 163 | 167,628 | ||||||||||
Noble Energy, Inc. | 170 | 163,997 | ||||||||||
4.15%, 12/15/21 | 78 | 78,199 |
16
AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | U.S.$ | 232 | $ | 219,996 | ||||||||
Sabine Pass Liquefaction LLC | 146 | 146,958 | ||||||||||
Sunoco Logistics Partners Operations LP | 240 | 235,078 | ||||||||||
TransCanada PipeLines Ltd. | 215 | 239,895 | ||||||||||
|
| |||||||||||
2,147,513 | ||||||||||||
|
| |||||||||||
OTHER INDUSTRIAL–0.1% |
| |||||||||||
Alfa SAB de CV | 200 | 198,500 | ||||||||||
|
| |||||||||||
SERVICES–0.2% | ||||||||||||
Expedia Group, Inc. | 185 | 167,924 | ||||||||||
S&P Global, Inc. | 226 | 232,884 | ||||||||||
Total System Services, Inc. | ||||||||||||
3.75%, 6/01/23 | 45 | 44,509 | ||||||||||
4.00%, 6/01/23 | 83 | 82,866 | ||||||||||
|
| |||||||||||
528,183 | ||||||||||||
|
| |||||||||||
TECHNOLOGY–0.3% | ||||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | ||||||||||||
3.625%, 1/15/24 | 53 | 50,118 | ||||||||||
3.875%, 1/15/27 | 117 | 104,907 | ||||||||||
Dell International LLC/EMC Corp. | 96 | 96,455 | ||||||||||
Fidelity National Information Services, Inc. | EUR | 100 | 114,797 | |||||||||
KLA-Tencor Corp. | U.S.$ | 225 | 230,418 | |||||||||
Motorola Solutions, Inc. | 6 | 6,782 | ||||||||||
Seagate HDD Cayman | 127 | 113,034 | ||||||||||
VMware, Inc. | 85 | 81,093 | ||||||||||
|
| |||||||||||
797,604 | ||||||||||||
|
| |||||||||||
TRANSPORTATION–SERVICES–0.1% | ||||||||||||
Adani Ports & Special Economic Zone Ltd. | 200 | 197,277 | ||||||||||
|
| |||||||||||
9,758,162 | ||||||||||||
|
| |||||||||||
UTILITY–0.5% | ||||||||||||
ELECTRIC–0.5% | ||||||||||||
Abu Dhabi National Energy Co. PJSC | 250 | 247,500 | ||||||||||
Adani Transmission Ltd. | U.S.$ | 210 | $ | 179,714 | ||||||||
Enel Chile SA | 133 | 131,930 | ||||||||||
Enel Finance International NV | 240 | 234,094 | ||||||||||
Israel Electric Corp., Ltd. | ||||||||||||
Series 6 | 320 | 322,400 | ||||||||||
Pacific Gas & Electric Co. | 38 | 35,505 | ||||||||||
|
| |||||||||||
1,151,143 | ||||||||||||
|
| |||||||||||
Total Corporates–Investment Grade | 22,309,405 | |||||||||||
|
| |||||||||||
GOVERNMENTS–TREASURIES–8.4% | ||||||||||||
AUSTRALIA–0.8% | ||||||||||||
Australia Government Bond | ||||||||||||
Series 136 | AUD | 454 | 379,694 | |||||||||
Series 152 | 2,092 | 1,528,329 | ||||||||||
|
| |||||||||||
1,908,023 | ||||||||||||
|
| |||||||||||
CANADA–0.3% | ||||||||||||
Canadian Government Bond | ||||||||||||
2.00%, 6/01/28 | CAD | 426 | 312,916 | |||||||||
5.00%, 6/01/37 | 334 | 350,318 | ||||||||||
|
| |||||||||||
663,234 | ||||||||||||
|
| |||||||||||
FRANCE–1.2% | ||||||||||||
French Republic Government Bond OAT | ||||||||||||
0.50%, 5/25/25(b) | EUR | 1,473 | 1,718,703 | |||||||||
1.00%, 5/25/27(b) | 654 | 778,582 | ||||||||||
1.75%, 6/25/39(b) | 338 | 414,269 | ||||||||||
|
| |||||||||||
2,911,554 | ||||||||||||
|
| |||||||||||
ITALY–1.2% | ||||||||||||
Italy Buoni Poliennali Del Tesoro | ||||||||||||
1.35%, 4/15/22 | 125 | 143,733 | ||||||||||
2.05%, 8/01/27 | 624 | 688,580 | ||||||||||
2.20%, 6/01/27 | 975 | 1,090,921 | ||||||||||
4.50%, 3/01/24 | 788 | 1,015,671 | ||||||||||
|
| |||||||||||
2,938,905 | ||||||||||||
|
| |||||||||||
JAPAN–0.7% | ||||||||||||
Japan Government Ten Year Bond |
| |||||||||||
Series 342 | JPY | 137,700 | 1,278,768 | |||||||||
Japan Government Twenty Year Bond | ||||||||||||
Series 158 | 57,400 | 531,596 | ||||||||||
|
| |||||||||||
1,810,364 | ||||||||||||
|
|
17
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
MALAYSIA–0.4% | ||||||||||||
Malaysia Government Bond | ||||||||||||
Series 0313 | MYR | 800 | $ | 190,754 | ||||||||
Series 515 | 3,659 | 886,218 | ||||||||||
|
| |||||||||||
1,076,972 | ||||||||||||
|
| |||||||||||
SPAIN–1.3% | ||||||||||||
Spain Government Bond | ||||||||||||
1.95%, 4/30/26(b) | EUR | 775 | 947,653 | |||||||||
2.35%, 7/30/33(b) | 485 | 583,529 | ||||||||||
4.40%, 10/31/23(b) | 1,116 | 1,522,343 | ||||||||||
|
| |||||||||||
3,053,525 | ||||||||||||
|
| |||||||||||
UNITED KINGDOM–0.2% | ||||||||||||
United Kingdom Gilt | GBP | 303 | 589,343 | |||||||||
|
| |||||||||||
UNITED STATES–2.3% | ||||||||||||
U.S. Treasury Notes | ||||||||||||
1.125%, 2/28/19 | U.S.$ | 195 | 194,574 | |||||||||
1.25%, 5/31/19 | 4,075 | 4,053,988 | ||||||||||
1.625%, 2/15/26 | 435 | 407,133 | ||||||||||
2.25%, 2/15/27 | 890 | 863,982 | ||||||||||
|
| |||||||||||
5,519,677 | ||||||||||||
|
| |||||||||||
Total Governments–Treasuries | 20,471,597 | |||||||||||
|
| |||||||||||
MORTGAGE PASS-THROUGHS–3.1% | ||||||||||||
AGENCY FIXED RATE30-YEAR–3.1% | ||||||||||||
Federal Home Loan Mortgage Corp. Gold | ||||||||||||
Series 2018 | 633 | 645,872 | ||||||||||
4.50%, 11/01/48 | 447 | 462,429 | ||||||||||
Federal National Mortgage Association | ||||||||||||
Series 2013 | 831 | 853,958 | ||||||||||
Series 2017 | 374 | 373,820 | ||||||||||
Series 2018 | 1,346 | 1,346,038 | ||||||||||
4.00%, 8/01/48–9/01/48 | 675 | 690,752 | ||||||||||
4.50%, 9/01/48 | 1,223 | 1,274,421 | ||||||||||
Series 2019 | 1,061 | 1,098,301 | ||||||||||
5.00%, 1/01/49, TBA | 900 | 942,469 | ||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 7,688,060 | |||||||||||
|
| |||||||||||
INFLATION-LINKED SECURITIES–2.9% | ||||||||||||
JAPAN–1.9% | ||||||||||||
Japanese Government CPI Linked Bond | ||||||||||||
Series 21 | JPY | 107,597 | $ | 1,013,742 | ||||||||
Series 22 | 112,385 | 1,059,222 | ||||||||||
Series 23 | 275,277 | 2,591,953 | ||||||||||
|
| |||||||||||
4,664,917 | ||||||||||||
|
| |||||||||||
NEW ZEALAND–0.1% | ||||||||||||
New Zealand Government Inflation Linked Bond | ||||||||||||
Series 0925 | NZD | 320 | 225,383 | |||||||||
|
| |||||||||||
UNITED STATES–0.9% | ||||||||||||
U.S. Treasury Inflation Index | ||||||||||||
0.125%, 4/15/20 (TIPS) | U.S.$ | 508 | 496,171 | |||||||||
0.375%, 7/15/25 (TIPS) | 1,674 | 1,614,744 | ||||||||||
|
| |||||||||||
2,110,915 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 7,001,215 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS–2.3% | ||||||||||||
RISK SHARE FLOATING RATE–1.5% | ||||||||||||
Bellemeade Re Ltd. | 240 | 241,209 | ||||||||||
Eagle RE Ltd. | 162 | 161,863 | ||||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes | 262 | 281,816 | ||||||||||
Series2014-DN4, Class M3 | 185 | 202,101 | ||||||||||
Series2014-HQ3, Class M3 | 205 | 224,491 | ||||||||||
Series 2016-DNA1, Class M3 | 250 | 295,819 |
18
AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | U.S.$ | 83 | $ | 87,429 | ||||||||
Series2014-C04, Class 2M2 | 48 | 52,635 | ||||||||||
Series2015-C01, Class 1M2 | 98 | 105,371 | ||||||||||
Series2015-C01, Class 2M2 | 81 | 86,900 | ||||||||||
Series2015-C02, Class 1M2 | 131 | 140,289 | ||||||||||
Series2015-C02, Class 2M2 | 113 | 119,948 | ||||||||||
Series2015-C03, Class 1M2 7.506% (LIBOR 1 Month + 5.00%), 7/25/25(g) | 64 | 70,934 | ||||||||||
Series2015-C03, Class 2M2 | 168 | 183,233 | ||||||||||
Series2015-C04, Class 1M2 | 59 | 66,702 | ||||||||||
Series2015-C04, Class 2M2 | 86 | 96,258 | ||||||||||
Series2016-C01, Class 1M2 | 204 | 240,050 | ||||||||||
Series2016-C01, Class 2M2 | 147 | 170,747 | ||||||||||
Series2016-C03, Class 2M2 | 296 | 334,253 | ||||||||||
Series2016-C05, Class 2M2 | 200 | 218,306 | ||||||||||
JP Morgan Madison Avenue Securities Trust | U.S.$ | 28 | $ | 30,082 | ||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 129 | 145,612 | ||||||||||
Series2015-WF1, Class 2M2 | 40 | 46,427 | ||||||||||
|
| |||||||||||
3,602,475 | ||||||||||||
|
| |||||||||||
AGENCY FLOATING RATE–0.5% | ||||||||||||
Federal Home Loan Mortgage Corp. REMICs | 639 | 101,817 | ||||||||||
Series 4693, Class SL | 590 | 102,384 | ||||||||||
Series 4719, Class JS | 512 | 80,377 | ||||||||||
Series 4727, Class SA | 664 | 112,048 | ||||||||||
Federal National Mortgage Association REMICs | 306 | 56,904 | ||||||||||
Series2012-70, Class SA | 553 | 106,661 | ||||||||||
Series2016-106, Class ES | 602 | 98,481 | ||||||||||
Series2017-16, Class SG | 601 | 95,669 | ||||||||||
Series2017-81, Class SA | 608 | 103,893 | ||||||||||
Series2017-97, Class LS | 474 | 84,939 | ||||||||||
Government National Mortgage Association | 452 | 73,689 |
19
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
Series2017-65, Class ST | U.S.$ | 582 | $ | 94,984 | ||||||||
|
| |||||||||||
1,111,846 | ||||||||||||
|
| |||||||||||
NON-AGENCY FIXED RATE–0.2% | ||||||||||||
Alternative Loan Trust | 26 | 24,184 | ||||||||||
Series 2005-57CB, Class 4A3 | 57 | 48,063 | ||||||||||
Series 2006-24CB, Class A16 | 113 | 92,849 | ||||||||||
Series 2006-28CB, Class A14 | 83 | 66,148 | ||||||||||
Series2006-J1, Class 1A13 | 63 | 56,176 | ||||||||||
Chase Mortgage Finance Trust | 39 | 31,080 | ||||||||||
Citigroup Mortgage Loan Trust, Inc. | 11 | 10,975 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 58 | 47,358 | ||||||||||
Series2006-13, Class 1A19 6.25%, 9/25/36 | 32 | 24,828 | ||||||||||
Credit Suisse Mortgage Trust | 114 | 88,444 | ||||||||||
First Horizon Alternative Mortgage Securities Trust | 108 | 85,828 | ||||||||||
Wells Fargo Mortgage Backed Securities Trust | 27 | 26,429 | ||||||||||
|
| |||||||||||
602,362 | ||||||||||||
|
| |||||||||||
NON-AGENCY FLOATING RATE–0.1% | ||||||||||||
DeutscheAlt-A Securities Mortgage Loan Trust | 266 | 148,894 | ||||||||||
HomeBanc Mortgage Trust | U.S.$ | 87 | $ | 74,377 | ||||||||
|
| |||||||||||
223,271 | ||||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 5,539,954 | |||||||||||
|
| |||||||||||
CORPORATES–NON-INVESTMENT GRADE–2.2% |
| |||||||||||
FINANCIAL INSTITUTIONS–1.3% |
| |||||||||||
BANKING–1.1% | ||||||||||||
ABN AMRO Bank NV | EUR | 200 | 233,733 | |||||||||
Allied Irish Banks PLC | 200 | 238,316 | ||||||||||
American Express Co. | U.S.$ | 85 | 81,654 | |||||||||
Barclays Bank PLC | 44 | 45,398 | ||||||||||
Barclays PLC | EUR | 200 | 242,612 | |||||||||
CIT Group, Inc. | U.S.$ | 106 | 103,937 | |||||||||
Citigroup, Inc. | 90 | 81,794 | ||||||||||
Credit Suisse Group AG | 240 | 227,472 | ||||||||||
Danske Bank A/S | EUR | 200 | 229,436 | |||||||||
Goldman Sachs Group, Inc. (The) | U.S.$ | 55 | 53,059 | |||||||||
Series P | 142 | 119,619 | ||||||||||
Morgan Stanley | 95 | 92,681 | ||||||||||
Royal Bank of Scotland Group PLC | 200 | 207,066 | ||||||||||
Series U | 200 | 179,204 | ||||||||||
Societe Generale SA | 230 | 225,759 | ||||||||||
Standard Chartered PLC | 200 | 156,218 | ||||||||||
UBS Group Funding Switzerland AG | 230 | 233,494 | ||||||||||
|
| |||||||||||
2,751,452 | ||||||||||||
|
|
20
AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
FINANCE–0.1% | ||||||||||||
Navient Corp. | U.S.$ | 170 | $ | 164,201 | ||||||||
|
| |||||||||||
INSURANCE–0.1% | ||||||||||||
Voya Financial, Inc. | 145 | 136,151 | ||||||||||
|
| |||||||||||
3,051,804 | ||||||||||||
|
| |||||||||||
INDUSTRIAL–0.9% | ||||||||||||
BASIC–0.1% | ||||||||||||
SPCM SA | 200 | 177,762 | ||||||||||
|
| |||||||||||
COMMUNICATIONS–MEDIA–0.0% | ||||||||||||
CSC Holdings LLC | 45 | 46,313 | ||||||||||
|
| |||||||||||
COMMUNICATIONS–TELECOMMUNICATIONS–0.2% | ||||||||||||
Sprint Capital Corp. | 370 | 372,616 | ||||||||||
|
| |||||||||||
CONSUMER CYCLICAL–OTHER–0.1% | ||||||||||||
International Game Technology PLC | 200 | 200,428 | ||||||||||
KB Home | 107 | 106,774 | ||||||||||
|
| |||||||||||
307,202 | ||||||||||||
|
| |||||||||||
CONSUMERNON-CYCLICAL–0.1% | ||||||||||||
HCA, Inc. | 70 | 68,097 | ||||||||||
5.625%, 9/01/28 | 73 | 70,567 | ||||||||||
Spectrum Brands, Inc. | 135 | 128,245 | ||||||||||
|
| |||||||||||
266,909 | ||||||||||||
|
| |||||||||||
ENERGY–0.2% | ||||||||||||
Antero Resources Corp. | 29 | 27,259 | ||||||||||
Diamond Offshore Drilling, Inc. | 111 | 61,987 | ||||||||||
Nabors Industries, Inc. | 212 | 167,963 | ||||||||||
PDC Energy, Inc. | 137 | 121,424 | ||||||||||
SM Energy Co. | 53 | 46,906 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 132 | 128,957 | ||||||||||
|
| |||||||||||
554,496 | ||||||||||||
|
| |||||||||||
OTHER INDUSTRIAL–0.1% |
| |||||||||||
Belden, Inc. | EUR | 130 | 135,545 | |||||||||
ProGroup AG | EUR | 125 | $ | 137,738 | ||||||||
|
| |||||||||||
273,283 | ||||||||||||
|
| |||||||||||
TECHNOLOGY–0.1% | ||||||||||||
Western Digital Corp. | U.S.$ | 167 | 144,869 | |||||||||
|
| |||||||||||
TRANSPORTATION–SERVICES–0.0% | ||||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 94 | 81,497 | ||||||||||
|
| |||||||||||
2,224,947 | ||||||||||||
|
| |||||||||||
UTILITY–0.0% | ||||||||||||
ELECTRIC–0.0% | ||||||||||||
AES Corp./VA | 99 | 97,318 | ||||||||||
|
| |||||||||||
TotalCorporates–Non-Investment Grade | 5,374,069 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES–2.2% | ||||||||||||
NON-AGENCY FIXED RATE CMBS–1.3% | ||||||||||||
CGRBS Commercial Mortgage Trust | 495 | 500,408 | ||||||||||
Citigroup Commercial Mortgage Trust | 2,391 | 154,703 | ||||||||||
Commercial Mortgage Trust | 119 | 114,903 | ||||||||||
GS Mortgage Securities Corp. II | 412 | 409,117 | ||||||||||
GS Mortgage Securities Trust | 276 | 273,263 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | 39 | 39,199 | ||||||||||
Series2012-C6, Class E | 119 | 108,113 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | 355 | 361,020 | ||||||||||
Series2015-C32, Class C | 195 | 191,425 |
21
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
LB-UBS Commercial Mortgage Trust | U.S.$ | 49 | $ | 33,515 | ||||||||
LSTAR Commercial Mortgage Trust | 115 | 114,059 | ||||||||||
Series2016-4, Class A2 | 161 | 156,746 | ||||||||||
Morgan Stanley Capital I Trust | 112 | 104,144 | ||||||||||
UBS Commercial Mortgage Trust | 300 | 308,890 | ||||||||||
Wells Fargo Commercial Mortgage Trust | 197 | 189,813 | ||||||||||
WF-RBS Commercial Mortgage Trust | 154 | 154,231 | ||||||||||
|
| |||||||||||
3,213,549 | ||||||||||||
|
| |||||||||||
NON-AGENCY FLOATING RATE CMBS–0.9% | ||||||||||||
Ashford Hospitality Trust | 200 | 199,431 | ||||||||||
BAMLL Commercial Mortgage Securities Trust | 375 | 372,625 | ||||||||||
BHMS | 195 | 192,728 | ||||||||||
BX Trust | 165 | 163,256 | ||||||||||
Series 2018-EXCL, Class A | 180 | 178,257 | ||||||||||
Credit Suisse Mortgage Trust | U.S.$ | 110 | $ | 109,873 | ||||||||
DBWF Mortgage Trust | 166 | 163,857 | ||||||||||
Invitation Homes Trust | 230 | 230,083 | ||||||||||
Morgan Stanley Capital I Trust | 90 | 89,603 | ||||||||||
RETL | 81 | 80,844 | ||||||||||
Starwood Retail Property Trust | 343 | 342,364 | ||||||||||
|
| |||||||||||
2,122,921 | ||||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 5,336,470 | |||||||||||
|
| |||||||||||
EMERGING MARKETS–TREASURIES–1.0% | ||||||||||||
ARGENTINA–0.1% | ||||||||||||
Argentina POM Politica Monetaria | ARS | 7,729 | 218,346 | |||||||||
|
| |||||||||||
BRAZIL–0.9% | ||||||||||||
Brazil Letras do Tesouro Nacional | BRL | 8,485 | 2,122,905 | |||||||||
|
| |||||||||||
Total Emerging Markets–Treasuries | 2,341,251 | |||||||||||
|
| |||||||||||
COVERED BONDS–0.9% | ||||||||||||
Bank of Montreal | EUR | 315 | 369,158 |
22
AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
Canadian Imperial Bank of Commerce | U.S.$ | 325 | $ | 371,002 | ||||||||
Credit Suisse AG/Guernsey | 320 | 374,299 | ||||||||||
Danske Bank A/S | 280 | 321,464 | ||||||||||
DNB Boligkreditt AS | EUR | 300 | 373,413 | |||||||||
Turkiye Vakiflar Bankasi TAO | 140 | 153,581 | ||||||||||
UBS AG/London | 158 | 204,327 | ||||||||||
1.375%, 4/16/21(b) | 140 | 165,846 | ||||||||||
|
| |||||||||||
Total Covered Bonds | 2,333,090 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES–0.8% | ||||||||||||
AUTOS–FIXED RATE–0.4% |
| |||||||||||
AmeriCredit Automobile Receivables Trust | U.S.$ | 38 | 37,938 | |||||||||
CPS Auto Receivables Trust | 97 | 96,239 | ||||||||||
CPS Auto Trust | 8 | 8,227 | ||||||||||
DT Auto Owner Trust | 98 | 97,514 | ||||||||||
Exeter Automobile Receivables Trust | 140 | 147,471 | ||||||||||
Series2017-2A, Class A | 23 | 22,718 | ||||||||||
Series2018-1A, Class A | 86 | 85,587 | ||||||||||
Series2018-2A, Class A | 134 | 134,122 | ||||||||||
Flagship Credit Auto Trust | 42 | 41,622 | ||||||||||
Series2016-4, Class D | 100 | 100,301 | ||||||||||
Series2017-2, Class A | 62 | 62,162 | ||||||||||
Series2017-3, Class A | 74 | 73,919 | ||||||||||
Series2017-4, Class A | 67 | 66,499 | ||||||||||
|
| |||||||||||
974,319 | ||||||||||||
|
| |||||||||||
OTHER ABS–FIXED RATE–0.4% | ||||||||||||
CLUB Credit Trust | U.S.$ | 52 | $ | 51,368 | ||||||||
CNH Equipment Trust | 145 | 144,629 | ||||||||||
Consumer Loan Underlying Bond Credit Trust | 91 | 90,880 | ||||||||||
Marlette Funding Trust | 12 | 12,293 | ||||||||||
Series2017-2A, Class A | 18 | 18,260 | ||||||||||
Series2017-3A, Class A | 51 | 50,746 | ||||||||||
Prosper Marketplace Issuance Trust | 100 | 99,838 | ||||||||||
SBA Tower Trust | 251 | 248,497 | ||||||||||
SoFi Consumer Loan Program LLC | 66 | 65,806 | ||||||||||
SoFi Consumer Loan Program Trust | 117 | 116,762 | ||||||||||
|
| |||||||||||
899,079 | ||||||||||||
|
| |||||||||||
HOME EQUITY LOANS–FIXED RATE–0.0% | ||||||||||||
Credit-Based Asset Servicing & Securitization LLC | 44 | 44,003 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 1,917,401 | |||||||||||
|
| |||||||||||
COLLATERALIZED LOAN OBLIGATIONS–0.5% |
| |||||||||||
CLO–FLOATING RATE–0.5% |
| |||||||||||
ICG US CLO Ltd. | 300 | 297,294 | ||||||||||
Octagon Loan Funding Ltd. | 320 | 316,190 |
23
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
TIAA CLO IV Ltd. | U.S.$ | 250 | $ | 250,000 | ||||||||
Voya CLO Ltd. | 500 | 491,648 | ||||||||||
|
| |||||||||||
Total Collateralized Loan Obligations | 1,355,132 | |||||||||||
|
| |||||||||||
GOVERNMENTS–SOVEREIGN AGENCIES–0.5% |
| |||||||||||
CANADA–0.5% | ||||||||||||
Canada Housing Trust No. 1 | CAD | 570 | 412,841 | |||||||||
1.25%, 6/15/21(b) | 1,220 | 876,654 | ||||||||||
|
| |||||||||||
Total Governments–Sovereign Agencies | 1,289,495 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS–PROVINCIAL BONDS–0.3% |
| |||||||||||
CANADA–0.3% | ||||||||||||
Province of Ontario Canada | 988 | 713,174 | ||||||||||
|
| |||||||||||
GOVERNMENTS–SOVEREIGN BONDS–0.3% |
| |||||||||||
MEXICO–0.1% | ||||||||||||
Mexico Government International Bond | U.S.$ | 200 | 190,850 | |||||||||
|
| |||||||||||
QATAR–0.1% | ||||||||||||
Qatar Government International Bond | 250 | 252,750 | ||||||||||
|
| |||||||||||
SAUDI ARABIA–0.1% | ||||||||||||
Saudi Government International Bond | 251 | 248,741 | ||||||||||
|
| |||||||||||
Total Governments–Sovereign Bonds | 692,341 | |||||||||||
|
| |||||||||||
EMERGING MARKETS–CORPORATE BONDS–0.2% |
| |||||||||||
INDUSTRIAL–0.2% | ||||||||||||
CONSUMERNON-CYCLICAL–0.1% |
| |||||||||||
Minerva Luxembourg SA | 200 | 185,750 | ||||||||||
|
| |||||||||||
ENERGY–0.0% | ||||||||||||
Petrobras Global Finance BV | 15 | 15,210 | ||||||||||
|
| |||||||||||
TRANSPORTATION–SERVICES–0.1% | ||||||||||||
Rumo Luxembourg SARL | U.S.$ | 200 | $ | 191,500 | ||||||||
|
| |||||||||||
392,460 | ||||||||||||
|
| |||||||||||
UTILITY–0.0% | ||||||||||||
ELECTRIC–0.0% | ||||||||||||
Genneia SA | 76 | 68,495 | ||||||||||
Terraform Global Operating LLC | 42 | 38,848 | ||||||||||
|
| |||||||||||
107,343 | ||||||||||||
|
| |||||||||||
Total Emerging Markets–Corporate Bonds | 499,803 | |||||||||||
|
| |||||||||||
EMERGING MARKETS–SOVEREIGNS–0.2% | ||||||||||||
COSTA RICA–0.1% | ||||||||||||
Costa Rica Government International Bond | 200 | 171,350 | ||||||||||
|
| |||||||||||
DOMINICAN REPUBLIC–0.1% |
| |||||||||||
Dominican Republic International Bond | 190 | 188,717 | ||||||||||
|
| |||||||||||
IVORY COAST–0.0% | ||||||||||||
Ivory Coast Government International Bond | EUR | 125 | 137,132 | |||||||||
|
| |||||||||||
Total Emerging Markets–Sovereigns | 497,199 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS–US MUNICIPAL BONDS–0.2% |
| |||||||||||
CALIFORNIA–0.2% | ||||||||||||
State of California | U.S.$ | 345 | 491,208 | |||||||||
|
| |||||||||||
QUASI-SOVEREIGNS–0.1% |
| |||||||||||
QUASI-SOVEREIGN BONDS–0.1% | ||||||||||||
INDONESIA–0.1% | ||||||||||||
Perusahaan Listrik Negara PT | 200 | 200,500 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
RIGHTS–0.0% | ||||||||||||
ENERGY–0.0% | ||||||||||||
OIL, GAS & CONSUMABLE FUELS–0.0% |
| |||||||||||
Repsol SA, expiring 1/09/19(a) | 14,511 | 6,650 | ||||||||||
|
|
24
AB Variable Products Series Fund |
Principal | U.S. $ Value | |||||||||||
SHORT-TERM INVESTMENTS–2.1% | ||||||||||||
U.S. TREASURY BILLS–2.0% |
| |||||||||||
U.S. Treasury Bill | U.S.$ | 4,810 | 4,796,935 | |||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES–0.1% |
| |||||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(d)(e)(m) | 241,075 | 241,075 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 5,038,010 | |||||||||||
|
| |||||||||||
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–100.8% | 246,200,782 | |||||||||||
|
| |||||||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.1% | ||||||||||||
INVESTMENT COMPANIES–0.1% | ||||||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(d)(e)(m) | 154,814 | $ | 154,814 | |||||||||
|
| |||||||||||
TOTAL INVESTMENTS–100.9% | 246,355,596 | |||||||||||
Other assets less liabilities–(0.9)% | (2,114,101 | ) | ||||||||||
|
| |||||||||||
NET ASSETS–100.0% | $ | 244,241,495 | ||||||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at December 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||
10 Yr Canadian Bond Futures | 24 | March 2019 | CAD | 2,400 | $ | 2,327,077 | $ | 2,404,395 | $ | 77,318 | ||||||||||||||
10 Yr Mini Japan Government Bond Futures | 35 | March 2019 | JPY | 350,000 | 4,842,761 | 4,873,911 | 31,150 | |||||||||||||||||
Euro Buxl 30 Yr Bond Futures | 11 | March 2019 | EUR | 1,100 | 2,243,278 | 2,276,398 | 33,120 | |||||||||||||||||
Euro-Schatz Futures | 53 | March 2019 | EUR | 5,300 | 6,794,854 | 6,797,527 | 2,673 | |||||||||||||||||
U.S.T-Note 2 Yr (CBT) Futures | 88 | March 2019 | USD | 17,600 | 18,561,230 | 18,683,500 | 122,270 | |||||||||||||||||
U.S.T-Note 10 Yr (CBT) Futures | 49 | March 2019 | USD | 4,900 | 5,885,480 | 5,978,766 | 93,286 | |||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 17 | March 2019 | USD | 1,700 | 2,601,907 | 2,731,156 | 129,249 | |||||||||||||||||
Sold Contracts | ||||||||||||||||||||||||
Euro-BOBL Futures | 32 | March 2019 | EUR | 3,200 | 4,846,210 | 4,858,712 | (12,502 | ) | ||||||||||||||||
Euro-Bund Futures | 5 | March 2019 | EUR | 500 | 934,446 | 936,880 | (2,434 | ) | ||||||||||||||||
Euro-OAT Futures | 6 | March 2019 | EUR | 600 | 1,036,896 | 1,036,674 | 222 | |||||||||||||||||
Long Gilt Futures | 7 | March 2019 | GBP | 700 | 1,090,399 | 1,098,947 | (8,548 | ) | ||||||||||||||||
U.S.T-Note 5Yr (CBT) Futures | 66 | March 2019 | USD | 6,600 | 7,440,223 | 7,569,375 | (129,152 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
$ | 336,652 | |||||||||||||||||||||||
|
|
25
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Barclays Bank PLC | EUR | 12,807 | USD | 14,819 | 1/09/19 | $ | 137,373 | |||||||||||||||||
Barclays Bank PLC | USD | 408 | KRW | 452,513 | 2/20/19 | (1,433 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 907 | TWD | 27,803 | 3/14/19 | 7,985 | ||||||||||||||||||
BNP Paribas SA | ZAR | 6,443 | USD | 451 | 1/30/19 | 4,392 | ||||||||||||||||||
Citibank, NA | USD | 710 | CLP | 483,773 | 1/25/19 | (12,334 | ) | |||||||||||||||||
Citibank, NA | USD | 495 | KRW | 546,618 | 2/20/19 | (3,230 | ) | |||||||||||||||||
Citibank, NA | USD | 487 | TWD | 14,873 | 3/14/19 | 2,844 | ||||||||||||||||||
Credit Suisse International | CHF | 772 | USD | 782 | 1/17/19 | (4,604 | ) | |||||||||||||||||
Credit Suisse International | USD | 481 | JPY | 53,473 | 2/15/19 | 8,827 | ||||||||||||||||||
Deutsche Bank AG | INR | 30,443 | USD | 417 | 3/18/19 | (17,112 | ) | |||||||||||||||||
Deutsche Bank AG | USD | 438 | INR | 31,289 | 3/18/19 | 7,759 | ||||||||||||||||||
Goldman Sachs Bank USA | JPY | 824,089 | USD | 7,318 | 2/15/19 | (224,205 | ) | |||||||||||||||||
Goldman Sachs Bank USA | AUD | 2,327 | USD | 1,699 | 2/20/19 | 59,090 | ||||||||||||||||||
Goldman Sachs Bank USA | GBP | 450 | USD | 571 | 2/28/19 | (4,093 | ) | |||||||||||||||||
Goldman Sachs Bank USA | BRL | 8,485 | USD | 2,013 | 7/11/19 | (143,894 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | CHF | 1,388 | USD | 1,384 | 1/17/19 | (29,726 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 658 | NOK | 5,566 | 1/23/19 | (13,786 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 218 | TRY | 1,196 | 1/24/19 | 5,451 | ||||||||||||||||||
JPMorgan Chase Bank, NA | MXN | 23,124 | USD | 1,138 | 1/25/19 | (35,250 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 2,840 | USD | 733 | 1/03/19 | 179 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 2,840 | USD | 723 | 1/03/19 | (10,141 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 729 | BRL | 2,840 | 1/03/19 | 4,039 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 733 | BRL | 2,840 | 1/03/19 | (179 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 642 | EUR | 561 | 1/09/19 | 1,017 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | CAD | 1,197 | USD | 903 | 1/17/19 | 25,431 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 69 | USD | 18 | 2/04/19 | (250 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 704 | BRL | 2,771 | 2/04/19 | 10,020 | ||||||||||||||||||
Natwest Markets PLC | USD | 672 | SEK | 6,051 | 1/23/19 | 11,816 | ||||||||||||||||||
Natwest Markets PLC | USD | 481 | JPY | 53,473 | 2/15/19 | 8,270 | ||||||||||||||||||
Natwest Markets PLC | USD | 229 | TWD | 6,974 | 3/14/19 | 457 | ||||||||||||||||||
Standard Chartered Bank | USD | 674 | EUR | 592 | 1/09/19 | 4,291 | ||||||||||||||||||
Standard Chartered Bank | USD | 451 | KRW | 503,236 | 2/20/19 | 1,060 | ||||||||||||||||||
Standard Chartered Bank | TWD | 21,964 | USD | 720 | 3/14/19 | (2,339 | ) | |||||||||||||||||
Standard Chartered Bank | CNY | 7,620 | USD | 1,102 | 3/20/19 | (6,354 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 1,934 | USD | 2,235 | 1/09/19 | 17,810 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 2,832 | USD | 3,222 | 1/09/19 | (23,906 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 1,258 | EUR | 1,092 | 1/09/19 | (6,212 | ) | |||||||||||||||||
State Street Bank & Trust Co. | CHF | 787 | USD | 789 | 1/17/19 | (12,195 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 627 | CAD | 834 | 1/17/19 | (16,048 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 239 | CHF | 234 | 1/17/19 | (818 | ) | |||||||||||||||||
State Street Bank & Trust Co. | PLN | 890 | USD | 241 | 1/18/19 | 2,985 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 226 | TRY | 1,234 | 1/24/19 | 4,245 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 252 | MXN | 5,099 | 1/25/19 | 6,963 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 701 | ZAR | 9,809 | 1/30/19 | (21,532 | ) | |||||||||||||||||
State Street Bank & Trust Co. | ZAR | 3,222 | USD | 222 | 1/30/19 | (819 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 232 | JPY | 26,090 | 2/15/19 | 6,819 | ||||||||||||||||||
State Street Bank & Trust Co. | NZD | 380 | USD | 263 | 2/20/19 | 7,546 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 183 | USD | 211 | 3/15/19 | (464 | ) |
26
AB Variable Products Series Fund |
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
State Street Bank & Trust Co. | GBP | 38 | USD | 49 | 3/15/19 | $ | 349 | |||||||||||||||||
State Street Bank & Trust Co. | ILS | 137 | USD | 37 | 3/15/19 | 345 | ||||||||||||||||||
State Street Bank & Trust Co. | JPY | 5,017 | USD | 45 | 3/15/19 | (1,332 | ) | |||||||||||||||||
State Street Bank & Trust Co. | MXN | 690 | USD | 34 | 3/15/19 | (1,202 | ) | |||||||||||||||||
State Street Bank & Trust Co. | SEK | 356 | USD | 40 | 3/15/19 | (723 | ) | |||||||||||||||||
State Street Bank & Trust Co. | SGD | 95 | USD | 70 | 3/15/19 | (209 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 38 | CHF | 37 | 3/15/19 | 151 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 50 | EUR | 44 | 3/15/19 | 328 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 117 | GBP | 89 | 3/15/19 | (2,728 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 27 | JPY | 3,052 | 3/15/19 | 903 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 103 | SGD | 141 | 3/15/19 | 604 | ||||||||||||||||||
UBS AG | CAD | 4,313 | USD | 3,267 | 1/17/19 | 106,448 | ||||||||||||||||||
UBS AG | ZAR | 13,008 | USD | 913 | 1/30/19 | 11,532 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | (129,789 | ) | ||||||||||||||||||||||
|
|
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||
USD | 9,940 | 9/10/20 | 3 Month LIBOR | 2.824% | Quarterly/Semi-Annual | $ | 90,976 | $ | — | $ | 90,976 | |||||||||||||||||||
USD | 4,130 | 9/10/23 | 3 Month LIBOR | 2.883% | Quarterly/Semi-Annual | 86,136 | — | 86,136 | ||||||||||||||||||||||
USD | 295 | 11/08/26 | 1.657% | 3 Month LIBOR | Semi-Annual/Quarterly | 21,331 | — | 21,331 | ||||||||||||||||||||||
USD | 1,870 | 9/10/48 | 2.980% | 3 Month LIBOR | Semi-Annual/Quarterly | (70,454 | ) | — | (70,454 | ) | ||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
$ | 127,989 | $ | — | $ | 127,989 | |||||||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | )% | Quarterly | 0.44 | % | USD | 172 | $ | (3,964 | ) | $ | (985 | ) | $ | (2,979 | ) | ||||||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | ) | Quarterly | 0.44 | USD | 198 | (4,563 | ) | (1,175 | ) | (3,388 | ) | ||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 17 | 61 | 212 | (151 | ) | ||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 620 | 2,242 | 7,684 | (5,442 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 5 | 18 | 45 | (27 | ) |
27
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) % | Monthly | 0.57 | % | USD | 207 | $ | 749 | $ | 2,766 | $ | (2,017 | ) | ||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 775 | 2,803 | 8,125 | (5,322 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 233 | 843 | 2,422 | (1,579 | ) | ||||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 226 | 817 | 2,995 | (2,178 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA Series 9, 9/17/58* | (0.50 | ) | Monthly | 0.57 | USD | 51 | 184 | 479 | (295 | ) | ||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 69 | (11,089 | ) | (10,831 | ) | (258 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 11 | (1,768 | ) | (1,812 | ) | 44 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 70 | (11,250 | ) | (10,667 | ) | (583 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 60 | (9,648 | ) | (8,137 | ) | (1,511 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 55 | (8,844 | ) | (7,636 | ) | (1,208 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 210 | (33,768 | ) | (26,574 | ) | (7,194 | ) | |||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 75 | (12,054 | ) | (11,377 | ) | (677 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 165 | (26,532 | ) | (10,914 | ) | (15,618 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 48 | (7,718 | ) | (3,393 | ) | (4,325 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 35 | (5,628 | ) | (4,362 | ) | (1,266) | ||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 232 | (37,306 | ) | (16,626 | ) | (20,680) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 9 | (1,447 | ) | (528 | ) | (919) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 156 | (25,084 | ) | (13,120 | ) | (11,964) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 8 | (1,287 | ) | (959 | ) | (328) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 48 | (7,719 | ) | (6,185 | ) | (1,534) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 53 | (8,523 | ) | (6,199 | ) | (2,324) |
28
AB Variable Products Series Fund |
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | % | Monthly | 8.38 | % | USD | 52 | $ | (8,362 | ) | $ | (6,080 | ) | $ | (2,282 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 79 | (12,703 | ) | (8,702 | ) | (4,001) | ||||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 75 | (12,054 | ) | (11,789 | ) | (265) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 58 | (9,321 | ) | (9,693 | ) | 372 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 82 | (13,178 | ) | (13,901 | ) | 723 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 5 | (804 | ) | (777 | ) | (27) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 272 | (43,738 | ) | (13,602 | ) | (30,136) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 230 | (36,984 | ) | (18,723 | ) | (18,261) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 170 | (27,336 | ) | (13,289 | ) | (14,047 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 64 | (10,292 | ) | (4,339 | ) | (5,953 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 47 | (7,558 | ) | (4,153 | ) | (3,405 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 4 | (644 | ) | (367 | ) | (277 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 8 | (1,287 | ) | (747 | ) | (540 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 8 | (1,286 | ) | (808 | ) | (478 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 15 | (2,412 | ) | (1,656 | ) | (756 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 78 | (12,542 | ) | (10,854 | ) | (1,688 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 172 | (27,657 | ) | (23,317 | ) | (4,340 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- Series 6, 5/11/63* | 3.00 | Monthly | 8.38 | USD | 53 | (8,523 | ) | (5,774 | ) | (2,749 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (447,156 | ) | $ | (265,323 | ) | $ | (181,833 | ) | ||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||
Swap Counterparty | Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||
Bank of America, NA | USD | 10,000 | 7/11/24 | 2.416% | CPI# | Maturity | $ | (237,642 | ) |
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
29
BALANCED WEALTH STRATEGY PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
(a) | Non-income producing security. |
(b) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2018, the aggregate market value of these securities amounted to $32,549,027 or 13.3% of net assets. |
(c) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
(e) | Affiliated investments. |
(f) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(g) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at December 31, 2018. |
(h) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.09% of net assets as of December 31, 2018, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
JP Morgan Madison Avenue Securities Trust Series2014-CH1, Class M2 | 11/06/15 | $ | 27,398 | $ | 30,082 | 0.01 | % | |||||||||
Wells Fargo Credit Risk Transfer Securities Trust Series2015-WF1, Class 1M2 | 9/28/15 | 129,425 | 145,612 | 0.06 | % | |||||||||||
Wells Fargo Credit Risk Transfer Securities Trust Series2015-WF1, Class 2M2 | 9/28/15 | 39,939 | 46,427 | 0.02 | % |
(i) | Inverse interest only security. |
(j) | IO—Interest Only. |
(k) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(l) | Illiquid security. |
(m) | The rate shown represents the7-day yield as of period end. |
Currency Abbreviations:
ARS—Argentine Peso
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CLP—Chilean Peso
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
ILS—Israeli Shekel
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
MYR—Malaysian Ringgit
NOK—Norwegian Krone
NZD—New Zealand Dollar
PLN—Polish Zloty
SEK—Swedish Krona
SGD—Singapore Dollar
TRY—Turkish Lira
TWD—New Taiwan Dollar
USD—United States Dollar
ZAR—South African Rand
30
AB Variable Products Series Fund |
Glossary:
ABS—Asset-Backed Securities
ADR—American Depositary Receipt
ARLLMONP—Argentina Blended Policy Rate
BOBL—Bundesobligationen
CBT—Chicago Board of Trade
CDX-CMBX.NA—North American Commercial Mortgage-Backed Index
CMBS—Commercial Mortgage-Backed Securities
CPI—Consumer Price Index
GDR—Global Depositary Receipt
LIBOR—London Interbank Offered Rates
OAT—Obligations Assimilables du Trésor
PJSC—Public Joint Stock Company
REIT—Real Estate Investment Trust
REMICs—Real Estate Mortgage Investment Conduits
TBA—To Be Announced
TIPS—Treasury Inflation Protected Security
See notes to financial statements.
31
BALANCED WEALTH STRATEGY PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $176,526,401) | $ | 183,984,558 | (a) | |
Affiliated issuers (cost $76,882,221—including investment of cash collateral for securities loaned of $154,814) | 62,371,038 | |||
Cash | 53,407 | |||
Cash collateral due from broker | 520,345 | |||
Foreign currencies, at value (cost $259,646) | 259,898 | |||
Unaffiliated interest and dividends receivable | 800,059 | |||
Receivable for investment securities sold and foreign currency transactions | 638,553 | |||
Unrealized appreciation on forward currency exchange contracts | 467,329 | |||
Receivable for capital stock sold | 39,949 | |||
Receivable for variation margin on futures | 33,177 | |||
Market value on credit default swaps (net premiums paid $24,728) | 7,717 | |||
Affiliated dividends receivable | 3,883 | |||
Other assets | 4,406 | |||
|
| |||
Total assets | 249,184,319 | |||
|
| |||
LIABILITIES | ||||
Payable for investment securities purchased | 3,021,772 | |||
Unrealized depreciation on forward currency exchange contracts | 597,118 | |||
Market value on credit default swaps (net premiums received $290,051) | 454,873 | |||
Unrealized depreciation on inflation swaps | 237,642 | |||
Payable for capital stock redeemed | 184,838 | |||
Payable for collateral received on securities loaned | 154,814 | |||
Advisory fee payable | 70,166 | |||
Distribution fee payable | 44,613 | |||
Administrative fee payable | 17,819 | |||
Payable for variation margin on centrally cleared swaps | 6,569 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses and other liabilities | 152,394 | |||
|
| |||
Total liabilities | 4,942,824 | |||
|
| |||
NET ASSETS | $ | 244,241,495 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 24,455 | ||
Additionalpaid-in capital | 215,328,655 | |||
Distributable earnings | 28,888,385 | |||
|
| |||
$ | 244,241,495 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 23,966,939 | 2,373,712 | $ | 10.10 | |||||||
B | $ | 220,274,556 | 22,081,147 | $ | 9.98 |
(a) | Includes securities on loan with a value of $149,351 (see Note E). |
See notes to financial statements.
32
BALANCED WEALTH STRATEGY PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $139,885) | $ | 3,234,796 | ||
Affiliated issuers | 1,404,411 | |||
Interest | 2,939,768 | |||
|
| |||
7,578,975 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 1,543,586 | |||
Distribution fee—Class B | 632,866 | |||
Transfer agency—Class A | 508 | |||
Transfer agency—Class B | 4,667 | |||
Custodian | 197,370 | |||
Audit and tax | 103,537 | |||
Legal | 85,372 | |||
Administrative | 70,055 | |||
Printing | 55,598 | |||
Directors’ fees | 24,782 | |||
Miscellaneous | 27,092 | |||
|
| |||
Total expenses | 2,745,433 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (272,234 | ) | ||
|
| |||
Net expenses | 2,473,199 | |||
|
| |||
Net investment income | 5,105,776 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain (loss) on: | ||||
Affiliated Underlying Portfolios | 65,182 | |||
Investment transactions(a) | 30,645,330 | |||
Forward currency exchange contracts | (166,371 | ) | ||
Futures | (620,865 | ) | ||
Swaps | 174,088 | |||
Swaptions written | 10,764 | |||
Foreign currency transactions | 439,915 | |||
Net realized gain distributions from Affiliated Underlying Portfolios | 2,347,246 | |||
Net change in unrealized appreciation/depreciation of: | ||||
Affiliated Underlying Portfolios | (14,511,183 | ) | ||
Investments | (40,451,066 | ) | ||
Forward currency exchange contracts | 30,292 | |||
Futures | 270,760 | |||
Swaps | (205,658 | ) | ||
Foreign currency denominated assets and liabilities | (55,477 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (22,027,043 | ) | ||
|
| |||
Contributions from Affiliates (see Note B) | 3,140 | |||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (16,918,127 | ) | |
|
|
(a) | Net of foreign capital gains taxes of $26,206. |
See notes to financial statements. |
33
BALANCED WEALTH STRATEGY PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income | $ | 5,105,776 | $ | 3,892,691 | ||||
Net realized gain on investment and foreign currency transactions | 30,548,043 | 21,723,157 | ||||||
Net realized gain distributions from Affiliated Underlying Portfolios | 2,347,246 | –0 | – | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (54,922,332 | ) | 18,549,980 | |||||
Contributions from Affiliates (see Note B) | 3,140 | 521 | ||||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (16,918,127 | ) | 44,166,349 | |||||
Distributions to Shareholders* | ||||||||
Class A | (2,582,061 | ) | (903,609 | ) | ||||
Class B | (23,104,999 | ) | (7,141,517 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net decrease | (16,551,330 | ) | (35,588,392 | ) | ||||
|
|
|
| |||||
Total increase (decrease) | (59,156,517 | ) | 532,831 | |||||
NET ASSETS |
| |||||||
Beginning of period | 303,398,012 | 302,865,181 | ||||||
|
|
|
| |||||
End of period | $ | 244,241,495 | $ | 303,398,012 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note J, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
34
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Balanced Wealth Strategy Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to maximize total return consistent with the determination of AllianceBernstein L.P. (the “Adviser”) of reasonable risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of
35
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, andover-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition,non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively, the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss 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.
36
AB Variable Products Series Fund |
Other fixed income investments, includingnon-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Information Technology | $ | 15,204,122 | $ | 143,372 | $ | –0 | – | $ | 15,347,494 | |||||||
Real Estate | 8,692,536 | 3,306,321 | –0 | – | 11,998,857 | |||||||||||
Financials | 11,129,107 | 383,688 | –0 | – | 11,512,795 | |||||||||||
Health Care | 9,785,971 | 380,196 | –0 | – | 10,166,167 | |||||||||||
Consumer Discretionary | 8,755,247 | 354,298 | –0 | – | 9,109,545 | |||||||||||
Communication Services | 8,564,944 | 320,164 | –0 | – | 8,885,108 | |||||||||||
Energy | 5,465,488 | 2,999,852 | –0 | – | 8,465,340 | |||||||||||
Consumer Staples | 6,420,925 | 260,076 | –0 | – | 6,681,001 | |||||||||||
Industrials | 4,668,265 | 424,401 | –0 | – | 5,092,666 | |||||||||||
Materials | 1,839,170 | 1,257,278 | –0 | – | 3,096,448 | |||||||||||
Utilities | 2,294,582 | 237,253 | –0 | – | 2,531,835 | |||||||||||
Transportation | –0 | – | 90,972 | –0 | – | 90,972 | ||||||||||
Health Care Equipment & Services | 49,966 | –0 | – | –0 | – | 49,966 | ||||||||||
Capital Goods | –0 | – | 37,378 | –0 | – | 37,378 | ||||||||||
Banks | –0 | – | 35,922 | –0 | – | 35,922 | ||||||||||
Consumer Durables & Apparel | –0 | – | 28,115 | –0 | – | 28,115 | ||||||||||
Investment Companies | 61,975,149 | –0 | – | –0 | – | 61,975,149 | ||||||||||
Corporates—Investment Grade | –0 | – | 22,309,405 | –0 | – | 22,309,405 | ||||||||||
Governments—Treasuries | –0 | – | 20,471,597 | –0 | – | 20,471,597 | ||||||||||
Mortgage Pass-Throughs | –0 | – | 7,688,060 | –0 | – | 7,688,060 | ||||||||||
Inflation-Linked Securities | –0 | – | 7,001,215 | –0 | – | 7,001,215 | ||||||||||
Collateralized Mortgage Obligations | –0 | – | 5,539,954 | –0 | – | 5,539,954 | ||||||||||
Corporates—Non-Investment Grade | –0 | – | 5,374,069 | –0 | – | 5,374,069 | ||||||||||
Commercial Mortgage-Backed Securities | –0 | – | 4,023,906 | 1,312,564 | 5,336,470 | |||||||||||
Emerging Markets—Treasuries | –0 | – | 2,341,251 | –0 | – | 2,341,251 | ||||||||||
Covered Bonds | –0 | – | 2,333,090 | –0 | – | 2,333,090 | ||||||||||
Asset-Backed Securities | –0 | – | 1,118,948 | 798,453 | 1,917,401 | |||||||||||
Collateralized Loan Obligations | –0 | – | –0 | – | 1,355,132 | 1,355,132 | ||||||||||
Governments—Sovereign Agencies | –0 | – | 1,289,495 | –0 | – | 1,289,495 | ||||||||||
Local Governments—Provincial Bonds | –0 | – | 713,174 | –0 | – | 713,174 | ||||||||||
Governments—Sovereign Bonds | –0 | – | 692,341 | –0 | – | 692,341 | ||||||||||
Emerging Markets—Corporate Bonds | –0 | – | 499,803 | –0 | – | 499,803 | ||||||||||
Emerging Markets—Sovereigns | –0 | – | 497,199 | –0 | – | 497,199 | ||||||||||
Local Governments—US Municipal Bonds | –0 | – | 491,208 | –0 | – | 491,208 | ||||||||||
Quasi-Sovereigns | –0 | – | 200,500 | –0 | – | 200,500 | ||||||||||
Rights | 6,650 | –0 | – | –0 | – | 6,650 | ||||||||||
Short-Term Investments: | ||||||||||||||||
U.S. Treasury Bills | –0 | – | 4,796,935 | –0 | – | 4,796,935 | ||||||||||
Investment Companies | 241,075 | –0 | – | –0 | – | 241,075 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 154,814 | –0 | – | –0 | – | 154,814 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 145,248,011 | 97,641,436 | 3,466,149 | 246,355,596 |
37
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | $ | 489,288 | $ | –0 | – | $ | –0 | – | $ | 489,288 | (b) | |||||
Forward Currency Exchange Contracts | –0 | – | 467,329 | –0 | – | 467,329 | ||||||||||
Centrally Cleared Interest Rate Swaps | –0 | – | 198,443 | –0 | – | 198,443 | (b) | |||||||||
Credit Default Swaps | –0 | – | 7,717 | –0 | – | 7,717 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (152,636 | ) | –0 | – | –0 | – | (152,636 | )(b) | ||||||||
Forward Currency Exchange Contracts | –0 | – | (597,118 | ) | –0 | – | (597,118 | ) | ||||||||
Centrally Cleared Interest Rate Swaps | –0 | – | (70,454 | ) | –0 | – | (70,454 | )(b) | ||||||||
Credit Default Swaps | –0 | – | (454,873 | ) | –0 | – | (454,873 | ) | ||||||||
Inflation (CPI) Swaps | –0 | – | (237,642 | ) | –0 | – | (237,642 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 145,584,663 | $ | 96,954,838 | $ | 3,466,149 | $ | 246,005,650 | ||||||||
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|
|
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|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(c) | There were deminimis transfers under 1% of net assets between Level 1 to Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Commercial Mortgage Backed Securities | Asset- Backed Securities | Collateralized Loan Obligations | ||||||||||
Balance as of 12/31/17 | $ | 1,545,137 | $ | 1,812,622 | $ | –0 | – | |||||
Accrued discounts/(premiums) | 753 | 436 | –0 | – | ||||||||
Realized gain (loss) | (34,901 | ) | (5,737 | ) | –0 | – | ||||||
Change in unrealized appreciation/depreciation | (16,767 | ) | (6,293 | ) | (14,868 | ) | ||||||
Purchases/Payups | 163,857 | 399,971 | 1,370,000 | |||||||||
Sales/Paydowns | (345,515 | ) | (1,402,546 | ) | –0 | – | ||||||
Transfers in to Level 3 | –0 | – | –0 | – | –0 | – | ||||||
Transfers out of Level 3 | –0 | – | –0 | – | –0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 12/31/18 | $ | 1,312,564 | $ | 798,453 | $ | 1,355,132 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 12/31/18(a) | $ | (14,777 | ) | $ | (8,415 | ) | $ | (14,868 | ) | |||
|
|
|
|
|
|
38
AB Variable Products Series Fund |
Total | ||||||||||||
Balance as of 12/31/17 | $ | 3,357,759 | ||||||||||
Accrued discounts/(premiums) | 1,189 | |||||||||||
Realized gain (loss) | (40,638 | ) | ||||||||||
Change in unrealized appreciation/depreciation | (37,928 | ) | ||||||||||
Purchases/Payups | 1,933,828 | |||||||||||
Sales/Paydowns | (1,748,061 | ) | ||||||||||
Transfers in to Level 3 | –0 | – | ||||||||||
Transfers out of Level 3 | –0 | – | ||||||||||
|
| |||||||||||
Balance as of 12/31/18 | $ | 3,466,149 | ||||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of | $ | (38,060 | ) | |||||||||
|
|
(a) | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation on investments and other financial instruments in the accompanying statement of operations. |
As of December 31, 2018, all Level 3 securities were priced by third party vendors.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
39
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .75% and 1.00% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2018, there were no expenses waived by the Adviser.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control
40
AB Variable Products Series Fund |
Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
During the years ended December 31, 2018 and December 31, 2017, the Adviser reimbursed the Portfolio $3,140 and $521, respectively, for trading losses incurred due to a trade entry error.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $70,055.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $2,709.
In connection with the Portfolio’s investments in other AB mutual funds, the Adviser has contractually agreed to waive fees and/or reimburse the expenses payable to the Adviser by the Portfolio in an amount equal to the Portfolio’s share of the advisory fees of AB mutual funds, as paid by the Portfolio as an acquired fund fee and expense. These fee waivers and/or expense reimbursements will remain in effect until May 1, 2019. For the year ended December 31, 2018, such waivers and/or reimbursements amounted to $269,160.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Distributions | ||||||||||||||||||||||||||||||||
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Realized Gain (Loss) (000) | Change in Unrealized Appr./(Depr.) (000) | Market Value 12/31/18 (000) | Dividend Income (000) | Realized Gains (000) | ||||||||||||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 142,829 | $ | 142,588 | $ | 0 | $ | 0 | $ | 241 | $ | 36 | $ | 0 | ||||||||||||||||
AB Discovery Growth Fund, Inc. | 0 | 4,204 | 467 | 43 | (1,002 | ) | 2,778 | 60 | 394 | |||||||||||||||||||||||
AB Discovery Value Fund, Inc. | 0 | 4,084 | 244 | 6 | (933 | ) | 2,913 | 45 | 289 |
41
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Distributions | ||||||||||||||||||||||||||||||||
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Realized Gain (Loss) (000) | Change in Unrealized Appr./(Depr.) (000) | Market Value 12/31/18 (000) | Dividend Income (000) | Realized Gains (000) | ||||||||||||||||||||||||
Bernstein Fund, Inc.: | ||||||||||||||||||||||||||||||||
International Small Cap Portfolio | $ | 0 | $ | 10,098 | $ | 0 | $ | 0 | $ | (2,320 | ) | $ | 7,778 | $ | 233 | $ | 491 | |||||||||||||||
International Strategic Equities Portfolio | 0 | 32,098 | 0 | 0 | (4,959 | ) | 27,139 | 525 | 325 | |||||||||||||||||||||||
Small Cap Core Portfolio | 0 | 3,973 | 324 | 16 | (864 | ) | 2,801 | 50 | 174 | |||||||||||||||||||||||
Sanford C. Bernstein Fund, Inc.: | ||||||||||||||||||||||||||||||||
Emerging Markets Portfolio | 0 | 4,664 | 0 | 0 | (978 | ) | 3,686 | 57 | 231 | |||||||||||||||||||||||
International Portfolio | 0 | 18,335 | 0 | 0 | (3,455 | ) | 14,880 | 393 | 443 | |||||||||||||||||||||||
Government Money Market Portfolio* | 1,220 | 12,323 | 13,388 | 0 | 0 | 155 | 5 | 0 | ||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total | $ | 65 | $ | (14,511 | ) | $ | 62,371 | $ | 1,404 | $ | 2,347 | |||||||||||||||||||||
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|
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|
|
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $78,327, of which $442 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 269,271,231 | $ | 262,142,082 | ||||
U.S. government securities | 134,924,638 | 161,617,332 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 253,728,020 | ||
|
| |||
Gross unrealized appreciation | $ | 15,314,868 | ||
Gross unrealized depreciation | (22,765,010 | ) | ||
|
| |||
Net unrealized depreciation | $ | (7,450,142 | ) | |
|
|
42
AB Variable Products Series Fund |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon fornon-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2018, the Portfolio held futures for hedging andnon-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging andnon-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges andover-the-counter markets. Among other things, the Portfolio may use options transactions fornon-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.
43
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. 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 Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
During the year ended December 31, 2018, the Portfolio held purchased swaptions for hedging andnon-hedging purposes.
During the year ended December 31, 2018, the Portfolio held written swaptions for hedging andnon-hedging purposes.
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Portfolio may also enter into swaps fornon-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and
44
AB Variable Products Series Fund |
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 aphased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less thannon-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Portfolio may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended December 31, 2018, the Portfolio held interest rate swaps for hedging andnon-hedging purposes.
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the year ended December 31, 2018, the Portfolio held inflation (CPI) swaps for hedging andnon-hedging purposes.
45
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same referenced obligations with the same counterparty. As of December 31, 2018, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the year ended December 31, 2018, the Portfolio held credit default swaps for hedging andnon-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
46
AB Variable Products Series Fund |
During the year ended December 31, 2018, the Portfolio 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 | $ | 489,288 | * | Receivable/Payable for variation margin on futures | $ | 152,636 | * | ||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | 198,443 | * | Receivable/Payable for variation margin on centrally cleared swaps | 70,454 | * | ||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | 467,329 | Unrealized depreciation on forward currency exchange contracts | 597,118 | ||||||||
Interest rate contracts | Unrealized depreciation on inflation swaps | 237,642 | ||||||||||
Credit contracts | Market value on credit default swaps | 7,717 | Market value on credit default swaps | 454,873 | ||||||||
|
|
|
| |||||||||
Total | $ | 1,162,777 | $ | 1,512,723 | ||||||||
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|
|
|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | (619,785 | ) | $ | 270,760 | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,080 | ) | –0 | – | |||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | (166,371 | ) | 30,292 | ||||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (16,843 | ) | –0 | – | |||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 10,764 | –0 | – | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 119,981 | (180,880 | ) | ||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 54,107 | (24,778 | ) | ||||||
|
|
|
| |||||||
Total | $ | (619,227 | ) | $ | 95,394 | |||||
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|
|
|
47
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 26,753,564 | ||
Average original value of sale contracts | $ | 10,098,316 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 21,270,646 | ||
Average principal amount of sale contracts | $ | 42,813,848 | ||
Purchased Swaptions: | ||||
Average notional amount | $ | 5,215,000 | (a) | |
Swaptions Written: | ||||
Average notional amount | $ | 12,525,000 | (a) | |
Inflation Swaps: | ||||
Average notional amount | $ | 10,000,000 | (b) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 16,883,011 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 2,504,000 | ||
Average notional amount of sale contracts | $ | 2,776,000 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 1,114,286 | (b) | |
Average notional amount of sale contracts | $ | 360,000 | (a) |
(a) | Positions were open for one month during the year. |
(b) | Positions were open for six months during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Barclays Bank PLC | $ | 145,358 | $ | (1,433 | ) | $ | –0 | – | $ | –0 | – | $ | 143,925 | |||||||
BNP Paribas SA | 4,392 | –0 | – | –0 | – | –0 | – | 4,392 | ||||||||||||
Citibank, NA | 2,844 | (2,844 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Citigroup Global Markets, Inc. | 61 | (61 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Credit Suisse International | 11,087 | (11,087 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Deutsche Bank AG | 12,154 | (12,154 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 60,091 | (60,091 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
JPMorgan Chase Bank, NA | 5,451 | (5,451 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Morgan Stanley & Co., Inc. | 40,686 | (10,570 | ) | –0 | – | –0 | – | 30,116 | ||||||||||||
Natwest Markets PLC | 20,543 | –0 | – | –0 | – | –0 | – | 20,543 | ||||||||||||
Standard Chartered Bank | 5,351 | (5,351 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
State Street Bank & Trust Co. | 49,048 | (49,048 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
UBS AG | 117,980 | –0 | – | –0 | – | –0 | – | 117,980 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 475,046 | $ | (158,090 | ) | $ | –0 | – | $ | –0 | – | $ | 316,956 | ^ | ||||||
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|
|
|
|
|
|
|
|
|
48
AB Variable Products Series Fund |
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 237,642 | $ | –0 | – | $ | –0 | – | $ | –0 | – | $ | 237,642 | |||||||
Barclays Bank PLC | 1,433 | (1,433 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Citibank, NA | 24,091 | (2,844 | ) | –0 | – | –0 | – | 21,247 | ||||||||||||
Citigroup Global Markets, Inc. | 76,367 | (61 | ) | –0 | – | –0 | – | 76,306 | ||||||||||||
Credit Suisse International | 56,536 | (11,087 | ) | –0 | – | –0 | – | 45,449 | ||||||||||||
Deutsche Bank AG | 119,543 | (12,154 | ) | –0 | – | –0 | – | 107,389 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 587,808 | (60,091 | ) | –0 | – | –0 | – | 527,717 | ||||||||||||
JPMorgan Chase Bank, NA | 78,762 | (5,451 | ) | –0 | – | –0 | – | 73,311 | ||||||||||||
Morgan Stanley & Co., Inc. | 10,570 | (10,570 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Standard Chartered Bank | 8,693 | (5,351 | ) | –0 | – | –0 | – | 3,342 | ||||||||||||
State Street Bank & Trust Co. | 88,188 | (49,048 | ) | –0 | – | –0 | – | 39,140 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | $ | 1,289,633 | $ | (158,090 | ) | $ | –0 | – | $ | –0 | – | $ | 1,131,543 | ^ | ||||||
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|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. TBA and Dollar Rolls
The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the year ended December 31, 2018, the Portfolio earned drop income of $124,447 which is included in interest income in the accompanying statement of operations.
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a
49
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
“negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $149,351 and had received cash collateral which has been invested into Government Money Market Portfolio of $154,814. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $4,535 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $365. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 69,093 | 177,869 | $ | 811,711 | $ | 2,060,513 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 235,375 | 80,751 | 2,582,059 | 903,608 | ||||||||||||||||
Shares redeemed | (402,656 | ) | (645,720 | ) | (4,591,886 | ) | (7,353,598 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net decrease | (98,188 | ) | (387,100 | ) | $ | (1,198,116 | ) | $ | (4,389,477 | ) | ||||||||||
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|
|
|
|
| |||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 894,991 | 1,027,911 | $ | 10,112,751 | $ | 11,533,980 | ||||||||||||||
Shares issued in reinvestment of dividends | 2,129,493 | 645,124 | 23,105,000 | 7,141,518 | ||||||||||||||||
Shares redeemed | (4,303,899 | ) | (4,477,191 | ) | (48,570,965 | ) | (49,874,413 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net decrease | (1,279,415 | ) | (2,804,156 | ) | $ | (15,353,214 | ) | $ | (31,198,915 | ) | ||||||||||
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|
At December 31, 2018, certain shareholders of the Portfolio owned 62% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Allocation Risk—The allocation of investments among the different investment styles, such as growth or value, equity or debt securities, or U.S. ornon-U.S. securities may have a more significant effect on the Portfolio’s net asset value, or NAV, when one of these investment strategies is performing more poorly than others.
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors. These risks may be heightened with respect to investments in emerging market countries, where there may be an increased amount of economic, political and social instability.
50
AB Variable Products Series Fund |
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments in securities denominated in foreign currencies or reduce the Portfolio’s returns.
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Security Risk—Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Capitalization Risk—Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Investment in Other Investment Companies Risk—As with other investments, investments in other investment companies are subject to market and selection risk. In addition, shareholders of The Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Real Asset Risk—The Portfolio’s investments in securities linked to real assets involve significant risks, including financial, operating, and competitive risks. Investments in securities linked to real assets expose the Portfolio to adverse macroeconomic conditions, such as a rise in interest rates or a downturn in the economy in which the asset is located. Changes in inflation rates or in the market’s inflation expectations may adversely affect the market value of inflation-sensitive equities. The Portfolio’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts (“REITs”) may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
Active Trading Risk—The Portfolio expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Portfolio’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Contractholders.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
51
BALANCED WEALTH STRATEGY PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 6,160,964 | $ | 5,554,623 | ||||
Net long-term capital gains | 19,526,096 | 2,490,503 | ||||||
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|
|
| |||||
Total taxable distributions paid | $ | 25,687,060 | $ | 8,045,126 | ||||
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|
|
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 5,951,351 | ||
Undistributed capital gains | 30,417,898 | |||
Other losses | (27,902 | )(a) | ||
Unrealized appreciation/(depreciation) | (7,447,667 | )(b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 28,893,680 | (c) | |
|
|
(a) | As of December 31, 2018, the cumulative deferred loss on straddles was $27,902. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, the tax treatment of passive foreign investment companies (PFICs), and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
(c) | The differences between book-basis and tax-basis components of accumulated earnings/(deficit) are attributable primarily to the tax treatment of deferred dividends from real estate investment trusts (REITs) and the accrual of foreign capital gains tax. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to contributions from the Adviser resulted in a net increase in distributable earnings and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
52
BALANCED WEALTH STRATEGY PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $11.86 | $10.54 | $10.99 | $12.16 | $13.77 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .23 | (b) | .17 | (b) | .19 | (b)† | .20 | .26 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.87 | ) | 1.48 | .34 | .02 | + | .71 | |||||||||||||
Contributions from Affiliates | .00 | (c) | .00 | (c) | .00 | (c) | –0 | – | .00 | (c) | ||||||||||
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|
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Net increase (decrease) in net asset value from operations | (.64 | ) | 1.65 | .53 | .22 | .97 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.24 | ) | (.24 | ) | (.27 | ) | (.39 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.89 | ) | (.09 | ) | (.74 | ) | (1.12 | ) | (2.19 | ) | ||||||||||
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Total dividends and distributions | (1.12 | ) | (.33 | ) | (.98 | ) | (1.39 | ) | (2.58 | ) | ||||||||||
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| |||||||||||
Net asset value, end of period | $10.10 | $11.86 | $10.54 | $10.99 | $12.16 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | (6.17 | )% | 15.84 | % | 4.69 | %† | 1.65 | % | 7.37 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $23,967 | $29,328 | $30,132 | $33,409 | $36,882 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements (e)‡ | .66 | % | .73 | % | .73 | % | .70 | % | .71 | % | ||||||||||
Expenses, before waivers/reimbursements (e)‡ | .75 | % | .73 | % | .73 | % | .70 | % | .71 | % | ||||||||||
Net investment income | 2.05 | %(b) | 1.51 | %(b) | 1.74 | %(b)† | 1.71 | % | 1.96 | % | ||||||||||
Portfolio turnover rate ** | 150 | % | 108 | % | 106 | % | 132 | % | 114 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .11 | % | –0 | –% | –0 | –% | –0 | –% | –0 | –% |
See footnote summary on page 55.
53
BALANCED WEALTH STRATEGY PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $11.73 | $10.42 | $10.87 | $12.05 | $13.65 | |||||||||||||||
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| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .20 | (b) | .14 | (b) | .16 | (b)† | .17 | .22 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.86 | ) | 1.47 | .33 | .01 | + | .71 | |||||||||||||
Contributions from Affiliates | .00 | (c) | .00 | (c) | .00 | (c) | –0 | – | .00 | (c) | ||||||||||
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| |||||||||||
Net increase (decrease) in net asset value from operations | (.66 | ) | 1.61 | .49 | .18 | .93 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.20 | ) | (.21 | ) | (.20 | ) | (.24 | ) | (.34 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.89 | ) | (.09 | ) | (.74 | ) | (1.12 | ) | (2.19 | ) | ||||||||||
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| |||||||||||
Total dividends and distributions | (1.09 | ) | (.30 | ) | (.94 | ) | (1.36 | ) | (2.53 | ) | ||||||||||
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| |||||||||||
Net asset value, end of period | $9.98 | $11.73 | $10.42 | $10.87 | $12.05 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | (6.41 | )% | 15.62 | % | 4.44 | %† | 1.29 | % | 7.11 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $220,274 | $274,070 | $272,733 | $298,233 | $328,363 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements (e)‡ | .91 | % | .98 | % | .98 | % | .95 | % | .96 | % | ||||||||||
Expenses, before waivers/reimbursements (e)‡ | 1.00 | % | .98 | % | .98 | % | .95 | % | .96 | % | ||||||||||
Net investment income | 1.79 | %(b) | 1.26 | %(b) | 1.49 | %(b)† | 1.46 | % | 1.71 | % | ||||||||||
Portfolio turnover rate ** | 150 | % | 108 | % | 106 | % | 132 | % | 114 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .11 | % | –0 | –% | –0 | –% | –0 | –% | –0 | –% |
See footnote summary on page 55.
54
AB Variable Products Series Fund |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2018, such waiver amounted to .09%. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total Return | ||
$.001 | .01% | .01% |
+ | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accordance with the Portfolio’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2015, and December 31, 2014 by .02%, .03% and .01%, respectively. |
** | The Portfolio accounts for dollar roll transactions as purchases and sales. |
See notes to financial statements.
55
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Balanced Wealth Strategy Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Balanced Wealth Strategy Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
56
2018 TAX INFORMATION (unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 24.80% of dividends paid qualify for the dividends received deduction.
57
BALANCED WEALTH STRATEGY PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Balanced Wealth Strategy Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
23,678,129 | 246,337 | 1,133,603 |
* | Mr. Foulk retired on December 31, 2018. |
58
BALANCED WEALTH STRATEGY | ||
PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman | Carol C. McMullen(1) | |
Michael J. Downey(1) | Garry L. Moody(1) | |
Nancy P. Jacklin(1) | Earl D. Weiner(1) | |
Robert M. Keith,President and Chief Executive Officer | ||
OFFICERS | ||
Daniel J. Loewy(2),Vice President Jess Gaspar(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and, the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the Multi-Asset Solutions Team. Messrs. Loewy and Gaspar are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
59
BALANCED WEALTH STRATEGY PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas NewYork, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 | |||||
60
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company andnon-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
61
BALANCED WEALTH STRATEGY PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Company’s Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person”, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
62
AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Daniel J. Loewy 44 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer and Head of Multi-Asset Solutions and Chief Investment Officer for Dynamic Asset Allocation. | ||
Jess Gaspar 50 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since December 2016. Prior thereto, he was Managing Director and head of asset allocation and research at Commonfund from prior to 2014 until 2016. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of the ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI, and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
63
BALANCED WEALTH STRATEGY PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Balanced Wealth Strategy Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement,
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including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund- specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Balanced Wealth Strategy Portfolio (the “Fund”) at a meeting held onJuly 31-August 2, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended May 31, 2018 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.
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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 paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Adviser informed the directors that there were no institutional products managed by it that have a substantially similar investment style.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that the advisory fee for the Fund is for services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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VPS-BW-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | DYNAMIC ASSET ALLOCATION PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
DYNAMIC ASSET ALLOCATION | ||
PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Dynamic Asset Allocation Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to maximize total return consistent with the Adviser’s determination of reasonable risk. The Portfolio invests in a globally diversified portfolio of equity and debt securities, including exchange-traded funds (“ETFs”) and other financial instruments, and expects to enter into derivatives transactions, such as options, futures contracts, forwards and swaps to achieve market exposure. The Portfolio’s neutral weighting, from which it will make its tactical asset allocations, is 60% equity exposure and 40% debt exposure. Within these broad components, the Portfolio may invest in any type of security, including common and preferred stocks, warrants and convertible securities, government and corporate fixed-income securities, commodities, currencies, real estate-related securities and inflation-indexed securities. The Portfolio may invest in US,non-US and emerging-market issuers. The Portfolio may invest in securities of companies across the capitalization spectrum, including smaller capitalization companies. The Portfolio expects its investments in fixed-income securities to have a broad range of maturities and quality levels. The Portfolio is expected to be highly diversified across industries, sectors and countries, and will choose its positions from several market indices worldwide in a manner that is intended to track the performance (before fees and expenses) of those indices.
The Adviser will continuously monitor the risks presented by the Portfolio’s asset allocation and may make frequent adjustments to the Portfolio’s exposures to different asset classes. Using its proprietary Dynamic Asset Allocation (“DAA”) techniques, the Adviser will adjust the Portfolio’s exposure to the equity and debt markets, and to segments within those markets, in response to the Adviser’s assessment of the relative risks and returns of those segments. For example, when the Adviser determines that equity market volatility is particularly low and that, therefore, the equity markets present reasonable return opportunities, the Adviser may increase the Portfolio’s equity exposure to as much as 80%. Conversely, when the Adviser determines that the risks in the equity markets are disproportionately greater than the potential returns offered, the Adviser may reduce the Portfolio’s equity exposure significantly below the target percentage or may even decide to eliminate equity exposure altogether by increasing the Portfolio’s fixed-income exposure to 100%. This investment strategy is intended to reduce the Portfolio’s overall investment risk, but may at times result in the Portfolio underperforming the markets.
The Portfolio expects to utilize derivatives and to invest in ETFs to a significant extent. Derivatives and ETFs may provide more efficient and economical exposure to market segments than direct investments, and the Portfolio’s market exposures may at times be achieved almost entirely through the use of derivatives or through the investments in ETFs. Derivatives transactions and ETFs may also be a quicker and more efficient way to alter the Portfolio’s exposure than buying and selling direct investments. As a result, the Adviser expects to use derivatives as one of the primary tools for adjusting the Portfolio’s exposure levels from its neutral weighting. The Adviser also expects to use direct investments and ETFs to adjust the Portfolio’s exposure levels. In determining when and to what extent to enter into derivatives transactions or to invest in ETFs, the Adviser will consider factors such as the relative risks and returns expected of potential investments and the cost of such transactions. The Adviser will consider the impact of derivatives and ETFs in making its assessment of the Portfolio’s risks.
Currency exchange rate fluctuations can have a dramatic impact on returns, significantly adding to returns in some years and greatly diminishing them in others. To the extent that the Portfolio invests innon-US dollar-denominated investments, the Adviser will integrate the risks of foreign currency exposures into its investment and asset allocation decision making. The Adviser may seek to hedge all or a portion of the currency exposure resulting from the Portfolio’s investments. The Adviser may also seek investment opportunities through currencies and currency-related derivatives.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Morgan Stanley Capital International (“MSCI”) World Index, the Bloomberg Barclays US Treasury Index and its blended benchmark, a 60% / 40% blend of the MSCI World Index and the Bloomberg Barclays US Treasury Index, respectively, for theone- and five-year periods ended December 31, 2018, and since the Portfolio’s inception on April 1, 2011.
All share classes of the Portfolio outperformed the primary benchmark for the annual period, but underperformed the blended benchmark and the Bloomberg Barclays US Treasury Index. Throughout most of 2018, the Portfolio maintained a close to neutral weight to risk assets. This
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weighting was reduced in October to a modest underweight. In December, stock volatility became extremely elevated and importantly, was accompanied by both a widening and change in the trend of credit spreads, as well as decelerating growth. This signaled to the Portfolio’s Senior Investment Management Team (the “Team”) that a protracted period of elevated risk in equity markets was beginning, and the Portfolio further reduced its risk assets in early December to a significant underweight. The proceeds were then added to cash, as opposed to fixed income, to maintain neutral duration.
The Portfolio’s equity position was characterized by a regional bias toward internationallarge-cap stocks. The Team saw more pronounced headwinds for US equity markets relative tonon-US developed markets, driven by relative valuations, an appreciating dollar and expectations of further rate hikes by the US Federal Reserve (the “Fed”). The Portfolio’s underweight to US equities contributed to relative performance.
In fixed income, the Portfolio was underweight to the US, which detracted from performance. The Portfolio ended the annual period with a neutral duration. In currency management, the Portfolio held an overweight to the US dollar, relative to the Portfolio’s strategic asset allocation for most of the year, but moved to a significant underweight in the fourth quarter of 2018.
During the annual period, the Portfolio utilized derivatives for hedging and investment purposes in the form of currency forwards, purchased and written options, total return swaps and purchased swaptions, which added to absolute returns, while futures and inflation swaps detracted.
MARKET REVIEW AND INVESTMENT STRATEGY
The annual period ended December 31, 2018 marked a difficult year for almost all major asset classes. Global equities ended the year in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the period. Investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The Fed raised rates four times during the period, as expected, but softened its tone in December and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
Fixed-income markets had mixed performance. Developed-market treasuries rallied, while investment-grade securities posted neutral returns and global high yield sold off. Emerging-market debt sectors came under pressure from a stronger US dollar, slowing Chinese growth, escalating global trade tensions and a hawkish Fed. Developed-market yield curves moved in different directions (bond yields move inversely to price). The Bank of Japan tweaked its monetary policy, holding rates and yields steady but widening the band around10-year yields, potentially allowing them to move higher. Meanwhile, as announced earlier in the year, the European Central Bank ended its bond-buying program in December.
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI World Index and the Bloomberg Barclays US Treasury Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio.The MSCI World Index (free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets. The Bloomberg Barclays US Treasury Index represents the performance of US Treasuries within the US government fixed-income market. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest-rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Allocation Risk: The allocation of investments among different global asset classes may have a significant effect on the Portfolio’s net asset value (“NAV”) when one of these asset classes is performing more poorly than others. As both the direct investments and derivatives positions will be periodically adjusted to reflect the Adviser’s view of market and economic conditions, there will be transaction costs that may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
Foreign(Non-US) Risk: The Portfolio’s investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
ETF Risk: ETFs are investment companies. When the Portfolio invests in an ETF, the Portfolio bears its share of the ETF’s expenses and runs the risk that the ETF may not achieve its investment objective.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: When the Portfolio borrows money or otherwise leverages its portfolio, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase agreements, forward commitments, or by borrowing money.
(Disclosures, Risks and Note About Historical Performance continued on next page)
3
DISCLOSURES AND RISKS | ||
(continued) | AB Variable Products Series Fund |
Liquidity Risk: Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares.
Capitalization Risk: Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Real Estate Risk:The Portfolio’s investments in real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts (“REITs”) may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years | Since Inception1 | |||||||||
Dynamic Asset Allocation Portfolio Class A | -7.07% | 2.66% | 3.96% | |||||||||
Dynamic Asset Allocation Portfolio Class B | -7.35% | 2.40% | 3.71% | |||||||||
Primary Benchmark: MSCI World Index | -8.71% | 4.56% | 6.62% | |||||||||
Bloomberg Barclays US Treasury Index | 0.86% | 2.01% | 2.44% | |||||||||
Blended Benchmark: 60% MSCI World Index / 40% Bloomberg Barclays US Treasury Index | -4.73% | 3.71% | 5.16% | |||||||||
1 Inception date: 4/1/2011.
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.82% and 1.08% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
4/1/20111 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Dynamic Asset Allocation Portfolio Class A shares (from 4/1/20111 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
1 | Inception date: 4/1/2011. |
See Disclosures, Risks and Note about Historical Performance on pages3-4.
5
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 943.80 | $ | 3.87 | 0.79 | % | $ | 3.97 | 0.81 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,021.22 | $ | 4.02 | 0.79 | % | $ | 4.13 | 0.81 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 942.50 | $ | 5.09 | 1.04 | % | $ | 5.19 | 1.06 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.96 | $ | 5.30 | 1.04 | % | $ | 5.40 | 1.06 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees and expenses from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain affiliated/unaffiliated underlying portfolios acquired fund fees and expenses. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’spro-rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
SECURITY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
U.S. Treasury Bonds & Notes | $ | 178,120,527 | 33.4 | % | ||||
iShares Core MSCI Emerging Markets ETF | 23,906,559 | 4.5 | ||||||
Vanguard Globalex-U.S. Real Estate ETF | 13,132,479 | 2.5 | ||||||
Vanguard Real Estate ETF | 10,309,675 | 1.9 | ||||||
iShares Core S&P 500 ETF | 8,237,460 | 1.5 | ||||||
Microsoft Corp. | 5,620,173 | 1.1 | ||||||
Apple, Inc. | 5,091,058 | 1.0 | ||||||
Alphabet, Inc.—Class C | 4,455,517 | 0.8 | ||||||
Amazon.com, Inc. | 4,360,219 | 0.8 | ||||||
Berkshire Hathaway, Inc.—Class B | 2,820,543 | 0.5 | ||||||
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$ | 256,054,210 | 48.0 | % | |||||
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PORTFOLIO BREAKDOWN2
December 31, 2018 (unaudited)
ASSET CLASSES | ALLOCATION | |||
Equities | ||||
U.S. Large-Cap | 10.9 | % | ||
International Large-Cap | 23.1 | |||
U.S.Mid-Cap | 2.0 | |||
U.S.Small-Cap | 2.0 | |||
Emerging-Market Equities | 8.9 | |||
Real Estate Equities | 4.9 | |||
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Subtotal | 51.8 | |||
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Fixed Income | ||||
U.S. Bonds | 36.3 | |||
International Bonds | 1.1 | |||
TIPS | 10.8 | |||
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Subtotal | 48.2 | |||
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Total | 100.0 | % | ||
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SECURITY TYPE BREAKDOWN3
December 31, 2018 (unaudited)
SECURITY TYPE | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Common Stocks | $ | 288,540,161 | 53.7 | % | ||||
Governments—Treasuries | 178,120,527 | 33.2 | ||||||
Investment Companies | 55,586,173 | 10.3 | ||||||
Rights | 7,078 | 0.0 | ||||||
Short-Term Investments | 14,797,228 | 2.8 | ||||||
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Total Investments | $ | 537,051,167 | 100.0 | % |
1 | Long-term investments. |
2 | All data are as of December 31, 2018. The Portfolio breakdown is expressed as an approximate percentage of the Portfolio’s total investments inclusive of derivative exposure, based on the Adviser’s internal classification guidelines. |
3 | The Portfolio’s security type breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
7
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–54.0% | ||||||||
FINANCIALS–8.9% | ||||||||
BANKS–4.4% | ||||||||
AIB Group PLC | 5,844 | $ | 24,642 | |||||
Aozora Bank Ltd. | 2,000 | 59,610 | ||||||
Australia & New Zealand Banking Group Ltd. | 31,095 | 537,280 | ||||||
Banco Bilbao Vizcaya Argentaria SA | 73,153 | 388,575 | ||||||
Banco de Sabadell SA | 68,373 | 78,234 | ||||||
Banco Santander SA | 178,775 | 811,816 | ||||||
Bank Hapoalim BM | 14,749 | 93,275 | ||||||
Bank Leumi Le-Israel BM | 16,778 | 101,423 | ||||||
Bank of America Corp. | 66,145 | 1,629,813 | ||||||
Bank of East Asia Ltd. (The) | 41,231 | 130,766 | ||||||
Bank of Ireland Group PLC | 11,605 | 64,544 | ||||||
Bank of Kyoto Ltd. (The) | 400 | 16,438 | ||||||
Bank of Queensland Ltd. | 7,933 | 54,223 | ||||||
Bankia SA | 10,832 | 31,692 | ||||||
Bankinter SA | 7,353 | 59,001 | ||||||
Barclays PLC | 188,978 | 361,566 | ||||||
BB&T Corp. | 5,450 | 236,094 | ||||||
Bendigo & Adelaide Bank Ltd. | 9,233 | 70,152 | ||||||
BNP Paribas SA | 13,908 | 628,095 | ||||||
BOC Hong Kong Holdings Ltd. | 39,500 | 146,613 | ||||||
CaixaBank SA | 42,465 | 153,784 | ||||||
Chiba Bank Ltd. (The) | 11,000 | 61,275 | ||||||
Citigroup, Inc. | 17,879 | 930,781 | ||||||
Citizens Financial Group, Inc. | 3,319 | 98,674 | ||||||
Comerica, Inc. | 1,200 | 82,428 | ||||||
Commerzbank AG(a) | 15,814 | 105,006 | ||||||
Commonwealth Bank of Australia | 19,262 | 982,510 | ||||||
Concordia Financial Group Ltd. | 11,221 | 42,877 | ||||||
Credit Agricole SA | 14,327 | 154,193 | ||||||
Danske Bank A/S | 7,940 | 157,628 | ||||||
DBS Group Holdings Ltd. | 21,665 | 376,751 | ||||||
DNB ASA | 9,303 | 149,329 | ||||||
Erste Group Bank AG(a) | 3,207 | 106,336 | ||||||
Fifth Third Bancorp | 4,740 | 111,532 | ||||||
First Republic Bank/CA | 1,173 | 101,934 | ||||||
Fukuoka Financial Group, Inc. | 1,800 | 36,492 | ||||||
Hang Seng Bank Ltd. | 8,100 | 181,450 | ||||||
HSBC Holdings PLC | 219,920 | 1,814,281 | ||||||
Huntington Bancshares, Inc./OH | 7,665 | 91,367 | ||||||
ING Groep NV | 36,740 | 395,197 | ||||||
Intesa Sanpaolo SpA | 165,706 | 368,965 | ||||||
Japan Post Bank Co., Ltd. | 3,855 | 42,443 | ||||||
JPMorgan Chase & Co. | 23,915 | 2,334,582 | ||||||
KBC Group NV | 3,064 | 197,134 | ||||||
KeyCorp | 7,425 | 109,742 | ||||||
Lloyds Banking Group PLC | 821,886 | 541,771 | ||||||
M&T Bank Corp. | 1,015 | $ | 145,277 | |||||
Mebuki Financial Group, Inc. | 16,800 | 44,429 | ||||||
Mediobanca Banca di Credito Finanziario SpA | 12,965 | 109,703 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 135,900 | 666,950 | ||||||
Mizrahi Tefahot Bank Ltd. | 1,057 | 17,852 | ||||||
Mizuho Financial Group, Inc. | 253,500 | 392,224 | ||||||
National Australia Bank Ltd. | 30,446 | 516,648 | ||||||
Nordea Bank Abp | 28,914 | 243,404 | ||||||
Oversea-Chinese Banking Corp., Ltd. | 29,000 | 239,876 | ||||||
People’s United Financial, Inc. | 2,365 | 34,127 | ||||||
PNC Financial Services Group, Inc. (The) | 3,330 | 389,310 | ||||||
Raiffeisen Bank International AG | 1,307 | 33,351 | ||||||
Regions Financial Corp. | 7,825 | 104,699 | ||||||
Resona Holdings, Inc. | 21,000 | 100,726 | ||||||
Royal Bank of Scotland Group PLC | 53,666 | 148,872 | ||||||
Seven Bank Ltd. | 16,218 | 46,297 | ||||||
Shinsei Bank Ltd. | 3,700 | 43,987 | ||||||
Shizuoka Bank Ltd. (The) | 4,000 | 31,180 | ||||||
Skandinaviska Enskilda Banken AB–Class A | 16,190 | 157,381 | ||||||
Societe Generale SA | 9,446 | 299,481 | ||||||
Standard Chartered PLC | 34,982 | 271,868 | ||||||
Sumitomo Mitsui Financial Group, Inc. | 14,300 | 471,400 | ||||||
Sumitomo Mitsui Trust Holdings, Inc. | 3,200 | 116,534 | ||||||
SunTrust Banks, Inc. | 3,190 | 160,904 | ||||||
SVB Financial Group(a) | 386 | 73,309 | ||||||
Svenska Handelsbanken AB–Class A | 14,254 | 158,585 | ||||||
Swedbank AB–Class A | 8,621 | 192,689 | ||||||
UniCredit SpA | 17,422 | 197,337 | ||||||
United Overseas Bank Ltd. | 12,000 | 217,080 | ||||||
US Bancorp | 10,915 | 498,816 | ||||||
Wells Fargo & Co. | 30,775 | 1,418,112 | ||||||
Westpac Banking Corp. | 38,249 | 675,855 | ||||||
Zions Bancorp NA | 1,330 | 54,184 | ||||||
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23,524,761 | ||||||||
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CAPITAL MARKETS–1.4% | ||||||||
3i Group PLC | 9,721 | 95,919 | ||||||
Affiliated Managers Group, Inc. | 407 | 39,658 | ||||||
Ameriprise Financial, Inc. | 1,045 | 109,067 | ||||||
Amundi SA(b) | 1,517 | 80,205 | ||||||
ASX Ltd. | 1,453 | 61,396 | ||||||
Bank of New York Mellon Corp. (The) | 7,015 | 330,196 | ||||||
BlackRock, Inc.–Class A | 877 | 344,503 | ||||||
Cboe Global Markets, Inc. | 746 | 72,981 | ||||||
Charles Schwab Corp. (The) | 8,390 | 348,437 |
8
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
CME Group, Inc.–Class A | 2,450 | $ | 460,894 | |||||
Credit Suisse Group AG(a) | 28,090 | 307,071 | ||||||
Daiwa Securities Group, Inc. | 16,000 | 81,210 | ||||||
Deutsche Bank AG | 19,693 | 157,055 | ||||||
Deutsche Boerse AG | 2,077 | 248,316 | ||||||
E*TRADE Financial Corp. | 1,770 | 77,668 | ||||||
Franklin Resources, Inc. | 2,220 | 65,845 | ||||||
Goldman Sachs Group, Inc. (The) | 2,538 | 423,973 | ||||||
Hargreaves Lansdown PLC | 4,023 | 94,882 | ||||||
Hong Kong Exchanges & Clearing Ltd. | 13,451 | 388,849 | ||||||
Intercontinental Exchange, Inc. | 4,030 | 303,580 | ||||||
Invesco Ltd. | 2,830 | 47,374 | ||||||
Investec PLC | 5,877 | 33,039 | ||||||
Japan Exchange Group, Inc. | 4,965 | 80,085 | ||||||
Julius Baer Group Ltd.(a) | 2,130 | 75,906 | ||||||
London Stock Exchange Group PLC | 3,987 | 206,848 | ||||||
Macquarie Group Ltd. | 3,705 | 283,788 | ||||||
Moody’s Corp. | 1,145 | 160,346 | ||||||
Morgan Stanley | 9,570 | 379,451 | ||||||
MSCI, Inc.–Class A | 657 | 96,862 | ||||||
Nasdaq, Inc. | 760 | 61,993 | ||||||
Natixis SA | 21,759 | 102,626 | ||||||
Nomura Holdings, Inc. | 38,855 | 147,245 | ||||||
Northern Trust Corp. | 1,460 | 122,041 | ||||||
Partners Group Holding AG | 158 | 96,119 | ||||||
Raymond James Financial, Inc. | 909 | 67,639 | ||||||
S&P Global, Inc. | 1,760 | 299,094 | ||||||
SBI Holdings, Inc./Japan | 2,468 | 48,131 | ||||||
Schroders PLC | 1,291 | 40,207 | ||||||
Singapore Exchange Ltd. | 21,000 | 110,057 | ||||||
St. James’s Place PLC | 4,994 | 60,147 | ||||||
State Street Corp. | 2,535 | 159,882 | ||||||
T. Rowe Price Group, Inc. | 1,725 | 159,252 | ||||||
UBS Group AG(a) | 42,353 | 528,279 | ||||||
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7,458,116 | ||||||||
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CONSUMER FINANCE–0.2% | ||||||||
Acom Co., Ltd. | 13,014 | 42,335 | ||||||
American Express Co. | 5,010 | 477,553 | ||||||
Capital One Financial Corp. | 3,413 | 257,989 | ||||||
Credit Saison Co., Ltd. | 3,500 | 41,007 | ||||||
Discover Financial Services | 2,410 | 142,142 | ||||||
Synchrony Financial | 4,918 | 115,376 | ||||||
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1,076,402 | ||||||||
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DIVERSIFIED FINANCIAL SERVICES–0.8% | ||||||||
AMP Ltd. | 28,155 | 48,603 | ||||||
Berkshire Hathaway, Inc.–Class B(a) | 13,814 | 2,820,543 | ||||||
Challenger Ltd./Australia | 12,809 | 85,636 | ||||||
EXOR NV | 3,679 | 199,723 | ||||||
Groupe Bruxelles Lambert SA | 768 | 66,926 | ||||||
IHS Markit Ltd.(a) | 2,461 | $ | 118,054 | |||||
Industrivarden AB–Class C | 4,979 | 100,805 | ||||||
Investor AB–Class B | 4,336 | 184,255 | ||||||
Jefferies Financial Group, Inc. | 2,055 | 35,675 | ||||||
Kinnevik AB | 4,676 | 113,156 | ||||||
ORIX Corp. | 14,110 | 206,174 | ||||||
Pargesa Holding SA | 1,023 | 73,781 | ||||||
Standard Life Aberdeen PLC | 24,984 | 81,806 | ||||||
Wendel SA | 844 | 101,242 | ||||||
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4,236,379 | ||||||||
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INSURANCE–2.1% | ||||||||
Admiral Group PLC | 2,010 | 52,448 | ||||||
Aegon NV | 38,312 | 179,440 | ||||||
Aflac, Inc. | 5,410 | 246,480 | ||||||
Ageas | 1,646 | 74,096 | ||||||
AIA Group Ltd. | 128,423 | 1,066,785 | ||||||
Allianz SE | 4,871 | 978,853 | ||||||
Allstate Corp. (The) | 2,500 | 206,575 | ||||||
American International Group, Inc. | 6,293 | 248,007 | ||||||
Aon PLC | 1,765 | 256,560 | ||||||
Arthur J Gallagher & Co. | 1,202 | 88,587 | ||||||
Assicurazioni Generali SpA | 11,115 | 185,776 | ||||||
Assurant, Inc. | 410 | 36,670 | ||||||
Aviva PLC | 43,251 | 206,999 | ||||||
Baloise Holding AG | 926 | 127,844 | ||||||
Brighthouse Financial, Inc.(a) | 797 | 24,293 | ||||||
Chubb Ltd. | 3,232 | 417,510 | ||||||
Cincinnati Financial Corp. | 1,060 | 82,065 | ||||||
CNP Assurances | 4,544 | 96,453 | ||||||
Dai-ichi Life Holdings, Inc. | 11,850 | 184,026 | ||||||
Direct Line Insurance Group PLC | 13,089 | 53,206 | ||||||
Everest Re Group Ltd. | 294 | 64,021 | ||||||
Gjensidige Forsikring ASA | 3,690 | 57,726 | ||||||
Hannover Rueck SE | 795 | 107,142 | ||||||
Hartford Financial Services Group, Inc. (The) | 2,475 | 110,014 | ||||||
Insurance Australia Group Ltd. | 22,589 | 111,414 | ||||||
Japan Post Holdings Co., Ltd. | 16,700 | 192,819 | ||||||
Legal & General Group PLC | 63,405 | 186,815 | ||||||
Lincoln National Corp. | 1,490 | 76,452 | ||||||
Loews Corp. | 1,790 | 81,481 | ||||||
Mapfre SA | 17,737 | 47,108 | ||||||
Marsh & McLennan Cos., Inc. | 3,590 | 286,302 | ||||||
Medibank Pvt Ltd. | 39,307 | 71,161 | ||||||
MetLife, Inc. | 7,070 | 290,294 | ||||||
MS&AD Insurance Group Holdings, Inc. | 4,800 | 136,441 | ||||||
Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen | 1,588 | 346,341 |
9
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
NN Group NV | 7,137 | $ | 283,757 | |||||
Principal Financial Group, Inc. | 1,840 | 81,273 | ||||||
Progressive Corp. (The) | 4,045 | 244,035 | ||||||
Prudential Financial, Inc. | 2,965 | 241,796 | ||||||
Prudential PLC | 28,434 | 507,730 | ||||||
QBE Insurance Group Ltd. | 13,053 | 92,945 | ||||||
RSA Insurance Group PLC | 10,859 | 71,265 | ||||||
Sampo Oyj–Class A | 4,765 | 211,183 | ||||||
SCOR SE | 3,333 | 149,839 | ||||||
Sompo Holdings, Inc. | 4,000 | 135,880 | ||||||
Sony Financial Holdings, Inc. | 4,130 | 76,969 | ||||||
Suncorp Group Ltd. | 12,247 | 108,995 | ||||||
Swiss Life Holding AG(a) | 342 | 132,002 | ||||||
Swiss Re AG | 3,176 | 292,193 | ||||||
T&D Holdings, Inc. | 5,500 | 63,621 | ||||||
Tokio Marine Holdings, Inc. | 7,300 | 346,814 | ||||||
Torchmark Corp. | 752 | 56,047 | ||||||
Travelers Cos., Inc. (The) | 1,930 | 231,117 | ||||||
Tryg A/S | 1,821 | 45,927 | ||||||
Unum Group | 1,520 | 44,658 | ||||||
Willis Towers Watson PLC | 887 | 134,700 | ||||||
Zurich Insurance Group AG | 1,604 | 478,134 | ||||||
|
| |||||||
11,009,084 | ||||||||
|
| |||||||
47,304,742 | ||||||||
|
| |||||||
HEALTH CARE–7.3% | ||||||||
BIOTECHNOLOGY–0.9% | ||||||||
AbbVie, Inc. | 10,662 | 982,930 | ||||||
Alexion Pharmaceuticals, Inc.(a) | 1,580 | 153,829 | ||||||
Amgen, Inc. | 4,678 | 910,666 | ||||||
BeiGene Ltd. (Sponsored ADR)(a) | 364 | 51,055 | ||||||
Biogen, Inc.(a) | 1,465 | 440,848 | ||||||
Celgene Corp.(a) | 4,930 | 315,964 | ||||||
CSL Ltd. | 4,876 | 636,893 | ||||||
Genmab A/S(a) | 540 | 88,787 | ||||||
Gilead Sciences, Inc. | 9,115 | 570,143 | ||||||
Grifols SA | 3,644 | 95,661 | ||||||
Incyte Corp.(a) | 1,240 | 78,851 | ||||||
Regeneron Pharmaceuticals, Inc.(a) | 540 | 201,690 | ||||||
Vertex Pharmaceuticals, Inc.(a) | 1,807 | 299,438 | ||||||
|
| |||||||
4,826,755 | ||||||||
|
| |||||||
HEALTH CARE EQUIPMENT & SUPPLIES–1.3% | ||||||||
Abbott Laboratories | 12,276 | 887,923 | ||||||
ABIOMED, Inc.(a) | 308 | 100,112 | ||||||
Align Technology, Inc.(a) | 540 | 113,092 | ||||||
Asahi Intecc Co., Ltd. | 734 | 31,052 | ||||||
Baxter International, Inc. | 3,380 | 222,472 | ||||||
Becton Dickinson and Co. | 1,948 | 438,923 | ||||||
Boston Scientific Corp.(a) | 9,660 | 341,384 | ||||||
Cochlear Ltd. | 405 | 49,624 | ||||||
Coloplast A/S–Class B | 1,154 | 107,340 | ||||||
ConvaTec Group PLC(b) | 12,601 | $ | 22,320 | |||||
Cooper Cos., Inc. (The) | 361 | 91,875 | ||||||
Danaher Corp. | 4,340 | 447,541 | ||||||
DENTSPLY SIRONA, Inc. | 1,596 | 59,387 | ||||||
Edwards Lifesciences Corp.(a) | 1,490 | 228,223 | ||||||
Fisher & Paykel Healthcare Corp., Ltd. | 6,133 | 53,594 | ||||||
Hologic, Inc.(a) | 1,820 | 74,802 | ||||||
Hoya Corp. | 3,900 | 235,170 | ||||||
IDEXX Laboratories, Inc.(a) | 633 | 117,751 | ||||||
Intuitive Surgical, Inc.(a) | 815 | 390,320 | ||||||
Koninklijke Philips NV | 14,135 | 495,566 | ||||||
Medtronic PLC | 9,459 | 860,391 | ||||||
Olympus Corp. | 2,800 | 85,637 | ||||||
ResMed, Inc. | �� | 1,016 | 115,692 | |||||
Sartorius AG (Preference Shares) | 812 | 101,059 | ||||||
Siemens Healthineers AG(a)(b) | 1,618 | 67,611 | ||||||
Smith & Nephew PLC | 9,779 | 183,050 | ||||||
Sonova Holding AG | 666 | 109,521 | ||||||
Straumann Holding AG | 145 | 91,577 | ||||||
Stryker Corp. | 2,275 | 356,606 | ||||||
Sysmex Corp. | 1,836 | 87,194 | ||||||
Terumo Corp. | 3,300 | 186,137 | ||||||
Varian Medical Systems, Inc.(a) | 645 | 73,085 | ||||||
William Demant Holding A/S(a) | 2,050 | 58,367 | ||||||
Zimmer Biomet Holdings, Inc. | 1,385 | 143,652 | ||||||
|
| |||||||
7,028,050 | ||||||||
|
| |||||||
HEALTH CARE PROVIDERS & SERVICES–1.0% | ||||||||
Alfresa Holdings Corp. | 2,700 | 68,822 | ||||||
AmerisourceBergen Corp.–Class A | 1,135 | 84,444 | ||||||
Anthem, Inc. | 1,850 | 485,866 | ||||||
Cardinal Health, Inc. | 2,095 | 93,437 | ||||||
Centene Corp.(a) | 1,487 | 171,451 | ||||||
Cigna Corp. | 2,662 | 505,488 | ||||||
CVS Health Corp. | 9,029 | 591,580 | ||||||
DaVita, Inc.(a) | 950 | 48,887 | ||||||
Fresenius Medical Care AG & Co. KGaA | 2,085 | 135,152 | ||||||
Fresenius SE & Co. KGaA | 4,696 | 226,977 | ||||||
HCA Healthcare, Inc. | 1,950 | 242,678 | ||||||
Henry Schein, Inc.(a) | 1,040 | 81,661 | ||||||
Humana, Inc. | 965 | 276,453 | ||||||
Laboratory Corp. of America Holdings(a) | 725 | 91,611 | ||||||
McKesson Corp. | 1,465 | 161,839 | ||||||
Medipal Holdings Corp. | 3,900 | 83,437 | ||||||
NMC Health PLC | 1,143 | 39,892 | ||||||
Quest Diagnostics, Inc. | 950 | 79,107 |
10
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Ramsay Health Care Ltd. | 1,156 | $ | 47,022 | |||||
Ryman Healthcare Ltd. | 5,937 | 42,846 | ||||||
Sonic Healthcare Ltd. | 5,598 | 87,329 | ||||||
Suzuken Co., Ltd./Aichi Japan | 1,200 | 61,107 | ||||||
UnitedHealth Group, Inc. | 6,735 | 1,677,823 | ||||||
Universal Health Services, Inc.–Class B | 650 | 75,764 | ||||||
WellCare Health Plans, Inc.(a) | 347 | 81,923 | ||||||
|
| |||||||
5,542,596 | ||||||||
|
| |||||||
HEALTH CARE TECHNOLOGY–0.0% | ||||||||
Cerner Corp.(a) | 2,180 | 114,319 | ||||||
M3, Inc. | 4,140 | 55,771 | ||||||
|
| |||||||
170,090 | ||||||||
|
| |||||||
LIFE SCIENCES TOOLS & SERVICES–0.4% | ||||||||
Agilent Technologies, Inc. | 2,245 | 151,448 | ||||||
Illumina, Inc.(a) | 1,111 | 333,222 | ||||||
IQVIA Holdings, Inc.(a) | 1,096 | 127,322 | ||||||
Lonza Group AG(a) | 779 | 202,505 | ||||||
Mettler-Toledo International, Inc.(a) | 220 | 124,428 | ||||||
PerkinElmer, Inc. | 755 | 59,305 | ||||||
QIAGEN NV(a) | 2,703 | 92,364 | ||||||
Sartorius Stedim Biotech | 712 | 71,285 | ||||||
Thermo Fisher Scientific, Inc. | 2,885 | 645,634 | ||||||
Waters Corp.(a) | 545 | 102,814 | ||||||
|
| |||||||
1,910,327 | ||||||||
|
| |||||||
PHARMACEUTICALS–3.7% | ||||||||
Allergan PLC | 2,400 | 320,784 | ||||||
Astellas Pharma, Inc. | 22,500 | 287,474 | ||||||
AstraZeneca PLC | 13,918 | 1,038,922 | ||||||
Bayer AG | 10,385 | 722,264 | ||||||
Bristol-Myers Squibb Co. | 11,465 | 595,951 | ||||||
Chugai Pharmaceutical Co., Ltd. | 2,100 | 121,798 | ||||||
Daiichi Sankyo Co., Ltd. | 5,700 | 182,319 | ||||||
Eisai Co., Ltd. | 2,933 | 227,072 | ||||||
Eli Lilly & Co. | 6,665 | 771,274 | ||||||
GlaxoSmithKline PLC | 54,490 | 1,038,471 | ||||||
Hisamitsu Pharmaceutical Co., Inc. | 1,000 | 55,203 | ||||||
Ipsen SA | 880 | 113,860 | ||||||
Johnson & Johnson | 18,805 | 2,426,785 | ||||||
Kyowa Hakko Kirin Co., Ltd. | 2,152 | 40,664 | ||||||
Merck & Co., Inc. | 18,905 | 1,444,531 | ||||||
Merck KGaA | 1,230 | 126,607 | ||||||
Mitsubishi Tanabe Pharma Corp. | 3,000 | 43,307 | ||||||
Mylan NV(a) | 3,555 | 97,407 | ||||||
Nektar Therapeutics(a) | 1,074 | 35,302 | ||||||
Novartis AG | 24,089 | 2,063,083 | ||||||
Novo Nordisk A/S–Class B | 20,377 | $ | 935,856 | |||||
Ono Pharmaceutical Co., Ltd. | 3,900 | 79,641 | ||||||
Orion Oyj–Class B | 974 | 33,884 | ||||||
Otsuka Holdings Co., Ltd. | 4,348 | 177,678 | ||||||
Perrigo Co. PLC | 822 | 31,852 | ||||||
Pfizer, Inc. | 41,036 | 1,791,221 | ||||||
Recordati SpA | 2,055 | 71,165 | ||||||
Roche Holding AG | 7,721 | 1,916,806 | ||||||
Sanofi | 12,344 | 1,070,840 | ||||||
Santen Pharmaceutical Co., Ltd. | 2,500 | 36,071 | ||||||
Shionogi & Co., Ltd. | 2,800 | 159,811 | ||||||
Shire PLC | 10,543 | 613,472 | ||||||
Sumitomo Dainippon Pharma Co., Ltd. | 2,900 | 92,482 | ||||||
Taisho Pharmaceutical Holdings Co., Ltd. | 567 | 56,909 | ||||||
Takeda Pharmaceutical Co., Ltd. | 7,600 | 257,598 | ||||||
Teva Pharmaceutical Industries Ltd. (Sponsored ADR)(a) | 10,774 | 166,135 | ||||||
UCB SA | 1,519 | 124,067 | ||||||
Vifor Pharma AG | 802 | 87,270 | ||||||
Zoetis, Inc. | 3,346 | 286,217 | ||||||
|
| |||||||
19,742,053 | ||||||||
|
| |||||||
39,219,871 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–7.1% | ||||||||
COMMUNICATIONS EQUIPMENT–0.4% | ||||||||
Arista Networks, Inc.(a) | 335 | 70,585 | ||||||
Cisco Systems, Inc. | 32,990 | 1,429,457 | ||||||
F5 Networks, Inc.(a) | 480 | 77,774 | ||||||
Juniper Networks, Inc. | 2,440 | 65,660 | ||||||
Motorola Solutions, Inc. | 1,145 | 131,721 | ||||||
Nokia Oyj | 62,192 | 361,032 | ||||||
Telefonaktiebolaget LM Ericsson–Class B | 28,969 | 256,432 | ||||||
|
| |||||||
2,392,661 | ||||||||
|
| |||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.5% | ||||||||
Alps Electric Co., Ltd. | 2,053 | 39,808 | ||||||
Amphenol Corp.–Class A | 2,150 | 174,193 | ||||||
Corning, Inc. | 5,805 | 175,369 | ||||||
FLIR Systems, Inc. | 910 | 39,621 | ||||||
Hamamatsu Photonics KK | 1,600 | 53,620 | ||||||
Hexagon AB–Class B | 4,263 | 197,068 | ||||||
Hirose Electric Co., Ltd. | 315 | 30,818 | ||||||
Hitachi High-Technologies Corp. | 1,881 | 58,902 | ||||||
Hitachi Ltd. | 10,400 | 275,707 | ||||||
Ingenico Group SA | 930 | 52,757 | ||||||
IPG Photonics Corp.(a) | 273 | 30,928 | ||||||
Keyence Corp. | 1,054 | 532,740 | ||||||
Keysight Technologies, Inc.(a) | 1,328 | 82,442 |
11
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Kyocera Corp. | 3,100 | $ | 154,954 | |||||
Murata Manufacturing Co., Ltd. | 2,000 | 269,499 | ||||||
Nippon Electric Glass Co., Ltd. | 2,938 | 71,980 | ||||||
Omron Corp. | 1,800 | 65,253 | ||||||
Shimadzu Corp. | 2,000 | 39,440 | ||||||
TDK Corp. | 1,200 | 84,006 | ||||||
TE Connectivity Ltd. | 2,460 | 186,050 | ||||||
Venture Corp., Ltd. | 4,005 | 41,119 | ||||||
Yaskawa Electric Corp. | 2,723 | 66,561 | ||||||
Yokogawa Electric Corp. | 4,500 | 77,681 | ||||||
|
| |||||||
2,800,516 | ||||||||
|
| |||||||
IT SERVICES–1.5% | ||||||||
Accenture PLC–Class A | 4,535 | 639,480 | ||||||
Akamai Technologies, Inc.(a) | 1,205 | 73,601 | ||||||
Alliance Data Systems Corp. | 330 | 49,526 | ||||||
Amadeus IT Group SA–Class A | 4,677 | 325,414 | ||||||
Atos SE | 677 | 55,470 | ||||||
Automatic Data Processing, Inc. | 3,120 | 409,094 | ||||||
Broadridge Financial Solutions, Inc. | 819 | 78,829 | ||||||
Capgemini SE | 1,557 | 154,867 | ||||||
Cognizant Technology Solutions Corp.–Class A | 4,080 | 258,998 | ||||||
Computershare Ltd. | 3,663 | 44,393 | ||||||
DXC Technology Co. | 2,068 | 109,956 | ||||||
Fidelity National Information Services, Inc. | 2,320 | 237,916 | ||||||
Fiserv, Inc.(a) | 2,850 | 209,447 | ||||||
FleetCor Technologies, Inc.(a) | 661 | 122,761 | ||||||
Fujitsu Ltd. | 1,800 | 112,205 | ||||||
Gartner, Inc.(a) | 640 | 81,818 | ||||||
Global Payments, Inc. | 1,109 | 114,371 | ||||||
International Business Machines Corp. | 6,468 | 735,218 | ||||||
Jack Henry & Associates, Inc. | 547 | 69,206 | ||||||
Mastercard, Inc.–Class A | 6,460 | 1,218,679 | ||||||
Nomura Research Institute Ltd. | 1,300 | 48,207 | ||||||
NTT Data Corp. | 6,010 | 65,688 | ||||||
Obic Co., Ltd. | 730 | 56,348 | ||||||
Otsuka Corp. | 1,200 | 33,026 | ||||||
Paychex, Inc. | 2,245 | 146,262 | ||||||
PayPal Holdings, Inc.(a) | 7,835 | 658,845 | ||||||
Total System Services, Inc. | 1,160 | 94,296 | ||||||
VeriSign, Inc.(a) | 675 | 100,096 | ||||||
Visa, Inc.–Class A | 12,550 | 1,655,847 | ||||||
Western Union Co. (The)–Class W | 3,230 | 55,104 | ||||||
Wirecard AG | 1,262 | 190,249 | ||||||
Wix.com Ltd.(a) | 485 | 43,815 | ||||||
|
| |||||||
8,249,032 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–1.4% | ||||||||
Advanced Micro Devices, Inc.(a) | 5,783 | $ | 106,754 | |||||
Analog Devices, Inc. | 2,610 | 224,016 | ||||||
Applied Materials, Inc. | 7,035 | 230,326 | ||||||
ASM Pacific Technology Ltd. | 900 | 8,689 | ||||||
ASML Holding NV | 3,784 | 592,799 | ||||||
Broadcom, Inc. | 3,059 | 777,843 | ||||||
Disco Corp. | 309 | 35,927 | ||||||
Infineon Technologies AG | 10,766 | 215,553 | ||||||
Intel Corp. | 32,640 | 1,531,795 | ||||||
KLA-Tencor Corp. | 1,060 | 94,859 | ||||||
Lam Research Corp. | 1,129 | 153,736 | ||||||
Maxim Integrated Products, Inc. | 1,975 | 100,429 | ||||||
Microchip Technology, Inc. | 1,595 | 114,712 | ||||||
Micron Technology, Inc.(a) | 8,120 | 257,648 | ||||||
NVIDIA Corp. | 4,335 | 578,723 | ||||||
NXP Semiconductors NV | 3,835 | 281,029 | ||||||
Qorvo, Inc.(a) | 868 | 52,714 | ||||||
QUALCOMM, Inc. | 8,594 | 489,085 | ||||||
Renesas Electronics Corp.(a) | 9,161 | 41,609 | ||||||
Rohm Co., Ltd. | 1,300 | 82,972 | ||||||
Skyworks Solutions, Inc. | 1,224 | 82,032 | ||||||
STMicroelectronics NV | 12,251 | 173,641 | ||||||
SUMCO Corp. | 2,522 | 28,087 | ||||||
Texas Instruments, Inc. | 6,875 | 649,687 | ||||||
Tokyo Electron Ltd. | 1,689 | 190,138 | ||||||
Xilinx, Inc. | 1,735 | 147,770 | ||||||
|
| |||||||
7,242,573 | ||||||||
|
| |||||||
SOFTWARE–2.1% | ||||||||
Adobe, Inc.(a) | 3,460 | 782,790 | ||||||
ANSYS, Inc.(a) | 612 | 87,479 | ||||||
Autodesk, Inc.(a) | 1,525 | 196,130 | ||||||
Cadence Design Systems, Inc.(a) | 1,964 | 85,395 | ||||||
Check Point Software Technologies Ltd.(a) | 1,392 | 142,889 | ||||||
Citrix Systems, Inc. | 880 | 90,165 | ||||||
Dassault Systemes SE | 1,424 | 169,142 | ||||||
Fortinet, Inc.(a) | 1,019 | 71,768 | ||||||
Intuit, Inc. | 1,700 | 334,645 | ||||||
Micro Focus International PLC | 4,754 | 83,284 | ||||||
Microsoft Corp. | 55,333 | 5,620,173 | ||||||
Nice Ltd.(a) | 596 | 64,571 | ||||||
Oracle Corp. | 18,256 | 824,258 | ||||||
Oracle Corp. Japan | 500 | 31,739 | ||||||
Red Hat, Inc.(a) | 1,240 | 217,794 | ||||||
Sage Group PLC (The) | 12,240 | 93,874 | ||||||
salesforce.com, Inc.(a) | 5,362 | 734,433 | ||||||
SAP SE | 10,475 | 1,039,640 | ||||||
Symantec Corp. | 4,355 | 82,288 | ||||||
Synopsys, Inc.(a) | 1,022 | 86,093 |
12
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Temenos AG(a) | 662 | $ | 79,548 | |||||
Trend Micro, Inc./Japan | 1,600 | 86,457 | ||||||
|
| |||||||
11,004,555 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & | ||||||||
Apple, Inc. | 32,275 | 5,091,058 | ||||||
Brother Industries Ltd. | 2,200 | 32,563 | ||||||
Canon, Inc. | 11,400 | 313,679 | ||||||
FUJIFILM Holdings Corp. | 4,200 | 162,811 | ||||||
Hewlett Packard Enterprise Co. | 10,660 | 140,819 | ||||||
HP, Inc. | 11,510 | 235,495 | ||||||
Konica Minolta, Inc. | 6,000 | 54,009 | ||||||
NEC Corp. | 2,500 | 74,335 | ||||||
NetApp, Inc. | 1,840 | 109,793 | ||||||
Ricoh Co., Ltd. | 6,000 | 58,631 | ||||||
Seagate Technology PLC | 1,950 | 75,250 | ||||||
Seiko Epson Corp. | 2,700 | 37,710 | ||||||
Western Digital Corp. | 2,063 | 76,269 | ||||||
Xerox Corp. | 1,486 | 29,363 | ||||||
|
| |||||||
6,491,785 | ||||||||
|
| |||||||
38,181,122 | ||||||||
|
| |||||||
INDUSTRIALS–6.3% | ||||||||
AEROSPACE & DEFENSE–1.1% | ||||||||
AerCap Holdings NV(a) | 1,405 | 55,638 | ||||||
Airbus SE | 6,243 | 595,206 | ||||||
Arconic, Inc. | 2,956 | 49,838 | ||||||
BAE Systems PLC | 33,818 | 197,797 | ||||||
Boeing Co. (The) | 3,860 | 1,244,850 | ||||||
Dassault Aviation SA | 41 | 56,841 | ||||||
Elbit Systems Ltd. | 250 | 28,697 | ||||||
General Dynamics Corp. | 1,910 | 300,271 | ||||||
Harris Corp. | 845 | 113,779 | ||||||
Huntington Ingalls Industries, Inc. | 329 | 62,612 | ||||||
L3 Technologies, Inc. | 525 | 91,172 | ||||||
Leonardo SpA | 5,271 | 46,439 | ||||||
Lockheed Martin Corp. | 1,800 | 471,312 | ||||||
Meggitt PLC | 10,854 | 65,200 | ||||||
MTU Aero Engines AG | 579 | 105,147 | ||||||
Northrop Grumman Corp. | 1,240 | 303,676 | ||||||
Raytheon Co. | 2,050 | 314,367 | ||||||
Rolls-Royce Holdings PLC(a) | 19,591 | 206,391 | ||||||
Safran SA | 3,586 | 430,087 | ||||||
Singapore Technologies Engineering Ltd. | 43,000 | 110,230 | ||||||
Textron, Inc. | 1,755 | 80,712 | ||||||
Thales SA | 1,184 | 138,359 | ||||||
TransDigm Group, Inc.(a) | 363 | 123,442 | ||||||
United Technologies Corp. | 5,675 | 604,274 | ||||||
|
| |||||||
5,796,337 | ||||||||
|
| |||||||
AIR FREIGHT & LOGISTICS–0.3% | ||||||||
Bollore SA | 25,929 | $ | 103,956 | |||||
CH Robinson Worldwide, Inc. | 965 | 81,147 | ||||||
Deutsche Post AG | 10,803 | 295,021 | ||||||
Expeditors International of Washington, Inc. | 1,220 | 83,070 | ||||||
FedEx Corp. | 1,715 | 276,681 | ||||||
Kuehne & Nagel International AG | 477 | 61,403 | ||||||
Royal Mail PLC | 8,567 | 29,735 | ||||||
SG Holdings Co., Ltd. | 2,174 | 56,529 | ||||||
United Parcel Service, Inc.–Class B | 4,855 | 473,508 | ||||||
Yamato Holdings Co., Ltd. | 3,400 | 93,217 | ||||||
|
| |||||||
1,554,267 | ||||||||
|
| |||||||
AIRLINES–0.2% | ||||||||
Alaska Air Group, Inc. | 843 | 51,297 | ||||||
American Airlines Group, Inc. | 2,882 | 92,541 | ||||||
ANA Holdings, Inc. | 1,007 | 36,150 | ||||||
Delta Air Lines, Inc. | 4,502 | 224,650 | ||||||
Deutsche Lufthansa AG | 3,330 | 75,203 | ||||||
easyJet PLC | 2,320 | 32,691 | ||||||
International Consolidated Airlines Group SA | 10,420 | 82,607 | ||||||
Japan Airlines Co., Ltd. | 900 | 31,897 | ||||||
Singapore Airlines Ltd. | 14,000 | 96,718 | ||||||
Southwest Airlines Co. | 3,705 | 172,208 | ||||||
United Continental Holdings, Inc.(a) | 1,622 | 135,810 | ||||||
|
| |||||||
1,031,772 | ||||||||
|
| |||||||
BUILDING PRODUCTS–0.3% | ||||||||
AGC, Inc./Japan | 2,000 | 62,166 | ||||||
Allegion PLC | 635 | 50,616 | ||||||
AO Smith Corp. | 955 | 40,778 | ||||||
Assa Abloy AB–Class B | 9,541 | 170,849 | ||||||
Cie de Saint-Gobain | 4,539 | 150,679 | ||||||
Daikin Industries Ltd. | 2,774 | 294,753 | ||||||
Fortune Brands Home & Security, Inc. | 971 | 36,888 | ||||||
Geberit AG | 360 | 140,191 | ||||||
Johnson Controls International PLC | 6,492 | 192,488 | ||||||
Kingspan Group PLC | 1,858 | 79,648 | ||||||
LIXIL Group Corp. | 2,500 | 30,993 | ||||||
Masco Corp. | 2,105 | 61,550 | ||||||
TOTO Ltd. | 1,522 | 52,646 | ||||||
|
| |||||||
1,364,245 | ||||||||
|
| |||||||
COMMERCIAL SERVICES & SUPPLIES–0.2% | ||||||||
Babcock International Group PLC | 3,784 | 23,602 | ||||||
Brambles Ltd. | 15,030 | 107,534 |
13
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Cintas Corp. | 585 | $ | 98,274 | |||||
Copart, Inc.(a) | 1,391 | 66,462 | ||||||
Dai Nippon Printing Co., Ltd. | 2,500 | 52,185 | ||||||
G4S PLC | 17,154 | 43,302 | ||||||
ISS A/S | 1,785 | 49,974 | ||||||
Park24 Co., Ltd. | 1,300 | 28,628 | ||||||
Republic Services, Inc.–Class A | 1,500 | 108,135 | ||||||
Rollins, Inc. | 1,044 | 37,688 | ||||||
Secom Co., Ltd. | 2,338 | 193,938 | ||||||
Societe BIC SA | 891 | 91,020 | ||||||
Sohgo Security Services Co., Ltd. | 1,000 | 46,723 | ||||||
Toppan Printing Co., Ltd. | 2,500 | 36,748 | ||||||
Waste Management, Inc. | 2,745 | 244,278 | ||||||
|
| |||||||
1,228,491 | ||||||||
|
| |||||||
CONSTRUCTION & ENGINEERING–0.3% | ||||||||
ACS Actividades de Construccion y Servicios SA | 2,638 | 102,110 | ||||||
Bouygues SA | 1,739 | 62,445 | ||||||
CIMIC Group Ltd. | 2,988 | 91,373 | ||||||
Eiffage SA | 1,102 | 92,135 | ||||||
Epiroc AB–Class A(a) | 16,027 | 152,330 | ||||||
Epiroc AB–Class B(a) | 3,579 | 31,947 | ||||||
Ferrovial SA | 4,800 | 97,213 | ||||||
Fluor Corp. | 965 | 31,073 | ||||||
HOCHTIEF AG | 422 | 56,992 | ||||||
Jacobs Engineering Group, Inc. | 815 | 47,645 | ||||||
JGC Corp. | 4,000 | 56,297 | ||||||
Kajima Corp. | 3,500 | 47,016 | ||||||
Obayashi Corp. | 6,000 | 54,330 | ||||||
Quanta Services, Inc. | 1,015 | 30,551 | ||||||
Shimizu Corp. | 4,000 | 32,540 | ||||||
Skanska AB–Class B | 8,587 | 136,921 | ||||||
Taisei Corp. | 2,000 | 85,657 | ||||||
Vinci SA | 5,456 | 448,658 | ||||||
|
| |||||||
1,657,233 | ||||||||
|
| |||||||
ELECTRICAL EQUIPMENT–0.5% | ||||||||
ABB Ltd. | 20,970 | 400,445 | ||||||
AMETEK, Inc. | 1,599 | 108,252 | ||||||
Eaton Corp. PLC | 3,044 | 209,001 | ||||||
Emerson Electric Co. | 4,350 | 259,913 | ||||||
Fuji Electric Co., Ltd. | 2,800 | 82,467 | ||||||
Legrand SA | 2,541 | 143,649 | ||||||
Melrose Industries PLC | 52,623 | 109,935 | ||||||
Mitsubishi Electric Corp. | 21,000 | 231,579 | ||||||
Nidec Corp. | 2,567 | 290,448 | ||||||
OSRAM Licht AG | 678 | 29,506 | ||||||
Prysmian SpA | 1,074 | 20,897 | ||||||
Rockwell Automation, Inc. | 930 | 139,946 | ||||||
Schneider Electric SE | 6,098 | 413,635 | ||||||
Siemens Gamesa Renewable Energy SA(a) | 810 | 9,862 | ||||||
Vestas Wind Systems A/S | 2,133 | $ | 161,465 | |||||
|
| |||||||
2,611,000 | ||||||||
|
| |||||||
INDUSTRIAL CONGLOMERATES–0.8% | ||||||||
3M Co. | 4,155 | 791,694 | ||||||
CK Hutchison Holdings Ltd. | 25,840 | 248,018 | ||||||
DCC PLC | 1,216 | 92,757 | ||||||
General Electric Co. | 60,959 | 461,460 | ||||||
Honeywell International, Inc. | 5,305 | 700,896 | ||||||
Jardine Matheson Holdings Ltd. | 2,300 | 160,146 | ||||||
Jardine Strategic Holdings Ltd. | 2,005 | 73,511 | ||||||
Keihan Holdings Co., Ltd. | 1,000 | 40,747 | ||||||
Keppel Corp., Ltd. | 13,000 | 56,436 | ||||||
NWS Holdings Ltd. | 37,000 | 75,975 | ||||||
Roper Technologies, Inc. | 725 | 193,227 | ||||||
Seibu Holdings, Inc. | 3,142 | 54,650 | ||||||
Siemens AG | 8,153 | 909,887 | ||||||
Smiths Group PLC | 3,761 | 65,475 | ||||||
Toshiba Corp. | 7,200 | 203,306 | ||||||
|
| |||||||
4,128,185 | ||||||||
|
| |||||||
MACHINERY–1.1% | ||||||||
Alfa Laval AB | 3,778 | 81,217 | ||||||
Alstom SA | 3,502 | 141,461 | ||||||
Amada Holdings Co., Ltd. | 3,000 | 26,931 | ||||||
ANDRITZ AG | 693 | 31,827 | ||||||
Atlas Copco AB–Class A | 6,392 | 152,501 | ||||||
Atlas Copco AB–Class B SHS | 3,579 | 78,422 | ||||||
Caterpillar, Inc. | 4,185 | 531,788 | ||||||
CNH Industrial NV | 22,634 | 204,505 | ||||||
Cummins, Inc. | 1,100 | 147,004 | ||||||
Daifuku Co., Ltd. | 1,030 | 46,701 | ||||||
Deere & Co. | 2,335 | 348,312 | ||||||
Dover Corp. | 1,085 | 76,981 | ||||||
FANUC Corp. | 2,100 | 318,695 | ||||||
Flowserve Corp. | 910 | 34,598 | ||||||
Fortive Corp. | 2,170 | 146,822 | ||||||
GEA Group AG | 1,741 | 44,823 | ||||||
Hino Motors Ltd. | 6,000 | 56,499 | ||||||
Hitachi Construction Machinery Co., Ltd. | 3,000 | 70,204 | ||||||
Hoshizaki Corp. | 400 | 24,272 | ||||||
IHI Corp. | 2,600 | 71,608 | ||||||
Illinois Tool Works, Inc. | 2,125 | 269,216 | ||||||
Ingersoll-Rand PLC | 1,705 | 155,547 | ||||||
JTEKT Corp. | 4,300 | 47,557 | ||||||
Kawasaki Heavy Industries Ltd. | 900 | 19,206 | ||||||
KION Group AG | 1,747 | 88,841 | ||||||
Komatsu Ltd. | 9,800 | 210,601 | ||||||
Kone Oyj–Class B | 3,593 | 171,535 | ||||||
Kubota Corp. | 10,000 | 142,137 | ||||||
Kurita Water Industries Ltd. | 1,200 | 29,053 | ||||||
Makita Corp. | 2,200 | 78,135 | ||||||
Metso Oyj | 1,073 | 28,190 |
14
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
MINEBEA MITSUMI, Inc. | 4,131 | $ | 59,569 | |||||
MISUMI Group, Inc. | 2,900 | 61,094 | ||||||
Mitsubishi Heavy Industries Ltd. | 3,100 | 111,235 | ||||||
Nabtesco Corp. | 1,000 | 21,651 | ||||||
NGK Insulators Ltd. | 2,000 | 27,108 | ||||||
NSK Ltd. | 4,719 | 40,488 | ||||||
PACCAR, Inc. | 2,410 | 137,707 | ||||||
Parker-Hannifin Corp. | 945 | 140,937 | ||||||
Pentair PLC | 1,060 | 40,047 | ||||||
Sandvik AB | 12,165 | 174,303 | ||||||
Schindler Holding AG | 413 | 82,002 | ||||||
Schindler Holding AG (REG) | 575 | 111,758 | ||||||
SKF AB–Class B | 4,700 | 71,434 | ||||||
SMC Corp./Japan | 600 | 180,644 | ||||||
Snap-on, Inc. | 420 | 61,022 | ||||||
Stanley Black & Decker, Inc. | 1,065 | 127,523 | ||||||
Sumitomo Heavy Industries Ltd. | 1,200 | 35,581 | ||||||
THK Co., Ltd. | 1,531 | 28,602 | ||||||
Volvo AB–Class B | 14,676 | 192,168 | ||||||
Wartsila Oyj Abp | 4,224 | 67,428 | ||||||
Weir Group PLC (The) | 2,037 | 33,731 | ||||||
Xylem, Inc./NY | 1,235 | 82,399 | ||||||
Yangzijiang Shipbuilding Holdings Ltd. | 56,331 | 51,759 | ||||||
|
| |||||||
5,815,379 | ||||||||
|
| |||||||
MARINE–0.0% | ||||||||
AP Moller–Maersk A/S–Class A | 70 | 83,052 | ||||||
AP Moller–Maersk A/S–Class B | 68 | 85,539 | ||||||
Mitsui OSK Lines Ltd. | 1,200 | 25,968 | ||||||
Nippon Yusen KK | 3,100 | 47,403 | ||||||
|
| |||||||
241,962 | ||||||||
|
| |||||||
PROFESSIONAL SERVICES–0.4% | ||||||||
Adecco Group AG | 1,673 | 78,635 | ||||||
Bureau Veritas SA | 3,094 | 63,048 | ||||||
Equifax, Inc. | 855 | 79,626 | ||||||
Experian PLC | 10,230 | 247,995 | ||||||
Intertek Group PLC | 1,536 | 94,007 | ||||||
Nielsen Holdings PLC | 2,316 | 54,032 | ||||||
Randstad NV | 1,613 | 73,956 | ||||||
Recruit Holdings Co., Ltd. | 11,748 | 283,817 | ||||||
RELX PLC (London) | 26,788 | 552,379 | ||||||
Robert Half International, Inc. | 885 | 50,622 | ||||||
SEEK Ltd. | 4,101 | 48,926 | ||||||
SGS SA | 52 | 117,053 | ||||||
Verisk Analytics, Inc.–Class A(a) | 1,100 | 119,944 | ||||||
Wolters Kluwer NV | 5,568 | 327,438 | ||||||
|
| |||||||
2,191,478 | ||||||||
|
| |||||||
ROAD & RAIL–0.6% | ||||||||
Aurizon Holdings Ltd. | 22,082 | $ | 66,621 | |||||
Central Japan Railway Co. | 1,537 | 324,287 | ||||||
CSX Corp. | 6,160 | 382,721 | ||||||
DSV A/S | 1,630 | 107,649 | ||||||
East Japan Railway Co. | 3,600 | 317,916 | ||||||
Hankyu Hanshin Holdings, Inc. | 2,200 | 73,145 | ||||||
JB Hunt Transport Services, Inc. | 603 | 56,103 | ||||||
Kansas City Southern | 670 | 63,951 | ||||||
Keikyu Corp. | 2,000 | 32,683 | ||||||
Keio Corp. | 1,200 | 69,832 | ||||||
Keisei Electric Railway Co., Ltd. | 2,945 | 92,270 | ||||||
Kintetsu Group Holdings Co., Ltd. | 1,700 | 73,870 | ||||||
Kyushu Railway Co. | 1,722 | 58,260 | ||||||
MTR Corp., Ltd. | 15,500 | 81,574 | ||||||
Nagoya Railroad Co., Ltd. | 1,800 | 47,406 | ||||||
Nippon Express Co., Ltd. | 1,200 | 66,664 | ||||||
Norfolk Southern Corp. | 2,040 | 305,062 | ||||||
Odakyu Electric Railway Co., Ltd. | 3,000 | 65,972 | ||||||
Tobu Railway Co., Ltd. | 1,200 | 32,400 | ||||||
Tokyu Corp. | 5,000 | 81,705 | ||||||
Union Pacific Corp. | 5,500 | 760,265 | ||||||
West Japan Railway Co. | 1,568 | 110,781 | ||||||
|
| |||||||
3,271,137 | ||||||||
|
| |||||||
TRADING COMPANIES & DISTRIBUTORS–0.4% | ||||||||
Ashtead Group PLC | 5,697 | 118,836 | ||||||
Brenntag AG | 1,471 | 64,208 | ||||||
Bunzl PLC | 3,191 | 96,364 | ||||||
Fastenal Co. | 1,980 | 103,534 | ||||||
Ferguson PLC | 2,936 | 187,605 | ||||||
ITOCHU Corp. | 16,000 | 271,725 | ||||||
Marubeni Corp. | 16,000 | 112,264 | ||||||
Mitsubishi Corp. | 16,100 | 441,406 | ||||||
Mitsui & Co., Ltd. | 18,200 | 279,612 | ||||||
MonotaRO Co., Ltd. | 2,090 | 51,521 | ||||||
Sumitomo Corp. | 11,300 | 160,333 | ||||||
Toyota Tsusho Corp. | 2,300 | 67,580 | ||||||
United Rentals, Inc.(a) | 600 | 61,518 | ||||||
WW Grainger, Inc. | 380 | 107,297 | ||||||
|
| |||||||
2,123,803 | ||||||||
|
| |||||||
TRANSPORTATION INFRASTRUCTURE–0.1% | ||||||||
Aena SME SA(b) | 780 | 121,190 | ||||||
Aeroports de Paris | 1,000 | 189,627 | ||||||
Atlantia SpA | 176 | 3,642 | ||||||
Auckland International Airport Ltd. | 10,521 | 50,779 | ||||||
Getlink SE | 6,892 | 92,610 | ||||||
Kamigumi Co., Ltd. | 1,500 | 30,688 | ||||||
Sydney Airport | 8,828 | 41,861 |
15
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Transurban Group | 24,623 | $ | 202,094 | |||||
|
| |||||||
732,491 | ||||||||
|
| |||||||
33,747,780 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–5.7% | ||||||||
AUTO COMPONENTS–0.3% | ||||||||
Aisin Seiki Co., Ltd. | 1,800 | 61,877 | ||||||
Aptiv PLC | 1,891 | 116,429 | ||||||
BorgWarner, Inc. | 1,380 | 47,941 | ||||||
Bridgestone Corp. | 6,900 | 264,724 | ||||||
Cie Generale des Etablissements Michelin SCA–Class B | 1,732 | 170,475 | ||||||
Continental AG | 1,047 | 145,780 | ||||||
Denso Corp. | 5,200 | 230,192 | ||||||
Faurecia SA | 1,635 | 61,691 | ||||||
Goodyear Tire & Rubber Co. (The) | 1,610 | 32,860 | ||||||
Koito Manufacturing Co., Ltd. | 1,000 | 51,593 | ||||||
NGK Spark Plug Co., Ltd. | 3,000 | 59,385 | ||||||
Nokian Renkaat Oyj | 1,090 | 33,478 | ||||||
Stanley Electric Co., Ltd. | 1,600 | 44,759 | ||||||
Sumitomo Electric Industries Ltd. | 7,200 | 95,352 | ||||||
Sumitomo Rubber Industries Ltd. | 4,100 | 48,269 | ||||||
Toyota Industries Corp. | 1,600 | 73,680 | ||||||
Valeo SA | 2,277 | 66,410 | ||||||
Yokohama Rubber Co., Ltd. (The) | 1,000 | 18,702 | ||||||
|
| |||||||
1,623,597 | ||||||||
|
| |||||||
AUTOMOBILES–1.0% | ||||||||
Bayerische Motoren Werke AG | 3,152 | 255,643 | ||||||
Daimler AG | 10,262 | 540,960 | ||||||
Ferrari NV | 1,527 | 151,943 | ||||||
Fiat Chrysler Automobiles NV(a) | 14,140 | 203,876 | ||||||
Ford Motor Co. | 27,420 | 209,763 | ||||||
General Motors Co. | 8,816 | 294,895 | ||||||
Harley-Davidson, Inc. | 1,150 | 39,238 | ||||||
Honda Motor Co., Ltd. | 18,521 | 487,937 | ||||||
Isuzu Motors Ltd. | 5,500 | 77,149 | ||||||
Mazda Motor Corp. | 5,200 | 53,458 | ||||||
Mitsubishi Motors Corp. | 11,400 | 62,081 | ||||||
Nissan Motor Co., Ltd. | 26,300 | 210,382 | ||||||
Peugeot SA | 7,475 | 159,425 | ||||||
Porsche Automobil Holding SE (Preference Shares) | 1,458 | 85,748 | ||||||
Renault SA | 1,830 | 113,996 | ||||||
Subaru Corp. | 6,000 | 128,180 | ||||||
Suzuki Motor Corp. | 3,500 | 176,440 | ||||||
Toyota Motor Corp. | 25,102 | 1,453,068 | ||||||
Volkswagen AG | 630 | 100,784 | ||||||
Volkswagen AG (Preference Shares) | 2,067 | 329,595 | ||||||
Yamaha Motor Co., Ltd. | 2,700 | $ | 52,714 | |||||
|
| |||||||
5,187,275 | ||||||||
|
| |||||||
DISTRIBUTORS–0.0% | ||||||||
Genuine Parts Co. | 1,010 | 96,980 | ||||||
Jardine Cycle & Carriage Ltd. | 2,000 | 51,778 | ||||||
LKQ Corp.(a) | 2,164 | 51,352 | ||||||
|
| |||||||
200,110 | ||||||||
|
| |||||||
DIVERSIFIED CONSUMER SERVICES–0.0% | ||||||||
Benesse Holdings, Inc. | 300 | 7,632 | ||||||
H&R Block, Inc. | 1,420 | 36,025 | ||||||
|
| |||||||
43,657 | ||||||||
|
| |||||||
HOTELS, RESTAURANTS & LEISURE–0.9% | ||||||||
Accor SA | 2,705 | 115,028 | ||||||
Aristocrat Leisure Ltd. | 4,876 | 75,060 | ||||||
Carnival Corp. | 2,785 | 137,300 | ||||||
Carnival PLC | 2,273 | 109,154 | ||||||
Chipotle Mexican Grill, Inc.–Class A(a) | 244 | 105,357 | ||||||
Compass Group PLC | 16,836 | 354,311 | ||||||
Crown Resorts Ltd. | 9,430 | 78,809 | ||||||
Darden Restaurants, Inc. | 870 | 86,878 | ||||||
Domino’s Pizza Enterprises Ltd. | 823 | 23,577 | ||||||
Galaxy Entertainment Group Ltd. | 20,155 | 127,312 | ||||||
Genting Singapore Ltd. | 92,000 | 65,855 | ||||||
GVC Holdings PLC | 5,872 | 50,411 | ||||||
Hilton Worldwide Holdings, Inc. | 1,966 | 141,159 | ||||||
InterContinental Hotels Group PLC | 2,053 | 111,053 | ||||||
Marriott International, Inc./MD–Class A | 2,131 | 231,341 | ||||||
McDonald’s Corp. | 5,480 | 973,084 | ||||||
McDonald’s Holdings Co. Japan Ltd. | 2,200 | 93,452 | ||||||
Melco Resorts & Entertainment Ltd. (ADR) | 2,651 | 46,711 | ||||||
Merlin Entertainments PLC(b) | 11,141 | 45,127 | ||||||
MGM Resorts International | 3,460 | 83,940 | ||||||
Norwegian Cruise Line Holdings Ltd.(a) | 1,381 | 58,541 | ||||||
Oriental Land Co., Ltd./Japan | 2,100 | 211,196 | ||||||
Paddy Power Betfair PLC | 1,060 | 87,018 | ||||||
Royal Caribbean Cruises Ltd. | 1,177 | 115,099 | ||||||
Sands China Ltd. | 39,744 | 173,324 | ||||||
Sodexo SA | 1,005 | 103,068 | ||||||
Starbucks Corp. | 8,811 | 567,428 | ||||||
Tabcorp Holdings Ltd. | 26,623 | 80,487 | ||||||
TUI AG | 4,841 | 69,578 | ||||||
Whitbread PLC | 2,125 | 124,093 | ||||||
Wynn Macau Ltd. | 77,455 | 168,609 |
16
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Wynn Resorts Ltd. | 560 | $ | 55,390 | |||||
Yum! Brands, Inc. | 2,245 | 206,360 | ||||||
|
| |||||||
5,075,110 | ||||||||
|
| |||||||
HOUSEHOLD DURABLES–0.4% | ||||||||
Auto Trader Group PLC(b) | 9,529 | 55,301 | ||||||
Barratt Developments PLC | 9,541 | 56,280 | ||||||
Berkeley Group Holdings PLC | 1,236 | 54,820 | ||||||
Casio Computer Co., Ltd. | 181 | 2,146 | ||||||
DR Horton, Inc. | 2,355 | 81,624 | ||||||
Electrolux AB–Class B | 2,430 | 51,221 | ||||||
Garmin Ltd. | 770 | 48,756 | ||||||
Husqvarna AB–Class B | 8,194 | 60,832 | ||||||
Iida Group Holdings Co., Ltd. | 2,902 | 50,266 | ||||||
Leggett & Platt, Inc. | 825 | 29,568 | ||||||
Lennar Corp.–Class A | 1,900 | 74,385 | ||||||
Mohawk Industries, Inc.(a) | 450 | 52,632 | ||||||
Newell Brands, Inc. | 3,355 | 62,369 | ||||||
Nikon Corp. | 3,200 | 47,664 | ||||||
Panasonic Corp. | 23,500 | 211,110 | ||||||
Persimmon PLC | 3,527 | 86,855 | ||||||
PulteGroup, Inc. | 1,835 | 47,692 | ||||||
Rinnai Corp. | 700 | 46,092 | ||||||
SEB SA | 568 | 73,408 | ||||||
Sekisui Chemical Co., Ltd. | 4,000 | 59,463 | ||||||
Sekisui House Ltd. | 6,000 | 88,111 | ||||||
Sharp Corp./Japan | 4,999 | 50,049 | ||||||
Sony Corp. | 14,135 | 681,443 | ||||||
Taylor Wimpey PLC | 31,025 | 53,948 | ||||||
Techtronic Industries Co., Ltd. | 13,454 | 71,396 | ||||||
Whirlpool Corp. | 450 | 48,092 | ||||||
|
| |||||||
2,245,523 | ||||||||
|
| |||||||
INTERNET & DIRECT MARKETING RETAIL–1.0% | ||||||||
Amazon.com, Inc.(a) | 2,903 | 4,360,219 | ||||||
Booking Holdings, Inc.(a) | 347 | 597,680 | ||||||
Delivery Hero SE(a)(b) | 1,586 | 59,212 | ||||||
eBay, Inc.(a) | 6,485 | 182,034 | ||||||
Expedia Group, Inc. | 832 | 93,725 | ||||||
Rakuten, Inc. | 8,852 | 59,385 | ||||||
Zalando SE(a)(b) | 2,021 | 52,219 | ||||||
ZOZO, Inc. | 2,592 | 47,488 | ||||||
|
| |||||||
5,451,962 | ||||||||
|
| |||||||
LEISURE PRODUCTS–0.1% | ||||||||
Bandai Namco Holdings, Inc. | 1,900 | 85,308 | ||||||
Hasbro, Inc. | 800 | 65,000 | ||||||
Mattel, Inc.(a)(c) | 2,335 | 23,327 | ||||||
Sankyo Co., Ltd. | 300 | 11,409 | ||||||
Shimano, Inc. | 700 | 98,677 | ||||||
Yamaha Corp. | 1,600 | 68,063 | ||||||
|
| |||||||
351,784 | ||||||||
|
| |||||||
MULTILINE RETAIL–0.3% | ||||||||
Dollar General Corp. | 1,770 | $ | 191,302 | |||||
Dollar Tree, Inc.(a) | 1,688 | 152,460 | ||||||
Don Quijote Holdings Co., Ltd. | 1,000 | 61,827 | ||||||
Isetan Mitsukoshi Holdings Ltd. | 2,200 | 24,307 | ||||||
J Front Retailing Co., Ltd. | 3,500 | 40,060 | ||||||
Kohl’s Corp. | 1,180 | 78,281 | ||||||
Macy’s, Inc. | 2,105 | 62,687 | ||||||
Marks & Spencer Group PLC | 15,442 | 48,432 | ||||||
Marui Group Co., Ltd. | 3,300 | 63,954 | ||||||
Next PLC | 1,643 | 83,656 | ||||||
Nordstrom, Inc. | 820 | 38,220 | ||||||
Ryohin Keikaku Co., Ltd. | 257 | 62,395 | ||||||
Target Corp. | 3,725 | 246,185 | ||||||
Wesfarmers Ltd. | 12,002 | 272,670 | ||||||
|
| |||||||
1,426,436 | ||||||||
|
| |||||||
SPECIALTY RETAIL–0.9% | ||||||||
ABC-Mart, Inc. | 500 | 27,689 | ||||||
Advance Auto Parts, Inc. | 531 | 83,611 | ||||||
AutoZone, Inc.(a) | 225 | 188,626 | ||||||
Best Buy Co., Inc. | 1,700 | 90,032 | ||||||
CarMax, Inc.(a) | 1,220 | 76,531 | ||||||
Fast Retailing Co., Ltd. | 641 | 327,385 | ||||||
Foot Locker, Inc. | 792 | 42,134 | ||||||
Gap, Inc. (The) | 1,505 | 38,769 | ||||||
Hennes & Mauritz AB–Class B | 9,038 | 128,530 | ||||||
Hikari Tsushin, Inc. | 500 | 78,153 | ||||||
Home Depot, Inc. (The) | 8,130 | 1,396,897 | ||||||
Industria de Diseno Textil SA | 11,626 | 296,750 | ||||||
Kingfisher PLC | 29,522 | 77,622 | ||||||
L Brands, Inc. | 1,685 | 43,254 | ||||||
Lowe’s Cos., Inc. | 5,790 | 534,764 | ||||||
Nitori Holdings Co., Ltd. | 750 | 93,930 | ||||||
O’Reilly Automotive, Inc.(a) | 590 | 203,155 | ||||||
Ross Stores, Inc. | 2,650 | 220,480 | ||||||
Shimamura Co., Ltd. | 200 | 15,315 | ||||||
Tiffany & Co. | 705 | 56,759 | ||||||
TJX Cos., Inc. (The) | 8,840 | 395,502 | ||||||
Tractor Supply Co. | 865 | 72,176 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(a) | 402 | 98,426 | ||||||
USS Co., Ltd. | 4,120 | 69,127 | ||||||
Yamada Denki Co., Ltd. | 10,990 | 52,782 | ||||||
|
| |||||||
4,708,399 | ||||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–0.8% | ||||||||
adidas AG | 2,040 | 426,337 | ||||||
Burberry Group PLC | 4,236 | 93,018 | ||||||
Cie Financiere Richemont SA | 5,585 | 360,163 | ||||||
EssilorLuxottica SA | 2,369 | 300,289 | ||||||
Hanesbrands, Inc. | 2,527 | 31,663 |
17
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Hermes International | 281 | $ | 156,113 | |||||
HUGO BOSS AG | 1,317 | 81,186 | ||||||
Kering SA | 721 | 337,766 | ||||||
LVMH Moet Hennessy Louis Vuitton SE | 2,973 | 870,422 | ||||||
Michael Kors Holdings Ltd.(a) | 1,059 | 40,157 | ||||||
Moncler SpA | 2,123 | 70,649 | ||||||
NIKE, Inc.–Class B | 9,020 | 668,743 | ||||||
Pandora A/S | 1,106 | 45,152 | ||||||
Puma SE | 60 | 29,354 | ||||||
PVH Corp. | 545 | 50,658 | ||||||
Ralph Lauren Corp. | 390 | 40,349 | ||||||
Swatch Group AG (The) | 294 | 85,806 | ||||||
Swatch Group AG (The) (REG) | 1,834 | 106,082 | ||||||
Tapestry, Inc. | 1,930 | 65,138 | ||||||
Under Armour, Inc.–Class A(a)(c) | 1,247 | 22,035 | ||||||
Under Armour, Inc.–Class C(a) | 1,254 | 20,277 | ||||||
VF Corp. | 2,310 | 164,795 | ||||||
|
| |||||||
4,066,152 | ||||||||
|
| |||||||
30,380,005 | ||||||||
|
| |||||||
CONSUMER STAPLES–5.0% | ||||||||
BEVERAGES–1.1% | ||||||||
Anheuser-Busch InBev SA/NV | 8,385 | 552,395 | ||||||
Asahi Group Holdings Ltd. | 3,700 | 143,389 | ||||||
Brown-Forman Corp.–Class B | 1,792 | 85,263 | ||||||
Carlsberg A/S–Class B | 1,051 | 111,804 | ||||||
Coca-Cola Amatil Ltd. | 14,439 | 83,278 | ||||||
Coca-Cola Bottlers Japan Holdings, Inc. | 1,300 | 38,767 | ||||||
Coca-Cola Co. (The) | 26,830 | 1,270,401 | ||||||
Coca-Cola European Partners PLC(a) | 2,437 | 111,737 | ||||||
Coca-Cola HBC AG(a) | 1,928 | 60,342 | ||||||
Constellation Brands, Inc.–Class A | 1,170 | 188,159 | ||||||
Diageo PLC | 27,623 | 987,091 | ||||||
Heineken Holding NV | 1,000 | 84,487 | ||||||
Heineken NV | 2,500 | 220,967 | ||||||
Kirin Holdings Co., Ltd. | 9,345 | 194,858 | ||||||
Molson Coors Brewing Co.–Class B | 1,300 | 73,008 | ||||||
Monster Beverage Corp.(a) | 2,880 | 141,754 | ||||||
PepsiCo, Inc. | 9,975 | 1,102,038 | ||||||
Pernod Ricard SA | 2,021 | 331,687 | ||||||
Remy Cointreau SA | 1,062 | 120,401 | ||||||
Suntory Beverage & Food Ltd. | 1,324 | 59,782 | ||||||
Treasury Wine Estates Ltd. | 6,024 | 62,817 | ||||||
|
| |||||||
6,024,425 | ||||||||
|
| |||||||
FOOD & STAPLES RETAILING–0.9% | ||||||||
Aeon Co., Ltd. | 6,200 | $ | 121,186 | |||||
Carrefour SA | 5,903 | 100,864 | ||||||
Casino Guichard Perrachon SA | 1,228 | 51,138 | ||||||
Coles Group Ltd.(a) | 12,002 | 99,245 | ||||||
Colruyt SA | 862 | 61,479 | ||||||
Costco Wholesale Corp. | 3,065 | 624,371 | ||||||
FamilyMart UNY Holdings Co., Ltd. | 800 | 100,683 | ||||||
ICA Gruppen AB | 2,462 | 87,953 | ||||||
J Sainsbury PLC | 18,022 | 60,923 | ||||||
Jeronimo Martins SGPS SA | 2,405 | 28,501 | ||||||
Koninklijke Ahold Delhaize NV | 9,852 | 248,883 | ||||||
Kroger Co. (The) | 5,680 | 156,200 | ||||||
Lawson, Inc. | 600 | 37,953 | ||||||
METRO AG | 7,593 | 116,834 | ||||||
Seven & i Holdings Co., Ltd. | 8,000 | 347,641 | ||||||
Sundrug Co., Ltd. | 1,000 | 29,779 | ||||||
Sysco Corp. | 3,355 | 210,224 | ||||||
Tesco PLC | 106,921 | 259,301 | ||||||
Tsuruha Holdings, Inc. | 600 | 51,379 | ||||||
Walgreens Boots Alliance, Inc. | 5,945 | 406,222 | ||||||
Walmart, Inc. | 10,163 | 946,684 | ||||||
Wm Morrison Supermarkets PLC | 31,098 | 84,541 | ||||||
Woolworths Group Ltd. | 14,003 | 290,478 | ||||||
|
| |||||||
4,522,462 | ||||||||
|
| |||||||
FOOD PRODUCTS–1.2% | ||||||||
a2 Milk Co., Ltd.(a) | 8,040 | 60,401 | ||||||
Ajinomoto Co., Inc. | 5,000 | 88,845 | ||||||
Archer-Daniels-Midland Co. | 3,915 | 160,398 | ||||||
Associated British Foods PLC | 3,965 | 103,342 | ||||||
Barry Callebaut AG | 91 | 142,020 | ||||||
Calbee, Inc. | 1,315 | 41,073 | ||||||
Campbell Soup Co. | 1,325 | 43,712 | ||||||
Chocoladefabriken Lindt & Spruengli AG (REG) | 1 | 74,575 | ||||||
Conagra Brands, Inc. | 2,685 | 57,352 | ||||||
Danone SA | 6,291 | 443,406 | ||||||
General Mills, Inc. | 4,135 | 161,017 | ||||||
Hershey Co. (The) | 1,000 | 107,180 | ||||||
Hormel Foods Corp. | 1,850 | 78,958 | ||||||
JM Smucker Co. (The) | 795 | 74,325 | ||||||
Kellogg Co. | 1,765 | 100,623 | ||||||
Kerry Group PLC–Class A | 1,906 | 188,737 | ||||||
Kikkoman Corp. | 1,619 | 86,640 | ||||||
Kraft Heinz Co. (The) | 4,178 | 179,821 | ||||||
Lamb Weston Holdings, Inc. | 1,040 | 76,502 | ||||||
Marine Harvest ASA | 4,327 | 91,202 | ||||||
McCormick & Co., Inc./MD | 825 | 114,873 | ||||||
MEIJI Holdings Co., Ltd. | 1,100 | 89,647 | ||||||
Mondelez International, Inc.–Class A | 10,335 | 413,710 |
18
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Nestle SA | 33,982 | $ | 2,758,072 | |||||
NH Foods Ltd. | 933 | 35,073 | ||||||
Nisshin Seifun Group, Inc. | 4,000 | 82,386 | ||||||
Nissin Foods Holdings Co., Ltd. | 1,200 | 75,188 | ||||||
Orkla ASA | 10,095 | 79,043 | ||||||
Toyo Suisan Kaisha Ltd. | 1,000 | 34,823 | ||||||
Tyson Foods, Inc.–Class A | 2,075 | 110,805 | ||||||
WH Group Ltd.(b) | 67,807 | 52,079 | ||||||
Wilmar International Ltd. | 26,000 | 59,541 | ||||||
Yakult Honsha Co., Ltd. | 1,333 | 93,315 | ||||||
Yamazaki Baking Co., Ltd. | 59 | 1,236 | ||||||
|
| |||||||
6,359,920 | ||||||||
|
| |||||||
HOUSEHOLD PRODUCTS–0.7% | ||||||||
Church & Dwight Co., Inc. | 1,676 | 110,214 | ||||||
Clorox Co. (The) | 920 | 141,809 | ||||||
Colgate-Palmolive Co. | 6,100 | 363,072 | ||||||
Essity AB–Class B | 4,979 | 122,391 | ||||||
Henkel AG & Co. KGaA | 989 | 97,340 | ||||||
Henkel AG & Co. KGaA (Preference Shares) | 1,696 | 185,252 | ||||||
Kimberly-Clark Corp. | 2,415 | 275,165 | ||||||
Lion Corp. | 2,000 | 41,335 | ||||||
Pigeon Corp. | 1,287 | 54,894 | ||||||
Procter & Gamble Co. (The) | 17,670 | 1,624,227 | ||||||
Reckitt Benckiser Group PLC | 7,478 | 572,638 | ||||||
Unicharm Corp. | 3,800 | 122,899 | ||||||
|
| |||||||
3,711,236 | ||||||||
|
| |||||||
PERSONAL PRODUCTS–0.6% | ||||||||
Beiersdorf AG | 1,051 | 109,622 | ||||||
Coty, Inc.–Class A | 3,262 | 21,399 | ||||||
Estee Lauder Cos., Inc. (The)–Class A | 1,540 | 200,354 | ||||||
Kao Corp. | 5,400 | 399,695 | ||||||
Kobayashi Pharmaceutical Co., Ltd. | 809 | 54,863 | ||||||
Kose Corp. | 500 | 78,539 | ||||||
L’Oreal SA | 2,700 | 617,825 | ||||||
Pola Orbis Holdings, Inc. | 1,800 | 48,507 | ||||||
Shiseido Co., Ltd. | 4,176 | 261,534 | ||||||
Unilever NV | 15,507 | 840,049 | ||||||
Unilever PLC | 12,594 | 661,220 | ||||||
|
| |||||||
3,293,607 | ||||||||
|
| |||||||
TOBACCO–0.5% | ||||||||
Altria Group, Inc. | 13,260 | 654,911 | ||||||
British American Tobacco PLC | 25,542 | 812,721 | ||||||
Imperial Brands PLC | 10,218 | 310,134 | ||||||
Japan Tobacco, Inc. | 11,724 | 278,575 | ||||||
Philip Morris International, Inc. | 10,850 | 724,346 | ||||||
Swedish Match AB | 2,884 | 113,536 | ||||||
|
| |||||||
2,894,223 | ||||||||
|
| |||||||
26,805,873 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–4.3% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES–1.3% | ||||||||
AT&T, Inc. | 50,937 | $ | 1,453,742 | |||||
Bezeq The Israeli Telecommunication Corp., Ltd. | 25,040 | 24,435 | ||||||
BT Group PLC | 101,334 | 308,116 | ||||||
CenturyLink, Inc. | 6,862 | 103,959 | ||||||
Deutsche Telekom AG | 34,368 | 584,143 | ||||||
Elisa Oyj | 1,354 | 56,082 | ||||||
Eurazeo SE | 1,438 | 101,806 | ||||||
HKT Trust & HKT Ltd.–Class SS | 55,098 | 79,370 | ||||||
Iliad SA | 714 | 100,205 | ||||||
Koninklijke KPN NV | 28,755 | 83,993 | ||||||
Nippon Telegraph & Telephone Corp. | 7,400 | 301,915 | ||||||
Orange SA | 18,911 | 306,467 | ||||||
Proximus SADP | 1,568 | 42,428 | ||||||
Singapore Telecommunications Ltd. | 76,000 | 164,330 | ||||||
Spark New Zealand Ltd. | 17,417 | 48,583 | ||||||
Swisscom AG | 247 | 118,060 | ||||||
Telecom Italia SpA/Milano(a) | 150,129 | 83,113 | ||||||
Telefonica Deutschland Holding AG | 17,113 | 67,355 | ||||||
Telefonica SA | 52,707 | 443,656 | ||||||
Telenor ASA | 7,146 | 138,777 | ||||||
Telia Co. AB | 24,258 | 115,393 | ||||||
Telstra Corp., Ltd. | 40,732 | 81,743 | ||||||
TPG Telecom Ltd. | 8,880 | 40,280 | ||||||
United Internet AG | 2,321 | 101,587 | ||||||
Verizon Communications, Inc. | 28,945 | 1,627,288 | ||||||
Washington H Soul Pattinson & Co., Ltd. | 3,258 | 57,135 | ||||||
|
| |||||||
6,633,961 | ||||||||
|
| |||||||
ENTERTAINMENT–0.7% | ||||||||
Activision Blizzard, Inc. | 5,305 | 247,054 | ||||||
DeNA Co., Ltd. | 1,663 | 27,739 | ||||||
Electronic Arts, Inc.(a) | 2,135 | 168,473 | ||||||
Konami Holdings Corp. | 1,300 | 57,124 | ||||||
Netflix, Inc.(a) | 3,082 | 824,928 | ||||||
Nexon Co., Ltd.(a) | 5,190 | 67,000 | ||||||
Nintendo Co., Ltd. | 1,200 | 318,647 | ||||||
Take-Two Interactive Software, Inc.(a) | 785 | 80,808 | ||||||
Toho Co., Ltd./Tokyo | 1,000 | 36,233 | ||||||
Twenty-First Century Fox, Inc.–Class A | 7,321 | 352,287 | ||||||
Twenty-First Century Fox, Inc.–Class B | 3,067 | 146,541 | ||||||
Ubisoft Entertainment SA(a) | 804 | 64,772 | ||||||
Viacom, Inc.–Class B | 2,410 | 61,937 |
19
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Vivendi SA | 11,072 | $ | 268,355 | |||||
Walt Disney Co. (The) | 10,394 | 1,139,702 | ||||||
|
| |||||||
3,861,600 | ||||||||
|
| |||||||
INTERACTIVE MEDIA & SERVICES–1.3% | ||||||||
Alphabet, Inc.–Class A(a) | 2,139 | 2,235,169 | ||||||
Alphabet, Inc.–Class C(a) | 2,144 | 2,220,348 | ||||||
Facebook, Inc.–Class A(a) | 16,837 | 2,207,162 | ||||||
Kakaku.com, Inc. | 3,799 | 67,200 | ||||||
LINE Corp.(a) | 33 | 1,127 | ||||||
REA Group Ltd. | 1,002 | 52,277 | ||||||
TripAdvisor, Inc.(a) | 712 | 38,405 | ||||||
Twitter, Inc.(a) | 4,586 | 131,802 | ||||||
Yahoo Japan Corp. | 32,653 | 81,231 | ||||||
|
| |||||||
7,034,721 | ||||||||
|
| |||||||
MEDIA–0.6% | ||||||||
Axel Springer SE | 2,191 | 124,134 | ||||||
CBS Corp.–Class B | 2,340 | 102,305 | ||||||
Charter Communications, Inc.–Class A(a) | 1,323 | 377,015 | ||||||
Comcast Corp.–Class A | 32,202 | 1,096,478 | ||||||
CyberAgent, Inc. | 1,112 | 42,987 | ||||||
Dentsu, Inc. | 2,100 | 93,788 | ||||||
Discovery, Inc.–Class A(a) | 1,045 | 25,853 | ||||||
Discovery, Inc.–Class C(a) | 2,354 | 54,330 | ||||||
DISH Network Corp.–Class A(a) | 1,575 | 39,328 | ||||||
Eutelsat Communications SA | 3,140 | 61,862 | ||||||
Hakuhodo DY Holdings, Inc. | 2,490 | 35,533 | ||||||
Informa PLC | 13,755 | 110,408 | ||||||
Interpublic Group of Cos., Inc. (The) | 2,695 | 55,598 | ||||||
ITV PLC | 44,429 | 70,716 | ||||||
JCDecaux SA | 1,905 | 53,521 | ||||||
News Corp.–Class A | 2,658 | 30,168 | ||||||
News Corp.–Class B | 817 | 9,436 | ||||||
Omnicom Group, Inc. | 1,560 | 114,254 | ||||||
Pearson PLC | 7,821 | 93,695 | ||||||
Publicis Groupe SA | 1,801 | 102,759 | ||||||
RTL Group SA | 1,166 | 62,389 | ||||||
Schibsted ASA–Class B | 2,252 | 68,506 | ||||||
SES SA | 4,651 | 89,049 | ||||||
Singapore Press Holdings Ltd. | 29,528 | 50,884 | ||||||
Telenet Group Holding NV | 715 | 33,256 | ||||||
WPP PLC | 13,761 | 149,761 | ||||||
|
| |||||||
3,148,013 | ||||||||
|
| |||||||
WIRELESS TELECOMMUNICATION SERVICES–0.4% | ||||||||
KDDI Corp. | 19,550 | 467,145 | ||||||
Millicom International Cellular SA (SDR) | 641 | 40,560 | ||||||
NTT DOCOMO, Inc. | 14,767 | 331,803 | ||||||
SoftBank Group Corp. | 9,192 | 602,068 | ||||||
Tele2 AB–Class B | 3,826 | 48,796 | ||||||
Vodafone Group PLC | 293,152 | $ | 569,972 | |||||
|
| |||||||
2,060,344 | ||||||||
|
| |||||||
22,738,639 | ||||||||
|
| |||||||
ENERGY–3.0% | ||||||||
ENERGY EQUIPMENT & SERVICES–0.2% | ||||||||
Baker Hughes a GE Co.–Class A | 2,860 | 61,490 | ||||||
Halliburton Co. | 6,090 | 161,872 | ||||||
Helmerich & Payne, Inc. | 735 | 35,236 | ||||||
John Wood Group PLC | 7,316 | 47,071 | ||||||
National Oilwell Varco, Inc. | 2,605 | 66,949 | ||||||
Schlumberger Ltd. | 9,700 | 349,976 | ||||||
TechnipFMC PLC | 3,018 | 59,092 | ||||||
Tenaris SA | 10,900 | 117,151 | ||||||
|
| |||||||
898,837 | ||||||||
|
| |||||||
OIL, GAS & CONSUMABLE FUELS–2.8% | ||||||||
Aker BP ASA | 1,570 | 39,584 | ||||||
Anadarko Petroleum Corp. | 3,595 | 157,605 | ||||||
Apache Corp. | 2,645 | 69,431 | ||||||
BP PLC | 222,466 | 1,406,360 | ||||||
Cabot Oil & Gas Corp. | 3,140 | 70,179 | ||||||
Caltex Australia Ltd. | 3,100 | 55,618 | ||||||
Chevron Corp. | 13,380 | 1,455,610 | ||||||
Cimarex Energy Co. | 677 | 41,737 | ||||||
Concho Resources, Inc.(a) | 1,307 | 134,347 | ||||||
ConocoPhillips | 8,220 | 512,517 | ||||||
Devon Energy Corp. | 3,620 | 81,595 | ||||||
Diamondback Energy, Inc. | 1,078 | 99,931 | ||||||
Enagas SA | 2,159 | 58,362 | ||||||
Eni SpA | 24,216 | 382,545 | ||||||
EOG Resources, Inc. | 4,060 | 354,073 | ||||||
Equinor ASA | 12,989 | 275,524 | ||||||
Exxon Mobil Corp. | 29,710 | 2,025,925 | ||||||
Galp Energia SGPS SA | 5,341 | 84,098 | ||||||
Hess Corp. | 1,840 | 74,520 | ||||||
HollyFrontier Corp. | 1,200 | 61,344 | ||||||
Idemitsu Kosan Co., Ltd. | 1,200 | 39,032 | ||||||
Inpex Corp. | 11,643 | 103,167 | ||||||
JXTG Holdings, Inc. | 32,750 | 170,088 | ||||||
Kinder Morgan, Inc./DE | 13,289 | 204,385 | ||||||
Koninklijke Vopak NV | 502 | 22,765 | ||||||
Lundin Petroleum AB | 3,430 | 85,661 | ||||||
Marathon Oil Corp. | 5,905 | 84,678 | ||||||
Marathon Petroleum Corp. | 4,841 | 285,667 | ||||||
Neste Oyj | 1,428 | 110,559 | ||||||
Newfield Exploration Co.(a) | 1,370 | 20,084 | ||||||
Noble Energy, Inc. | 3,400 | 63,784 | ||||||
Occidental Petroleum Corp. | 5,350 | 328,383 | ||||||
Oil Search Ltd. | 18,278 | 92,066 | ||||||
OMV AG | 1,402 | 61,230 | ||||||
ONEOK, Inc. | 2,818 | 152,031 | ||||||
Origin Energy Ltd.(a) | 16,658 | 75,988 | ||||||
Phillips 66 | 2,910 | 250,696 | ||||||
Pioneer Natural Resources Co. | 1,215 | 159,797 |
20
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Repsol SA | 15,445 | $ | 248,310 | |||||
Royal Dutch Shell PLC–Class A | 51,172 | 1,506,137 | ||||||
Royal Dutch Shell PLC–Class B | 41,786 | 1,249,296 | ||||||
Santos Ltd. | 18,468 | 71,224 | ||||||
Showa Shell Sekiyu KK | 4,285 | 59,365 | ||||||
Snam SpA | 26,833 | 117,485 | ||||||
TOTAL SA | 26,478 | 1,396,585 | ||||||
Valero Energy Corp. | 3,025 | 226,784 | ||||||
Williams Cos., Inc. (The) | 8,758 | 193,114 | ||||||
Woodside Petroleum Ltd. | 10,061 | 221,618 | ||||||
|
| |||||||
15,040,884 | ||||||||
|
| |||||||
15,939,721 | ||||||||
|
| |||||||
MATERIALS–2.7% | ||||||||
CHEMICALS–1.5% | ||||||||
Air Liquide SA | 4,557 | 565,868 | ||||||
Air Products & Chemicals, Inc. | 1,520 | 243,276 | ||||||
Akzo Nobel NV | 3,630 | 292,338 | ||||||
Albemarle Corp. | 761 | 58,650 | ||||||
Arkema SA | 1,159 | 99,498 | ||||||
Asahi Kasei Corp. | 12,000 | 123,160 | ||||||
BASF SE | 9,789 | 681,839 | ||||||
Celanese Corp.–Class A | 958 | 86,191 | ||||||
CF Industries Holdings, Inc. | 1,600 | 69,616 | ||||||
Chr Hansen Holding A/S | 1,460 | 129,599 | ||||||
Clariant AG(a) | 1,891 | 34,873 | ||||||
Covestro AG(b) | 1,766 | 87,460 | ||||||
Croda International PLC | 1,689 | 100,869 | ||||||
Daicel Corp. | 3,000 | 30,797 | ||||||
DowDuPont, Inc. | 16,270 | 870,120 | ||||||
Eastman Chemical Co. | 1,030 | 75,303 | ||||||
Ecolab, Inc. | 1,840 | 271,124 | ||||||
EMS-Chemie Holding AG | 203 | 96,652 | ||||||
Evonik Industries AG | 2,574 | 64,250 | ||||||
FMC Corp. | 930 | 68,783 | ||||||
FUCHS PETROLUB SE (Preference Shares) | 1,173 | 48,494 | ||||||
Givaudan SA | 88 | 204,043 | ||||||
Hitachi Chemical Co., Ltd. | 3,000 | 45,131 | ||||||
Incitec Pivot Ltd. | 32,013 | 73,999 | ||||||
International Flavors & Fragrances, Inc. | 551 | 73,942 | ||||||
Israel Chemicals Ltd. | 9,886 | 56,213 | ||||||
Johnson Matthey PLC | 1,842 | 65,770 | ||||||
JSR Corp. | 800 | 12,008 | ||||||
Kansai Paint Co., Ltd. | 3,000 | 57,622 | ||||||
Koninklijke DSM NV | 2,026 | 164,361 | ||||||
Kuraray Co., Ltd. | 3,000 | 42,194 | ||||||
LANXESS AG | 1,767 | 81,240 | ||||||
Linde PLC | 3,900 | 608,556 | ||||||
LyondellBasell Industries NV–Class A | 2,299 | 191,185 | ||||||
Mitsubishi Chemical Holdings Corp. | 13,000 | 98,214 | ||||||
Mitsubishi Gas Chemical Co., Inc. | 2,500 | 37,449 | ||||||
Mitsui Chemicals, Inc. | 1,600 | $ | 36,122 | |||||
Mosaic Co. (The) | 2,430 | 70,980 | ||||||
Nippon Paint Holdings Co., Ltd. | 2,000 | 68,143 | ||||||
Nissan Chemical Corp. | 1,000 | 52,183 | ||||||
Nitto Denko Corp. | 1,600 | 80,247 | ||||||
Novozymes A/S–Class B | 2,458 | 109,829 | ||||||
Orica Ltd. | 7,662 | 93,128 | ||||||
PPG Industries, Inc. | 1,750 | 178,902 | ||||||
Sherwin-Williams Co. (The) | 565 | 222,305 | ||||||
Shin-Etsu Chemical Co., Ltd. | 4,100 | 315,014 | ||||||
Showa Denko KK | 1,500 | 44,542 | ||||||
Sika AG | 1,200 | 152,428 | ||||||
Solvay SA | 927 | 92,702 | ||||||
Sumitomo Chemical Co., Ltd. | 15,000 | 72,641 | ||||||
Symrise AG | 1,178 | 87,282 | ||||||
Taiyo Nippon Sanso Corp. | 3,206 | 52,119 | ||||||
Teijin Ltd. | 3,000 | 47,880 | ||||||
Toray Industries, Inc. | 14,000 | 98,982 | ||||||
Tosoh Corp. | 3,149 | 40,846 | ||||||
Umicore SA | 2,002 | 79,890 | ||||||
Yara International ASA | 1,297 | 49,999 | ||||||
|
| |||||||
7,956,851 | ||||||||
|
| |||||||
CONSTRUCTION MATERIALS–0.1% | ||||||||
Boral Ltd. | 17,642 | 61,394 | ||||||
CRH PLC | 8,841 | 234,170 | ||||||
Fletcher Building Ltd.(a) | 8,637 | 28,290 | ||||||
HeidelbergCement AG | 1,342 | 82,262 | ||||||
James Hardie Industries PLC | 3,449 | 37,576 | ||||||
LafargeHolcim Ltd.(a) | 5,336 | 220,209 | ||||||
Martin Marietta Materials, Inc. | 477 | 81,982 | ||||||
Taiheiyo Cement Corp. | 1,304 | 40,131 | ||||||
Vulcan Materials Co. | 915 | 90,402 | ||||||
|
| |||||||
876,416 | ||||||||
|
| |||||||
CONTAINERS & PACKAGING–0.1% | ||||||||
Amcor Ltd./Australia | 11,024 | 102,936 | ||||||
Avery Dennison Corp. | 585 | 52,551 | ||||||
Ball Corp. | 2,420 | 111,272 | ||||||
International Paper Co. | 2,865 | 115,631 | ||||||
Packaging Corp. of America | 675 | 56,335 | ||||||
Sealed Air Corp. | 1,040 | 36,234 | ||||||
Smurfit Kappa Group PLC | 2,476 | 65,880 | ||||||
Toyo Seikan Group Holdings Ltd. | 1,700 | 38,910 | ||||||
Westrock Co. | 1,747 | 65,967 | ||||||
|
| |||||||
645,716 | ||||||||
|
| |||||||
METALS & MINING–0.9% | ||||||||
Alumina Ltd. | 28,452 | 46,087 | ||||||
Anglo American PLC | 11,577 | 258,869 | ||||||
Antofagasta PLC | 6,389 | 63,900 | ||||||
ArcelorMittal | 12,535 | 259,479 | ||||||
BHP Billiton Ltd. | 32,976 | 797,064 |
21
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
BHP Group PLC | 23,519 | $ | 496,980 | |||||
BlueScope Steel Ltd. | 6,941 | 53,544 | ||||||
Boliden AB | 4,189 | 90,771 | ||||||
Fortescue Metals Group Ltd. | 18,067 | 53,276 | ||||||
Freeport-McMoRan, Inc. | 9,425 | 97,172 | ||||||
Fresnillo PLC | 2,356 | 25,888 | ||||||
Glencore PLC(a) | 130,406 | 484,858 | ||||||
Hitachi Metals Ltd. | 5,000 | 52,003 | ||||||
JFE Holdings, Inc. | 5,000 | 79,642 | ||||||
Kobe Steel Ltd. | 1,199 | 8,310 | ||||||
Mitsubishi Materials Corp. | 2,700 | 71,147 | ||||||
Newcrest Mining Ltd. | 7,017 | 107,845 | ||||||
Newmont Mining Corp. | 3,695 | 128,032 | ||||||
Nippon Steel & Sumitomo Metal Corp. | 8,643 | 148,494 | ||||||
Norsk Hydro ASA | 16,444 | 74,509 | ||||||
Nucor Corp. | 2,210 | 114,500 | ||||||
Randgold Resources Ltd.(d)(e)(f) | 890 | 74,257 | ||||||
Rio Tinto Ltd. | 4,038 | 223,487 | ||||||
Rio Tinto PLC | 13,185 | 631,461 | ||||||
South32 Ltd. | 56,741 | 134,976 | ||||||
Sumitomo Metal Mining Co., Ltd. | 2,500 | 66,949 | ||||||
thyssenkrupp AG | 3,919 | 67,320 | ||||||
voestalpine AG | 1,082 | 32,270 | ||||||
|
| |||||||
4,743,090 | ||||||||
|
| |||||||
PAPER & FOREST PRODUCTS–0.1% | ||||||||
Mondi PLC | 3,496 | 72,814 | ||||||
Oji Holdings Corp. | 14,000 | 71,532 | ||||||
Stora Enso Oyj–Class R | 6,056 | 70,212 | ||||||
UPM-Kymmene Oyj | 5,689 | 144,010 | ||||||
|
| |||||||
358,568 | ||||||||
|
| |||||||
14,580,641 | ||||||||
|
| |||||||
UTILITIES–1.9% | ||||||||
ELECTRIC UTILITIES–1.1% | ||||||||
Alliant Energy Corp. | 1,588 | 67,093 | ||||||
American Electric Power Co., Inc. | 3,425 | 255,985 | ||||||
AusNet Services | 37,398 | 40,985 | ||||||
Chubu Electric Power Co., Inc. | 6,100 | 86,678 | ||||||
Chugoku Electric Power Co., Inc. (The) | 4,000 | 51,983 | ||||||
CK Infrastructure Holdings Ltd. | 15,000 | 113,516 | ||||||
CLP Holdings Ltd. | 12,500 | 141,261 | ||||||
Duke Energy Corp. | 4,882 | 421,317 | ||||||
Edison International | 2,265 | 128,584 | ||||||
EDP–Energias de Portugal SA | 25,431 | 88,965 | ||||||
Electricite de France SA | 11,071 | 175,219 | ||||||
Endesa SA | 3,024 | 69,735 | ||||||
Enel SpA | 88,110 | 510,795 | ||||||
Entergy Corp. | 1,225 | 105,436 | ||||||
Evergy, Inc. | 1,885 | $ | 107,012 | |||||
Eversource Energy | 2,210 | 143,738 | ||||||
Exelon Corp. | 6,697 | 302,035 | ||||||
FirstEnergy Corp. | 3,135 | 117,719 | ||||||
Fortum Oyj | 4,947 | 108,287 | ||||||
HK Electric Investments & HK Electric Investments Ltd.–Class SS(b) | 104,180 | 105,001 | ||||||
Iberdrola SA | 67,680 | 543,462 | ||||||
Kansai Electric Power Co., Inc. (The) | 8,491 | 127,337 | ||||||
Kyushu Electric Power Co., Inc. | 4,100 | 48,821 | ||||||
NextEra Energy, Inc. | 3,345 | 581,428 | ||||||
Orsted A/S(b) | 2,499 | 167,227 | ||||||
PG&E Corp.(a) | 3,575 | 84,906 | ||||||
Pinnacle West Capital Corp. | 785 | 66,882 | ||||||
Power Assets Holdings Ltd. | 8,500 | 59,053 | ||||||
PPL Corp. | 4,895 | 138,675 | ||||||
Red Electrica Corp. SA | 5,707 | 127,267 | ||||||
Southern Co. (The) | 7,010 | 307,879 | ||||||
SSE PLC | 10,739 | 148,301 | ||||||
Terna Rete Elettrica Nazionale SpA | 23,069 | 131,012 | ||||||
Tohoku Electric Power Co., Inc. | 4,300 | 56,613 | ||||||
Tokyo Electric Power Co. Holdings, Inc.(a) | 13,800 | 81,973 | ||||||
Verbund AG | 759 | 32,494 | ||||||
Xcel Energy, Inc. | 3,520 | 173,430 | ||||||
|
| |||||||
6,018,104 | ||||||||
|
| |||||||
GAS UTILITIES–0.1% | ||||||||
APA Group | 13,346 | 79,944 | ||||||
Hong Kong & China Gas Co., Ltd. | 87,278 | 180,321 | ||||||
Naturgy Energy Group SA | 4,316 | 110,104 | ||||||
Osaka Gas Co., Ltd. | 3,600 | 65,671 | ||||||
Toho Gas Co., Ltd. | 2,017 | 84,844 | ||||||
Tokyo Gas Co., Ltd. | 3,800 | 96,110 | ||||||
|
| |||||||
616,994 | ||||||||
|
| |||||||
INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS–0.1% | ||||||||
AES Corp./VA | 4,585 | 66,299 | ||||||
Electric Power Development Co., Ltd. | 1,600 | 37,968 | ||||||
Meridian Energy Ltd. | 18,542 | 42,427 | ||||||
NRG Energy, Inc. | 2,090 | 82,764 | ||||||
Uniper SE | 2,006 | 51,746 | ||||||
|
| |||||||
281,204 | ||||||||
|
| |||||||
MULTI-UTILITIES–0.6% | ||||||||
AGL Energy Ltd. | 6,423 | 93,276 | ||||||
Ameren Corp. | 1,660 | 108,282 | ||||||
CenterPoint Energy, Inc. | 2,995 | 84,549 | ||||||
Centrica PLC | 64,140 | 110,640 |
22
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
CMS Energy Corp. | 1,920 | $ | 95,328 | |||||
Consolidated Edison, Inc. | 2,130 | 162,860 | ||||||
Dominion Energy, Inc. | 4,585 | 327,644 | ||||||
DTE Energy Co. | 1,270 | 140,081 | ||||||
E.ON SE | 23,845 | 235,381 | ||||||
Engie SA | 18,347 | 263,608 | ||||||
Innogy SE(b) | 1,395 | 65,141 | ||||||
National Grid PLC | 38,933 | 380,894 | ||||||
NiSource, Inc. | 2,305 | 58,432 | ||||||
Public Service Enterprise Group, Inc. | 3,505 | 182,435 | ||||||
RWE AG | 5,973 | 130,091 | ||||||
SCANA Corp. | 995 | 47,541 | ||||||
Sempra Energy | 1,860 | 201,233 | ||||||
Suez | 5,769 | 76,211 | ||||||
United Utilities Group PLC | 8,008 | 75,295 | ||||||
Veolia Environnement SA | 5,882 | 120,459 | ||||||
WEC Energy Group, Inc. | 2,188 | 151,541 | ||||||
|
| |||||||
3,110,922 | ||||||||
|
| |||||||
WATER UTILITIES–0.0% | ||||||||
American Water Works Co., Inc. | 1,221 | 110,830 | ||||||
Severn Trent PLC | 2,239 | 51,902 | ||||||
|
| |||||||
162,732 | ||||||||
|
| |||||||
10,189,956 | ||||||||
|
| |||||||
REAL ESTATE–1.8% | ||||||||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–1.1% | ||||||||
Alexandria Real Estate Equities, Inc. | 732 | 84,356 | ||||||
American Tower Corp. | 3,065 | 484,852 | ||||||
Apartment Investment & Management Co.–Class A | 1,075 | 47,171 | ||||||
Ascendas Real Estate Investment Trust | 58,294 | 110,012 | ||||||
AvalonBay Communities, Inc. | 945 | 164,477 | ||||||
Boston Properties, Inc. | 1,100 | 123,805 | ||||||
British Land Co. PLC (The) | 9,308 | 63,297 | ||||||
Crown Castle International Corp. | 2,870 | 311,768 | ||||||
Daiwa House REIT Investment Corp. | 13 | 29,122 | ||||||
Dexus | 13,420 | 100,444 | ||||||
Digital Realty Trust, Inc. | 1,430 | 152,366 | ||||||
Duke Realty Corp. | 2,448 | 63,403 | ||||||
Equinix, Inc. | 620 | 218,587 | ||||||
Equity Residential | 2,540 | 167,665 | ||||||
Essex Property Trust, Inc. | 478 | 117,210 | ||||||
Extra Space Storage, Inc. | 883 | 79,894 | ||||||
Federal Realty Investment Trust | 522 | 61,617 | ||||||
Goodman Group | 16,928 | 126,805 | ||||||
GPT Group (The) | 17,105 | 64,367 | ||||||
Hammerson PLC | 7,467 | 31,436 | ||||||
HCP, Inc. | 3,280 | 91,610 | ||||||
Host Hotels & Resorts, Inc. | 5,150 | $ | 85,851 | |||||
ICADE | 1,592 | 121,330 | ||||||
Iron Mountain, Inc. | 1,908 | 61,838 | ||||||
Japan Prime Realty Investment Corp. | 15 | 56,961 | ||||||
Japan Real Estate Investment Corp. | 12 | 67,376 | ||||||
Japan Retail Fund Investment Corp. | 24 | 47,894 | ||||||
Kimco Realty Corp. | 2,930 | 42,925 | ||||||
Klepierre SA | 2,231 | 68,947 | ||||||
Land Securities Group PLC | 9,736 | 99,968 | ||||||
Link REIT | 21,500 | 217,961 | ||||||
Macerich Co. (The) | 710 | 30,729 | ||||||
Mid-America Apartment Communities, Inc. | 796 | 76,177 | ||||||
Mirvac Group | 40,488 | 63,944 | ||||||
Nippon Building Fund, Inc. | 13 | 81,859 | ||||||
Nippon Prologis REIT, Inc. | 14 | 29,547 | ||||||
Nomura Real Estate Master Fund, Inc. | 34 | 44,734 | ||||||
Prologis, Inc. | 3,670 | 215,502 | ||||||
Public Storage | 1,030 | 208,482 | ||||||
Realty Income Corp. | 1,908 | 120,280 | ||||||
Regency Centers Corp. | 1,033 | 60,616 | ||||||
SBA Communications Corp.(a) | 870 | 140,844 | ||||||
Scentre Group | 50,683 | 139,336 | ||||||
Segro PLC | 11,022 | 82,744 | ||||||
Simon Property Group, Inc. | 2,216 | 372,266 | ||||||
SL Green Realty Corp. | 576 | 45,550 | ||||||
Stockland | 23,010 | 57,083 | ||||||
UDR, Inc. | 1,828 | 72,425 | ||||||
United Urban Investment Corp. | 26 | 40,267 | ||||||
Ventas, Inc. | 2,441 | 143,018 | ||||||
Vicinity Centres | 39,646 | 72,646 | ||||||
Vornado Realty Trust | 1,185 | 73,506 | ||||||
Welltower, Inc. | 2,575 | 178,731 | ||||||
Weyerhaeuser Co. | 5,298 | 115,814 | ||||||
|
| |||||||
6,031,415 | ||||||||
|
| |||||||
REAL ESTATE MANAGEMENT & DEVELOPMENT–0.7% | ||||||||
Aeon Mall Co., Ltd. | 1,700 | 27,084 | ||||||
Aroundtown SA | 11,635 | 96,523 | ||||||
Azrieli Group Ltd. | 387 | 18,515 | ||||||
CapitaLand Ltd. | 35,000 | 79,815 | ||||||
CBRE Group, Inc.– | 2,065 | 82,683 | ||||||
City Developments Ltd. | 11,000 | 65,579 | ||||||
CK Asset Holdings Ltd. | 25,719 | 188,175 | ||||||
Daito Trust Construction Co., Ltd. | 700 | 95,832 | ||||||
Daiwa House Industry Co., Ltd. | 6,000 | 191,390 | ||||||
Deutsche Wohnen SE | 3,212 | 146,791 |
23
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Hang Lung Properties Ltd. | 14,000 | $ | 26,610 | |||||
Henderson Land Development Co., Ltd. | 27,655 | 137,641 | ||||||
Hongkong Land Holdings Ltd. | 14,000 | 88,258 | ||||||
Hulic Co., Ltd. | 6,591 | 58,900 | ||||||
Kerry Properties Ltd. | 8,500 | 29,011 | ||||||
LendLease Group | 10,380 | 85,035 | ||||||
Mitsubishi Estate Co., Ltd. | 13,000 | 204,535 | ||||||
Mitsui Fudosan Co., Ltd. | 10,000 | 222,119 | ||||||
New World Development Co., Ltd. | 82,122 | 108,464 | ||||||
Nomura Real Estate Holdings, Inc. | 3,600 | 66,015 | ||||||
Sino Land Co., Ltd. | 63,328 | 108,499 | ||||||
Sumitomo Realty & Development Co., Ltd. | 3,843 | 140,687 | ||||||
Sun Hung Kai Properties Ltd. | 15,000 | 214,074 | ||||||
Swire Properties Ltd. | 25,389 | 89,208 | ||||||
Swiss Prime Site AG(a) | 976 | 79,057 | ||||||
Tokyu Fudosan Holdings Corp. | 7,989 | 39,378 | ||||||
Unibail-Rodamco-Westfield | 1,707 | 264,149 | ||||||
Vonovia SE | 5,710 | 257,401 | ||||||
Wharf Holdings Ltd. (The) | 13,000 | 33,892 | ||||||
Wharf Real Estate Investment Co., Ltd. | 13,000 | 77,752 | ||||||
Wheelock & Co., Ltd. | 17,000 | 97,324 | ||||||
|
| |||||||
3,420,396 | ||||||||
|
| |||||||
9,451,811 | ||||||||
|
| |||||||
Total Common Stocks | 288,540,161 | |||||||
|
| |||||||
Principal Amount (000) | ||||||||
GOVERNMENTS– | ||||||||
UNITED STATES–33.4% | ||||||||
U.S. Treasury Bonds | ||||||||
2.25%, 8/15/46 | $ | 5,033 | 4,300,411 | |||||
2.50%, 2/15/45–5/15/46 | 598 | 541,166 | ||||||
2.75%, 8/15/42–11/15/47 | 2,412 | 2,291,961 | ||||||
2.875%, 5/15/43–11/15/46 | 6,307 | 6,140,973 | ||||||
3.00%, 5/15/45–8/15/48 | 3,641 | 3,625,165 | ||||||
3.125%, 11/15/41–2/15/43 | 2,825 | 2,885,841 | ||||||
3.50%, 2/15/39 | 173 | 189,165 | ||||||
3.625%, 8/15/43 | 3,658 | 4,047,806 | ||||||
3.75%, 8/15/41–11/15/43 | 309 | 348,571 | ||||||
3.875%, 8/15/40 | 280 | 321,562 | ||||||
4.25%, 5/15/39 | 240 | 289,462 | ||||||
4.375%, 11/15/39–5/15/41 | 1,258 | 1,543,295 | ||||||
4.50%, 8/15/39 | 317 | 394,863 | ||||||
4.75%, 2/15/37–2/15/41 | 1,127 | 1,440,637 | ||||||
5.25%, 11/15/28 | 725 | 882,914 | ||||||
5.375%, 2/15/31 | 650 | 825,906 | ||||||
5.50%, 8/15/28 | $ | 1,383 | $ | 1,708,221 | ||||
6.00%, 2/15/26 | 2,846 | 3,470,341 | ||||||
6.125%, 11/15/27 | 732 | 929,869 | ||||||
6.25%, 8/15/23–5/15/30 | 724 | 948,951 | ||||||
6.875%, 8/15/25 | 849 | 1,068,679 | ||||||
7.25%, 8/15/22 | 775 | 901,422 | ||||||
7.625%, 2/15/25 | 55 | 70,623 | ||||||
8.00%, 11/15/21 | 9,123 | 10,502,854 | ||||||
U.S. Treasury Notes | ||||||||
0.875%, 5/15/19 | 2,612 | 2,596,491 | ||||||
1.00%, 8/31/19 | 7,918 | 7,832,634 | ||||||
1.125%, 2/28/21–9/30/21 | 2,905 | 2,813,850 | ||||||
1.25%, 5/31/19–10/31/21 | 8,053 | 7,860,231 | ||||||
1.375%, 8/31/20–8/31/23 | 8,189 | 7,972,015 | ||||||
1.50%, 5/31/19–8/15/26 | 5,103 | 4,933,122 | ||||||
1.625%, 6/30/20–2/15/26 | 15,907 | 15,296,280 | ||||||
1.75%, 3/31/22–5/15/23 | 12,336 | 11,995,654 | ||||||
1.875%, 11/30/21–10/31/22 | 6,713 | 6,576,246 | ||||||
2.00%, 11/15/21–11/15/26 | 19,868 | 19,422,860 | ||||||
2.125%, 8/15/21–5/15/25 | 11,839 | 11,613,702 | ||||||
2.25%, 11/15/24–11/15/27 | 6,743 | 6,548,329 | ||||||
2.375%, 8/15/24–5/15/27 | 1,829 | 1,800,217 | ||||||
2.50%, 8/15/23–5/15/24 | 4,314 | 4,308,337 | ||||||
2.625%, 8/15/20–11/15/20 | 1,775 | 1,777,219 | ||||||
2.75%, 11/15/23–2/15/28 | 3,400 | 3,436,176 | ||||||
2.875%, 10/31/23–8/15/28 | 2,906 | 2,952,882 | ||||||
3.125%, 5/15/21–11/15/28 | 992 | 1,019,876 | ||||||
3.625%, 2/15/21(g) | 7,521 | 7,693,748 | ||||||
|
| |||||||
Total Governments–Treasuries | 178,120,527 | |||||||
|
| |||||||
Shares | ||||||||
INVESTMENT COMPANIES–10.4% | ||||||||
FUNDS AND INVESTMENT TRUSTS–10.4%(h) | ||||||||
iShares Core MSCI Emerging Markets ETF | 507,032 | 23,906,559 | ||||||
iShares Core S&P 500 ETF | 32,739 | 8,237,460 | ||||||
Vanguard Global ex–U.S. Real Estate ETF | 250,572 | 13,132,479 | ||||||
Vanguard Real Estate ETF(c) | 138,255 | 10,309,675 | ||||||
|
| |||||||
Total Investment Companies | 55,586,173 | |||||||
|
| |||||||
RIGHTS–0.0% | ||||||||
ENERGY–0.0% | ||||||||
OIL, GAS & CONSUMABLE FUELS–0.0% | ||||||||
Repsol SA, expiring 1/09/19(a) | 15,445 | 7,078 | ||||||
|
|
24
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
SHORT-TERM INVESTMENTS–2.8% | ||||||||
INVESTMENT COMPANIES–2.8% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(h)(i)(j) | 14,797,228 | $ | 14,797,228 | |||||
|
| |||||||
Total Investments Before Security Lending Collateral for Securities Loaned–100.6% | 537,051,167 | |||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.2% | ||||||||
INVESTMENT COMPANIES–0.2% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(h)(i)(j) | 869,209 | $ | 869,209 | |||||
|
| |||||||
TOTAL INVESTMENTS–100.8% | 537,920,376 | |||||||
Other assets less liabilities–(0.8)% | (4,098,478 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 533,821,898 | ||||||
|
|
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at December 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
10 Yr Australian Bond Futures | 50 | March 2019 | AUD | 5,000 | $ | 4,617,864 | $ | 4,672,479 | $ | 54,615 | ||||||||||||||||||
Emini MSCI Emerging Market Future | 495 | March 2019 | USD | 25 | 24,187,355 | 23,928,300 | (259,055 | ) | ||||||||||||||||||||
FTSE 100 Index Futures | 8 | March 2019 | GBP | 0 | * | 676,351 | 679,005 | 2,654 | ||||||||||||||||||||
Mini MSCI EAFE Futures | 6 | March 2019 | USD | 0 | * | 533,187 | 514,800 | (18,387 | ) | |||||||||||||||||||
Russel 2000 Index Futures | 32 | March 2019 | USD | 2 | 2,329,679 | 2,158,400 | (171,279 | ) | ||||||||||||||||||||
S&PMid 400 EMini Futures | 64 | March 2019 | USD | 6 | 11,394,436 | 10,638,080 | (756,356 | ) | ||||||||||||||||||||
TOPIX Index Futures | 16 | March 2019 | JPY | 160 | 2,202,521 | 2,180,193 | (22,328 | ) | ||||||||||||||||||||
U.S. T-Note 2 Yr (CBT) Futures | 67 | March 2019 | USD | 13,400 | 14,131,833 | 14,224,938 | 93,105 | |||||||||||||||||||||
U.S. T-Note 5 Yr (CBT) Futures | 38 | March 2019 | USD | 3,800 | 4,288,072 | 4,358,125 | 70,053 | |||||||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 53 | March 2019 | USD | 5,300 | 8,111,789 | 8,514,781 | 402,992 | |||||||||||||||||||||
Sold Contracts | ||||||||||||||||||||||||||||
Euro STOXX 50 Index Futures | 237 | March 2019 | EUR | 2 | 8,201,465 | 8,075,679 | 125,786 | |||||||||||||||||||||
Hang Seng Index Futures | 54 | January 2019 | HKD | 3 | 8,795,642 | 8,914,603 | (118,961 | ) | ||||||||||||||||||||
S&P 500 EMini Futures | 323 | March 2019 | USD | 16 | 41,796,956 | 40,458,980 | 1,337,976 | |||||||||||||||||||||
SPI 200 Futures | 12 | March 2019 | AUD | 0 | * | 1,158,393 | 1,175,067 | (16,674 | ) | |||||||||||||||||||
U.S. T-Note 10 Yr (CBT) Futures | 20 | March 2019 | USD | 2,000 | 2,405,692 | 2,440,313 | (34,621 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | 689,520 | |||||||||||||||||||||||||||
|
|
25
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Bank of America, NA | CAD | 1,094 | USD | 824 | 3/15/19 | $ | 20,990 | |||||||||||||||||
Bank of America, NA | USD | 2,548 | CAD | 3,398 | 3/15/19 | (54,875 | ) | |||||||||||||||||
Bank of America, NA | USD | 3,238 | NZD | 4,700 | 3/15/19 | (79,251 | ) | |||||||||||||||||
Barclays Bank PLC | CHF | 6,328 | USD | 6,454 | 3/15/19 | (26,760 | ) | |||||||||||||||||
Barclays Bank PLC | EUR | 3,930 | USD | 4,522 | 3/15/19 | (7,823 | ) | |||||||||||||||||
Barclays Bank PLC | GBP | 2,469 | USD | 3,130 | 3/15/19 | (27,829 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 1,376 | NOK | 11,666 | 3/15/19 | (22,825 | ) | |||||||||||||||||
BNP Paribas SA | AUD | 5,393 | USD | 3,896 | 3/15/19 | 92,342 | ||||||||||||||||||
BNP Paribas SA | JPY | 116,073 | USD | 1,040 | 3/15/19 | (24,383 | ) | |||||||||||||||||
BNP Paribas SA | USD | 5,706 | JPY | 641,700 | 3/15/19 | 180,380 | ||||||||||||||||||
Credit Suisse International | USD | 3,125 | AUD | 4,338 | 3/15/19 | (66,050 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | GBP | 548 | USD | 697 | 3/15/19 | (4,043 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | SEK | 15,561 | USD | 1,738 | 3/15/19 | (27,841 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 5,212 | JPY | 581,761 | 3/15/19 | 124,830 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,704 | NOK | 14,462 | 3/15/19 | (26,136 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 2,650 | SEK | 23,710 | 3/15/19 | 40,765 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | CAD | 3,130 | USD | 2,331 | 3/15/19 | 34,402 | ||||||||||||||||||
State Street Bank & Trust Co. | CAD | 550 | USD | 413 | 3/15/19 | 9,412 | ||||||||||||||||||
UBS AG | EUR | 3,006 | USD | 3,440 | 3/15/19 | (24,958 | ) | |||||||||||||||||
UBS AG | JPY | 1,492,587 | USD | 13,256 | 3/15/19 | (434,839 | ) | |||||||||||||||||
UBS AG | USD | 800 | EUR | 697 | 3/15/19 | 2,868 | ||||||||||||||||||
UBS AG | USD | 1,112 | GBP | 879 | 3/15/19 | 12,980 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | (308,644 | ) | ||||||||||||||||||||||
|
|
INFLATION (CPI) SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||||
Swap Counterparty | Notional | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Bank of America, NA | USD | 34,139 | 7/31/21 | 2.230 | % | CPI | # | Maturity | $ | (658,158 | ) | |||||||||||||||||
Bank of America, NA | USD | 22,291 | 7/31/21 | 2.230 | % | CPI | # | Maturity | (429,743 | ) | ||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (1,087,901 | ) | ||||||||||||||||||||||||||
|
|
# | Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI). |
26
AB Variable Products Series Fund |
TOTAL RETURN SWAPS (see Note D)
Counterparty & Referenced Obligation | # of Shares or Units | Rate Paid/ Received | Payment Frequency | Notional | Maturity Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Receive Total Return on Reference Obligation |
| |||||||||||||||||||||||||||
Goldman Sachs International |
| |||||||||||||||||||||||||||
GSABNATR | 2,894 | 0.24% | Annual | USD | 2,896 | 6/17/19 | $ | (66,121 | ) | |||||||||||||||||||
UBS AG | ||||||||||||||||||||||||||||
Russell 2000 Total Return Index | 1,256 | LIBOR | Quarterly | USD | 9,518 | 2/15/19 | (1,108,009 | ) | ||||||||||||||||||||
Pay Total Return on Reference Obligation |
| |||||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||
S&P 500 Total Return Index | 5,707 | LIBOR Plus 0.60% | Maturity | USD | 31,072 | 1/15/19 | 2,831,210 | |||||||||||||||||||||
S&P 500 Total Return Index | 5,707 | LIBOR Plus 0.53% | Monthly | USD | 28,869 | 1/15/19 | 459,381 | |||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | 2,116,461 | |||||||||||||||||||||||||||
|
|
* | Notional amount less than 500. |
(a) | Non-income producing security. |
(b) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2018, the aggregate market value of these securities amounted to $980,093 or 0.2% of net assets. |
(c) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(d) | Fair valued by the Adviser. |
(e) | Illiquid security. |
(f) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(g) | Position, or a portion thereof, has been segregated to collateralize OTC derivatives outstanding. |
(h) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618. |
(i) | Affiliated investments. |
(j) | The rate shown represents the 7-day yield as of period end. |
Currency Abbreviations:
AUD—Australian Dollar
CAD—Canadian Dollar
CHF—Swiss Franc
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
JPY—Japanese Yen
NOK—Norwegian Krone
NZD—New Zealand Dollar
SEK—Swedish Krona
USD—United States Dollar
Glossary:
ADR—American Depositary Receipt
ASX—Australian Stock Exchange
CBT—Chicago Board of Trade
EAFE—Europe, Australia, and Far East
ETF—Exchange Traded Fund
FTSE—Financial Times Stock Exchange
LIBOR—London Interbank Offered Rates
MSCI—Morgan Stanley Capital International
REG—Registered Shares
REIT—Real Estate Investment Trust
SDR—Swedish Depositary Receipt
SPI—Share Price Index
TOPIX—Tokyo Price Index
See notes to financial statements.
27
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $485,145,128) | $ | 522,253,939 | (a) | |
Affiliated issuers (cost $15,666,437—including investment of cash collateral for securities loaned of $869,209) | 15,666,437 | |||
Cash | 973 | |||
Cash collateral due from broker | 4,583,500 | |||
Foreign currencies, at value (cost $1,341,782) | 1,354,785 | |||
Receivable for investment securities sold | 4,039,283 | |||
Unrealized appreciation on total return swaps | 3,290,591 | |||
Unaffiliated interest and dividends receivable | 1,747,849 | |||
Unrealized appreciation on forward currency exchange contracts | 518,969 | |||
Receivable for capital stock sold | 85,511 | |||
Affiliated dividends receivable | 22,482 | |||
|
| |||
Total assets | 553,564,319 | |||
|
| |||
LIABILITIES |
| |||
Payable for investment securities purchased | 10,153,455 | |||
Cash collateral due to broker | 3,712,000 | |||
Unrealized depreciation on total return swaps | 1,174,130 | |||
Unrealized depreciation on inflation swaps | 1,087,901 | |||
Payable for capital stock redeemed | 1,039,183 | |||
Payable for collateral received on securities loaned | 869,209 | |||
Unrealized depreciation on forward currency exchange contracts | 827,613 | |||
Payable for variation margin on futures | 306,299 | |||
Advisory fee payable | 300,467 | |||
Distribution fee payable | 107,554 | |||
Administrative fee payable | 17,878 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 146,526 | |||
|
| |||
Total liabilities | 19,742,421 | |||
|
| |||
NET ASSETS | $ | 533,821,898 | ||
|
| |||
COMPOSITION OF NET ASSETS |
| |||
Capital stock, at par | $ | 45,151 | ||
Additionalpaid-in capital | 485,519,327 | |||
Distributable earnings | 48,257,420 | |||
|
| |||
$ | 533,821,898 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 354,897 | 29,806 | $ | 11.91 | |||||||
B | $ | 533,467,001 | 45,121,495 | $ | 11.82 |
(a) | Includes securities on loan with a value of $852,794 (see Note E). |
See notes to financial statements.
28
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $453,106) | $ | 10,192,641 | ||
Affiliated issuers | 300,142 | |||
Interest | 3,473,322 | |||
|
| |||
13,966,105 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 4,094,006 | |||
Distribution fee—Class B | 1,461,265 | |||
Transfer agency—Class A | 2 | |||
Transfer agency—Class B | 3,272 | |||
Custodian | 168,799 | |||
Audit and tax | 113,148 | |||
Administrative | 70,202 | |||
Legal | 53,720 | |||
Printing | 27,418 | |||
Directors’ fees | 24,782 | |||
Miscellaneous | 60,458 | |||
|
| |||
Total expenses | 6,077,072 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (29,659 | ) | ||
|
| |||
Net expenses | 6,047,413 | |||
|
| |||
Net investment income | 7,918,692 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 8,745,174 | |||
Forward currency exchange contracts | 1,811,682 | |||
Futures | (8,030,345 | ) | ||
Options written | 56,500 | |||
Swaps | 1,920,135 | |||
Foreign currency transactions | (548,953 | ) | ||
Net change in unrealized appreciation/depreciation of: | ||||
Investments | (56,027,089 | ) | ||
Forward currency exchange contracts | 407,725 | |||
Futures | 252,766 | |||
Swaps | 541,712 | |||
Foreign currency denominated assets and liabilities | (7,903 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (50,878,596 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (42,959,904 | ) | |
|
|
See notes to financial statements.
29
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment income | $ | 7,918,692 | $ | 6,717,858 | ||||
Net realized gain on investment and foreign currency transactions | 3,954,193 | 7,963,206 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (54,832,789 | ) | 63,377,735 | |||||
Contributions from Affiliates (see Note B) | –0 | – | 5,699 | ^ | ||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (42,959,904 | ) | 78,064,498 | |||||
Distributions to Shareholders | ||||||||
Class A | (7,345 | ) | (6,415 | ) | ||||
Class B | (10,143,788 | ) | (10,384,688 | ) | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net decrease | (18,098,509 | ) | (21,670,358 | ) | ||||
CAPITAL CONTRIBUTIONS | ||||||||
|
|
|
| |||||
Total increase (decrease) | (71,209,546 | ) | 46,003,037 | |||||
NET ASSETS | ||||||||
Beginning of period | 605,031,444 | 559,028,407 | ||||||
|
|
|
| |||||
End of period | $ | 533,821,898 | $ | 605,031,444 | ||||
|
|
|
|
^ | Amount reclassified. |
See notes to financial statements.
30
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Dynamic Asset Allocation Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to maximize total return consistent with the determination of AllianceBernstein L.P. (the “Adviser”) of reasonable risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S.
31
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, andover-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition,non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Other fixed income investments, includingnon-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
32
AB Variable Products Series Fund |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Financials | $ | 20,252,690 | $ | 27,052,052 | $ | –0 | – | $ | 47,304,742 | |||||||
Health Care | 23,444,608 | 15,775,263 | –0 | – | 39,219,871 | |||||||||||
Information Technology | 30,614,470 | 7,566,652 | –0 | – | 38,181,122 | |||||||||||
Industrials | 13,819,089 | 19,928,691 | –0 | – | 33,747,780 | |||||||||||
Consumer Discretionary | 15,031,612 | 15,348,393 | –0 | – | 30,380,005 | |||||||||||
Consumer Staples | 11,405,055 | 15,400,818 | –0 | – | 26,805,873 | |||||||||||
Communication Services | 14,960,993 | 7,777,646 | –0 | – | 22,738,639 | |||||||||||
Energy | 7,842,832 | 8,096,889 | –0 | – | 15,939,721 | |||||||||||
Materials | 4,067,301 | 10,439,083 | 74,257 | 14,580,641 | ||||||||||||
Utilities | 4,898,149 | 5,291,807 | –0 | – | 10,189,956 | |||||||||||
Real Estate | 4,296,018 | 5,155,793 | –0 | – | 9,451,811 | |||||||||||
Governments—Treasuries | –0 | – | 178,120,527 | –0 | – | 178,120,527 | ||||||||||
Investment Companies | 55,586,173 | –0 | – | –0 | – | 55,586,173 | ||||||||||
Rights | 7,078 | –0 | – | –0 | – | 7,078 | ||||||||||
Short-Term Investments | 14,797,228 | –0 | – | –0 | – | 14,797,228 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 869,209 | –0 | – | –0 | – | 869,209 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 221,892,505 | 315,953,614 | 74,257 | 537,920,376 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 1,958,741 | 128,440 | –0 | – | 2,087,181 | (b) | ||||||||||
Forward Currency Exchange Contracts | –0 | – | 518,969 | –0 | – | 518,969 | ||||||||||
Total Return Swaps | –0 | – | 3,290,591 | –0 | – | 3,290,591 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (1,239,698 | ) | (157,963 | ) | –0 | – | (1,397,661 | )(b) | ||||||||
Forward Currency Exchange Contracts | –0 | – | (827,613 | ) | –0 | – | (827,613 | ) | ||||||||
Inflation (CPI) Swaps | –0 | – | (1,087,901 | ) | –0 | – | (1,087,901 | ) | ||||||||
Total Return Swaps | –0 | – | (1,174,130 | ) | –0 | – | (1,174,130 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 222,611,548 | $ | 316,644,007 | $ | 74,257 | $ | 539,329,812 | ||||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(c) | There were deminimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
33
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Common Stocks | Total | |||||||
Balance as of 12/31/17 | $ | –0 | – | $ | –0 | – | ||
Accrued discounts/(premiums) | –0 | – | –0 | – | ||||
Realized gain (loss) | –0 | – | –0 | – | ||||
Change in unrealized appreciation/depreciation | (14,116 | ) | (14,116 | ) | ||||
Purchases | –0 | – | –0 | – | ||||
Sales | –0 | – | –0 | – | ||||
Transfers in to Level 3 | 88,373 | 88,373 | (a) | |||||
Transfers out of Level 3 | –0 | – | –0 | – | ||||
|
|
|
| |||||
Balance as of 12/31/18 | $ | 74,257 | $ | 74,257 | ||||
|
|
|
| |||||
Net change in unrealized appreciation/depreciation from Investments held as of 12/31/18(b) | $ | (14,116 | ) | $ | (14,116 | ) | ||
|
|
|
|
(a) | There were de minimis transfers under 1% of net assets during the reporting period. |
(b) | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation on investments and other financial instruments in the accompanying statement of operations. |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
34
AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to the portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .70% of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .85% and 1.10% of daily average net assets for Class A and Class B shares, respectively. The Expense Caps will remain in effect until May 1, 2019 and then may be extended by the Adviser for additionalone-year terms. For the year ended December 31, 2018, there were no expenses waived by the Adviser.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory
35
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $70,202.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $5,430 for trading losses incurred due to a trade entry error.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $269 in connection with an error made by the Adviser in processing a claim for class action settlement proceeds on behalf of the Portfolio.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $26,739.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 18,529 | $ | 159,755 | $ | 163,487 | $ | 14,797 | $ | 289 | ||||||||||
Government Money Market Portfolio* | 1,877 | 157,497 | 158,505 | 869 | 11 | |||||||||||||||
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|
|
| |||||||||||||||||
Total | $ | 15,666 | $ | 300 | ||||||||||||||||
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* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $108,652, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
36
AB Variable Products Series Fund |
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 86,883,298 | $ | 107,686,237 | ||||
U.S. government securities | 47,137,340 | 45,431,370 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 502,005,705 | ||
|
| |||
Gross unrealized appreciation | $ | 73,518,674 | ||
Gross unrealized depreciation | (36,034,062 | ) | ||
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| |||
Net unrealized appreciation | $ | 37,484,612 | ||
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1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon fornon-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
37
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
During the year ended December 31, 2018, the Portfolio held futures for hedging andnon-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging andnon-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges andover-the-counter markets. Among other things, the Portfolio may use options transactions fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. 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 Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. 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.
38
AB Variable Products Series Fund |
During the year ended December 31, 2018, the Portfolio held purchased swaptions for hedging andnon-hedging purposes.
During the year ended December 31, 2018, the Portfolio held purchased options for hedging andnon-hedging purposes. During the year ended December 31, 2018, the Portfolio held written options for hedging andnon-hedging purposes.
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk, equity markets or currencies. The Portfolio may also enter into swaps fornon-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions” or in order to take a “long” or “short” position with respect to an underlying referenced asset described below under “Total Return Swaps”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received 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 aphased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less thannon-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
39
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Inflation (CPI) Swaps:
Inflation swap agreements are contracts in which one party agrees to pay the cumulative percentage increase in a price index (the Consumer Price Index with respect to CPI swaps) over the term of the swap (with some lag on the inflation index), and the other pays a compounded fixed rate. Inflation swaps may be used to protect the net asset value, or NAV, of a Portfolio against an unexpected change in the rate of inflation measured by an inflation index since the value of these agreements is expected to increase if there are unexpected inflation increases.
During the year ended December 31, 2018, the Portfolio held inflation (CPI) swaps for hedging andnon-hedging purposes.
Total Return Swaps:
The Portfolio may enter into total return swaps in order to take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.
During the year ended December 31, 2018, the Portfolio held total return swaps for hedging andnon-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended December 31, 2018, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Location | Fair Value | Statement of Location | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 620,765 | * | Receivable/Payable for variation margin on futures | $ | 34,621 | * | ||||
Equity contracts | Receivable/Payable for variation margin on futures | 1,466,416 | * | Receivable/Payable for variation margin on futures | 1,363,040 | * | ||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | 518,969 | Unrealized depreciation on forward currency exchange contracts | 827,613 | ||||||||
Interest rate contracts | Unrealized depreciation on inflation swaps | 1,087,901 | ||||||||||
Equity contracts | Unrealized appreciation on total return swaps | 3,290,591 | Unrealized depreciation on total return swaps | 1,174,130 | ||||||||
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Total | $ | 5,896,741 | $ | 4,487,305 | ||||||||
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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. |
40
AB Variable Products Series Fund |
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | (1,898,511 | ) | $ | 602,878 | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (6,131,834 | ) | (350,112 | ) | |||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | 1,811,682 | 407,725 | |||||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | 7,085 | 53,026 | |||||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | 210,876 | –0 | – | ||||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 56,500 | –0 | – | ||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 5,941 | (1,087,901 | ) | ||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 1,914,194 | 1,629,613 | |||||||
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Total | $ | (4,024,067 | ) | $ | 1,255,229 | |||||
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The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 98,642,441 | ||
Average original value of sale contracts | $ | 36,579,911 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 40,842,539 | ||
Average principal amount of sale contracts | $ | 78,771,109 | ||
Purchased Options: | ||||
Average notional amount | $ | 15,500 | (a) | |
Purchased Swaptions: | ||||
Average notional amount | $ | 29,700,000 | (b) | |
Options Written: | ||||
Average notional amount | $ | 10,000 | (c) | |
Inflation Swaps: | ||||
Average notional amount | $ | 56,430,000 | (d) | |
Total Return Swaps: | ||||
Average notional amount | $ | 70,984,649 |
(a) | Positions were open for two months during the year. |
(b) | Positions were open for less than one month during the year. |
(c) | Positions were open for one month during the year. |
(d) | Positions were open for six months during the year. |
41
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 20,990 | $ | (20,990 | ) | $ | –0 | – | $ | –0 | – | $ | –0 | – | ||||||
BNP Paribas SA | 272,722 | (24,383 | ) | –0 | – | –0 | – | 248,339 | ||||||||||||
Citibank, NA | 3,290,591 | –0 | – | (3,290,591 | ) | –0 | – | –0 | – | |||||||||||
JPMorgan Chase Bank, NA | 165,595 | (58,020 | ) | –0 | – | –0 | – | 107,575 | ||||||||||||
Morgan Stanley & Co., Inc. | 34,402 | –0 | – | –0 | – | –0 | – | 34,402 | ||||||||||||
State Street Bank & Trust Co. | 9,412 | –0 | – | –0 | – | –0 | – | 9,412 | ||||||||||||
UBS AG | 15,848 | (15,848 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
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Total | $ | 3,809,560 | $ | (119,241 | ) | $ | (3,290,591 | ) | $ | –0 | – | $ | 399,728 | ^ | ||||||
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Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 1,222,027 | $ | (20,990 | ) | $ | –0 | – | $ | (893,052 | ) | $ | 307,985 | |||||||
Barclays Bank PLC | 85,237 | –0 | – | –0 | – | –0 | – | 85,237 | ||||||||||||
BNP Paribas SA | 24,383 | (24,383 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Credit Suisse International | 66,050 | –0 | – | –0 | – | –0 | – | 66,050 | ||||||||||||
Goldman Sachs International | 66,121 | –0 | – | –0 | – | –0 | – | 66,121 | ||||||||||||
JPMorgan Chase Bank, NA | 58,020 | (58,020 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
UBS AG | 1,567,806 | (15,848 | ) | –0 | – | (1,316,254 | ) | 235,704 | ||||||||||||
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Total | $ | 3,089,644 | $ | (119,241 | ) | $ | –0 | – | $ | (2,209,306 | ) | $ | 761,097 | ^ | ||||||
|
|
|
|
|
|
|
|
|
|
* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E : Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any
42
AB Variable Products Series Fund |
income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $852,794 and had received cash collateral which has been invested into Government Money Market Portfolio of $869,209. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $11,095 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $2,920. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F : Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 5,972 | 23,756 | $ | 76,807 | $ | 304,287 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 573 | 518 | 7,345 | 6,414 | ||||||||||||||||
Shares redeemed | (1,907 | ) | (25,158 | ) | (24,051 | ) | (321,633 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net increase (decrease) | 4,638 | (884 | ) | $ | 60,101 | $ | (10,932 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 3,742,997 | 3,671,000 | $ | 47,716,084 | $ | 45,294,974 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 797,468 | 843,598 | 10,143,788 | 10,384,688 | ||||||||||||||||
Shares redeemed | (6,011,432 | ) | (6,270,646 | ) | (76,018,482 | ) | (77,339,088 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net decrease | (1,470,967 | ) | (1,756,048 | ) | $ | (18,158,610 | ) | $ | (21,659,426 | ) | ||||||||||
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|
|
|
|
|
|
|
At December 31, 2018, certain shareholders of the Portfolio owned 92% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Allocation Risk—The allocation of investments among different global asset classes may have a significant effect on the Portfolio’s net asset value, or NAV, when one of these asset classes is performing more poorly than others. As both the direct investments and derivatives positions will be periodically adjusted to reflect the Adviser’s view of market and
43
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
economic conditions, there will be transaction costs that may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.
Foreign(Non-U.S.) Risk—The Portfolio’s investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
ETF Risk—ETFs are investment companies. When the Portfolio invests in an ETF, the Portfolio bears its share of the ETF’s expenses and runs the risk that the ETF may not achieve its investment objective.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares.
Capitalization Risk—Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Real Estate Risk—The Portfolio’s investments in the real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts, or “REITs”, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H : Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
44
AB Variable Products Series Fund |
NOTE I : Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 9,401,635 | $ | 10,391,103 | ||||
Net long-term capital gains | 749,498 | –0 | – | |||||
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|
|
| |||||
Total taxable distributions paid | $ | 10,151,133 | $ | 10,391,103 | ||||
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|
|
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 10,233,914 | ||
Undistributed capital gains | 529,276 | |||
Unrealized appreciation/(depreciation) | 37,494,231 | (a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 48,257,421 | ||
|
|
(a) | The differences between book-basis andtax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, the tax treatment of passive foreign investment companies (PFICs), the tax treatment of corporate restructurings, the tax treatment of partnership investments, return of capital distributions received from underlying securities, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
45
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $13.07 | $11.63 | $11.33 | $11.74 | $11.74 | |||||||||||||||
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| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .20 | (b) | .17 | (b) | .13 | (b)† | .08 | .08 | (b) | |||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (1.11 | ) | 1.52 | .27 | (.19 | ) | .44 | |||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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| |||||||||||
Net increase (decrease) in net asset value from operations | (.91 | ) | 1.69 | .40 | (.11 | ) | .52 | |||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.25 | ) | (.10 | ) | (.10 | ) | (.07 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.02 | ) | –0 | – | (.00 | )(c) | (.20 | ) | (.45 | ) | ||||||||||
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Total dividends and distributions | (.25 | ) | (.25 | ) | (.10 | ) | (.30 | ) | (.52 | ) | ||||||||||
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| |||||||||||
Net asset value, end of period | $11.91 | $13.07 | $11.63 | $11.33 | $11.74 | |||||||||||||||
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| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d) | (7.07 | )% | 14.67 | % | 3.59 | %† | (1.09 | )% | 4.45 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $355 | $328 | $303 | $400 | $350 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements (e)‡ | .78 | % | .77 | % | .79 | % | .83 | % | .85 | % | ||||||||||
Expenses, before waivers/reimbursements (e)‡ | .79 | % | .78 | % | .81 | % | .83 | % | .85 | % | ||||||||||
Net investment income | 1.60 | %(b) | 1.39 | %(b) | 1.11 | %(b)† | .67 | % | .69 | %(b) | ||||||||||
Portfolio turnover rate | 24 | % | 20 | % | 64 | % | 93 | % | 53 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .04 | % | .03 | % | .02 | % |
See footnote summary on page 47.
46
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $12.98 | $11.56 | $11.26 | $11.68 | $11.68 | |||||||||||||||
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| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .17 | (b) | .14 | (b) | .10 | (b)† | .05 | .05 | (b) | |||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (1.11 | ) | 1.50 | .27 | (.19 | ) | .45 | |||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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| |||||||||||
Net increase (decrease) in net asset value from operations | (.94 | ) | 1.64 | .37 | (.14 | ) | .50 | |||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.20 | ) | (.22 | ) | (.07 | ) | (.08 | ) | (.05 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.02 | ) | –0 | – | (.00 | )(c) | (.20 | ) | (.45 | ) | ||||||||||
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| |||||||||||
Total dividends and distributions | (.22 | ) | (.22 | ) | (.07 | ) | (.28 | ) | (.50 | ) | ||||||||||
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| |||||||||||
Net asset value, end of period | $11.82 | $12.98 | $11.56 | $11.26 | $11.68 | |||||||||||||||
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| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d) | (7.35 | )% | 14.32 | % | 3.37 | %† | (1.30 | )% | 4.21 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $533,467 | $604,703 | $558,725 | $511,164 | $481,600 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements (e)‡ | 1.03 | % | 1.03 | % | 1.05 | % | 1.08 | % | 1.10 | % | ||||||||||
Expenses, before waivers/reimbursements (e)‡ | 1.04 | % | 1.04 | % | 1.07 | % | 1.08 | % | 1.10 | % | ||||||||||
Net investment income | 1.35 | %(b) | 1.15 | %(b) | .89 | %(b)† | .43 | % | .44 | %(b) | ||||||||||
Portfolio turnover rate | 24 | % | 20 | % | 64 | % | 93 | % | 53 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .03 | % | .04 | % | .04 | % | .03 | % | .02 | % |
(a) | Based on average shares outstanding. |
(b) | Net of fees and expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the years ended December 31, 2018, December 31, 2017 and December 31, 2016, such waiver amounted to .01%, .01% and .02%, respectively. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment Income Per Share | Net Investment Income Ratio | Total Return | ||
$.00005 | .0004% | .0004% |
See notes to financial statements.
47
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Dynamic Asset Allocation Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Dynamic Asset Allocation Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
48
2018 FEDERAL TAX INFORMATION (unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 28.39% of dividends paid qualify for the dividends received deduction.
49
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Dynamic Asset Allocation Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
Director | Voted For | Withheld Authority | ||||||
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies. | ||||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
Voted For | Voted Against | Abstained | ||||||||||
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P. | 31,834,234 | 842,064 | 1,473,845 |
* | Mr. Foulk retired on December 31, 2018. |
50
DYNAMIC ASSET ALLOCATION | ||
PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Brian T. Brugman(2),Vice President Daniel J. Loewy(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurerand Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT | LEGAL COUNSEL | |
State Street Bank and Trust Company | Seward & Kissel LLP | |
State Street Corporation CCB/5 1 Iron Street | One Battery Park Plaza New York, NY 10004 | |
Boston, MA 02210 | ||
DISTRIBUTOR | TRANSFER AGENT | |
AllianceBernstein Investments, Inc. | AllianceBernstein Investor Services, Inc. | |
1345 Avenue of the Americas | P.O. Box 786003 | |
New York, NY 10105 | San Antonio, TX 78278-6003 | |
Toll-Free 1-(800) 221-5672 | ||
INDEPENDENT REGISTERED PUBLIC | ||
ACCOUNTING FIRM | ||
Ernst & Young LLP | ||
5 Times Square | ||
New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the Adviser’s Dynamic Asset Allocation Team. Messrs. Brugman and Loewy are the investment professionals primarily responsible for the day-to-day management of the Portfolio’s portfolio. |
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER PUBLIC DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
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AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER PUBLIC DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER PUBLIC DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
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AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE (5) YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Brian T. Brugman 38 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2014. | ||
Daniel J. Loewy 44 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2014. He is also Chief Investment Officer and Head of Multi-Asset Solutions and Chief Investment Officer for Dynamic Asset Allocation. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel, and Assistant Secretary of ABI,** with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”),** with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS,** with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABIS and ABI are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Dynamic Asset Allocation Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
Information Regarding the Review and Approval of the Fund’s Proposed New Advisory Agreement and Interim Advisory Agreement in the Context of Potential Assignments
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the
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AB Variable Products Series Fund |
Proposed Agreement, including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund- specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
Information Regarding the Review and Approval of the Fund’s Current Advisory Agreement
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Dynamic Asset Allocation Portfolio (the “Fund”) at a meeting held onJuly 31-August 2, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
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DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the underlying fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3- and5-year periods ended May 31, 2018 and (in the case of comparisons with the broad-based securities
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AB Variable Products Series Fund |
market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and 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 anysub-advised funds pursuing a similar investment strategy as 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 also discussed these matters with their independent fee consultant.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-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 andsub-advised fund clients as compared to the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, 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.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had previously discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the
61
DYNAMIC ASSET ALLOCATION PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
62
VPS-DAA-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
GLOBAL RISK ALLOCATION— | ||
MODERATE PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Global Risk Allocation-Moderate Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to seek long-term growth of capital while seeking to limit volatility. In making decisions on the allocation of assets among “growth assets” and “safety assets”, the Adviser will use a risk-weighted allocation methodology based on the expected “tail risk” of each asset class. For purposes of the Portfolio, growth assets include global equities and, at times, high-yield fixed-income securities (commonly known as “junk bonds”), and safety assets include government securities of developed countries. This strategy attempts to provide investors with favorable long-term total return while minimizing exposure to material or “tail” losses. To execute this strategy, the percentage loss that will constitute a tail loss is calculated for each asset class based on historical market behavior and on a forward-looking basis through options prices. Portfolio assets are then allocated among asset classes so that growth assets contribute the majority of the expected risk of tail loss (“tail risk”) of the Portfolio, and safety assets contribute a lesser amount of tail risk. The Adviser will make frequent adjustments to the Portfolio’s asset class exposures based on these tail risk determinations. To help limit tail risk, the Portfolio will utilize a risk management strategy involving the purchase of put options and sale of call options on equity indices, equity index futures or exchange-traded funds (“ETFs”). The Adviser will on a best efforts basis seek to limit the volatility of the Portfolio to no more than 10% on an annualized basis. Actual results may vary.
The Adviser will also assess tail risk on a security, sector and country basis, and make adjustments to the Portfolio’s allocations within each asset class when practicable. The Portfolio may invest in fixed-income securities with a range of maturities from short- to long-term. The Adviser expects that the Portfolio’s investments in high-yield fixed-income securities will not exceed 10% of the Portfolio’s net assets. The Portfolio’s investments in each asset class will generally be global in nature.
The Adviser expects to utilize a variety of derivatives in its management of the Portfolio, including futures contracts, options, swaps and forwards. Derivatives often provide more efficient and economical exposure to market segments than direct investments, and the Portfolio may utilize derivatives and ETFs to gain exposure to equity and fixed-income asset classes. Because derivatives transactions frequently require cash outlays that are only a small portion of the amount of exposure obtained through the derivative, a portion of the Portfolio’s assets may be held in cash or invested in cash equivalents to cover the Portfolio’s derivatives obligations, such as short-term US government and agency securities, repurchase agreements and money market funds. At times, a combination of direct securities investments and derivatives will be used to gain asset class exposure so that the Portfolio’s aggregate exposure will substantially exceed its net assets (i.e., so that the Portfolio is effectively leveraged).
Currency exchange rate fluctuations can have a dramatic impact on returns. The Adviser may seek to hedge all or a portion of the currency exposure resulting from Portfolio investments through currency-related derivatives, or decide not to hedge this exposure.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Morgan Stanley Capital International (“MSCI”) World Index (net, USD hedged) and a 60% / 40% blend of the MSCI World Index (net, USD hedged) and the Bloomberg Barclays Global G7 Treasury Index (USD hedged), for theone-year period ended December 31, 2018, and the period since the Portfolio’s inception on April 28, 2015.
All share classes of the Portfolio outperformed the primary benchmark, but underperformed the blended benchmark for the annual period. The Portfolio allocated most of its risk to global equity, with the balance allocated to government bonds. The Portfolio’s systematic equity downside protection strategy contributed to performance. The Portfolio was overweight equity, relative to bond exposures, which detracted, relative to the blended benchmark. Within equity investments, overweights to Europe, Japan and emerging markets relative to US large-caps, detracted relative to the primary benchmark. Within fixed-income investments, the Portfolio’s duration underweight and overweight to inflation-linked bonds detracted.
During the annual period, the Portfolio utilized derivatives for hedging and investment purposes, including written options and written swaptions, which added to absolute returns, while futures, currency forwards, purchased swaptions and purchased options detracted.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended the annual period in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked
1
AB Variable Products Series Fund |
toward the end of the period. Investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The US Federal Reserve (the “Fed”) raised rates four times during the period, as expected, but softened its tone in December and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
Fixed-income markets had mixed performance. Developed-market treasuries rallied, while investment-grade securities posted neutral returns and global high yield sold off. Emerging-market debt sectors came under pressure from a stronger US dollar, slowing Chinese growth, escalating global trade tensions and a hawkish Fed. Developed-market yield curves moved in different directions (bond yields move inversely to price). The Bank of Japan tweaked its monetary policy, holding rates and yields steady but widening the band around10-year yields, potentially allowing them to move higher. Meanwhile, as announced earlier in the year, the European Central Bank ended its bond-buying program in December.
The Portfolio’s Senior Investment Management Team (the “Team”) seeks to allocate, on average, approximately 85% of its risk to equity, and the balance to government bonds over time. Within global equity, the Portfolio maintained overweight positions in European, Japanese and emerging markets and an underweight position to USlarge-cap equities, relative to amarket-cap weighted equity index. The Team saw more pronounced headwinds for US equity markets, relative tonon-US developed markets, which was driven by valuations, an appreciating dollar and expectations of further rate hikes by the Fed. Within fixed-income, the Portfolio maintained overweight positions in inflation-protected bonds and US duration, and underweights in Japanese and European government bonds. The Portfolio hedged most of the foreign currency exposures and maintained explicit downside protection via option positions.
2
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI World Index and Bloomberg Barclays Global G7 Treasury Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI World Index (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets, hedged to the US dollar. The Bloomberg Barclays Global G7 Treasury Index tracks fixed-rate local currency government debt of investment-grade G7 countries. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns reflect the reinvestment of dividends after deduction ofnon-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk:The value of the Portfolio’s investments will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Allocation Risk:The allocation of investments among asset classes may have a significant effect on the Portfolio’s net asset value (“NAV”) when the asset classes in which the Portfolio has invested more heavily perform worse than the asset classes invested in less heavily.
Interest-Rate Risk:Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest-rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk:An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security 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.
High-Yield Securities Risk:Investments in fixed-income securities with ratings below investment-grade (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest-rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk:Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Investment in Other Investment Companies Risk: As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, Contractholders of the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments. Transactions intended to hedge fluctuations in the values of the Portfolio’s positions will typically limit the opportunity for gain.
Leverage Risk:Because the Portfolio uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
(Disclosures, Risks and Note about Historical Performance continued on next page)
3
DISCLOSURES AND RISKS | ||
(continued) | AB Variable Products Series Fund |
Liquidity Risk:Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest-rate environment, when the value and liquidity of fixed-income securities generally decline.
Non-Diversification Risk:The Portfolio may have more risk because it is“non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s NAV.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | Since Inception1 | ||||||
Global Risk Allocation—Moderate Portfolio Class A | -4.62% | 1.26% | ||||||
Global Risk Allocation—Moderate Portfolio Class B | -4.84% | 1.01% | ||||||
Primary Benchmark: MSCI World Index (net, USD hedged) | -6.59% | 3.97% | ||||||
Blended Benchmark: 60% MSCI World Index (net, USD hedged) / 40% Bloomberg Barclays Global G7 Treasury Index (USD hedged) | -2.81% | 3.45% | ||||||
1 Inception date: 4/28/2015. | ||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 1.06% and 1.28% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios exclusive of interest expense, taxes, extraordinary expenses, expenses associated with securities sold short, and brokerage commissions and other transaction costs to 0.75% and 1.00% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2019 and may be extended by the Adviser for additionalone-year terms. Any fees waived and expenses borne by the Adviser through April 27, 2018 may be reimbursed by the Portfolio until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne, provided that no reimbursement payment will be made that would cause the Portfolio’s total annual operating expenses to exceed the expense limitation. Absent reimbursements or waivers, performance would have been lower. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
4/28/20151 to 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Global Risk Allocation—Moderate Portfolio Class A shares (from 4/28/20151 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
1 | Inception date: 4/28/2015. |
See Disclosures, Risks and Note about Historical Performance on pages3-4.
5
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
EXPENSE EXAMPLE(unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each classes’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 947.60 | $ | 3.29 | 0.67 | % | $ | 3.68 | 0.75 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,021.83 | $ | 3.41 | 0.67 | % | $ | 3.82 | 0.75 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 946.30 | $ | 4.56 | 0.93 | % | $ | 4.91 | 1.00 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.52 | $ | 4.74 | 0.93 | % | $ | 5.09 | 1.00 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees and expenses from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain affiliated/unaffiliated underlying portfolios acquired fund fees and expenses. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro-rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
SECURITY TYPE BREAKDOWN1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
SECURITY TYPE | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Investment Companies | $ | 40,512,858 | 49.1 | % | ||||
Inflation-Linked Securities | 18,434,369 | 22.4 | ||||||
Options Purchased—Puts | 486,395 | 0.6 | ||||||
Short-Term Investments | 22,997,549 | 27.9 | ||||||
|
|
|
| |||||
Total Investments | $ | 82,431,171 | 100.0 | % |
COUNTRY BREAKDOWN2
December 31, 2018 (unaudited)
COUNTRY | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
United States | $ | 44,546,701 | 54.0 | % | ||||
Japan | 14,835,620 | 18.0 | ||||||
Germany | 38,432 | 0.1 | ||||||
United Kingdom | 12,869 | 0.0 | ||||||
Short-Term | 22,997,549 | 27.9 | ||||||
|
|
|
| |||||
Total Investments | $ | 82,431,171 | 100.0 | % |
1 | The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivatives transactions, which may be used for hedging or investment purpose (see “Portfolio of Investments” section of the report for additional details). |
2 | All data are as of December 31, 2018. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. |
7
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||||||
INVESTMENT COMPANIES–45.5% | ||||||||||||
FUNDS AND INVESTMENT TRUSTS–45.5%(a) | ||||||||||||
iShares Core MSCI EAFE ETF | 76,670 | $ | 4,216,850 | |||||||||
iShares Core MSCI Emerging Markets ETF | 19,230 | 906,694 | ||||||||||
iShares Core S&P 500 ETF | 43,375 | 10,913,584 | ||||||||||
iShares MSCI EAFE ETF | 90,720 | 5,332,522 | ||||||||||
iShares MSCI Emerging Markets ETF | 47,770 | 1,865,896 | ||||||||||
iShares Russell 2000 ETF | 11,040 | 1,478,256 | ||||||||||
SPDR S&P 500 ETF Trust | 17,991 | 4,496,311 | ||||||||||
Vanguard S&P 500 ETF | 49,183 | 11,302,745 | ||||||||||
|
| |||||||||||
Total Investment Companies | 40,512,858 | |||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
INFLATION-LINKED SECURITIES–20.7% | ||||||||||||
JAPAN–16.5% | ||||||||||||
Japanese Government CPI Linked Bond Series 22 | JPY | 1,561,492 | 14,716,962 | |||||||||
|
| |||||||||||
UNITED STATES–4.2% | ||||||||||||
U.S. Treasury Inflation Index | $ | 3,854 | 3,717,407 | |||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 18,434,369 | |||||||||||
|
| |||||||||||
Notional Amount | ||||||||||||
OPTIONS PURCHASED–PUTS–0.5% | ||||||||||||
OPTIONS ON FUNDS AND INVESTMENT TRUSTS–0.3% | ||||||||||||
SPDR S&P 500 ETF Trust | USD | 35,000 | 229,075 | |||||||||
SPDR S&P 500 ETF Trust | 39,800 | 87,361 | ||||||||||
|
| |||||||||||
316,436 | ||||||||||||
|
| |||||||||||
OPTIONS ON INDICES–0.2% | ||||||||||||
Euro STOXX 50 Index | EUR | 1,110 | $ | 38,432 | ||||||||
FTSE 100 Index | GBP | 180 | 12,869 | |||||||||
Nikkei 225 Index | JPY | 14,000 | 118,658 | |||||||||
|
| |||||||||||
169,959 | ||||||||||||
|
| |||||||||||
Total Options Purchased–Puts | 486,395 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
SHORT-TERM INVESTMENTS–25.8% |
| |||||||||||
INVESTMENT COMPANIES–20.0% | ||||||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(a)(c)(d) | 17,871,637 | 17,871,637 | ||||||||||
|
| |||||||||||
Principal Amount (000) | ||||||||||||
U.S. TREASURY BILLS–5.8% | ||||||||||||
U.S. Treasury Bill | 5,134 | 5,125,912 | ||||||||||
|
| |||||||||||
Total Short-Term Investments | 22,997,549 | |||||||||||
|
| |||||||||||
TOTAL INVESTMENTS–92.5% | 82,431,171 | |||||||||||
Other assets less liabilities–7.5% | 6,706,443 | |||||||||||
|
| |||||||||||
NET ASSETS–100.0% | $ | 89,137,614 | ||||||||||
|
|
8
AB Variable Products Series Fund |
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at December 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
Euro STOXX 50 Index Futures | 206 | March 2019 | EUR | 2 | $ | 7,166,622 | $ | 7,019,367 | $ | (147,255 | ) | |||||||||||||||||
Euro-BTP Futures | 17 | March 2019 | EUR | 1,700 | 2,397,649 | 2,489,645 | 91,996 | |||||||||||||||||||||
Euro-Bund Futures | 7 | March 2019 | EUR | 700 | 1,304,180 | 1,311,631 | 7,451 | |||||||||||||||||||||
Euro-OAT Futures | 16 | March 2019 | EUR | 1,600 | 2,765,399 | 2,764,465 | (934 | ) | ||||||||||||||||||||
FTSE 100 Index Futures | 31 | March 2019 | GBP | 0 | * | 2,634,014 | 2,631,144 | (2,870 | ) | |||||||||||||||||||
Hang Seng Index Futures | 3 | January 2019 | HKD | 0 | * | 489,469 | 495,256 | 5,787 | ||||||||||||||||||||
Long Gilt Futures | 16 | March 2019 | GBP | 1,600 | 2,493,134 | 2,511,879 | 18,745 | |||||||||||||||||||||
Nikkei 225 (CME) Futures | 26 | March 2019 | USD | 0 | * | 2,771,676 | 2,581,800 | (189,876 | ) | |||||||||||||||||||
S&P TSX 60 Index Futures | 13 | March 2019 | CAD | 3 | 1,684,464 | 1,632,713 | (51,751 | ) | ||||||||||||||||||||
SPI 200 Futures | 7 | March 2019 | AUD | 0 | * | 681,279 | 685,456 | 4,177 | ||||||||||||||||||||
TOPIX Index Futures | 22 | March 2019 | JPY | 220 | 3,182,196 | 2,997,765 | (184,431 | ) | ||||||||||||||||||||
U.S.T-Note 10 Yr (CBT) Futures | 76 | March 2019 | USD | 7,600 | 9,059,471 | 9,273,187 | 213,716 | |||||||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 2 | March 2019 | USD | 200 | 306,112 | 321,312 | 15,200 | |||||||||||||||||||||
Sold Contracts | ||||||||||||||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 130 | March 2019 | JPY | 1,300,000 | 17,992,092 | 18,103,097 | (111,005 | ) | ||||||||||||||||||||
S&P 500 E Mini Futures | 10 | March 2019 | USD | 1 | 1,227,210 | 1,252,600 | (25,390 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | (356,440) | |||||||||||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Barclays Bank PLC | EUR | 3,834 | USD | 4,412 | 3/15/19 | $ | (7,634 | ) | ||||||||||||||||
Barclays Bank PLC | GBP | 1,353 | USD | 1,715 | 3/15/19 | (15,249 | ) | |||||||||||||||||
Deutsche Bank AG | CHF | 866 | USD | 884 | 3/15/19 | (3,432 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc | AUD | 1,080 | USD | 778 | 3/15/19 | 16,796 | ||||||||||||||||||
Morgan Stanley & Co., Inc | JPY | 2,677,918 | USD | 23,914 | 3/15/19 | (649,673 | ) | |||||||||||||||||
State Street Bank & Trust Co. | HKD | 1,141 | USD | 146 | 3/15/19 | 291 | ||||||||||||||||||
State Street Bank & Trust Co. | SGD | 190 | USD | 139 | 3/15/19 | (814 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | (659,715 | ) | ||||||||||||||||||||||
|
|
9
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
PUT OPTIONS WRITTEN (see Note D)
Description | Counterparty | Contracts | Exercise Price | Expiration Month | Notional | Premiums Received | U.S. $ Value | |||||||||||||||||||||||||||||
Euro STOXX 50 Index(e) | UBS AG | 1,110 | EUR | 2,775.00 | January 2019 | EUR | 1 | $ | 15,005 | $ | (11,203 | ) | ||||||||||||||||||||||||
FTSE 100 Index(e) | UBS AG | 180 | GBP | 6,200.00 | January 2019 | GBP | 0 | * | 6,000 | (4,473 | ) | |||||||||||||||||||||||||
Nikkei 225 Index(e) | Goldman Sachs International | 14,000 | JPY | 20,000.00 | January 2019 | JPY | 14 | 14,940 | (48,701 | ) | ||||||||||||||||||||||||||
SPDR S&P 500 ETF Trust(f) | Morgan Stanley & Co., Inc. | 398 | USD | 229.00 | January 2019 | USD | 40 | 75,581 | (32,437 | ) | ||||||||||||||||||||||||||
SPDR S&P 500 ETF Trust(f) | Morgan Stanley & Co., Inc | 875 | USD | 237.00 | January 2019 | USD | 88 | 79,594 | (147,000 | ) | ||||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||||||||||
$ | 191,120 | $ | (243,814 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
* | Notional amount less than 500. |
(a) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800)227-4618. |
(b) | Non-income producing security. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | One contract relates to 1 share. |
(f) | One contract relates to 100 shares. |
Currency Abbreviations:
AUD—Australian Dollar
CAD—Canadian Dollar
CHF—Swiss Franc
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
JPY—Japanese Yen
SGD—Singapore Dollar
USD—United States Dollar
Glossary:
BTP—Buoni del Tesoro Poliennali
CBT—Chicago Board of Trade
CME—Chicago Mercantile Exchange
CPI—Consumer Price Index
EAFE—Europe, Australia, and Far East
ETF—Exchange Traded Fund
FTSE—Financial Times Stock Exchange
MSCI—Morgan Stanley Capital International
OAT—Obligations Assimilables du Trésor
SPDR—Standard & Poor’s Depository Receipt
SPI—Share Price Index
TIPS—Treasury Inflation Protected Security
TOPIX—Tokyo Price Index
TSX—Toronto Stock Exchange
See notes to financial statements.
10
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $63,406,877) | $ | 64,559,534 | ||
Affiliated issuers (cost $17,871,637) | 17,871,637 | |||
Cash collateral due from broker | 1,412,871 | |||
Foreign currencies, at value (cost $6,553,706) | 6,627,005 | |||
Unaffiliated dividends and interest receivable | 51,525 | |||
Affiliated dividends receivable | 31,973 | |||
Receivable for capital stock sold | 25,188 | |||
Unrealized appreciation on forward currency exchange contracts | 17,087 | |||
Receivable for variation margin on futures | 4,740 | |||
|
| |||
Total assets | 90,601,560 | |||
|
| |||
LIABILITIES | ||||
Options written, at value (premiums received $191,120) | 243,814 | |||
Unrealized depreciation on forward currency exchange contracts | 676,802 | |||
Payable for capital stock redeemed | 413,516 | |||
Advisory fee payable | 22,108 | |||
Distribution fee payable | 18,103 | |||
Administrative fee payable | 17,552 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 71,845 | |||
|
| |||
Total liabilities | 1,463,946 | |||
|
| |||
NET ASSETS | $ | 89,137,614 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 9,171 | ||
Additionalpaid-in capital | 87,707,302 | |||
Distributable earnings | 1,421,141 | |||
|
| |||
$ | 89,137,614 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 10,766 | 1,100 | $ | 9.79 | |||||||
B | $ | 89,126,848 | 9,169,498 | $ | 9.72 |
See notes to financial statements.
11
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers | $ | 977,595 | ||
Affiliated issuers | 337,244 | |||
Interest | 198,384 | |||
|
| |||
1,513,223 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 581,428 | |||
Distribution fee—Class B | 242,232 | |||
Transfer agency—Class B | 1,386 | |||
Custodian | 78,846 | |||
Administrative | 70,053 | |||
Audit and tax | 52,236 | |||
Legal | 34,674 | |||
Directors’ fees | 24,782 | |||
Printing | 18,314 | |||
Miscellaneous | 22,120 | |||
|
| |||
Total expenses | 1,126,071 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (232,979 | ) | ||
|
| |||
Net expenses | 893,092 | |||
|
| |||
Net investment income | 620,131 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 160,207 | |||
Forward currency exchange contracts | (417,365 | ) | ||
Futures | (2,047,378 | ) | ||
Options written | 372,145 | |||
Swaptions written | 26,970 | |||
Foreign currency transactions | 2,255,034 | |||
Net change in unrealized appreciation/depreciation of: | ||||
Investments | (4,828,811 | ) | ||
Forward currency exchange contracts | (508,581 | ) | ||
Futures | (218,616 | ) | ||
Options written | (120,694 | ) | ||
Foreign currency denominated assets and liabilities | 80,690 | |||
|
| |||
Net loss on investment and foreign currency transactions | (5,246,399 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (4,626,268 | ) | |
|
|
See notes to financial statements.
12
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income | $ | 620,131 | $ | 273,952 | ||||
Net realized gain (loss) on investment transactions and foreign currency transactions | 349,613 | 6,621,134 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (5,596,012 | ) | 2,846,976 | |||||
Contributions from Affiliates (see Note B) | –0 | – | 146 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (4,626,268 | ) | 9,742,208 | |||||
DISTRIBUTIONS TO SHAREHOLDERS* |
| |||||||
Class A | (638 | ) | (116 | ) | ||||
Class B | (5,168,376 | ) | (764,972 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net increase | 418,910 | 10,228,289 | ||||||
|
|
|
| |||||
Total increase (decrease) | (9,376,372 | ) | 19,205,409 | |||||
NET ASSETS |
| |||||||
Beginning of period | 98,513,986 | 79,308,577 | ||||||
|
|
|
| |||||
End of period | $ | 89,137,614 | $ | 98,513,986 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note J, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
13
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Global Risk Allocation—Moderate Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to generate income and price appreciation without assuming what AllianceBernstein L.P. (the “Adviser”) considers undue risk. The Portfolio isnon-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Portfolio’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets
14
AB Variable Products Series Fund |
because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, andover-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition,non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively, the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
Other fixed income investments, includingnon-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
15
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Investment Companies | $ | 40,512,858 | $ | –0 | – | $ | –0 | – | $ | 40,512,858 | ||||||
Inflation-Linked Securities | –0 | – | 18,434,369 | –0 | – | 18,434,369 | ||||||||||
Options Purchased—Puts | –0 | – | 486,395 | –0 | – | 486,395 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Investment Companies | 17,871,637 | –0 | – | –0 | – | 17,871,637 | ||||||||||
U.S. Treasury Bills | –0 | – | 5,125,912 | –0 | – | 5,125,912 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 58,384,495 | 24,046,676 | –0 | – | 82,431,171 | |||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: | ||||||||||||||||
Futures | 347,108 | 9,964 | –0 | – | 357,072 | (b) | ||||||||||
Forward Currency Exchange Contracts | –0 | – | 17,087 | –0 | – | 17,087 | ||||||||||
Liabilities: | ||||||||||||||||
Futures | (378,956 | ) | (334,556 | ) | –0 | – | (713,512 | )(b) | ||||||||
Forward Currency Exchange Contracts | –0 | – | (676,802 | ) | –0 | – | (676,802 | ) | ||||||||
Put Options Written | –0 | – | (243,814 | ) | –0 | – | (243,814 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 58,352,647 | $ | 22,818,555 | $ | –0 | – | $ | 81,171,202 | |||||||
|
|
|
|
|
|
|
|
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
16
AB Variable Products Series Fund |
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Portfolio are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .60% of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses, to the extent necessary to limit total operating expenses, inclusive of the Portfolio’s proportionate share of fees and expenses of registered investment companies or series thereof in which the Portfolio invests (“Acquired Fund Expenses”) on an annual basis (the “Expense Caps”) to .75% and 1.00% of daily average net assets for
17
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Class A and Class B, respectively. The Expense Caps may not be terminated by the Adviser before May 1, 2019. For the year ended December 31, 2018, the reimbursements/waivers, exclusive of Acquired Fund Expenses, amounted to $156,055. Any fees waived and expenses borne by the Adviser through April 27, 2016 are subject to repayment by the Portfolio until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne; such waivers that are subject to repayment amounted to $157,734 for the fiscal period ended December 31, 2015 and $70,109 for the year ended December 31, 2016. In any case, no reimbursement payment will be made that would cause the Portfolio’s total annual fund operating expenses to exceed the Expense Caps’ net fee percentage set forth above. For the year ended December 31, 2018, such waiver for Acquired Fund Expenses for both affiliated and unaffiliated underlying portfolios amounted to $32,277 and $44,154, respectively.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 2,045 | $ | 54,287 | $ | 38,460 | $ | 17,872 | $ | 335 | ||||||||||
Government Money Market Portfolio* | 0 | 50,540 | 50,540 | 0 | 2 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 17,872 | $ | 337 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
18
AB Variable Products Series Fund |
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $70,053.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $146 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $121,168, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 52,446,838 | $ | 40,736,963 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 81,684,108 | ||
|
| |||
Gross unrealized appreciation | $ | 3,196,757 | ||
Gross unrealized depreciation | (2,840,134 | ) | ||
|
| |||
Net unrealized appreciation | $ | 356,623 | ||
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
19
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon fornon-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2018, the Portfolio held futures for hedging andnon-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging andnon-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges andover-the-counter markets. Among other things, the Portfolio may use options transactions fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to
20
AB Variable Products Series Fund |
expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. The Portfolio’s maximum payment for written put options equates to the number of shares multiplied by the strike price, as included on the Portfolio of Investments. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
During the year ended December 31, 2018, the Portfolio held purchased options for hedging andnon-hedging purposes. During the year ended December 31, 2018, the Portfolio held written options for hedging andnon-hedging purposes.
During the year ended December 31, 2018, the Portfolio held written swaptions for hedging andnon-hedging purposes.
During the year ended December 31, 2018, the Portfolio held purchased swaptions for hedging andnon-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
21
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
During the year ended December 31, 2018, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Assets and Liabilities Location | Fair Value | Statement of Assets and Liabilities Location | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on futures | $ | 347,108 | * | Receivable/Payable for variation margin on futures | $ | 111,939 | * | ||||
Equity contracts | Receivable/Payable for variation margin on futures | 9,964 | * | Receivable/Payable for variation margin on futures | 601,573 | * | ||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | 17,087 | Unrealized depreciation on forward currency exchange contracts | 676,802 | ||||||||
Equity contracts | Investments in securities, at value | 486,395 | ||||||||||
Equity contracts | Options written, at value | 243,814 | ||||||||||
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|
|
| |||||||||
Total | $ | 860,554 | $ | 1,634,128 | ||||||||
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|
* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) on | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | (404,893 | ) | $ | 376,637 | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (1,642,485 | ) | (595,253 | ) | |||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | (417,365 | ) | (508,581 | ) | |||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (44,370 | ) | | –0 | – | ||||
Equity contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (611,292 | ) | 146,469 | ||||||
Equity contracts | Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written | 372,145 | (120,694 | ) | ||||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 26,970 | | –0 | – | |||||
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| |||||||
Total | $ | (2,721,290 | ) | $ | (701,422 | ) | ||||
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|
|
22
AB Variable Products Series Fund |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 36,810,043 | ||
Average original value of sale contracts | $ | 11,379,896 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 2,195,528 | (a) | |
Average principal amount of sale contracts | $ | 36,664,696 | ||
Purchased Options: | ||||
Average notional amount | $ | 106,003 | ||
Purchased Swaptions: | ||||
Average notional amount | $ | 11,600,000 | (b) | |
Options Written: | ||||
Average notional amount | $ | 175,697 | ||
Swaptions Written: | ||||
Average notional amount | $ | 23,200,000 | (b) |
(a) | Positions were open for five months during the year. |
(b) | Positions were open for one month during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Goldman Sachs International | $ | 118,658 | $ | (48,701 | ) | $ | –0 | – | $ | –0 | – | $ | 69,957 | |||||||
Morgan Stanley & Co., Inc | 16,796 | (16,796 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
State Street Bank & Trust Co. | 291 | (291 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
UBS AG | 51,301 | (15,676 | ) | –0 | – | –0 | – | 35,625 | ||||||||||||
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|
|
|
|
|
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|
| |||||||||||
Total | $ | 187,046 | $ | (81,464 | ) | $ | –0 | – | $ | –0 | – | $ | 105,582 | |||||||
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| |||||||||||
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 22,883 | $ | –0 | – | $ | –0 | – | $ | –0 | – | $ | 22,883 | |||||||
Deutsche Bank AG | 3,432 | –0 | – | –0 | – | –0 | – | 3,432 | ||||||||||||
Goldman Sachs International | 48,701 | (48,701 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Morgan Stanley & Co., Inc | 649,673 | (16,796 | ) | –0 | – | –0 | – | 632,877 | ||||||||||||
State Street Bank & Trust Co. | 814 | (291 | ) | –0 | – | –0 | – | 523 | ||||||||||||
UBS AG | 15,676 | (15,676 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
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| |||||||||||
Total | $ | 741,179 | $ | (81,464 | ) | $ | –0 | – | $ | –0 | – | $ | 659,715 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related
23
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $1,952 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $493. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 1,135,018 | 2,600,502 | $ | 12,083,758 | $ | 26,589,694 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 493,581 | 74,915 | 5,167,796 | 764,886 | ||||||||||||||||
Shares redeemed | (1,593,282 | ) | (1,673,405 | ) | (16,832,644 | ) | (17,126,291 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net increase | 35,317 | 1,002,012 | $ | 418,910 | $ | 10,228,289 | ||||||||||||||
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|
|
|
|
|
|
There were no transactions in capital shares for Class A for the year ended December 31, 2018 and the year ended December 31, 2017.
At December 31, 2018, certain shareholders of the Portfolio owned 98% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
24
AB Variable Products Series Fund |
NOTE G: Risks Involved in Investing in the Portfolio
Allocation Risk—The allocation of investments among asset classes may have a significant effect on the Portfolio’s net asset value, or NAV, when the asset classes in which the Portfolio has invested more heavily perform worse than the asset classes invested in less heavily.
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
High Yield Securities Risk—Investments in fixed-income securities with ratings below investment grade (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Investment in Other Investment Companies Risk—As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, shareholders of the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Non-Diversification Risk—The Portfolio may have more risk because it is“non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers. Accordingly, changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not
25
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 3,216,260 | $ | 765,088 | ||||
Net long-term capital gains | 1,952,754 | –0 | – | |||||
|
|
|
| |||||
Total taxable distributions paid | $ | 5,169,014 | $ | 765,088 | ||||
|
|
|
|
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 1,823,796 | ||
Accumulated capital and other losses | (842,733 | )(a) | ||
Unrealized appreciation/(depreciation) | 440,078 | (b) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 1,421,141 | ||
|
|
(a) | As of December 31, 2018, the Portfolio had a net capital loss carryforward of $717,270. As of December 31, 2018, the cumulative deferred loss on straddles was $125,463. |
(b) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of Treasury inflation-protected securities, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio had a net short-term capital loss carryforward of $717,270, which may be carried forward for an indefinite period.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
26
AB Variable Products Series Fund |
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
27
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||
Year Ended December 31, | April 28, 2015(a) to December 31, 2015 | |||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||
Net asset value, beginning of period | $10.83 | $9.78 | $9.40 | $10.00 | ||||||||||||
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|
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| |||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income (b)(c) | .09 | .06 | .04 | .05 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions | (.55 | ) | 1.09 | .37 | (.65 | ) | ||||||||||
Contributions from Affiliates | –0 | – | .00 | (d) | –0 | – | –0 | – | ||||||||
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|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net asset value from operations | (.46 | ) | 1.15 | .41 | (.60 | ) | ||||||||||
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|
|
|
|
| |||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | –0 | – | (.05 | ) | (.03 | ) | –0 | – | ||||||||
Distributions from net realized gain on investment transactions | (.58 | ) | (.05 | ) | –0 | – | –0 | – | ||||||||
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|
|
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| |||||||||
Total dividends and distributions | (.58 | ) | (.10 | ) | (.03 | ) | –0 | – | ||||||||
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|
|
|
|
|
|
| |||||||||
Net asset value, end of period | $9.79 | $10.83 | $9.78 | $9.40 | ||||||||||||
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| |||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value (e) | (4.62 | )% | 11.87 | % | 4.39 | % | (6.00 | )% | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $11 | $12 | $11 | $10 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements (f)‡ | .67 | % | .63 | % | .63 | % | .69 | %^ | ||||||||
Expenses, before waivers/reimbursements (f)‡ | .92 | % | .94 | % | 1.08 | % | 3.21 | %^ | ||||||||
Net investment income (c) | .88 | % | .55 | % | .46 | % | .82 | %^ | ||||||||
Portfolio turnover rate | 67 | % | 59 | % | 79 | % | 111 | % | ||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||
portfolios | .08 | % | .11 | % | .12 | % | .06 | % |
See footnote summary on page 30.
28
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||
Year Ended December 31, | April 28, 2015(a) to December 31, 2015 | |||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||
Net asset value, beginning of period | $10.78 | $9.75 | $9.39 | $10.00 | ||||||||||||
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| |||||||||
Income From Investment Operations | ||||||||||||||||
Net investment income (b)(c) | .07 | .03 | .02 | .01 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions | (.55 | ) | 1.09 | .37 | (.62 | ) | ||||||||||
Contributions from Affiliates | –0 | – | .00 | (d) | –0 | – | –0 | – | ||||||||
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|
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|
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| |||||||||
Net increase (decrease) in net asset value from operations | (.48 | ) | 1.12 | .39 | (.61 | ) | ||||||||||
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|
|
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| |||||||||
Less: Dividends and Distributions | ||||||||||||||||
Dividends from net investment income | –0 | – | (.04 | ) | (.03 | ) | –0 | – | ||||||||
Distributions from net realized gain on investment transactions | (.58 | ) | (.05 | ) | –0 | – | –0 | – | ||||||||
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|
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|
|
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| |||||||||
Total dividends and distributions | (.58 | ) | (.09 | ) | (.03 | ) | –0 | – | ||||||||
|
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|
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| |||||||||
Net asset value, end of period | $9.72 | $10.78 | $9.75 | $9.39 | ||||||||||||
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| |||||||||
Total Return | ||||||||||||||||
Total investment return based on net asset value (e) | (4.84 | )% | 11.50 | % | 4.24 | % | (6.20 | )% | ||||||||
Ratios/Supplemental Data | ||||||||||||||||
Net assets, end of period (000’s omitted) | $89,127 | $98,502 | $79,298 | $51,115 | ||||||||||||
Ratio to average net assets of: | ||||||||||||||||
Expenses, net of waivers/reimbursements (f)‡ | .92 | % | .89 | % | .88 | % | .94 | %^ | ||||||||
Expenses, before waivers/reimbursements (f)‡ | 1.16 | % | 1.17 | % | 1.33 | % | 1.62 | %^ | ||||||||
Net investment income (c) | .64 | % | .31 | % | .24 | % | .19 | %^ | ||||||||
Portfolio turnover rate | 67 | % | 59 | % | 79 | % | 111 | % | ||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||
portfolios | .08 | % | .11 | % | .12 | % | .06 | % |
See footnote summary on page 30.
29
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Net of fees and expenses waived/reimbursed by the Adviser. |
(d) | Amount is less than $.005. |
(e) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(f) | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of affiliated/unaffiliated acquired fund fees and expenses, and for the years ended December 31, 2018, December 31, 2017, December 31, 2016 and December 31, 2015, such waiver amounted to .08%, ..11%, .12% and .06% (annualized), respectively. |
^ | Annualized. |
See notes to financial statements.
30
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Global Risk Allocation—Moderate Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Global Risk Allocation—Moderate Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the three years in the period then ended and the period April 28, 2015 (commencement of operations) to December 31, 2015 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the three years in the period then ended and the period April 28, 2015 (commencement of operations) to December 31, 2015, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
31
2018 FEDERAL TAX INFORMATION (unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 12.31% of dividends paid qualify for the dividends received deduction.
32
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Global Risk Allocation-Moderate Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
8,615,669 | 77,239 | 496,443 |
* | Mr. Foulk retired on December 31, 2018. |
33
GLOBAL RISK ALLOCATION— | ||
MODERATE PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman | Carol C. McMullen(1) | |
Michael J. Downey(1) | Garry L. Moody(1) | |
Nancy P. Jacklin(1) | Earl D. Weiner(1) | |
Robert M. Keith,President and Chief Executive Officer | ||
OFFICERS | ||
Daniel J. Loewy(2),Vice President Leon Zhu(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | |
PRINCIPAL UNDERWRITER AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Fund are made by its senior management team. Messrs. Loewy and Zhu are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
34
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, # 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr., ## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey, ## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
35
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, ## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen, ## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
36
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, ## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody, and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner, ## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105 |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to this position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
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GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Daniel J. Loewy 44 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer and Head of Multi-Asset Solutions and Chief Investment Officer for Dynamic Asset Allocation. | ||
Leon Zhu 51 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Fund’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or AB at (800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Global Risk Allocation—Moderate Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed
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GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Agreement, including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund- specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
40
AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Risk Allocation—Moderate Portfolio (the “Fund”) at a meeting held onJuly 31-August 2, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
42
AB Variable Products Series Fund |
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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of 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 2016. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund in 2017 was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the underlying fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s recent profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1- and3-year periods ended May 31, 2018 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.
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GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and 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 anysub-advised funds pursuing a similar investment strategy as 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 also discussed these matters with their independent fee consultant.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-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 andsub-advised fund clients as compared to the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, 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.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had previously discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect
44
AB Variable Products Series Fund |
of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.
45
VPS-GRA-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | GLOBAL THEMATIC GROWTH PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
GLOBAL THEMATIC GROWTH | ||
PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Global Thematic Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio pursues opportunistic growth by investing in a global universe of companies in multiple industries that may benefit from innovation. The Adviser employs a combination of“top-down” and“bottom-up” investment processes with the goal of identifying the most attractive securities worldwide, fitting into broader themes, which are developments that have broad effects across industries and companies. Drawing on its global fundamental research capabilities, the Adviser seeks to identify long-term secular growth trends that will affect multiple industries. The Adviser will assess the effects of these trends on entire industries and on individual companies. Through this process, the Adviser intends to identify key investment themes, which will be the focus of the Portfolio’s investments and which are expected to change over time based on the Adviser’s research.
In addition to this“top-down” thematic approach, the Adviser will also use a“bottom-up” analysis of individual companies that focuses on prospective earnings growth, valuation and quality of company management. The Adviser normally considers a large universe ofmid- to large-capitalization companies worldwide for investment.
The Portfolio invests in securities issued by US andnon-US companies from multiple industry sectors in an attempt to maximize opportunity, which should also tend to reduce risk. The Portfolio invests in both developed and emerging-market countries. Under normal market conditions, the Portfolio invests significantly (at least 40%—unless market conditions are not deemed favorable by the Adviser) in securities ofnon-US companies. In addition, the Portfolio invests, under normal circumstances, in the equity securities of companies located in at least three countries. The percentage of the Portfolio’s assets invested in securities of companies in a particular country or denominated in a particular currency varies in accordance with the Adviser’s assessment of the appreciation potential of such securities.
The Portfolio may invest in any company and industry and in any type of equity security, listed and unlisted, with potential for capital appreciation. It invests in well-known, established companies as well as new, smaller or less-seasoned companies. Investments in new, smaller or less-seasoned companies may offer more reward but may also entail more risk than is generally true of larger, established companies. The Portfolio may also invest in synthetic foreign equity securities, which are various types of warrants used internationally that entitle a holder to buy or sell underlying securities, real estate investment trusts andzero-coupon bonds.
The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its benchmark, the Morgan Stanley Capital International All Country World Index (“MSCI ACWI”) (net), for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio underperformed the benchmark for the annual period. Stock selection in the technology sector was the main detractor; utilities and consumer discretionary stocks also detracted, relative to the benchmark. Stock selection in financials, industrials
1
AB Variable Products Series Fund |
and consumer staples contributed. In terms of sector allocations, an overweight to industrials detracted, while an overweight to health care contributed. Security selection detracted in France and Austria, and contributed in the US and Ireland.
Derivatives in the form of currency forwards were utilized for hedging purposes, which had no material impact on absolute returns for the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the period. Investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during 2018 as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
The Portfolio’s exposures remain focused on secular growth themes, particularly those promoting social and environmental sustainability. This has helped the Portfolio’s Senior Investment Management Team (the “Team”) to identify companies with strong competitive advantages and high returns on invested capital that the Team believes are more likely to sustain higher-than-average growth over the long term. The Team believes organic sales and earnings growth, not multiple expansion, will be a key driver of returns going forward. The Portfolio is positioned particularly well in this regard.
2
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI ACWI is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio. The MSCI ACWI (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed and emerging markets. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns reflect the reinvestment of dividends after deduction ofnon-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s growth approach, may underperform the market generally.
Foreign(Non-US) Risk: Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk: Investments inmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments inmid-capitalization companies may have additional risks because these companies may have limited product lines, markets or financial resources.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Focused Portfolio Risk: Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value (“NAV”).
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its NAV may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
(Disclosures, Risks and Note about Historical Performance continued on next page)
3
DISCLOSURES AND RISKS | ||
(continued) | AB Variable Products Series Fund |
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARK | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Global Thematic Growth Portfolio Class A | -9.79% | 5.78% | 10.01% | |||||||||
Global Thematic Growth Portfolio Class B | -9.98% | 5.52% | 9.74% | |||||||||
MSCI ACWI (net) | -9.42% | 4.26% | 9.46% | |||||||||
1 Average annual returns. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.02% and 1.27% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. The Fund’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios, net of contractual fee waivers and/or expense reimbursements as 0.97% and 1.22% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2020 and may be extended by the Adviser for additionalone-year terms. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 to 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Global Thematic Growth Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages3-4.
5
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The first line of each class’ table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The second line of each class’ table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each classes’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 900.30 | $ | 4.74 | 0.99 | % | $ | 4.79 | 1.00 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.21 | $ | 5.04 | 0.99 | % | $ | 5.09 | 1.00 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 899.20 | $ | 5.98 | 1.25 | % | $ | 5.98 | 1.25 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,018.90 | $ | 6.36 | 1.25 | % | $ | 6.36 | 1.25 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
6
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
MSCI, Inc.—Class A | $ | 3,093,081 | 2.6 | % | ||||
Visa, Inc.—Class A | 3,013,510 | 2.6 | ||||||
Hexcel Corp. | 2,936,324 | 2.5 | ||||||
Xylem, Inc./NY | 2,928,341 | 2.5 | ||||||
American Water Works Co., Inc. | 2,766,579 | 2.4 | ||||||
Unicharm Corp. | 2,755,534 | 2.4 | ||||||
Kingspan Group PLC | 2,674,928 | 2.3 | ||||||
Vestas Wind Systems A/S | 2,648,694 | 2.3 | ||||||
Ecolab, Inc. | 2,616,936 | 2.2 | ||||||
Danaher Corp. | 2,615,123 | 2.2 | ||||||
|
|
|
| |||||
$ | 28,049,050 | 24.0 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Health Care | $ | 22,252,685 | 19.1 | % | ||||
Financials | 22,013,457 | 18.8 | ||||||
Industrials | 16,719,144 | 14.3 | ||||||
Information Technology | 16,409,600 | 14.1 | ||||||
Consumer Discretionary | 11,296,029 | 9.7 | ||||||
Consumer Staples | 9,025,024 | 7.7 | ||||||
Utilities | 5,732,071 | 4.9 | ||||||
Materials | 5,119,663 | 4.4 | ||||||
Communication Services | 3,616,258 | 3.1 | ||||||
Real Estate | 1,879,543 | 1.6 | ||||||
Short-Term Investments | 2,718,339 | 2.3 | ||||||
|
|
|
| |||||
Total Investments | $ | 116,781,813 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
7
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
COUNTRY BREAKDOWN1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COUNTRY | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
United States | $ | 56,198,241 | 48.1 | % | ||||
India | 7,321,117 | 6.3 | ||||||
Germany | 6,608,444 | 5.7 | ||||||
France | 6,552,393 | 5.6 | ||||||
China | 6,392,445 | 5.5 | ||||||
Ireland | 5,200,995 | 4.4 | ||||||
Japan | 3,918,059 | 3.4 | ||||||
Switzerland | 3,665,588 | 3.1 | ||||||
Netherlands | 3,623,930 | 3.1 | ||||||
United Kingdom | 3,608,874 | 3.1 | ||||||
Denmark | 2,648,694 | 2.3 | ||||||
Hong Kong | 2,365,779 | 2.0 | ||||||
Peru | 2,298,718 | 2.0 | ||||||
Other | 3,660,197 | 3.1 | ||||||
Short-Term Investments | 2,718,339 | 2.3 | ||||||
|
|
|
| |||||
Total Investments | $ | 116,781,813 | 100.0 | % |
1 | All data are as of December 31, 2018. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. “Other” country weightings represent 1.8% or less in the following countries: Indonesia and Sweden. |
8
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–97.7% | ||||||||
HEALTH CARE–19.1% | ||||||||
HEALTH CARE EQUIPMENT & SUPPLIES–6.5% | ||||||||
Abbott Laboratories | 29,610 | $ | 2,141,691 | |||||
Danaher Corp. | 25,360 | 2,615,123 | ||||||
Koninklijke Philips NV | 31,980 | 1,121,203 | ||||||
West Pharmaceutical Services, Inc. | 17,770 | 1,741,993 | ||||||
|
| |||||||
7,620,010 | ||||||||
|
| |||||||
HEALTH CARE PROVIDERS & SERVICES–3.4% | ||||||||
Apollo Hospitals Enterprise Ltd. | 106,720 | 1,917,206 | ||||||
UnitedHealth Group, Inc. | 8,310 | 2,070,187 | ||||||
|
| |||||||
3,987,393 | ||||||||
|
| |||||||
HEALTH CARE TECHNOLOGY–1.7% | ||||||||
Medidata Solutions, Inc.(a) | 28,530 | 1,923,492 | ||||||
|
| |||||||
LIFE SCIENCES TOOLS & SERVICES–7.1% | ||||||||
Bio-Rad Laboratories, Inc.–Class A(a) | 8,160 | 1,894,915 | ||||||
Bruker Corp. | 70,730 | 2,105,632 | ||||||
Gerresheimer AG | 20,860 | 1,370,731 | ||||||
ICON PLC(a) | 9,240 | 1,193,901 | ||||||
Tecan Group AG | 8,800 | 1,712,797 | ||||||
|
| |||||||
8,277,976 | ||||||||
|
| |||||||
PHARMACEUTICALS–0.4% | ||||||||
Vectura Group PLC(a) | 496,750 | 443,814 | ||||||
|
| |||||||
22,252,685 | ||||||||
|
| |||||||
FINANCIALS–18.8% | ||||||||
BANKS–6.2% | ||||||||
Bank Mandiri Persero Tbk PT | 2,924,500 | 1,500,183 | ||||||
Credicorp Ltd. | 10,370 | 2,298,718 | ||||||
HDFC Bank Ltd. | 44,120 | 1,340,821 | ||||||
Swedbank AB–Class A | 96,640 | 2,160,014 | ||||||
|
| |||||||
7,299,736 | ||||||||
|
| |||||||
CAPITAL MARKETS–6.1% | ||||||||
Charles Schwab Corp. (The) | 49,820 | 2,069,025 | ||||||
MSCI, Inc.–Class A | 20,980 | 3,093,081 | ||||||
Partners Group Holding AG(b) | 3,210 | 1,952,791 | ||||||
|
| |||||||
7,114,897 | ||||||||
|
| |||||||
CONSUMER FINANCE–1.3% | ||||||||
Bharat Financial Inclusion Ltd.(a) | 106,200 | 1,539,876 | ||||||
|
| |||||||
INSURANCE–3.0% | ||||||||
AIA Group Ltd. | 284,800 | 2,365,779 | ||||||
Prudential PLC | 65,520 | 1,169,955 | ||||||
|
| |||||||
3,535,734 | ||||||||
|
| |||||||
THRIFTS & MORTGAGE FINANCE–2.2% | ||||||||
Housing Development Finance Corp., Ltd. | 89,710 | $ | 2,523,214 | |||||
|
| |||||||
22,013,457 | ||||||||
|
| |||||||
INDUSTRIALS–14.3% | ||||||||
AEROSPACE & DEFENSE–2.5% | ||||||||
Hexcel Corp. | 51,209 | 2,936,324 | ||||||
|
| |||||||
BUILDING PRODUCTS–2.3% | ||||||||
Kingspan Group PLC | 62,400 | 2,674,928 | ||||||
|
| |||||||
COMMERCIAL SERVICES & SUPPLIES–1.5% | ||||||||
China Everbright International Ltd. | 1,970,407 | 1,765,736 | ||||||
|
| |||||||
ELECTRICAL EQUIPMENT–3.9% | ||||||||
Schneider Electric SE | 27,850 | 1,889,099 | ||||||
Vestas Wind Systems A/S | 34,990 | 2,648,694 | ||||||
|
| |||||||
4,537,793 | ||||||||
|
| |||||||
INDUSTRIAL CONGLOMERATES–1.6% | ||||||||
Siemens AG | 16,810 | 1,876,022 | ||||||
|
| |||||||
MACHINERY–2.5% | ||||||||
Xylem, Inc./NY | 43,890 | 2,928,341 | ||||||
|
| |||||||
16,719,144 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–14.1% | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–1.0% | ||||||||
Keyence Corp. | 2,300 | 1,162,525 | ||||||
|
| |||||||
IT SERVICES–3.6% | ||||||||
Visa, Inc.–Class A | 22,840 | 3,013,510 | ||||||
Wirecard AG | 7,390 | 1,114,059 | ||||||
|
| |||||||
4,127,569 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.1% | ||||||||
Infineon Technologies AG | 112,260 | 2,247,632 | ||||||
NVIDIA Corp. | 10,568 | 1,410,828 | ||||||
|
| |||||||
3,658,460 | ||||||||
|
| |||||||
SOFTWARE–4.9% | ||||||||
Dassault Systemes SE | 15,380 | 1,826,833 | ||||||
Microsoft Corp. | 22,840 | 2,319,859 | ||||||
SailPoint Technologies Holding, Inc.(a) | 67,800 | 1,592,622 | ||||||
|
| |||||||
5,739,314 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.5% | ||||||||
Apple, Inc. | 10,915 | 1,721,732 | ||||||
|
| |||||||
16,409,600 | ||||||||
|
|
9
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
CONSUMER DISCRETIONARY–9.7% | ||||||||
AUTO COMPONENTS–1.7% | ||||||||
Aptiv PLC | 32,480 | $ | 1,999,793 | |||||
|
| |||||||
DIVERSIFIED CONSUMER SERVICES–1.8% | ||||||||
Bright Horizons Family Solutions, Inc.(a) | 18,360 | 2,046,222 | ||||||
|
| |||||||
INTERNET & DIRECT MARKETING RETAIL–5.0% | ||||||||
Alibaba Group Holding Ltd. (Sponsored ADR)(a) | 12,510 | 1,714,746 | ||||||
Amazon.com, Inc.(a) | 1,583 | 2,377,619 | ||||||
Etsy, Inc.(a) | 35,850 | 1,705,384 | ||||||
|
| |||||||
5,797,749 | ||||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–1.2% | ||||||||
EssilorLuxottica SA | 11,457 | 1,452,265 | ||||||
|
| |||||||
11,296,029 | ||||||||
|
| |||||||
CONSUMER STAPLES–7.7% | ||||||||
FOOD PRODUCTS–2.2% | ||||||||
Kerry Group PLC–Class A | 25,510 | 2,526,067 | ||||||
|
| |||||||
HOUSEHOLD PRODUCTS–3.8% | ||||||||
Procter & Gamble Co. (The) | 19,020 | 1,748,318 | ||||||
Unicharm Corp. | 85,200 | 2,755,534 | ||||||
|
| |||||||
4,503,852 | ||||||||
|
| |||||||
PERSONAL PRODUCTS–1.7% | ||||||||
Unilever PLC | 38,000 | 1,995,105 | ||||||
|
| |||||||
9,025,024 | ||||||||
|
| |||||||
UTILITIES–4.9% | ||||||||
MULTI-UTILITIES–1.2% | ||||||||
Suez | 104,780 | 1,384,196 | ||||||
|
| |||||||
WATER UTILITIES–3.7% | ||||||||
American Water Works Co., Inc. | 30,479 | 2,766,579 | ||||||
Beijing Enterprises Water Group Ltd.(a) | 3,098,000 | 1,581,296 | ||||||
|
| |||||||
4,347,875 | ||||||||
|
| |||||||
5,732,071 | ||||||||
|
| |||||||
MATERIALS–4.4% | ||||||||
CHEMICALS–4.4% | ||||||||
Ecolab, Inc. | 17,760 | 2,616,936 | ||||||
Koninklijke DSM NV | 30,850 | 2,502,727 | ||||||
|
| |||||||
5,119,663 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–3.1% | ||||||||
INTERACTIVE MEDIA & SERVICES–3.1% | ||||||||
Alphabet, Inc.–Class C(a) | 2,207 | $ | 2,285,591 | |||||
Tencent Holdings Ltd. | 33,200 | 1,330,667 | ||||||
|
| |||||||
3,616,258 | ||||||||
|
| |||||||
REAL ESTATE–1.6% | ||||||||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–1.6% | ||||||||
SBA Communications Corp.(a) | 11,610 | 1,879,543 | ||||||
|
| |||||||
Total Common Stocks | 114,063,474 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–2.3% | ||||||||
INVESTMENT COMPANIES–2.3% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(c)(d)(e) | 2,718,339 | 2,718,339 | ||||||
|
| |||||||
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–100.0% | 116,781,813 | |||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.7% | ||||||||
INVESTMENT COMPANIES–1.7% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(c)(d)(e) | 1,996,761 | 1,996,761 | ||||||
|
| |||||||
TOTAL INVESTMENTS–101.7% | 118,778,574 | |||||||
Other assets less liabilities–(1.7)% | (2,030,686 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 116,747,888 | ||||||
|
|
10
AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Bank of America, NA | CNY | 4,151 | USD | 599 | 1/24/19 | $ | (6,077 | ) | ||||||||||||||||
Barclays Bank PLC | CHF | 2,505 | USD | 2,555 | 3/15/19 | (10,593 | ) | |||||||||||||||||
Barclays Bank PLC | EUR | 8,787 | USD | 10,111 | 3/15/19 | (17,493 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 3,513 | CAD | 4,674 | 3/15/19 | (83,290 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 2,552 | GBP | 2,013 | 3/15/19 | 22,687 | ||||||||||||||||||
BNP Paribas SA | CNY | 11,773 | USD | 1,692 | 1/24/19 | (23,334 | ) | |||||||||||||||||
Citibank, NA | USD | 1,915 | KRW | 2,150,271 | 2/20/19 | 18,427 | ||||||||||||||||||
Deutsche Bank AG | INR | 330,135 | USD | 4,627 | 3/18/19 | (81,868 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 881 | ZAR | 12,500 | 3/15/19 | (19,783 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 4,122 | USD | 1,064 | 1/03/19 | 261 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 4,122 | USD | 1,049 | 1/03/19 | (14,948 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 1,058 | BRL | 4,122 | 1/03/19 | 5,637 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 1,064 | BRL | 4,122 | 1/03/19 | (261 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 527 | RUB | 35,119 | 1/24/19 | (24,207 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | PEN | 7,140 | USD | 2,120 | 1/25/19 | 2,075 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 1,047 | BRL | 4,122 | 2/04/19 | 14,908 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 1,526 | TWD | 46,350 | 3/14/19 | (519 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | EUR | 852 | USD | 981 | 3/15/19 | (1,154 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | SEK | 10,362 | USD | 1,154 | 3/15/19 | (21,424 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 2,379 | AUD | 3,300 | 3/15/19 | (51,321 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 4,687 | JPY | 524,836 | 3/15/19 | 127,327 | ||||||||||||||||||
State Street Bank & Trust Co. | CHF | 649 | USD | 656 | 3/15/19 | (9,085 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 324 | USD | 376 | 3/15/19 | 2,518 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 437 | USD | 498 | 3/15/19 | (5,844 | ) | |||||||||||||||||
State Street Bank & Trust Co. | HKD | 7,310 | USD | 937 | 3/15/19 | 1,718 | ||||||||||||||||||
State Street Bank & Trust Co. | JPY | 122,959 | USD | 1,106 | 3/15/19 | (21,747 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 2,857 | CHF | 2,814 | 3/15/19 | 24,784 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 436 | EUR | 382 | 3/15/19 | 4,588 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 452 | JPY | 50,671 | 3/15/19 | 12,782 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 459 | MXN | 9,452 | 3/15/19 | 16,462 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 261 | NOK | 2,208 | 3/15/19 | (4,607 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | (143,381 | ) | ||||||||||||||||||||||
|
|
(a) | Non-income producing security. |
(b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
11
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Currency Abbreviations:
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NOK—Norwegian Krone
PEN—Peruvian Sol
RUB—Russian Ruble
SEK—Swedish Krona
TWD—New Taiwan Dollar
USD—United States Dollar
ZAR—South African Rand
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
12
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $95,743,072) | $ | 114,063,474 | (a) | |
Affiliated issuers (cost $4,715,100—including investment of cash collateral for securities loaned of $1,996,761) | 4,715,100 | |||
Foreign currencies, at value (cost $195,451) | 193,676 | |||
Unrealized appreciation on forward currency exchange contracts | 254,174 | |||
Unaffiliated dividends receivable | 135,985 | |||
Receivable for capital stock sold | 38,293 | |||
Affiliated dividends receivable | 3,544 | |||
|
| |||
Total assets | 119,404,246 | |||
|
| |||
LIABILITIES |
| |||
Payable for collateral received on securities loaned | 1,996,761 | |||
Unrealized depreciation on forward currency exchange contracts | 397,555 | |||
Payable for capital stock redeemed | 75,235 | |||
Advisory fee payable | 66,172 | |||
Administrative fee payable | 17,734 | |||
Distribution fee payable | 16,465 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses and other liabilities | 86,230 | |||
|
| |||
Total liabilities | 2,656,358 | |||
|
| |||
NET ASSETS | $ | 116,747,888 | ||
|
| |||
COMPOSITION OF NET ASSETS |
| |||
Capital stock, at par | $ | 4,384 | ||
Additionalpaid-in capital | 91,092,646 | |||
Distributable earnings | 25,650,858 | |||
|
| |||
$ | 116,747,888 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 35,798,834 | 1,308,704 | $ | 27.35 | |||||||
B | $ | 80,949,054 | 3,074,937 | $ | 26.33 |
(a) | Includes securities on loan with a value of $1,913,249 (see Note E). |
See notes to financial statements.
13
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $136,711) | $ | 1,855,481 | ||
Affiliated issuers | 37,363 | |||
Interest | 3,619 | |||
Securities lending income | 8,850 | |||
|
| |||
1,905,313 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 1,046,966 | |||
Distribution fee—Class B | 248,943 | |||
Transfer agency—Class A | 1,766 | |||
Transfer agency—Class B | 4,400 | |||
Custodian | 102,408 | |||
Administrative | 69,727 | |||
Audit and tax | 65,835 | |||
Printing | 39,930 | |||
Legal | 37,126 | |||
Directors’ fees | 24,782 | |||
Miscellaneous | 9,359 | |||
|
| |||
Total expenses | 1,651,242 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (23,342 | ) | ||
|
| |||
Net expenses | 1,627,900 | |||
|
| |||
Net investment income | 277,413 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 7,151,599 | |||
Forward currency exchange contracts | 565,019 | |||
Foreign currency transactions | (320,351 | ) | ||
Net change in unrealized appreciation/depreciation of: | ||||
Investments(a) | (20,443,593 | ) | ||
Forward currency exchange contracts | (232,339 | ) | ||
Foreign currency denominated assets and liabilities | (5,298 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (13,284,963 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (13,007,550 | ) | |
|
|
(a) | Net of increase in accrued foreign capital gains taxes of $8,092. |
See notes to financial statements. |
14
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income (loss) | $ | 277,413 | $ | (114,944 | ) | |||
Net realized gain on investment and foreign currency transactions | 7,396,267 | 13,647,303 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (20,681,230 | ) | 25,382,741 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (13,007,550 | ) | 38,915,100 | |||||
Distributions to Shareholders | ||||||||
Class A | –0 | – | (159,360 | ) | ||||
Class B | –0 | – | (274,046 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net increase (decrease) | (16,696,371 | ) | 886,757 | |||||
|
|
|
| |||||
Total increase (decrease) | (29,703,921 | ) | 39,368,451 | |||||
NET ASSETS |
| |||||||
Beginning of period | 146,451,809 | 107,083,358 | ||||||
|
|
|
| |||||
End of period | $ | 116,747,888 | $ | 146,451,809 | ||||
|
|
|
|
See notes to financial statements.
15
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Global Thematic Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser���) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
16
AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Health Care | $ | 15,686,934 | $ | 6,565,751 | $ | –0 | – | $ | 22,252,685 | |||||||
Financials | 8,801,645 | 13,211,812 | –0 | – | 22,013,457 | |||||||||||
Industrials | 5,864,665 | 10,854,479 | –0 | – | 16,719,144 | |||||||||||
Information Technology | 10,058,551 | 6,351,049 | –0 | – | 16,409,600 | |||||||||||
Consumer Discretionary | 9,843,764 | 1,452,265 | –0 | – | 11,296,029 | |||||||||||
Consumer Staples | 1,748,318 | 7,276,706 | –0 | – | 9,025,024 | |||||||||||
Utilities | 4,150,775 | 1,581,296 | –0 | – | 5,732,071 | |||||||||||
Materials | 2,616,936 | 2,502,727 | –0 | – | 5,119,663 | |||||||||||
Communication Services | 2,285,591 | 1,330,667 | –0 | – | 3,616,258 | |||||||||||
Real Estate | 1,879,543 | –0 | – | –0 | – | 1,879,543 | ||||||||||
Short-Term Investments | 2,718,339 | –0 | – | –0 | – | 2,718,339 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 1,996,761 | –0 | – | –0 | – | 1,996,761 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 67,651,822 | 51,126,752 | (a) | –0 | – | 118,778,574 |
17
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Forward Currency Exchange Contracts | $ | –0 | – | $ | 254,174 | $ | –0 | – | $ | 254,174 | ||||||
Liabilities: | ||||||||||||||||
Forward Currency Exchange Contracts | –0 | – | (397,555 | ) | –0 | – | (397,555 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c)(d)(e) | $ | 67,651,822 | $ | 50,983,371 | $ | –0 | – | $ | 118,635,193 | |||||||
|
|
|
|
|
|
|
|
(a) | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | An amount of $3,342,095 was transferred from Level 1 to Level 2 due to the above mentioned foreign equity fair valuation using third party vendor modeling tools during the reporting period. |
(d) | An amount of $2,096,343 was transferred from Level 2 to Level 1 as the above mentioned foreign equity fair valuation by the third party vendor was not applied during the reporting period. |
(e) | An amount of $1,549,040 was transferred from Level 2 to Level 1 due to increase in trading volume during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
18
AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. Effective September 4, 2018, the Adviser has contractually agreed to waive its management fee and/or bear expenses of the Portfolio in order to reduce the Portfolio’s total operating expenses by an amount equal to .05% on an annual basis of the average net assets for Class A and Class B. For the year ended December 31, 2018, such reimbursements/waivers amounted to $20,908. This fee waiver and/or expense reimbursement agreement extends through May 1, 2020 and then may be extended by the Adviser for additionalone-year terms.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may
19
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,727.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $1,652.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 27,351 | $ | 24,633 | $ | 2,718 | $ | 24 | ||||||||||
Government Money Market Portfolio* | 3,829 | 16,705 | 18,537 | 1,997 | 13 | |||||||||||||||
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Total | $ | 4,715 | $ | 37 | ||||||||||||||||
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* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $45,546, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
20
AB Variable Products Series Fund |
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 43,003,102 | $ | 55,096,087 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 100,688,907 | ||
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| |||
Gross unrealized appreciation | $ | 24,595,917 | ||
Gross unrealized depreciation | (6,502,976 | ) | ||
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| |||
Net unrealized appreciation | $ | 18,092,941 | ||
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|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single
21
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended December 31, 2018, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of Location | Fair Value | Statement of Location | Fair Value | ||||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | $ | 254,174 | Unrealized depreciation on forward currency exchange contracts | $ | 397,555 | ||||||
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Total | $ | 254,174 | $ | 397,555 | ||||||||
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Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | $ | 565,019 | $ | (232,339 | ) | ||||||
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Total | $ | 565,019 | $ | (232,339 | ) | |||||||
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The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 31,144,971 | ||
Average principal amount of sale contracts | $ | 31,857,903 |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | �� | Net Amount of Derivatives Assets | ||||||||||||||
Barclays Bank PLC | $ | 22,687 | $ | (22,687 | ) | $ | –0 | – | $ | –0 | – | $ | –0 | – | ||||||
Citibank, NA | 18,427 | –0 | – | –0 | – | –0 | – | 18,427 | ||||||||||||
Morgan Stanley & Co., Inc. | 150,208 | (113,834 | ) | –0 | – | –0 | – | 36,374 | ||||||||||||
State Street Bank & Trust Co. | 62,852 | (41,283 | ) | –0 | – | –0 | – | 21,569 | ||||||||||||
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Total | $ | 254,174 | $ | (177,804 | ) | $ | –0 | – | $ | –0 | – | $ | 76,370 | ^ | ||||||
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22
AB Variable Products Series Fund |
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 6,077 | $ | –0 | – | $ | –0 | – | $ | –0 | – | $ | 6,077 | |||||||
Barclays Bank PLC | 111,376 | (22,687 | ) | –0 | – | –0 | – | 88,689 | ||||||||||||
BNP Paribas SA | 23,334 | –0 | – | –0 | – | –0 | – | 23,334 | ||||||||||||
Deutsche Bank AG | 81,868 | –0 | – | –0 | – | –0 | – | 81,868 | ||||||||||||
JPMorgan Chase Bank, NA | 19,783 | –0 | – | –0 | – | –0 | – | 19,783 | ||||||||||||
Morgan Stanley & Co., Inc. | 113,834 | (113,834 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
State Street Bank & Trust Co. | 41,283 | (41,283 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
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Total | $ | 397,555 | $ | (177,804 | ) | $ | –0 | – | $ | –0 | – | $ | 219,751 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $1,913,249 and had received cash collateral which has been invested into Government Money Market Portfolio of $1,996,761. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $8,850 and $12,508 from the borrowers and Government Money Market Portfolio, respectively, for the year ended December 31, 2018; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $782. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
23
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 216,094 | 205,607 | $ | 6,612,541 | $ | 5,763,464 | ||||||||||||||
Shares issued in reinvestment of dividends | –0 | – | 5,799 | –0 | – | 159,360 | ||||||||||||||
Shares redeemed | (230,647 | ) | (164,656 | ) | (7,032,186 | ) | (4,344,931 | ) | ||||||||||||
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Net increase (decrease) | (14,553 | ) | 46,750 | $ | (419,645 | ) | $ | 1,577,893 | ||||||||||||
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Class B | ||||||||||||||||||||
Shares sold | 353,636 | 780,996 | $ | 10,398,435 | $ | 20,282,734 | ||||||||||||||
Shares issued in reinvestment of dividends | –0 | – | 10,330 | –0 | – | 274,046 | ||||||||||||||
Shares redeemed | (913,680 | ) | (809,779 | ) | (26,675,161 | ) | (21,247,916 | ) | ||||||||||||
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Net decrease | (560,044 | ) | (18,453 | ) | $ | (16,276,726 | ) | $ | (691,136 | ) | ||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 67% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk—Investments inmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments inmid-capitalization companies may have additional risks because these companies may have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not
24
AB Variable Products Series Fund |
had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Components of Accumulated Earnings (Deficit)
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | –0 | – | $ | 433,406 | |||
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Total taxable distributions paid | $ | –0 | – | $ | 433,406 | |||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 315,850 | ||
Undistributed capital gains | 7,253,846 | |||
Unrealized appreciation/(depreciation) | 18,081,162 | (a) | ||
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Total accumulated earnings/(deficit) | $ | 25,650,858 | ||
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(a) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, return of capital distributions received from underlying securities, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
25
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $30.32 | $22.29 | $22.43 | $21.80 | $20.75 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .11 | (b) | .03 | (b) | .04 | (b)† | .02 | .06 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (3.08 | ) | 8.13 | (.18 | ) | .60 | .99 | |||||||||||||
Contributions from Affiliates | –0 | – | –0 | – | –0 | – | .01 | –0 | – | |||||||||||
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Net increase (decrease) in net asset value from operations | (2.97 | ) | 8.16 | (.14 | ) | .63 | 1.05 | |||||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | –0 | – | (.13 | ) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net asset value, end of period | $27.35 | $30.32 | $22.29 | $22.43 | $21.80 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c)* | (9.79 | )% | 36.66 | % | (.62 | )%† | 2.89 | % | 5.06 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $35,799 | $40,121 | $28,458 | $31,534 | $30,886 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .99 | % | 1.02 | % | 1.06 | % | 1.01 | % | 1.01 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.01 | % | 1.02 | % | 1.06 | % | 1.01 | % | 1.01 | % | ||||||||||
Net investment income | .37 | %(b) | .09 | %(b) | .17 | %(b)† | .07 | % | .26 | % | ||||||||||
Portfolio turnover rate | 32 | % | 40 | % | 54 | % | 47 | % | 48 | % |
See footnote summary on page 27.
26
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $29.25 | $21.52 | $21.71 | $21.15 | $20.18 | |||||||||||||||
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|
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|
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|
| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (loss) (a) | .04 | (b) | (.04 | )(b) | (.02 | )(b)† | (.04 | ) | .00 | (d) | ||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (2.96 | ) | 7.84 | (.17 | ) | .59 | .97 | |||||||||||||
Contributions from Affiliates | –0 | – | –0 | – | –0 | – | .01 | –0 | – | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (2.92 | ) | 7.80 | (.19 | ) | .56 | .97 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | –0 | – | (.07 | ) | –0 | – | –0 | – | –0 | – | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value, end of period | $26.33 | $29.25 | $21.52 | $21.71 | $21.15 | |||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c)* | (9.98 | )% | 36.30 | % | (.87 | )%† | 2.65 | % | 4.81 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $80,949 | $106,331 | $78,625 | $92,298 | $96,728 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.24 | % | 1.26 | % | 1.31 | % | 1.26 | % | 1.26 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.25 | % | 1.27 | % | 1.31 | % | 1.26 | % | 1.26 | % | ||||||||||
Net investment income (loss) | .13 | %(b) | (.15 | )%(b) | (.07 | )%(b)† | (.17 | )% | .01 | % | ||||||||||
Portfolio turnover rate | 32 | % | 40 | % | 54 | % | 47 | % | 48 | % |
(a) | Based on average shares outstanding. |
(b) | Net of fees and expenses waived/reimbursed by the Adviser. |
(c) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(d) | Amount is less than $.005. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total Return | ||
$.004 | .02% | .02% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 by .04%, .28%, .01% and .02%, respectively. |
See notes to financial statements.
27
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Global Thematic Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Global Thematic Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
28
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB GlobalThematic Growth Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr. | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
3,756,877 | 188,721 | 340,704 |
29
GLOBAL THEMATIC GROWTH | ||
PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and Chief | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Daniel C. Roarty(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst Joseph J. Mantineo,Treasurer and | Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIANAND ACCOUNTING AGENT | LEGAL COUNSEL | |
State Street Bank and Trust Company | Seward & Kissel LLP | |
State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR | TRANSFER AGENT | |
AllianceBernstein Investments, Inc. | AllianceBernstein Investor Services, Inc. | |
1345 Avenue of the Americas New York, NY 10105 | P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC | ||
ACCOUNTING FIRM | ||
Ernst & Young LLP | ||
5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | Theday-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the Adviser’s Global Growth and Thematic Investment Team. Mr. Roarty is the investment professional with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
30
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, # 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr., ## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey, ## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 | |||||
31
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, ## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen, ## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
Garry L. Moody, ## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995) where he was responsible for accounting, pricing, custody and reporting for the Fidelity Mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None |
32
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Earl D. Weiner, ## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105 |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to this position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
33
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS,* AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Daniel C. Roarty 47 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2014. He is also Chief Investment Officer of Thematic and Sustainable Equities. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
34
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Global Thematic Growth Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the
35
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Proposed Agreement, including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
36
AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
37
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Thematic Growth Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
38
AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.
39
GLOBAL THEMATIC GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with those for two other AB Funds with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
40
VPS-GTG-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | GROWTH PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
GROWTH PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
At a meeting held on November6-8, 2018, the Board of Directors of AB Variable Products Series Fund, Inc. (the “Fund”) approved the acquisition of the assets and assumption of the liabilities of the Portfolio by AB Large Cap Growth Portfolio (the “Acquiring Portfolio,” and together with the Portfolio, the “Portfolios”), each a series of the Fund. The Portfolios have the same investment objective and similar investment strategies.
At the time of the acquisition, all of the Portfolio’s assets and liabilities will be transferred to the Acquiring Portfolio, and shareholders of the Portfolio will receive shares of the same class of the Acquiring Portfolio.
The acquisition does not require approval of either Portfolio’s shareholders. The acquisition is expected to be consummated on or about April 18, 2019.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a domestic portfolio of equity securities of companies selected by the Adviser for their growth potential within various market sectors. The Adviser looks for companies that have experienced management teams, strong market positions and the potential to deliver greater-than-expected earnings growth rates.
In managing the Portfolio, the Adviser allocates investments among broad sector groups and selects specific investments based on the fundamental company research conducted by the Adviser’s internal research staff, assessing the current and forecasted investment opportunities and conditions, as well as diversification and risk considerations. The Adviser’s research focus is on companies with high sustainable growth prospects, high or improving return on invested capital, transparent business models and clear competitive advantages.
The Portfolio has the flexibility to invest across the capitalization spectrum. The Portfolio is designed for those seeking exposure to companies of various sizes, and typically has substantial investments in both large-capitalization companies andmid-capitalization companies, and may also invest in small-capitalization companies.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 3000 Growth Index, for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio outperformed the benchmark for the annual period. Stock selection drove the outperformance, relative to the benchmark, most notably from health care, technology and industrials holdings. An underweight to energy also contributed. Stock selection within communication services and consumer staples holdings detracted. Overweights to the consumer discretionary and materials sectors also detracted.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the year as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during 2018 as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
The Portfolio’s Senior Investment Management Team (the “Team”) continues to select companies that are likely to be rewarded for offering high profitability, attractive reinvestment opportunities and sustainable competitive advantages. The Team believes that, in this environment, active managers can be rewarded for picking their stocks carefully, and the Team remains sharply focused on identifying companies that generate high return on assets with high reinvestment rate opportunities.
1
GROWTH PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 3000® Growth Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio.The Russell 3000 Growth Index represents the performance of growth companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s growth approach, may underperform the market generally.
Capitalization Risk: Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Focused Portfolio Risk: Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value (“NAV”).
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
GROWTH PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARK | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Growth Portfolio Class A2 | 4.02% | 11.81% | 15.26% | |||||||||
Growth Portfolio Class B2 | 3.77% | 11.53% | 14.97% | |||||||||
Russell 3000 Growth Index | -2.12% | 9.99% | 15.15% | |||||||||
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2018, by 0.05%. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.12% and 1.37% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Growth Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
GROWTH PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 936.80 | $ | 5.47 | 1.12 | % | $ | 5.52 | 1.13 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.56 | $ | 5.70 | 1.12 | % | $ | 5.75 | 1.13 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 935.50 | $ | 6.68 | 1.37 | % | $ | 6.73 | 1.38 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,018.30 | $ | 6.97 | 1.37 | % | $ | 7.02 | 1.38 | % |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
4
GROWTH PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Alphabet, Inc.—Class C | $ | 5,752,814 | 8.6 | % | ||||
Visa, Inc.—Class A | 2,748,310 | 4.1 | ||||||
Monster Beverage Corp. | 2,679,438 | 4.0 | ||||||
NIKE, Inc.—Class B | 2,483,097 | 3.7 | ||||||
Home Depot, Inc. (The) | 2,429,363 | 3.6 | ||||||
Costco Wholesale Corp. | 2,339,609 | 3.5 | ||||||
UnitedHealth Group, Inc. | 2,273,967 | 3.4 | ||||||
PayPal Holdings, Inc. | 2,023,206 | 3.0 | ||||||
Biogen, Inc. | 1,990,285 | 3.0 | ||||||
Booking Holdings, Inc. | 1,889,495 | 2.8 | ||||||
|
|
|
| |||||
$ | 26,609,584 | 39.7 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Information Technology | $ | 13,871,444 | 20.7 | % | ||||
Health Care | 13,480,676 | 20.1 | ||||||
Consumer Discretionary | 13,462,640 | 20.0 | ||||||
Communication Services | 9,047,845 | 13.5 | ||||||
Industrials | 7,056,282 | 10.5 | ||||||
Consumer Staples | 6,599,908 | 9.8 | ||||||
Materials | 1,719,420 | 2.6 | ||||||
Financials | 393,037 | 0.6 | ||||||
Short-Term Investments | 1,493,159 | 2.2 | ||||||
|
|
|
| |||||
Total Investments | $ | 67,124,411 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
5
GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–98.0% | ||||||||
INFORMATION TECHNOLOGY–20.7% | ||||||||
COMMUNICATIONS EQUIPMENT–2.0% | ||||||||
Arista Networks, Inc.(a) | 6,290 | $ | 1,325,303 | |||||
|
| |||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & | ||||||||
Cognex Corp. | 13,260 | 512,764 | ||||||
Novanta, Inc.(a) | 8,080 | 509,040 | ||||||
|
| |||||||
1,021,804 | ||||||||
|
| |||||||
IT SERVICES–7.1% | ||||||||
PayPal Holdings, Inc.(a) | 24,060 | 2,023,206 | ||||||
Visa, Inc.–Class A | 20,830 | 2,748,310 | ||||||
|
| |||||||
4,771,516 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–4.1% | ||||||||
ASML Holding NV ADR | 4,720 | 734,526 | ||||||
Semtech Corp.(a) | 14,320 | 656,858 | ||||||
Xilinx, Inc. | 15,626 | 1,330,867 | ||||||
|
| |||||||
2,722,251 | ||||||||
|
| |||||||
SOFTWARE–6.0% | ||||||||
Adobe, Inc.(a) | 4,810 | 1,088,214 | ||||||
Elastic NV(a)(b) | 134 | 9,578 | ||||||
Fair Isaac Corp.(a) | 4,400 | 822,800 | ||||||
HubSpot, Inc.(a) | 5,590 | 702,831 | ||||||
Paycom Software, Inc.(a) | 6,980 | 854,701 | ||||||
Trade Desk, Inc. (The)–Class A(a) | 4,760 | 552,446 | ||||||
|
| |||||||
4,030,570 | ||||||||
|
| |||||||
13,871,444 | ||||||||
|
| |||||||
HEALTH CARE–20.1% | ||||||||
BIOTECHNOLOGY–6.2% | ||||||||
Biogen, Inc.(a) | 6,614 | 1,990,285 | ||||||
Regeneron Pharmaceuticals, Inc.(a) | 2,990 | 1,116,765 | ||||||
Vertex Pharmaceuticals, Inc.(a) | 6,270 | 1,039,001 | ||||||
|
| |||||||
4,146,051 | ||||||||
|
| |||||||
HEALTH CARE EQUIPMENT & SUPPLIES–6.9% | ||||||||
Edwards Lifesciences Corp.(a) | 11,310 | 1,732,353 | ||||||
Intuitive Surgical, Inc.(a) | 3,912 | 1,873,535 | ||||||
Stryker Corp. | 6,620 | 1,037,685 | ||||||
|
| |||||||
4,643,573 | ||||||||
|
| |||||||
HEALTH CARE PROVIDERS & SERVICES–4.9% | ||||||||
Centene Corp.(a) | 8,470 | 976,591 | ||||||
UnitedHealth Group, Inc. | 9,128 | 2,273,967 | ||||||
|
| |||||||
3,250,558 | ||||||||
|
| |||||||
PHARMACEUTICALS–2.1% | ||||||||
Zoetis, Inc. | 16,840 | $ | 1,440,494 | |||||
|
| |||||||
13,480,676 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–20.1% | ||||||||
DIVERSIFIED CONSUMER SERVICES–3.6% | ||||||||
Bright Horizons Family Solutions, Inc.(a) | 12,480 | 1,390,896 | ||||||
Grand Canyon Education, Inc.(a) | 10,510 | 1,010,431 | ||||||
|
| |||||||
2,401,327 | ||||||||
|
| |||||||
HOTELS, RESTAURANTS & LEISURE–1.5% | ||||||||
Planet Fitness, Inc.(a) | 18,810 | 1,008,592 | ||||||
|
| |||||||
INTERNET & DIRECT MARKETING RETAIL–3.6% | ||||||||
Booking Holdings, Inc.(a) | 1,097 | 1,889,495 | ||||||
Etsy, Inc.(a) | 11,670 | 555,142 | ||||||
|
| |||||||
2,444,637 | ||||||||
|
| |||||||
MULTILINE RETAIL–1.0% | ||||||||
Dollar Tree, Inc.(a) | 7,110 | 642,175 | ||||||
|
| |||||||
SPECIALTY RETAIL–6.7% | ||||||||
Home Depot, Inc. (The) | 14,139 | 2,429,363 | ||||||
National Vision Holdings, Inc.(a) | 24,205 | 681,855 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(a) | 5,602 | 1,371,594 | ||||||
|
| |||||||
4,482,812 | ||||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–3.7% | ||||||||
NIKE, Inc.–Class B | 33,492 | 2,483,097 | ||||||
|
| |||||||
13,462,640 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–13.5% | ||||||||
ENTERTAINMENT–2.4% | ||||||||
Activision Blizzard, Inc. | 15,190 | 707,398 | ||||||
Electronic Arts, Inc.(a) | 11,450 | 903,520 | ||||||
|
| |||||||
1,610,918 | ||||||||
|
| |||||||
INTERACTIVE MEDIA & SERVICES–11.1% | ||||||||
Alphabet, Inc.–Class C(a) | 5,555 | 5,752,814 | ||||||
Facebook, Inc.–Class A(a) | 12,847 | 1,684,113 | ||||||
|
| |||||||
7,436,927 | ||||||||
|
| |||||||
9,047,845 | ||||||||
|
| |||||||
INDUSTRIALS–10.5% | ||||||||
BUILDING PRODUCTS–4.2% | ||||||||
Allegion PLC | 12,380 | 986,810 | ||||||
AO Smith Corp. | 16,440 | 701,988 | ||||||
Lennox International, Inc. | 2,920 | 639,071 | ||||||
Trex Co., Inc.(a) | 8,530 | 506,341 | ||||||
|
| |||||||
2,834,210 | ||||||||
|
|
6
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMERCIAL SERVICES & SUPPLIES–1.4% | ||||||||
Copart, Inc.(a) | 19,660 | $ | 939,355 | |||||
|
| |||||||
ELECTRICAL EQUIPMENT–0.8% | ||||||||
Rockwell Automation, Inc. | 3,510 | 528,185 | ||||||
|
| |||||||
INDUSTRIAL CONGLOMERATES–1.3% | ||||||||
Roper Technologies, Inc. | 3,220 | 858,194 | ||||||
|
| |||||||
MACHINERY–1.1% | ||||||||
IDEX Corp. | 4,290 | 541,656 | ||||||
WABCO Holdings, Inc.(a) | 1,810 | 194,285 | ||||||
|
| |||||||
735,941 | ||||||||
|
| |||||||
ROAD & RAIL–1.0% | ||||||||
Saia, Inc.(a) | 12,170 | 679,329 | ||||||
|
| |||||||
TRADING COMPANIES & DISTRIBUTORS–0.7% | ||||||||
Fastenal Co. | 9,200 | 481,068 | ||||||
|
| |||||||
7,056,282 | ||||||||
|
| |||||||
CONSUMER STAPLES–9.9% | ||||||||
BEVERAGES–6.4% | ||||||||
Constellation Brands, Inc.–Class A | 9,830 | 1,580,861 | ||||||
Monster Beverage Corp.(a) | 54,438 | 2,679,438 | ||||||
|
| |||||||
4,260,299 | ||||||||
|
| |||||||
FOOD & STAPLES RETAILING–3.5% | ||||||||
Costco Wholesale Corp. | 11,485 | 2,339,609 | ||||||
|
| |||||||
6,599,908 | ||||||||
|
| |||||||
MATERIALS–2.6% | ||||||||
CHEMICALS–2.6% | ||||||||
Sherwin-Williams Co. (The) | 4,370 | 1,719,420 | ||||||
|
| |||||||
FINANCIALS–0.6% | ||||||||
CAPITAL MARKETS–0.6% | ||||||||
MarketAxess Holdings, Inc. | 1,860 | 393,037 | ||||||
|
| |||||||
Total Common Stocks | 65,631,252 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–2.3% | ||||||||
INVESTMENT COMPANIES–2.3% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(c)(d)(e) | 1,493,159 | 1,493,159 | ||||||
|
| |||||||
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–100.3% | $ | 67,124,411 | ||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.0% | ||||||||
INVESTMENT COMPANIES–0.0% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(c)(d)(e) | 9,581 | 9,581 | ||||||
|
| |||||||
TOTAL INVESTMENTS–100.3% | 67,133,992 | |||||||
Other assets less liabilities–(0.3)% | (168,226 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 66,965,766 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
7
GROWTH PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $50,522,434) | $ | 65,631,252 | (a) | |
Affiliated issuers (cost $1,502,740—including investment of cash collateral for securities loaned of $9,581) | 1,502,740 | |||
Unaffiliated dividends receivable | 12,500 | |||
Receivable for capital stock sold | 6,833 | |||
Affiliated dividends receivable | 3,873 | |||
|
| |||
Total assets | 67,157,198 | |||
|
| |||
LIABILITIES | ||||
Payable for capital stock redeemed | 60,188 | |||
Advisory fee payable | 41,284 | |||
Audit and tax fee payable | 33,616 | |||
Administrative fee payable | 17,842 | |||
Payable for collateral received on securities loaned | 9,581 | |||
Distribution fee payable | 7,466 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 21,249 | |||
|
| |||
Total liabilities | 191,432 | |||
|
| |||
NET ASSETS | $ | 66,965,766 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 2,110 | ||
Additionalpaid-in capital | 38,509,416 | |||
Distributable earnings | 28,454,240 | |||
|
| |||
$ | 66,965,766 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 30,485,598 | 924,598 | $ | 32.97 | |||||||
B | $ | 36,480,168 | 1,185,000 | $ | 30.78 |
(a) | Includes securities on loan with a value of $9,578 (see Note E). |
See notes to financial statements.
8
GROWTH PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers | $ | 371,738 | ||
Affiliated issuers | 46,760 | |||
Interest | 3,323 | |||
|
| |||
421,821 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 560,734 | |||
Distribution fee—Class B | 102,022 | |||
Transfer agency—Class A | 2,094 | |||
Transfer agency—Class B | 2,530 | |||
Administrative | 69,429 | |||
Custodian | 64,618 | |||
Audit and tax | 44,007 | |||
Legal | 34,257 | |||
Directors’ fees | 24,782 | |||
Printing | 21,547 | |||
Miscellaneous | 2,439 | |||
|
| |||
Total expenses | 928,459 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (3,469 | ) | ||
|
| |||
Net expenses | 924,990 | |||
|
| |||
Net investment loss | (503,169 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS | ||||
Net realized gain on investment transactions | 13,921,638 | |||
Net change in unrealized appreciation/depreciation of investments | (10,423,114 | ) | ||
|
| |||
Net gain on investment transactions | 3,498,524 | |||
|
| |||
NET INCREASE IN NET ASSETS FROM OPERATIONS | $ | 2,995,355 | ||
|
|
See notes to financial statements.
9
GROWTH PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment loss | $ | (503,169 | ) | $ | (482,563 | ) | ||
Net realized gain on investment transactions | 13,921,638 | 9,474,239 | ||||||
Net change in unrealized appreciation/depreciation of investments | (10,423,114 | ) | 10,610,044 | |||||
Contributions from Affiliates (see Note B) | –0 | – | 102,075 | ^ | ||||
|
|
|
| |||||
Net increase in net assets from operations | 2,995,355 | 19,703,795 | ||||||
Distributions to Shareholders | ||||||||
Class A | (4,150,677 | ) | (1,334,624 | ) | ||||
Class B | (5,079,860 | ) | (2,084,488 | ) | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net increase (decrease) | 3,024,658 | (7,779,591 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | (3,210,524 | ) | 8,505,092 | |||||
NET ASSETS | ||||||||
Beginning of period | 70,176,290 | 61,671,198 | ||||||
|
|
|
| |||||
End of period | $ | 66,965,766 | $ | 70,176,290 | ||||
|
|
|
|
^ | Amount reclassified. |
See notes to financial statements.
10
GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
11
GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks(a) | $ | 65,631,252 | $ | –0 | – | $ | –0 | – | $ | 65,631,252 | ||||||
Short-Term Investments | 1,493,159 | –0 | – | –0 | – | 1,493,159 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 9,581 | –0 | – | –0 | – | 9,581 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 67,133,992 | –0 | – | –0 | – | 67,133,992 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 67,133,992 | $ | –0 | – | $ | –0 | – | $ | 67,133,992 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
12
AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
13
GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,429.
14
AB Variable Products Series Fund |
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $102,075 in connection with an error made by the Adviser in processing a claim for class action settlement proceeds on behalf of the Portfolio.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $2,762.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 15,451 | $ | 13,958 | $ | 1,493 | $ | 44 | ||||||||||
Government Money Market Portfolio* | 1,101 | 4,752 | 5,843 | 10 | 3 | |||||||||||||||
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| |||||||||||||||||
Total | $ | 1,503 | $ | 47 | ||||||||||||||||
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* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $9,197, of which $15 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 32,912,681 | $ | 40,565,455 | ||||
U.S. government securities | –0 | – | –0 | – |
15
GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 52,074,841 | ||
|
| |||
Gross unrealized appreciation | $ | 16,896,499 | ||
Gross unrealized depreciation | (1,837,348 | ) | ||
|
| |||
Net unrealized appreciation | $ | 15,059,151 | ||
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $9,578 and had received cash collateral which has been invested into Government Money Market Portfolio of $9,581. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $3,120 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $707. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
16
AB Variable Products Series Fund |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 174,243 | 85,190 | $ | 6,549,775 | $ | 2,782,413 | ||||||||||||||
Shares issued in reinvestment of distributions | 112,729 | 42,142 | 4,150,676 | 1,334,624 | ||||||||||||||||
Shares redeemed | (208,557 | ) | (162,782 | ) | (7,550,238 | ) | (5,200,532 | ) | ||||||||||||
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| |||||||||||||
Net increase (decrease) | 78,415 | (35,450 | ) | $ | 3,150,213 | $ | (1,083,495 | ) | ||||||||||||
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Class B | ||||||||||||||||||||
Shares sold | 42,705 | 30,476 | $ | 1,496,657 | $ | 942,367 | ||||||||||||||
Shares issued in reinvestment of distributions | 147,627 | 69,692 | 5,079,860 | 2,084,488 | ||||||||||||||||
Shares redeemed | (190,539 | ) | (311,402 | ) | (6,702,072 | ) | (9,722,951 | ) | ||||||||||||
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| |||||||||||||
Net decrease | (207 | ) | (211,234 | ) | $ | (125,555 | ) | $ | (6,696,096 | ) | ||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 74% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Capitalization Risk—Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Net long-term capital gains | $ | 9,230,537 | $ | 3,419,112 | ||||
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| |||||
Total taxable distributions paid | $ | 9,230,537 | $ | 3,419,112 | ||||
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17
GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 602,053 | ||
Undistributed capital gains | 12,793,037 | |||
Unrealized appreciation/(depreciation) | 15,059,151 | (a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 28,454,241 | ||
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(a) | The difference between book-basis andtax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Event
At a meeting held on November6-8, 2018, the Board of the Fund approved the acquisition of the assets and assumption of the liabilities of the Portfolio by AB Large Cap Growth Portfolio (the “Acquiring Portfolio,” and together with the Portfolio, the “Portfolios”), each a series of the Fund. The Portfolios have the same investment objective and similar investment strategies.
At the time of the acquisition, all of the Portfolio’s assets and liabilities will be transferred to the Acquiring Portfolio, and shareholders of the Portfolio will receive shares of the same class of the Acquiring Portfolio.
The acquisition does not require approval of either Portfolio’s shareholders. The acquisition is expected to be consummated on or about April 18, 2019.
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
18
GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $35.73 | $27.95 | $31.05 | $34.47 | $31.03 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment loss (a) | (.20 | )(b) | (.18 | )(b) | (.07 | )(b)† | (.08 | ) | (.09 | ) | ||||||||||
Net realized and unrealized gain on investment transactions | 2.12 | 9.61 | .54 | 3.18 | 4.15 | |||||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net increase in net asset value from operations | 1.92 | 9.43 | .47 | 3.10 | 4.06 | |||||||||||||||
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Less: Distributions | ||||||||||||||||||||
Distributions from net realized gain on investment transactions | (4.68 | ) | (1.65 | ) | (3.57 | ) | (6.52 | ) | (.62 | ) | ||||||||||
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Net asset value, end of period | $32.97 | $35.73 | $27.95 | $31.05 | $34.47 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | 4.02 | % | 34.51 | % | 1.12 | %† | 9.06 | % | 13.28 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $30,486 | $30,230 | $24,645 | $27,060 | $28,141 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.10 | % | 1.12 | % | 1.15 | % | 1.09 | % | 1.08 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.11 | % | 1.12 | % | 1.15 | % | 1.09 | % | 1.08 | % | ||||||||||
Net investment loss | (.54 | )%(b) | (.57 | )%(b) | (.23 | )%(b)† | (.24 | )% | (.28 | )% | ||||||||||
Portfolio turnover rate | 46 | % | 42 | % | 57 | % | 51 | % | 66 | % |
See footnote summary on page 20.
19
GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $33.70 | $26.51 | $29.70 | $33.30 | $30.08 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment loss (a) | (.28 | )(b) | (.25 | )(b) | (.13 | )(b)† | (.16 | ) | (.16 | ) | ||||||||||
Net realized and unrealized gain on investment transactions | 2.04 | 9.09 | .51 | 3.08 | 4.00 | |||||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net increase in net asset value from operations | 1.76 | 8.84 | .38 | 2.92 | 3.84 | |||||||||||||||
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Less: Distributions | ||||||||||||||||||||
Distributions from net realized gain on investment transactions | (4.68 | ) | (1.65 | ) | (3.57 | ) | (6.52 | ) | (.62 | ) | ||||||||||
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Net asset value, end of period | $30.78 | $33.70 | $26.51 | $29.70 | $33.30 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | 3.77 | % | 34.15 | % | .85 | %† | 8.82 | % | 12.96 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $36,480 | $39,946 | $37,026 | $43,383 | $46,330 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.35 | % | 1.37 | % | 1.40 | % | 1.34 | % | 1.33 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.36 | % | 1.37 | % | 1.40 | % | 1.34 | % | 1.33 | % | ||||||||||
Net investment loss | (.79 | )%(b) | (.82 | )%(b) | (.48 | )%(b)† | (.49 | )% | (.52 | )% | ||||||||||
Portfolio turnover rate | 46 | % | 42 | % | 57 | % | 51 | % | 66 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.015 | .05% | .05% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 by .05%, .11%, .01%, .06% and .03%, respectively. |
Includes the impact of a reimbursement from the Adviser as a result of an error made by the Adviser in processing a claim for class action settlement, which enhanced the Fund’s performance for the year ended November 30, 2017 by .14%. |
See notes to financial statements.
20
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
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GROWTH PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Growth Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
1,895,218 | 122,637 | 118,971 |
* | Mr. Foulk retired on December 31, 2018. |
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GROWTH PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith,President and Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Bruce K. Aronow(2),Vice President Frank V. Caruso(2),Vice President John H. Fogarty(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Fund are made by its senior management team. Messrs. Aronow, Caruso and Fogarty are the investment professionals with the most significant responsibility for the day-to-day management of the Fund’s portfolio. |
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GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership experience and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
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AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None |
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GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
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AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Bruce K. Aronow 52 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of Small and SMID Cap Growth Equities. | ||
Frank V. Caruso 62 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of Growth Equities. | ||
John H. Fogarty 49 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Advisor**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012.. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Growth Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the
28
AB Variable Products Series Fund |
Proposed Agreement, including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Growth Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
31
GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
32
AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional clients. In this regard, the Adviser noted, among other things, that, compared to institutional accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
33
VPS-GTH-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | GROWTH & INCOME PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
GROWTH & INCOME PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Growth & Income Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in the equity securities of US companies that the Adviser believes are undervalued.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the types of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 1000 Value Index, for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio outperformed the benchmark for the annual period. Stock selection in the consumer discretionary, communication services and industrials sectors contributed to performance, relative to the benchmark. An underweight to utilities and an overweight to industrials detracted, as did stock selection in the materials sector.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the year as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during 2018 as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
The Portfolio’s Senior Investment Management Team (the “Team”) remains committed to usingbottom-up research to build a Portfolio comprised of well-managed companies that are attractively valued relative to their long-term earnings power. The Team’s objective is to find companies that stand out and deploy capital wisely, allowing these companies to grow dividends and enhance the long-term value of their shares.
1
GROWTH & INCOME PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 1000® Value Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio.The Russell 1000 Value Index represents the performance oflarge-cap value companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s value approach, may be underperforming the market generally.
Foreign(Non-US) Risk: Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Industry/Sector Risk: Investments in a particular industry or group of related industries may have more risk because market or economic factors affecting that industry could have a significant effect on the value of the Portfolio’s investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
GROWTH & INCOME PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARK | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Growth & Income Portfolio Class A2 | -5.61% | 6.84% | 12.36% | |||||||||
Growth & Income Portfolio Class B2 | -5.84% | 6.57% | 12.06% | |||||||||
Russell 1000 Value Index | -8.27% | 5.95% | 11.18% | |||||||||
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2018, by 0.02%. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.60% and 0.85% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Growth & Income Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
GROWTH & INCOME PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each classes’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A* | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 950.20 | $ | 2.85 | 0.58 | % | $ | 2.90 | 0.59 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,022.28 | $ | 2.96 | 0.58 | % | $ | 3.01 | 0.59 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 949.10 | $ | 4.13 | 0.84 | % | $ | 4.18 | 0.85 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.97 | $ | 4.28 | 0.84 | % | $ | 4.33 | 0.85 | % |
* | Expenses are equal to the classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
GROWTH & INCOME PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Verizon Communications, Inc. | $ | 40,379,453 | 4.5 | % | ||||
Berkshire Hathaway, Inc.—Class B | 36,662,969 | 4.0 | ||||||
Raytheon Co. | 33,390,429 | 3.7 | ||||||
JPMorgan Chase & Co. | 32,651,938 | 3.6 | ||||||
DR Horton, Inc. | 30,990,892 | 3.4 | ||||||
Phillips 66 | 30,872,714 | 3.4 | ||||||
Walmart, Inc. | 30,397,360 | 3.3 | ||||||
Cigna Corp. | 25,323,933 | 2.8 | ||||||
Roche Holding AG (Sponsored ADR) | 24,318,546 | 2.7 | ||||||
Walt Disney Co. (The) | 24,129,579 | 2.7 | ||||||
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$ | 309,117,813 | 34.1 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Financials | $ | 175,567,706 | 19.4 | % | ||||
Health Care | 137,949,722 | 15.2 | ||||||
Industrials | 128,354,664 | 14.2 | ||||||
Communication Services | 93,248,597 | 10.3 | ||||||
Information Technology | 86,732,106 | 9.6 | ||||||
Energy | 80,853,587 | 8.9 | ||||||
Consumer Discretionary | 56,109,369 | 6.2 | ||||||
Consumer Staples | 46,724,239 | 5.2 | ||||||
Real Estate | 35,730,682 | 3.9 | ||||||
Short-Term Investments | 64,547,475 | 7.1 | ||||||
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Total Investments | $ | 905,818,147 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
5
GROWTH & INCOME PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–92.9% | ||||||||
FINANCIALS–19.4% | ||||||||
BANKS–5.4% | ||||||||
Citigroup, Inc. | 314,300 | $ | 16,362,458 | |||||
JPMorgan Chase & Co. | 334,480 | 32,651,938 | ||||||
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49,014,396 | ||||||||
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CAPITAL MARKETS–2.5% | ||||||||
Goldman Sachs Group, Inc. (The) | 96,640 | 16,143,712 | ||||||
Northern Trust Corp. | 79,419 | 6,638,634 | ||||||
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22,782,346 | ||||||||
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CONSUMER FINANCE–1.6% | ||||||||
Capital One Financial Corp. | 192,660 | 14,563,170 | ||||||
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DIVERSIFIED FINANCIAL SERVICES– 4.1% | ||||||||
Berkshire Hathaway, Inc.–Class B(a) | 179,562 | 36,662,969 | ||||||
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INSURANCE–5.8% | ||||||||
Aflac, Inc. | 128,150 | 5,838,514 | ||||||
Allstate Corp. (The) | 219,660 | 18,150,506 | ||||||
Fidelity National Financial, Inc. | 415,050 | 13,049,172 | ||||||
Reinsurance Group of America, Inc.–Class A | 110,580 | 15,506,633 | ||||||
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52,544,825 | ||||||||
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175,567,706 | ||||||||
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HEALTH CARE–15.2% | ||||||||
BIOTECHNOLOGY–3.4% | ||||||||
Biogen, Inc.(a) | 50,935 | 15,327,360 | ||||||
Celgene Corp.(a) | 112,650 | 7,219,739 | ||||||
Gilead Sciences, Inc. | 127,530 | 7,977,001 | ||||||
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30,524,100 | ||||||||
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HEALTH CARE PROVIDERS & SERVICES–5.3% | ||||||||
Anthem, Inc. | 53,010 | 13,922,016 | ||||||
Cigna Corp.(a) | 133,340 | 25,323,933 | ||||||
CVS Health Corp. | 91,610 | 6,002,287 | ||||||
Quest Diagnostics, Inc. | 38,250 | 3,185,078 | ||||||
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48,433,314 | ||||||||
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PHARMACEUTICALS–6.5% | ||||||||
Eli Lilly & Co. | 131,240 | 15,187,093 | ||||||
Pfizer, Inc. | 446,430 | 19,486,669 | ||||||
Roche Holding AG (Sponsored ADR) | 782,450 | 24,318,546 | ||||||
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58,992,308 | ||||||||
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137,949,722 | ||||||||
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INDUSTRIALS–14.2% | ||||||||
AEROSPACE & DEFENSE–3.7% | ||||||||
Raytheon Co. | 217,740 | 33,390,429 | ||||||
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AIRLINES–1.9% | ||||||||
Delta Air Lines, Inc. | 207,000 | 10,329,300 | ||||||
Southwest Airlines Co. | 144,580 | 6,720,078 | ||||||
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17,049,378 | ||||||||
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CONSTRUCTION & ENGINEERING–0.8% | ||||||||
EMCOR Group, Inc. | 114,980 | $ | 6,863,156 | |||||
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ELECTRICAL EQUIPMENT–0.9% | ||||||||
Acuity Brands, Inc. | 72,210 | 8,300,540 | ||||||
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MACHINERY–4.4% | ||||||||
Altra Industrial Motion Corp. | 426,870 | 10,735,780 | ||||||
Crane Co. | 148,780 | 10,738,940 | ||||||
PACCAR, Inc. | 96,120 | 5,492,297 | ||||||
Parker-Hannifin Corp. | 35,350 | 5,272,099 | ||||||
WABCO Holdings, Inc.(a) | 69,143 | 7,421,810 | ||||||
|
| |||||||
39,660,926 | ||||||||
|
| |||||||
ROAD & RAIL–2.5% | ||||||||
Kansas City Southern | 56,270 | 5,370,972 | ||||||
Knight-Swift Transportation Holdings, Inc. | 202,750 | 5,082,943 | ||||||
Norfolk Southern Corp. | 48,630 | 7,272,130 | ||||||
Saia, Inc.(a) | 96,098 | 5,364,190 | ||||||
|
| |||||||
23,090,235 | ||||||||
|
| |||||||
128,354,664 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–10.3% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES–4.4% | ||||||||
Verizon Communications, Inc. | 718,240 | 40,379,453 | ||||||
|
| |||||||
ENTERTAINMENT–2.7% | ||||||||
Walt Disney Co. (The) | 220,060 | 24,129,579 | ||||||
|
| |||||||
MEDIA–3.2% | ||||||||
Comcast Corp.–Class A | 670,770 | 22,839,718 | ||||||
Discovery, Inc.–Class A(a) | 238,474 | 5,899,847 | ||||||
|
| |||||||
28,739,565 | ||||||||
|
| |||||||
93,248,597 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–9.6% | ||||||||
COMMUNICATIONS EQUIPMENT–2.6% | ||||||||
Cisco Systems, Inc. | 414,370 | 17,954,652 | ||||||
F5 Networks, Inc.(a) | 32,900 | 5,330,787 | ||||||
|
| |||||||
23,285,439 | ||||||||
|
| |||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–2.3% | ||||||||
Coherent, Inc.(a) | 41,440 | 4,380,622 | ||||||
FLIR Systems, Inc. | 187,210 | 8,151,124 | ||||||
Keysight Technologies, Inc.(a) | 135,890 | 8,436,051 | ||||||
|
| |||||||
20,967,797 | ||||||||
|
| |||||||
IT SERVICES–2.6% | ||||||||
Akamai Technologies, Inc.(a) | 127,210 | 7,769,987 | ||||||
Cognizant Technology Solutions Corp.–Class A | 126,320 | 8,018,794 |
6
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
Euronet Worldwide, Inc.(a) | 70,690 | $ | 7,237,242 | |||||
|
| |||||||
23,026,023 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–1.0% | ||||||||
QUALCOMM, Inc. | 65,570 | 3,731,589 | ||||||
Skyworks Solutions, Inc. | 80,600 | 5,401,812 | ||||||
|
| |||||||
9,133,401 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.1% | ||||||||
Apple, Inc. | 27,825 | 4,389,115 | ||||||
HP, Inc. | 289,850 | 5,930,331 | ||||||
|
| |||||||
10,319,446 | ||||||||
|
| |||||||
86,732,106 | ||||||||
|
| |||||||
ENERGY–8.9% | ||||||||
ENERGY EQUIPMENT & SERVICES–0.8% | ||||||||
Dril-Quip, Inc.(a) | 136,665 | 4,104,050 | ||||||
National Oilwell Varco, Inc. | 115,260 | 2,962,182 | ||||||
|
| |||||||
7,066,232 | ||||||||
|
| |||||||
OIL, GAS & CONSUMABLE FUELS–8.1% | ||||||||
Apache Corp. | 176,858 | 4,642,523 | ||||||
ConocoPhillips | 235,850 | 14,705,247 | ||||||
Exxon Mobil Corp. | 171,560 | 11,698,676 | ||||||
Noble Energy, Inc. | 632,633 | 11,868,195 | ||||||
Phillips 66 | 358,360 | 30,872,714 | ||||||
|
| |||||||
73,787,355 | ||||||||
|
| |||||||
80,853,587 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–6.2% | ||||||||
AUTO COMPONENTS–0.3% | ||||||||
BorgWarner, Inc. | 87,170 | 3,028,286 | ||||||
|
| |||||||
HOUSEHOLD DURABLES–4.2% | ||||||||
DR Horton, Inc. | 894,140 | 30,990,892 | ||||||
Garmin Ltd. | 107,190 | 6,787,271 | ||||||
|
| |||||||
37,778,163 | ||||||||
|
| |||||||
INTERNET & DIRECT MARKETING RETAIL–0.9% | ||||||||
Expedia Group, Inc. | 71,240 | 8,025,186 | ||||||
|
| |||||||
SPECIALTY RETAIL–0.8% | ||||||||
Murphy USA, Inc.(a) | 94,960 | 7,277,734 | ||||||
|
| |||||||
56,109,369 | ||||||||
|
| |||||||
CONSUMER STAPLES–5.2% | ||||||||
FOOD & STAPLES RETAILING–4.0% | ||||||||
Walgreens Boots Alliance, Inc. | 87,490 | 5,978,192 | ||||||
Walmart, Inc. | 326,327 | $ | 30,397,360 | |||||
|
| |||||||
36,375,552 | ||||||||
|
| |||||||
TOBACCO–1.2% | ||||||||
Altria Group, Inc. | 209,530 | 10,348,687 | ||||||
|
| |||||||
46,724,239 | ||||||||
|
| |||||||
REAL ESTATE–3.9% | ||||||||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–2.0% | ||||||||
Regency Centers Corp. | 311,480 | 18,277,646 | ||||||
|
| |||||||
REAL ESTATE MANAGEMENT & DEVELOPMENT–1.9% | ||||||||
CBRE Group, Inc.– | 435,890 | 17,453,036 | ||||||
|
| |||||||
35,730,682 | ||||||||
|
| |||||||
Total Common Stocks | 841,270,672 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–7.1% | ||||||||
INVESTMENT COMPANIES–7.1% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, | 64,547,475 | 64,547,475 | ||||||
|
| |||||||
TOTAL INVESTMENTS–100.0% | 905,818,147 | |||||||
Other assets less liabilities–0.0% | 274,303 | |||||||
|
| |||||||
NET ASSETS–100.0% | $ | 906,092,450 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Affiliated investments. |
(c) | The rate shown represents the7-day yield as of period end. |
(d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
7
GROWTH & INCOME PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $831,777,841) | $ | 841,270,672 | ||
Affiliated issuers (cost $64,547,475) | 64,547,475 | |||
Cash | 69 | |||
Unaffiliated dividends receivable | 1,349,579 | |||
Affiliated dividends receivable | 171,593 | |||
Receivable for capital stock sold | 130,289 | |||
|
| |||
Total assets | 907,469,677 | |||
|
| |||
LIABILITIES | ||||
Payable for capital stock redeemed | 677,386 | |||
Advisory fee payable | 401,046 | |||
Distribution fee payable | 158,306 | |||
Administrative fee payable | 17,636 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 122,647 | |||
|
| |||
Total liabilities | 1,377,227 | |||
|
| |||
NET ASSETS | $ | 906,092,450 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 33,068 | ||
Additionalpaid-in capital | 777,464,514 | |||
Distributable earnings | 128,594,868 | |||
|
| |||
$ | 906,092,450 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 133,188,219 | 4,795,136 | $ | 27.78 | |||||||
B | $ | 772,904,231 | 28,272,382 | $ | 27.34 |
See notes to financial statements.
8
GROWTH & INCOME PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $185,767) | $ | 17,667,645 | ||
Affiliated issuers | 1,331,950 | |||
Interest | 130,179 | |||
|
| |||
19,129,774 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 5,643,320 | |||
Distribution fee—Class B | 2,187,085 | |||
Transfer agency—Class A | 1,268 | |||
Transfer agency—Class B | 7,332 | |||
Custodian | 161,709 | |||
Printing | 83,327 | |||
Legal | 70,965 | |||
Administrative | 69,322 | |||
Audit and tax | 45,186 | |||
Directors’ fees | 24,782 | |||
Miscellaneous | 19,194 | |||
|
| |||
Total expenses | 8,313,490 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (91,810 | ) | ||
|
| |||
Net expenses | 8,221,680 | |||
|
| |||
Net investment income | 10,908,094 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS | ||||
Net realized gain on investment transactions | 111,242,634 | |||
Net change in unrealized appreciation/depreciation of investments | (176,425,722 | ) | ||
|
| |||
Net loss on investment transactions | (65,183,088 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (54,274,994 | ) | |
|
|
See notes to financial statements.
9
GROWTH & INCOME PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment income | $ | 10,908,094 | $ | 8,001,538 | ||||
Net realized gain on investment transactions | 111,242,634 | 116,524,792 | ||||||
Net change in unrealized appreciation/depreciation of investments | (176,425,722 | ) | 57,076,365 | |||||
Contributions from Affiliates (see Note B) | –0 | – | 73,379 | ^ | ||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (54,274,994 | ) | 181,676,074 | |||||
Distributions to Shareholders* | ||||||||
Class A | (18,264,930 | ) | (15,015,370 | ) | ||||
Class B | (104,977,978 | ) | (90,035,597 | ) | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net increase (decrease) | 17,496,207 | (53,100,913 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | (160,021,695 | ) | 23,524,194 | |||||
NET ASSETS | ||||||||
Beginning of period | 1,066,114,145 | 1,042,589,951 | ||||||
|
|
|
| |||||
End of period | $ | 906,092,450 | $ | 1,066,114,145 | ||||
|
|
|
|
^ | Amount reclassified. |
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note J, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
10
GROWTH & INCOME PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Growth & Income Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
11
GROWTH & INCOME PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: |
| |||||||||||||||
Common Stocks(a) | $ | 841,270,672 | $ | –0 | – | $ | –0 | – | $ | 841,270,672 | ||||||
Short-Term Investments | 64,547,475 | –0 | – | –0 | – | 64,547,475 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 905,818,147 | –0 | – | –0 | – | 905,818,147 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 905,818,147 | $ | –0 | – | $ | –0 | – | $ | 905,818,147 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the
12
AB Variable Products Series Fund |
Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific
13
GROWTH & INCOME PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,322.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $73,379 in connection with an error made by the Adviser in processing a claim for class action settlement proceeds on behalf of the Portfolio.
14
AB Variable Products Series Fund |
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $78,681.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 333,484 | $ | 268,937 | $ | 64,547 | $ | 1,279 | ||||||||||
Government Money Market Portfolio* | 20,366 | 162,484 | 182,850 | 0 | 53 | |||||||||||||||
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| |||||||||||||||||
Total | $ | 64,547 | $ | 1,332 | ||||||||||||||||
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* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $415,963, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 872,171,703 | $ | 921,401,619 | ||||
U.S. government securities | –0 | – | –0 | – |
15
GROWTH & INCOME PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 900,335,715 | ||
|
| |||
Gross unrealized appreciation | $ | 74,162,475 | ||
Gross unrealized depreciation | (68,680,043 | ) | ||
|
| |||
Net unrealized appreciation | $ | 5,482,432 | ||
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $52,663 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $13,129. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
16
AB Variable Products Series Fund |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 577,389 | 537,077 | $ | 18,280,433 | $ | 17,105,671 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 587,297 | 502,186 | 18,264,931 | 15,015,370 | ||||||||||||||||
Shares redeemed | (1,146,686 | ) | (1,257,989 | ) | (36,663,199 | ) | (40,491,419 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net increase (decrease) | 18,000 | (218,726 | ) | $ | (117,835 | ) | $ | (8,370,378 | ) | |||||||||||
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|
| |||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 1,754,622 | 1,205,291 | $ | 54,964,533 | $ | 38,159,810 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 3,426,174 | 3,051,020 | 104,977,978 | 90,035,597 | ||||||||||||||||
Shares redeemed | (4,484,525 | ) | (5,445,755 | ) | (142,328,469 | ) | (172,925,942 | ) | ||||||||||||
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|
| |||||||||||||
Net increase (decrease) | 696,271 | (1,189,444 | ) | $ | 17,614,042 | $ | (44,730,535 | ) | ||||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 61% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Industry/Sector Risk—Investments in a particular industry or group of related industries may have more risk because market or economic factors affecting that industry could have a significant effect on the value of the Portfolio’s investments.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
17
GROWTH & INCOME PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 37,164,764 | $ | 21,981,056 | ||||
Net long-term capital gains | 86,078,144 | 83,069,911 | ||||||
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| |||||
Total taxable distributions paid | $ | 123,242,908 | $ | 105,050,967 | ||||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 32,356,686 | ||
Undistributed capital gains | 90,755,752 | |||
Unrealized appreciation/(depreciation) | 5,482,432 | (a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 128,594,870 | ||
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(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
At a meeting held on November6-8, 2018, the Board of the Fund approved the acquisition of the assets and assumption of the liabilities of AB Value Portfolio (the “Acquired Portfolio,” and together with the Portfolio, the “Portfolios”) by the Portfolio, each a series of the Fund. The Portfolios have the same investment objective and certain similarities in investment strategies, as both Portfolios seek long-term growth of capital and invest in the securities of U.S. companies, using a value approach to investing.
At the time of the acquisition, all of the Acquired Portfolio’s assets and liabilities will be transferred to the Portfolio, and shareholders of the Acquired Portfolio will receive shares of the same class of the Portfolio.
The Acquired Portfolio will distribute to its shareholders information about the acquisition. The acquisition does not require approval of either Portfolio’s shareholders. The acquisition is expected to be consummated on or about April 18, 2019.
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
18
GROWTH & INCOME PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $33.35 | $31.21 | $30.12 | $30.04 | $27.80 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .41 | (b) | .31 | (b) | .43 | (b)† | .37 | .40 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (1.84 | ) | 5.21 | 2.84 | .14 | 2.23 | ||||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net increase (decrease) in net asset value from operations | (1.43 | ) | 5.52 | 3.27 | .51 | 2.63 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.34 | ) | (.49 | ) | (.32 | ) | (.43 | ) | (.39 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (3.80 | ) | (2.89 | ) | (1.86 | ) | –0 | – | –0 | – | ||||||||||
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Total dividends and distributions | (4.14 | ) | (3.38 | ) | (2.18 | ) | (.43 | ) | (.39 | ) | ||||||||||
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Net asset value, end of period | $27.78 | $33.35 | $31.21 | $30.12 | $30.04 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | (5.61 | )% | 18.93 | % | 11.30 | %† | 1.70 | % | 9.54 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $133,188 | $159,324 | $155,924 | $150,801 | $168,135 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .59 | %(e)‡ | .60 | % | .61 | % | .60 | % | .60 | % | ||||||||||
Expenses, before waivers/reimbursements | .60 | %(e)‡ | .60 | % | .61 | % | .60 | % | .60 | % | ||||||||||
Net investment income | 1.28 | %(b) | .97 | %(b) | 1.46 | %(b)† | 1.21 | % | 1.39 | % | ||||||||||
Portfolio turnover rate | 96 | % | 85 | % | 101 | % | 73 | % | 51 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .01 | % | 0 | % | 0 | % | 0 | % | 0 | % |
See footnote summary on page 21.
19
GROWTH & INCOME PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $32.88 | $30.82 | $29.78 | $29.71 | $27.49 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .33 | (b) | .23 | (b) | .36 | (b)† | .29 | .32 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (1.81 | ) | 5.14 | 2.79 | .14 | 2.22 | ||||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net increase (decrease) in net asset value from operations | (1.48 | ) | 5.37 | 3.15 | .43 | 2.54 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.26 | ) | (.42 | ) | (.25 | ) | (.36 | ) | (.32 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (3.80 | ) | (2.89 | ) | (1.86 | ) | –0 | – | –0 | – | ||||||||||
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Total dividends and distributions | (4.06 | ) | (3.31 | ) | (2.11 | ) | (.36 | ) | (.32 | ) | ||||||||||
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Net asset value, end of period | $27.34 | $32.88 | $30.82 | $29.78 | $29.71 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | (5.84 | )% | 18.59 | % | 11.07 | %† | 1.43 | % | 9.29 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $772,904 | $906,790 | $886,666 | $646,424 | $701,442 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .84 | %(e)‡ | .85 | % | .86 | % | .85 | % | .85 | % | ||||||||||
Expenses, before waivers/reimbursements | .85 | %(e)‡ | .85 | % | .86 | % | .85 | % | .85 | % | ||||||||||
Net investment income | 1.03 | %(b) | .72 | %(b) | 1.21 | %(b)† | .96 | % | 1.14 | % | ||||||||||
Portfolio turnover rate | 96 | % | 85 | % | 101 | % | 73 | % | 51 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of the affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | .01 | % | 0 | % | 0 | % | 0 | % | 0 | % |
See footnote summary on page 21.
20
AB Variable Products Series Fund |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2018, such waiver amounted to .01%. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.002 | .01% | .01% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 by .02%, .68%, .03%, .14% and .11%, respectively. |
Includes the impact of a reimbursement from the Adviser as a result of an error made by the Adviser in processing a claim for class action settlement, which enhanced the Fund’s performance for the year ended December 31, 2017 by.01%. |
See notes to financial statements.
21
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Growth & Income Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Growth & Income Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
22
2018 FEDERAL TAX INFORMATION (unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 39.24% of dividends paid qualify for the dividends received deduction.
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GROWTH & INCOME PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Growth and Income Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr. | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
27,240,096 | 618,436 | 1,080,416 |
24
GROWTH & INCOME PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Frank V. Caruso(2),Vice President John H. Fogarty,Vice President Vinay Thapar, Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIANAND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
(2) | Theday-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by Messrs. Caruso, Fogarty and Thapar are, members of the Adviser’s Relative Value Investment Team. |
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GROWTH & INCOME PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, # 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr. ## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semiconductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semiconductors) since 2007 | |||||
Michael J. Downey, ## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
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AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, ## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen, ## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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GROWTH & INCOME PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, ## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner, ## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
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AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS,* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Frank V. Caruso 62 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of US Growth Equities. | ||
John H. Fogarty 49 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Vinay Thapar 40 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABIS and ABI are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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GROWTH & INCOME PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Growth and Income Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement,
30
AB Variable Products Series Fund |
including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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GROWTH & INCOME PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Growth and Income Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
33
GROWTH & INCOME PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors noted that the Fund was not profitable to the Adviser in 2016. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund in 2017 was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s recent profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
34
AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
35
VPS-GI-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | INTERMEDIATE BOND PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
INTERMEDIATE BOND PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Intermediate Bond Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. The Portfolio invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Portfolio expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term and relatively attractive yields that do not involve undue risk of loss of capital. The Portfolio expects to invest in fixed-income securities with a dollar-weighted average maturity of between three to 10 years and an average duration of three to six years. The Portfolio may invest up to 25% of its net assets in below investment-grade bonds (commonly known as “junk bonds”). The Portfolio may use leverage for investment purposes.
The Portfolio may invest without limit in US dollar-denominated foreign fixed-income securities and may invest up to 25% of its assets innon-US dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed- and emerging-market debt securities.
The Portfolio may invest in mortgage-related and other asset-backed securities, loan participations, inflation-indexed securities, structured securities, variable, floating and inverse floating-rate instruments, and preferred stock, and may use other investment techniques. The Portfolio intends, among other things, to enter into transactions such as reverse repurchase agreements and dollar rolls. The Portfolio may invest, without limit, in derivatives, such as options, futures contracts, forwards and swaps.
INVESTMENT RESULTS
The table on page 4 shows the Portfolio’s performance compared to its benchmark, the Bloomberg Barclays US Aggregate Bond Index, for theone-, five- and10-year periods ended December 31, 2018.
During the annual period, all share classes of the Portfolio underperformed the benchmark. Sector allocation detracted from relative performance, primarily the result of exposures to high-yield corporates, inflation-linked securities and collateralized mortgage obligations. An allocation to credit risk-transfer securities (“CRTs”) was positive. CRTs are issued by Fannie Mae, Freddie Mac and other mortgage insurers that transfer the credit risk from homeowner defaults on residential mortgages to investors. Security decisions added to returns, helped most by selection within commercial mortgage-backed securities and investment-grade corporates. The Portfolio’s shorter-than-benchmark duration positioning was also positive, as US yields rose. Within country positioning, a short duration position in the eurozone versus the US detracted. Currency positioning contributed, led by long and short positions in the Mexican peso as well as short positions in the British pound and the Australian dollar. This was partly offset by long positions in the Brazilian real, Malaysian ringgit and the Argentine peso.
During the annual period, the Portfolio utilized currency forwards to hedge currency risk and actively manage currency positions. Credit default swaps were utilized in the corporate and commercial mortgage-backed securities sectors for hedging and investment purposes. Treasury futures and interest rate swaps were utilized to manage duration, country exposure and yield-curve positioning. Variance swaps were used for hedging purposes and had an immaterial impact on returns. Interest rate swaptions, both written and purchased, were used for investment purposes to take active yield-curve positioning.
MARKET REVIEW AND INVESTMENT STRATEGY
Fixed-income markets had mixed performance over the annual period, amid concerns over tighter monetary policy, global trade tensions, geopolitical uncertainty and the health of the global economy. Developed-market treasuries rallied, while investment-grade securities posted neutral returns, and high-yield and emerging-market debt sectors sold off. Developed-market yield curves moved in different directions. The US Federal Reserve raised interest rates four times in 2018 and began to formally reduce its balance sheet, as widely anticipated, but at the very end of the period signaled a possible slowdown in its pace of rate hikes, leading markets to remove all 2019 hikes that had previously been priced in. Meanwhile, as announced earlier in the year, the European Central Bank ended its bond buying program in December.
Over the period, US yields rose dramatically, with10- and30-year Treasuries touching multiyear highs, on the back of higher inflation forecasts and a robust US labor market. The US administration announced tariffs on imports from China, the European Union, Mexico and Canada, all of which reciprocated with tariffs on the US, triggering a global trade war. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality. In emerging markets, slowing Chinese growth andUS-China trade tensions dampened investor sentiment, though at the end of the period investors responded well to some signs of progress in trade negotiations.
1
INTERMEDIATE BOND PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Bloomberg Barclays US Aggregate Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio.The Bloomberg Barclays US Aggregate Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for government and corporate securities, mortgage pass-through securities, asset-backed securities and commercial mortgage-backed securities. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest-Rate Risk: Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest-rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security 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 Security Risk:Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest-rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk: Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, generally a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk:This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk:Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk:Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Mortgage-Related and/or Other Asset-Backed Securities Risk:Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the
(Disclosures, Risks and Note About Historical Performance continued on next page)
2
AB Variable Products Series Fund |
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 Portfolio to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by nongovernmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
Leverage Risk:To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Liquidity Risk:Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest-rate environment, when the value and liquidity of fixed-income securities generally decline.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Active Trading Risk: The Portfolio expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Portfolio’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Contractholders.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
3
INTERMEDIATE BOND PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARK | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Intermediate Bond Portfolio Class A | -0.72% | 2.76% | 5.08% | |||||||||
Intermediate Bond Portfolio Class B | -1.01% | 2.49% | 4.82% | |||||||||
Bloomberg Barclays US Aggregate Bond Index | 0.01% | 2.52% | 3.48% | |||||||||
1 Average annual returns. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 1.11% and 1.36% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Intermediate Bond Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages 2-3.
4
INTERMEDIATE BOND PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees of other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees of other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,006.20 | $ | 6.02 | 1.19 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.21 | $ | 6.06 | 1.19 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 1,004.30 | $ | 7.27 | 1.44 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,017.95 | $ | 7.32 | 1.44 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
5
INTERMEDIATE BOND PORTFOLIO | ||
TOP TEN SECTORS (including derivatives)1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
Corporates—Investment Grade2 | 24.1 | % | ||
Mortgage Pass-Throughs | 19.4 | |||
Commercial Mortgage-Backed Securities2 | 14.7 | |||
Interest Rate Swaps3 | 13.5 | |||
Asset-Backed Securities | 8.9 | |||
Interest Rate Futures | 8.7 | |||
Collateralized Mortgage Obligations | 8.5 | |||
Governments—Treasuries4 | 8.0 | |||
Inflation-Linked Securities | 5.0 | |||
Agencies | 3.6 |
SECTOR BREAKDOWN (excluding derivatives)5
December 31, 2018 (unaudited)
Corporates—Investment Grade | 25.3 | % | ||
Mortgage Pass-Throughs | 19.0 | |||
Commercial Mortgage-Backed Securities | 12.6 | |||
Asset-Backed Securities | 8.7 | |||
Collateralized Mortgage Obligations | 8.3 | |||
Governments—Treasuries | 7.8 | |||
Inflation-Linked Securities | 4.9 | |||
Agencies | 3.5 | |||
Corporates—Non-Investment Grade | 3.5 | |||
Local Governments—US Municipal Bonds | 0.6 | |||
Preferred Stocks | 0.2 | |||
Emerging Markets—Corporate Bonds | 0.1 | |||
Quasi-Sovereigns | 0.1 | |||
Emerging Markets—Treasuries | 0.1 | |||
Short-Term Investments | 5.3 |
1 | All data are as of December 31, 2018. The Portfolio’s sectors include derivative exposure and are expressed as approximate percentages of the Portfolio’s total net assets, based on the Adviser’s internal classification. The percentages will vary over time. |
2 | Includes Credit Default Swaps. |
3 | Represents the exposure of the Portfolio’s fixed-rate payments on the Interest Rate Swaps. Interest Rate Swaps involve the exchange by a fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating-rate payments for fixed-rate payments). |
4 | Includes Treasury Futures. |
5 | All data are as of December 31, 2018. The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
6
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
CORPORATES–INVESTMENT GRADE–25.8% |
| |||||||||||
FINANCIAL INSTITUTIONS–12.6% |
| |||||||||||
BANKING–11.3% | ||||||||||||
Banco Santander SA | EUR | 100 | $ | 117,344 | ||||||||
3.50%, 4/11/22 | U.S.$ | 200 | 195,952 | |||||||||
Bank of America Corp. | 27 | 27,443 | ||||||||||
Series L | 360 | 348,887 | ||||||||||
Series V | 90 | 87,856 | ||||||||||
Series Z | 41 | 42,064 | ||||||||||
Banque Federative du Credit Mutuel SA | 200 | 197,750 | ||||||||||
BB&T Corp. | 45 | 44,586 | ||||||||||
BNP Paribas SA | 200 | 194,930 | ||||||||||
Capital One Financial Corp. | 135 | 127,512 | ||||||||||
Citigroup, Inc. | 299 | 299,260 | ||||||||||
Commonwealth Bank of Australia | 52 | 51,517 | ||||||||||
Compass Bank | 250 | 253,900 | ||||||||||
Cooperatieve Rabobank UA | 250 | 245,545 | ||||||||||
Credit Suisse Group Funding Guernsey Ltd. | 265 | 260,270 | ||||||||||
Goldman Sachs Group, Inc. (The) | 118 | 113,687 | ||||||||||
3.75%, 5/22/25 | 53 | 50,671 | ||||||||||
3.85%, 7/08/24 | 100 | 97,426 | ||||||||||
Series D | 195 | 201,802 | ||||||||||
HSBC Holdings PLC | 203 | 197,328 | ||||||||||
ING Groep NV | 200 | 200,014 | ||||||||||
JPMorgan Chase & Co. | 140 | 135,288 | ||||||||||
3.54%, 5/01/28 | 105 | 99,972 | ||||||||||
Series Z | 22 | 21,752 | ||||||||||
Manufacturers & Traders Trust Co. | 250 | 246,630 | ||||||||||
Morgan Stanley | U.S.$ | 75 | $ | 74,348 | ||||||||
5.00%, 11/24/25 | 60 | 61,024 | ||||||||||
Series G | 186 | 180,413 | ||||||||||
MUFG Bank Ltd. | 200 | 197,904 | ||||||||||
PNC Bank NA | 250 | 247,702 | ||||||||||
Santander Holdings USA, Inc. | 140 | 132,157 | ||||||||||
UBS Group Funding Switzerland AG | 200 | 198,866 | ||||||||||
US Bancorp | 63 | 59,193 | ||||||||||
Wells Fargo & Co. | 113 | 109,744 | ||||||||||
|
| |||||||||||
5,120,737 | ||||||||||||
|
| |||||||||||
FINANCE–0.3% | ||||||||||||
Synchrony Financial | 147 | 133,427 | ||||||||||
|
| |||||||||||
INSURANCE–0.6% | ||||||||||||
American International Group, Inc. | 57 | 49,880 | ||||||||||
Hartford Financial Services Group, Inc. (The) | 31 | 31,789 | ||||||||||
Nationwide Mutual Insurance Co. | 35 | 52,445 | ||||||||||
New York Life Global Funding | 129 | 127,517 | ||||||||||
|
| |||||||||||
261,631 | ||||||||||||
|
| |||||||||||
REITS–0.4% | ||||||||||||
American Tower Corp. | 35 | 34,981 | ||||||||||
Host Hotels & Resorts LP | 6 | 5,852 | ||||||||||
Welltower, Inc. | 146 | 143,560 | ||||||||||
|
| |||||||||||
184,393 | ||||||||||||
|
| |||||||||||
5,700,188 | ||||||||||||
|
| |||||||||||
INDUSTRIAL–12.4% | ||||||||||||
BASIC–1.0% | ||||||||||||
DowDuPont, Inc. | 65 | 66,459 | ||||||||||
4.493%, 11/15/25 | 65 | 66,873 | ||||||||||
Eastman Chemical Co. | 50 | 48,190 |
7
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
Glencore Funding LLC | U.S.$ | 58 | $ | 57,425 | ||||||||
Vale Overseas Ltd. | 135 | 145,800 | ||||||||||
Yamana Gold, Inc. | 81 | 79,019 | ||||||||||
|
| |||||||||||
463,766 | ||||||||||||
|
| |||||||||||
CAPITAL GOODS–0.5% | ||||||||||||
Embraer Netherlands Finance BV | 85 | 87,762 | ||||||||||
General Electric Co. | 40 | 30,718 | ||||||||||
United Technologies Corp. | 90 | 89,379 | ||||||||||
|
| |||||||||||
207,859 | ||||||||||||
|
| |||||||||||
COMMUNICATIONS–MEDIA–1.1% |
| |||||||||||
Charter Communications Operating LLC/ | 135 | 134,002 | ||||||||||
Comcast Corp. | 95 | 96,427 | ||||||||||
Cox Communications, Inc. | 51 | 49,090 | ||||||||||
Time Warner Cable LLC | 200 | 201,326 | ||||||||||
|
| |||||||||||
480,845 | ||||||||||||
|
| |||||||||||
COMMUNICATIONS– |
| |||||||||||
AT&T, Inc. | 310 | 292,029 | ||||||||||
4.125%, 2/17/26 | 147 | 143,748 | ||||||||||
Verizon Communications, Inc. | 75 | 73,796 | ||||||||||
Vodafone Group PLC | 40 | 39,338 | ||||||||||
4.125%, 5/30/25 | 88 | 86,943 | ||||||||||
|
| |||||||||||
635,854 | ||||||||||||
|
| |||||||||||
CONSUMER CYCLICAL– |
| |||||||||||
General Motors Financial Co., Inc. | 110 | 109,980 | ||||||||||
4.00%, 1/15/25 | 23 | 21,488 | ||||||||||
4.30%, 7/13/25 | 30 | 28,348 | ||||||||||
|
| |||||||||||
159,816 | ||||||||||||
|
| |||||||||||
CONSUMER |
| |||||||||||
AmerisourceBergen Corp. | 50 | 42,604 | ||||||||||
Becton Dickinson and Co. | U.S.$ | 40 | $ | 38,677 | ||||||||
Biogen, Inc. | 144 | 143,538 | ||||||||||
Cigna Corp. | 37 | 36,909 | ||||||||||
4.125%, 11/15/25(a) | 45 | 44,904 | ||||||||||
4.375%, 10/15/28(a) | 58 | 58,274 | ||||||||||
CVS Health Corp. | 60 | 59,387 | ||||||||||
4.30%, 3/25/28 | 60 | 58,720 | ||||||||||
Mylan, Inc. | 150 | 140,837 | ||||||||||
Reynolds American, Inc. | 50 | 52,011 | ||||||||||
Takeda Pharmaceutical Co., Ltd. | 200 | 202,278 | ||||||||||
Tyson Foods, Inc. | 39 | 38,798 | ||||||||||
3.95%, 8/15/24 | 48 | 47,685 | ||||||||||
Zimmer Biomet Holdings, Inc. | 51 | 50,396 | ||||||||||
Zoetis, Inc. | 45 | 45,129 | ||||||||||
|
| |||||||||||
1,060,147 | ||||||||||||
|
| |||||||||||
ENERGY–4.2% | ||||||||||||
Cenovus Energy, Inc. | 12 | 11,375 | ||||||||||
4.25%, 4/15/27 | 176 | 160,264 | ||||||||||
5.70%, 10/15/19 | 14 | 14,047 | ||||||||||
Encana Corp. | 45 | 44,988 | ||||||||||
Energy Transfer Operating LP | 175 | 169,787 | ||||||||||
Enterprise Products Operating LLC | 161 | 157,292 | ||||||||||
5.20%, 9/01/20 | 55 | 56,618 | ||||||||||
Hess Corp. | 109 | 99,920 | ||||||||||
Kinder Morgan Energy Partners LP | 50 | 53,617 | ||||||||||
Kinder Morgan, Inc./DE | 150 | 145,470 | ||||||||||
4.30%, 3/01/28 | 91 | 89,146 | ||||||||||
Marathon Oil Corp. | 100 | 109,885 | ||||||||||
Noble Energy, Inc. | 30 | 27,257 | ||||||||||
3.90%, 11/15/24 | 107 | 103,222 | ||||||||||
4.15%, 12/15/21 | 40 | 40,102 | ||||||||||
Plains All American Pipeline LP/PAA Finance Corp. | 137 | 129,912 |
8
AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
Sabine Pass Liquefaction LLC | U.S.$ | 80 | $ | 80,525 | ||||||||
5.625%, 3/01/25 | 161 | 167,751 | ||||||||||
TransCanada PipeLines Ltd. | 108 | 120,505 | ||||||||||
Western Gas Partners LP | 30 | 28,119 | ||||||||||
4.75%, 8/15/28 | 20 | 19,116 | ||||||||||
Williams Cos., Inc. (The) | 97 | 97,727 | ||||||||||
|
| |||||||||||
1,926,645 | ||||||||||||
|
| |||||||||||
SERVICES–0.6% | ||||||||||||
Expedia Group, Inc. | 94 | 85,324 | ||||||||||
S&P Global, Inc. | 127 | 130,868 | ||||||||||
Total System Services, Inc. | 43 | 42,931 | ||||||||||
|
| |||||||||||
259,123 | ||||||||||||
|
| |||||||||||
TECHNOLOGY–1.0% | ||||||||||||
Broadcom Corp./Broadcom Cayman Finance Ltd. | 28 | 26,477 | ||||||||||
3.875%, 1/15/27 | 62 | 55,592 | ||||||||||
Dell International LLC/EMC Corp. | 53 | 54,007 | ||||||||||
6.02%, 6/15/26(a) | 78 | 78,370 | ||||||||||
KLA-Tencor Corp. | 134 | 137,227 | ||||||||||
Lam Research Corp. | 39 | 38,458 | ||||||||||
Seagate HDD Cayman | 75 | 66,752 | ||||||||||
|
| |||||||||||
456,883 | ||||||||||||
|
| |||||||||||
5,650,938 | ||||||||||||
|
| |||||||||||
UTILITY–0.8% | ||||||||||||
ELECTRIC–0.8% | ||||||||||||
Enel Chile SA | 68 | 67,453 | ||||||||||
Exelon Generation Co. LLC | 81 | 80,391 | ||||||||||
Israel Electric Corp., Ltd. | 200 | 201,500 | ||||||||||
|
| |||||||||||
349,344 | ||||||||||||
|
| |||||||||||
Total Corporates–Investment Grade | 11,700,470 | |||||||||||
|
| |||||||||||
MORTGAGE PASS-THROUGHS–19.4% | ||||||||||||
AGENCY FIXED RATE15-YEAR–2.4% | ||||||||||||
Federal National Mortgage Association | 1,119 | 1,095,210 | ||||||||||
|
| |||||||||||
AGENCY FIXED RATE30-YEAR–17.0% | ||||||||||||
Federal Home Loan Mortgage Corp. Gold | U.S.$ | 72 | $ | 77,459 | ||||||||
Series 2007 | 21 | 22,402 | ||||||||||
Series 2016 | 222 | 228,333 | ||||||||||
Series 2017 | 176 | 181,271 | ||||||||||
Series 2018 | 220 | 224,204 | ||||||||||
4.50%, 10/01/48–11/01/48 | 442 | 459,878 | ||||||||||
5.00%, 11/01/48 | 120 | 126,412 | ||||||||||
Federal National Mortgage Association | ||||||||||||
Series 2003 | 67 | 72,152 | ||||||||||
Series 2004 | 60 | 64,624 | ||||||||||
Series 2005 | 71 | 75,952 | ||||||||||
Series 2010 | 105 | 108,305 | ||||||||||
Series 2013 | 413 | 424,720 | ||||||||||
Series 2017 | 345 | 345,059 | ||||||||||
Series 2018 | 3,585 | 3,587,291 | ||||||||||
4.00%, 8/01/48–12/01/48 | 487 | 497,917 | ||||||||||
4.50%, 9/01/48 | 395 | 411,249 | ||||||||||
Series 2019 | 320 | 326,175 | ||||||||||
5.00% FNCL, 1/01/49, TBA | 185 | 193,730 | ||||||||||
Government National Mortgage Association | ||||||||||||
Series 1994 | 1 | 1,073 | ||||||||||
Series 2016 | 257 | 253,895 | ||||||||||
|
| |||||||||||
7,682,101 | ||||||||||||
|
| |||||||||||
Total Mortgage Pass-Throughs | 8,777,311 | |||||||||||
|
| |||||||||||
COMMERCIAL MORTGAGE-BACKED SECURITIES–12.8% |
| |||||||||||
NON-AGENCY FIXED RATE CMBS–9.6% |
| |||||||||||
CCUBS Commercial Mortgage Trust | 155 | 153,579 |
9
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
CFCRE Commercial Mortgage Trust | U.S.$ | 115 | $ | 112,285 | ||||||||
CGRBS Commercial Mortgage Trust | 260 | 262,841 | ||||||||||
Citigroup Commercial Mortgage Trust | ||||||||||||
Series 2015-GC27, Class A5 | 144 | 141,231 | ||||||||||
Series 2015-GC35, Class A4 | 55 | 55,858 | ||||||||||
Series2016-C1, Class A4 | 192 | 188,515 | ||||||||||
Series 2016-GC36, Class A5 | 65 | 65,133 | ||||||||||
Commercial Mortgage Trust | ||||||||||||
Series2013-SFS, Class A1 | 62 | 59,905 | ||||||||||
Series 2014-UBS3, Class A4 | 130 | 132,649 | ||||||||||
Series 2014-UBS5, Class A4 | 130 | 132,746 | ||||||||||
Series 2015-CR24, Class A5 | 65 | 65,732 | ||||||||||
Series2015-DC1, Class A5 | 80 | 79,358 | ||||||||||
CSAIL Commercial Mortgage Trust | ||||||||||||
Series2015-C2, Class A4 | 100 | 99,947 | ||||||||||
Series2015-C3, Class A4 | 117 | 117,559 | ||||||||||
Series2015-C4, Class A4 | 215 | 217,846 | ||||||||||
GS Mortgage Securities Corp. II | 223 | 222,092 | ||||||||||
GS Mortgage Securities Trust | ||||||||||||
Series2013-G1, Class A2 | 136 | 135,149 | ||||||||||
Series2018-GS9, Class A4 | 75 | 76,305 | ||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust | ||||||||||||
Series 2006-LDP9, Class AM | 22 | 21,887 | ||||||||||
Series2012-C6, Class D | U.S.$ | 110 | $ | 108,627 | ||||||||
Series2012-C6, Class E | 132 | 119,775 | ||||||||||
JPMBB Commercial Mortgage Securities Trust | ||||||||||||
Series2014-C21, Class A5 | 100 | 101,545 | ||||||||||
Series2014-C22, Class XA | 2,801 | 107,932 | ||||||||||
Series2015-C30, Class A5 | 65 | 66,208 | ||||||||||
Series2015-C31, Class A3 | 195 | 198,571 | ||||||||||
LB-UBS Commercial Mortgage Trust | 26 | 17,869 | ||||||||||
LSTAR Commercial Mortgage Trust | 159 | 155,238 | ||||||||||
Morgan Stanley Capital I Trust | 100 | 100,002 | ||||||||||
UBS Commercial Mortgage Trust | ||||||||||||
Series2018-C10, Class A4 | 125 | 130,528 | ||||||||||
Series2018-C8, Class A4 | 100 | 101,933 | ||||||||||
Series2018-C9, Class A4 | 125 | 128,704 | ||||||||||
UBS-Barclays Commercial Mortgage Trust | 112 | 110,812 | ||||||||||
Wells Fargo Commercial Mortgage Trust | ||||||||||||
Series2016-C35, Class XA | 973 | 107,355 | ||||||||||
Series 2016-LC25, Class C | 85 | 84,088 | ||||||||||
Series 2016-NXS6, Class C | 100 | 99,759 | ||||||||||
WF-RBS Commercial Mortgage Trust | ||||||||||||
Series2013-C11, Class XA | 1,305 | 52,453 | ||||||||||
Series2014-C19, Class A5 | 130 | 134,400 | ||||||||||
Series2014-C20, Class A2 | 94 | 93,667 | ||||||||||
|
| |||||||||||
4,360,083 | ||||||||||||
|
|
10
AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
NON-AGENCY FLOATING RATE CMBS–3.2% |
| |||||||||||
Ashford Hospitality Trust | U.S.$ | 100 | $ | 99,716 | ||||||||
Atrium Hotel Portfolio Trust | 100 | 99,618 | ||||||||||
BAMLL Commercial Mortgage Securities Trust | 185 | 183,828 | ||||||||||
BHMS | 100 | 98,835 | ||||||||||
BX Trust | ||||||||||||
Series2017-IMC, Class A | 135 | 133,573 | ||||||||||
Series 2018-EXCL, Class A | 95 | 94,080 | ||||||||||
Credit Suisse Mortgage Trust | 100 | 99,884 | ||||||||||
DBWF Mortgage Trust | 100 | 98,935 | ||||||||||
Great Wolf Trust | 93 | 91,264 | ||||||||||
RETL | 70 | 70,299 | ||||||||||
Starwood Retail Property Trust | 178 | 177,620 | ||||||||||
Waldorf Astoria Boca Raton Trust | 211 | 210,587 | ||||||||||
|
| |||||||||||
1,458,239 | ||||||||||||
|
| |||||||||||
Total Commercial Mortgage-Backed Securities | 5,818,322 | |||||||||||
|
| |||||||||||
ASSET-BACKED SECURITIES–8.9% |
| |||||||||||
AUTOS–FIXED RATE–4.5% |
| |||||||||||
AmeriCredit Automobile Receivables Trust | U.S.$ | 19 | $ | 18,969 | ||||||||
Avis Budget Rental Car Funding AESOP LLC | ||||||||||||
Series2013-2A, Class A | 96 | 95,967 | ||||||||||
Series2016-1A, Class A | 100 | 99,390 | ||||||||||
Series2018-2A, Class A | 105 | 107,727 | ||||||||||
DT Auto Owner Trust | 45 | 44,501 | ||||||||||
Exeter Automobile Receivables Trust | ||||||||||||
Series2016-3A, Class D | 100 | 103,152 | ||||||||||
Series2017-1A, Class D | 100 | 103,362 | ||||||||||
Series2017-2A, Class A | 11 | 11,359 | ||||||||||
Series2017-3A, Class A | 45 | 44,246 | ||||||||||
Series2017-3A, Class C | 60 | 60,331 | ||||||||||
Flagship Credit Auto Trust | ||||||||||||
Series2016-4, Class D | 125 | 125,376 | ||||||||||
Series2017-3, Class A | 39 | 39,013 | ||||||||||
Series2018-3, Class B | 75 | 75,241 | ||||||||||
Ford Credit Auto Owner Trust | 257 | 255,226 | ||||||||||
Ford Credit Floorplan Master Owner Trust | 198 | 195,844 | ||||||||||
Series2016-1, Class A1 | 131 | 130,722 | ||||||||||
Series2017-1, Class A1 | 115 | 113,452 | ||||||||||
Hertz Vehicle Financing II LP | 115 | 114,427 | ||||||||||
Series2017-1A, Class A | 125 | 123,757 | ||||||||||
Hertz Vehicle Financing LLC | 125 | 126,034 |
11
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
Westlake Automobile Receivables Trust | U.S.$ | 53 | $ | 53,331 | ||||||||
|
| |||||||||||
2,041,427 | ||||||||||||
|
| |||||||||||
OTHER ABS–FIXED RATE–2.7% |
| |||||||||||
CLUB Credit Trust | 100 | 99,694 | ||||||||||
Series2017-P2, Class A 2.61%, 1/15/24(a)(c) | 44 | 44,227 | ||||||||||
CNH Equipment Trust | 86 | 85,274 | ||||||||||
Consumer Loan Underlying Bond Credit Trust | 73 | 72,704 | ||||||||||
Marlette Funding Trust | 9 | 8,781 | ||||||||||
Series2017-2A, Class A | 17 | 17,042 | ||||||||||
Series2017-3A, Class A | 32 | 31,716 | ||||||||||
Series2017-3A, Class B | 100 | 99,271 | ||||||||||
Series2018-3A, Class A | 94 | 93,713 | ||||||||||
Series2018-4A, Class A | 59 | 58,670 | ||||||||||
SBA Tower Trust | 147 | 145,534 | ||||||||||
SoFi Consumer Loan Program LLC | 32 | 32,016 | ||||||||||
Series2016-3, Class A | 38 | 37,801 | ||||||||||
Series2017-1, Class A | 37 | 36,976 | ||||||||||
Series2017-2, Class A | 45 | 44,516 | ||||||||||
Series2017-3, Class A | 52 | 51,897 | ||||||||||
Series2017-4, Class B | 130 | 128,903 | ||||||||||
Series2017-5, Class A2 | 110 | 108,858 | ||||||||||
SoFi Consumer Loan Program Trust | 56 | 55,197 | ||||||||||
|
| |||||||||||
1,252,790 | ||||||||||||
|
| |||||||||||
CREDIT CARDS–FIXED RATE–1.5% |
| |||||||||||
GE Capital Credit Card Master Note Trust | U.S.$ | 232 | $ | 231,913 | ||||||||
Synchrony Credit Card Master Note Trust | 130 | 129,742 | ||||||||||
World Financial Network Credit Card Master Trust | 110 | 109,252 | ||||||||||
Series2018-A, Class A | 130 | 129,613 | ||||||||||
Series2018-B, Class M | 70 | 70,780 | ||||||||||
|
| |||||||||||
671,300 | ||||||||||||
|
| |||||||||||
HOME EQUITY LOANS–FIXED RATE–0.1% |
| |||||||||||
Credit-Based Asset Servicing & Securitization LLC | 50 | 50,608 | ||||||||||
|
| |||||||||||
HOME EQUITY LOANS–FLOATING RATE– 0.1% |
| |||||||||||
ABFC Trust | 23 | 23,281 | ||||||||||
|
| |||||||||||
Total Asset-Backed Securities | 4,039,406 | |||||||||||
|
| |||||||||||
COLLATERALIZED MORTGAGE OBLIGATIONS–8.5% |
| |||||||||||
RISK SHARE FLOATING | ||||||||||||
Bellemeade Re Ltd. | 104 | 103,939 | ||||||||||
Series2018-2A, Class M1B 3.856% (LIBOR 1 Month + 1.35%), 8/25/28(a)(e) | 150 | 150,756 | ||||||||||
Series2018-3A, Class M1B 4.356% (LIBOR 1 Month + 1.85%), 10/25/27(a)(e) | 150 | 149,761 | ||||||||||
Connecticut Avenue Securities Trust Series2018-R07, Class 1M2 | 53 | 52,976 |
12
AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
Eagle RE Ltd. | U.S.$ | 150 | $ | 149,792 | ||||||||
Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes Series2014-DN4, Class M3 7.056% (LIBOR 1 Month + 4.55%), 10/25/24(e) | 185 | 202,101 | ||||||||||
Series 2015-HQA1, Class M2 5.156% (LIBOR 1 Month + 2.65%), 3/25/28(e) | 73 | 74,324 | ||||||||||
Federal National Mortgage Association Connecticut Avenue Securities | 44 | 46,016 | ||||||||||
Series2014-C04, Class 2M2 7.506% (LIBOR 1 Month + 5.00%), 11/25/24(e) | 41 | 45,617 | ||||||||||
Series2015-C01, Class 1M2 6.806% (LIBOR 1 Month + 4.30%), 2/25/25(e) | 60 | 64,582 | ||||||||||
Series2015-C01, Class 2M2 7.056% (LIBOR 1 Month + 4.55%), 2/25/25(e) | 46 | 49,195 | ||||||||||
Series2015-C02, Class 1M2 6.506% (LIBOR 1 Month + 4.00%), 5/25/25(e) | 74 | 79,661 | ||||||||||
Series2015-C02, Class 2M2 6.506% (LIBOR 1 Month + 4.00%), 5/25/25(e) | 79 | 84,288 | ||||||||||
Series2015-C03, Class 1M2 7.506% (LIBOR 1 Month + 5.00%), 7/25/25(e) | 93 | 102,459 | ||||||||||
Series2015-C03, Class 2M2 7.506% (LIBOR 1 Month + 5.00%), 7/25/25(e) | 72 | 78,850 | ||||||||||
Series2015-C04, Class 1M2 8.206% (LIBOR 1 Month + 5.70%), 4/25/28(e) | 116 | 130,586 | ||||||||||
Series2015-C04, Class 2M2 8.056% (LIBOR 1 Month + 5.55%), 4/25/28(e) | 101 | 112,963 | ||||||||||
Series2016-C01, Class 1M2 9.256% (LIBOR 1 Month + 6.75%), 8/25/28(e) | U.S.$ | 160 | $ | 187,574 | ||||||||
Series2016-C01, Class 2M2 9.456% (LIBOR 1 Month + 6.95%), 8/25/28(e) | 85 | 98,983 | ||||||||||
Series2016-C02, Class 1M2 8.506% (LIBOR 1 Month + 6.00%), 9/25/28(e) | 130 | 149,221 | ||||||||||
Series2016-C03, Class 2M2 8.406% (LIBOR 1 Month + 5.90%), 10/25/28(e) | 170 | 192,753 | ||||||||||
Series2016-C05, Class 2M2 6.956% (LIBOR 1 Month + 4.45%), 1/25/29(e) | 105 | 114,610 | ||||||||||
Series2017-C04, Class 2M2 5.356% (LIBOR 1 Month + 2.85%), 11/25/29(e) | 45 | 46,037 | ||||||||||
Home Re Ltd. | 150 | 149,433 | ||||||||||
Wells Fargo Credit Risk Transfer Securities Trust Series2015-WF1, Class 1M2 7.756% (LIBOR 1 Month + 5.25%), 11/25/25(e)(f) | 43 | 48,538 | ||||||||||
Series2015-WF1, Class 2M2 8.006% (LIBOR 1 Month + 5.50%), 11/25/25(e)(f) | 20 | 23,382 | ||||||||||
|
| |||||||||||
2,688,397 | ||||||||||||
|
| |||||||||||
AGENCY FLOATING RATE–1.2% |
| |||||||||||
Federal National Mortgage Association REMICs | ||||||||||||
Series2011-131, Class ST 4.034% (6.54%–LIBOR 1 Month), 12/25/41(e)(g) | 161 | 30,033 | ||||||||||
Series2012-70, Class SA 4.044% (6.55%–LIBOR 1 Month), 7/25/42(e)(g) | 296 | 57,140 | ||||||||||
Series2015-90, Class SL 3.644% (6.15%–LIBOR 1 Month), 12/25/45(e)(g) | 319 | 51,248 | ||||||||||
Series2016-77, Class DS 3.494% (6.00%–LIBOR 1 Month), 10/25/46(e)(g) | 319 | 50,510 | ||||||||||
Series2017-16, Class SG 3.544% (6.05%–LIBOR 1 Month), 3/25/47(e)(g) | 321 | 51,024 |
13
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
Series2017-26, Class TS 3.444% (5.95%–LIBOR 1 Month), 4/25/47(e)(g) | U.S.$ | 304 | $ | 52,459 | ||||||||
Series2017-62, Class AS 3.644% (6.15%–LIBOR 1 Month), 8/25/47(e)(g) | 322 | 52,482 | ||||||||||
Series2017-81, Class SA | 314 | 53,651 | ||||||||||
Series2017-97, Class LS | 319 | 57,141 | ||||||||||
Government National Mortgage Association | 271 | 44,213 | ||||||||||
Series2017-65, Class ST 3.68% (6.15%–LIBOR 1 Month), 4/20/47(e)(g) | 303 | 49,444 | ||||||||||
|
| |||||||||||
549,345 | ||||||||||||
|
| |||||||||||
NON-AGENCY FIXED RATE–1.0% |
| |||||||||||
Alternative Loan Trust | 17 | 16,123 | ||||||||||
Series 2005-57CB, Class 4A3 | 35 | 29,595 | ||||||||||
Series 2006-24CB, Class A16 | 67 | 55,121 | ||||||||||
Series 2006-28CB, Class A14 | 49 | 39,087 | ||||||||||
Series2006-J1, Class 1A13 | 38 | 33,466 | ||||||||||
Chase Mortgage Finance Trust | 24 | 19,057 | ||||||||||
Citigroup Mortgage Loan Trust, Inc. Series2005-2, Class 1A4 | 39 | 39,197 | ||||||||||
Countrywide Home Loan Mortgage Pass-Through Trust | 35 | 28,415 | ||||||||||
Series2006-13, Class 1A19 6.25%, 9/25/36 | 19 | 14,736 | ||||||||||
First Horizon Alternative Mortgage Securities Trust | 55 | 43,396 | ||||||||||
JP Morgan Alternative Loan Trust | U.S.$ | 118 | $ | 114,018 | ||||||||
Wells Fargo Mortgage Backed Securities Trust | 15 | 14,866 | ||||||||||
|
| |||||||||||
447,077 | ||||||||||||
|
| |||||||||||
NON-AGENCY FLOATING RATE–0.3% |
| |||||||||||
DeutscheAlt-A Securities Mortgage Loan Trust | 134 | 75,025 | ||||||||||
HomeBanc Mortgage Trust | 43 | 37,379 | ||||||||||
|
| |||||||||||
112,404 | ||||||||||||
|
| |||||||||||
AGENCY FIXED RATE–0.1% | ||||||||||||
Federal National Mortgage Association Grantor Trust | 50 | 46,889 | ||||||||||
|
| |||||||||||
Total Collateralized Mortgage Obligations | 3,844,112 | |||||||||||
|
| |||||||||||
GOVERNMENTS–TREASURIES–8.0% |
| |||||||||||
UNITED STATES–8.0% | ||||||||||||
U.S. Treasury Bonds | 363 | 327,486 | ||||||||||
2.75%, 11/15/47 | 122 | 115,462 | ||||||||||
3.00%, 11/15/45 | 1,653 | 1,648,210 | ||||||||||
3.125%, 5/15/48 | 297 | 302,615 | ||||||||||
3.50%, 2/15/39 | 30 | 32,803 | ||||||||||
4.50%, 2/15/36 | 99 | 121,987 | ||||||||||
5.375%, 2/15/31 | 120 | 152,475 | ||||||||||
6.25%, 5/15/30 | 179 | 239,603 | ||||||||||
U.S. Treasury Notes | 517 | 496,158 | ||||||||||
2.25%, 2/15/27 | 67 | 64,772 | ||||||||||
2.875%, 8/15/28 | 108 | 109,671 | ||||||||||
|
| |||||||||||
Total Governments–Treasuries | 3,611,242 | |||||||||||
|
|
14
AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
INFLATION-LINKED SECURITIES–5.0% |
| |||||||||||
JAPAN–1.2% | ||||||||||||
Japanese Government CPI Linked Bond | JPY | 60,515 | $ | 570,350 | ||||||||
|
| |||||||||||
UNITED STATES–3.8% |
| |||||||||||
U.S. Treasury Inflation Index | U.S.$ | 633 | 610,848 | |||||||||
0.375%, 7/15/25 (TIPS) | 757 | 730,234 | ||||||||||
0.625%, 7/15/21 (TIPS) | 370 | 366,255 | ||||||||||
|
| |||||||||||
1,707,337 | ||||||||||||
|
| |||||||||||
Total Inflation-Linked Securities | 2,277,687 | |||||||||||
|
| |||||||||||
AGENCIES–3.6% | ||||||||||||
AGENCY DEBENTURES–3.6% |
| |||||||||||
Residual Funding Corp. Principal Strip | 1,677 | 1,612,318 | ||||||||||
|
| |||||||||||
CORPORATES–NON-INVESTMENT GRADE–3.5% |
| |||||||||||
INDUSTRIAL–2.0% | ||||||||||||
COMMUNICATIONS–MEDIA–0.1% |
| |||||||||||
CSC Holdings LLC | 30 | 30,875 | ||||||||||
|
| |||||||||||
COMMUNICATIONS– |
| |||||||||||
Sprint Capital Corp. | 210 | 211,485 | ||||||||||
|
| |||||||||||
CONSUMER |
| |||||||||||
KB Home | 63 | 62,867 | ||||||||||
|
| |||||||||||
CONSUMER |
| |||||||||||
First Quality Finance Co., Inc. | 85 | 82,256 | ||||||||||
HCA, Inc. | 63 | 61,288 | ||||||||||
Spectrum Brands, Inc. | 69 | 65,547 | ||||||||||
|
| |||||||||||
209,091 | ||||||||||||
|
| |||||||||||
ENERGY–0.5% |
| |||||||||||
Antero Resources Corp. | 16 | 15,039 | ||||||||||
Diamond Offshore Drilling, Inc. | 68 | 37,974 | ||||||||||
Nabors Industries, Inc. | U.S.$ | 113 | $ | 89,528 | ||||||||
PDC Energy, Inc. | 46 | 40,770 | ||||||||||
Sunoco LP/Sunoco Finance Corp. | 69 | 67,410 | ||||||||||
|
| |||||||||||
250,721 | ||||||||||||
|
| |||||||||||
TECHNOLOGY–0.2% |
| |||||||||||
Western Digital Corp. | 98 | 85,013 | ||||||||||
|
| |||||||||||
TRANSPORTATION–SERVICES–0.1% |
| |||||||||||
Avis Budget Car Rental LLC/Avis Budget Finance, Inc. | 52 | 45,083 | ||||||||||
|
| |||||||||||
895,135 | ||||||||||||
|
| |||||||||||
FINANCIAL INSTITUTIONS–1.4% |
| |||||||||||
BANKING–1.1% |
| |||||||||||
American Express Co. | 15 | 14,409 | ||||||||||
Barclays Bank PLC | 29 | 29,921 | ||||||||||
CIT Group, Inc. | 56 | 54,910 | ||||||||||
Citigroup, Inc. | ||||||||||||
5.95%, 1/30/23(b) | 55 | 49,985 | ||||||||||
Series O | 46 | 44,716 | ||||||||||
Series Q | 90 | 86,985 | ||||||||||
Goldman Sachs Group, Inc. (The) | ||||||||||||
Series L | 23 | 22,508 | ||||||||||
Series M | 45 | 43,412 | ||||||||||
Series P | 74 | 62,337 | ||||||||||
Morgan Stanley | 20 | 19,512 | ||||||||||
Standard Chartered PLC | 100 | 78,109 | ||||||||||
SunTrust Banks, Inc. | 23 | 22,753 | ||||||||||
|
| |||||||||||
529,557 | ||||||||||||
|
| |||||||||||
FINANCE–0.2% |
| |||||||||||
Navient Corp. | 95 | 91,759 | ||||||||||
|
|
15
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Principal Amount (000) | U.S. $ Value | |||||||||||
INSURANCE–0.1% |
| |||||||||||
Voya Financial, Inc. | U.S.$ | 31 | $ | 29,108 | ||||||||
|
| |||||||||||
650,424 | ||||||||||||
|
| |||||||||||
UTILITY–0.1% |
| |||||||||||
ELECTRIC–0.1% |
| |||||||||||
AES Corp./VA | 49 | 48,168 | ||||||||||
|
| |||||||||||
TotalCorporates–Non-Investment Grade | 1,593,727 | |||||||||||
|
| |||||||||||
LOCAL GOVERNMENTS–US MUNICIPAL BONDS–0.6% |
| |||||||||||
UNITED STATES–0.6% |
| |||||||||||
State of California | 200 | 284,758 | ||||||||||
|
| |||||||||||
Shares | ||||||||||||
PREFERRED STOCKS–0.2% |
| |||||||||||
FINANCIAL INSTITUTIONS–0.2% |
| |||||||||||
REITS–0.2% |
| |||||||||||
Sovereign Real Estate Investment Trust | 93 | 103,462 | ||||||||||
|
| |||||||||||
Principal | ||||||||||||
EMERGING MARKETS–CORPORATE BONDS–0.1% |
| |||||||||||
UTILITY–0.1% |
| |||||||||||
ELECTRIC–0.1% |
| |||||||||||
Genneia SA | U.S.$ | 35 | 31,544 | |||||||||
Terraform Global Operating LLC | 21 | 19,424 | ||||||||||
|
| |||||||||||
Total Emerging Markets–Corporate Bonds | 50,968 | |||||||||||
|
| |||||||||||
QUASI-SOVEREIGNS–0.1% |
| |||||||||||
QUASI-SOVEREIGN BONDS–0.1% |
| |||||||||||
MEXICO–0.1% |
| |||||||||||
Petroleos Mexicanos | 33 | 30,781 | ||||||||||
|
| |||||||||||
EMERGING MARKETS–TREASURIES–0.1% |
| |||||||||||
ARGENTINA–0.1% |
| |||||||||||
Argentina POM Politica Monetaria | ARS | 900 | $ | 25,425 | ||||||||
|
| |||||||||||
SHORT-TERM INVESTMENTS–5.4% |
| |||||||||||
GOVERNMENTS–TREASURIES–3.1% |
| |||||||||||
JAPAN–3.1% |
| |||||||||||
Japan Treasury Discount Bill | ||||||||||||
Series 792 | JPY | 101,000 | 921,611 | |||||||||
Series 802 | 55,000 | 501,947 | ||||||||||
|
| |||||||||||
Total Governments–Treasuries | 1,423,558 | |||||||||||
|
| |||||||||||
Shares | ||||||||||||
INVESTMENT COMPANIES–2.1% |
| |||||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(h)(i)(j) | 938,303 | 938,303 | ||||||||||
|
| |||||||||||
Principal | ||||||||||||
ASSET-BACKED SECURITIES–0.2% |
| |||||||||||
Drive Auto Receivables Trust2018-5 | U.S.$ | 84 | 83,929 | |||||||||
|
| |||||||||||
Total Short-Term Investments | 2,445,790 | |||||||||||
|
| |||||||||||
TOTAL INVESTMENTS–102.0% | 46,215,779 | |||||||||||
Other assets less liabilities–(2.0)% | (895,175 | ) | ||||||||||
|
| |||||||||||
NET ASSETS–100.0% | $ | 45,320,604 | ||||||||||
|
|
16
AB Variable Products Series Fund |
FUTURES (see Note D)
Description | Number of Contracts | Expiration Month | Notional (000) | Original Value | Value at December 31, 2018 | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Purchased Contracts |
| |||||||||||||||||||||||||||
U.S. 10 Yr Ultra Futures | 5 | March 2019 | USD | 500 | $ | 641,413 | $ | 650,391 | $ | 8,978 | ||||||||||||||||||
U.S.T-Note 2 Yr (CBT) Futures | 25 | March 2019 | USD | 5,000 | 5,273,874 | 5,307,813 | 33,939 | |||||||||||||||||||||
U.S.T-Note 5 Yr (CBT) Futures | 2 | March 2019 | USD | 200 | 229,456 | 229,375 | (81 | ) | ||||||||||||||||||||
U.S. Ultra Bond (CBT) Futures | 5 | March 2019 | USD | 500 | 765,280 | 803,281 | 38,001 | |||||||||||||||||||||
Sold Contracts |
| |||||||||||||||||||||||||||
10 Yr Mini Japan Government Bond Futures | 5 | March 2019 | JPY | 50,000 | 691,782 | 696,273 | (4,491 | ) | ||||||||||||||||||||
Euro-BOBL Futures | 9 | March 2019 | EUR | 900 | 1,362,997 | 1,366,513 | (3,516 | ) | ||||||||||||||||||||
Long Gilt Futures | 4 | March 2019 | GBP | 400 | 623,096 | 627,970 | (4,874 | ) | ||||||||||||||||||||
U.S.T-Note 10 Yr (CBT) Futures | 3 | March 2019 | USD | 300 | 360,840 | 366,047 | (5,207 | ) | ||||||||||||||||||||
|
| |||||||||||||||||||||||||||
$ | 62,749 | |||||||||||||||||||||||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Citibank, NA | JPY | 224,619 | USD | 1,983 | 1/15/19 | $ | (67,272 | ) | ||||||||||||||||
Deutsche Bank AG | INR | 18,274 | USD | 250 | 3/18/19 | (10,272 | ) | |||||||||||||||||
Deutsche Bank AG | USD | 263 | INR | 18,782 | 3/18/19 | 4,658 | ||||||||||||||||||
HSBC Bank USA | USD | 93 | KRW | 103,758 | 2/20/19 | 600 | ||||||||||||||||||
HSBC Bank USA | USD | 157 | TWD | 4,826 | 3/14/19 | 1,448 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 265 | USD | 68 | 1/03/19 | 17 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 265 | USD | 67 | 1/03/19 | (960 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 68 | BRL | 265 | 1/03/19 | 362 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 68 | BRL | 265 | 1/03/19 | (17 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 67 | BRL | 265 | 2/04/19 | 958 | ||||||||||||||||||
Royal Bank of Scotland PLC | USD | 213 | TWD | 6,476 | 3/14/19 | 424 | ||||||||||||||||||
Standard Chartered Bank | USD | 91 | KRW | 101,106 | 2/20/19 | 213 | ||||||||||||||||||
Standard Chartered Bank | TWD | 6,469 | USD | 212 | 3/14/19 | (689 | ) | |||||||||||||||||
Standard Chartered Bank | CNY | 1,143 | USD | 165 | 3/20/19 | (953 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 212 | USD | 245 | 1/09/19 | 2,299 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 104 | USD | 118 | 1/09/19 | (1,221 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 115 | EUR | 101 | 1/09/19 | 513 | ||||||||||||||||||
State Street Bank & Trust Co. | CAD | 160 | USD | 121 | 1/17/19 | 3,466 | ||||||||||||||||||
State Street Bank & Trust Co. | CHF | 179 | USD | 182 | 1/17/19 | (2,044 | ) | |||||||||||||||||
State Street Bank & Trust Co. | PLN | 455 | USD | 123 | 1/18/19 | 1,526 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 121 | PLN | 456 | 1/18/19 | 1,104 | ||||||||||||||||||
State Street Bank & Trust Co. | SEK | 79 | USD | 9 | 1/23/19 | (151 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 98 | NOK | 856 | 1/23/19 | 1,629 | ||||||||||||||||||
State Street Bank & Trust Co. | MXN | 1,317 | USD | 65 | 1/25/19 | (1,603 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 65 | MXN | 1,307 | 1/25/19 | 1,785 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 32 | JPY | 3,570 | 2/15/19 | 1,036 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 7 | AUD | 10 | 2/20/19 | (229 | ) | |||||||||||||||||
State Street Bank & Trust Co. | GBP | 113 | USD | 143 | 2/28/19 | (1,224 | ) | |||||||||||||||||
|
| |||||||||||||||||||||||
$ | (64,597 | ) | ||||||||||||||||||||||
|
|
17
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)
Description | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts |
| |||||||||||||||||||||||||||||||
CDX-NAIG Series 31, 5 Year Index, 12/20/23* | (1.00 | )% | Quarterly | 0.88 | % | USD | 760 | $ | (4,524 | ) | $ | (13,316 | ) | $ | 8,792 |
* | Termination date |
CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)
Rate Type | ||||||||||||||||||||||||||||||
Notional Amount (000) | Termination Date | Payments made by the Fund | Payments received by the Fund | Payment Frequency Paid/ Received | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||
NOK | 44,100 | 6/22/20 | 6 Month NIBOR | 1.378% | Semi-Annual/ Annual | $ | 29,789 | $ | –0 | – | $ | 29,789 | ||||||||||||||||||
USD | 360 | 8/22/22 | 3 Month LIBOR | 2.886% | Quarterly/ Semi-Annual | 6,584 | –0 | – | 6,584 | |||||||||||||||||||||
USD | 1,200 | 9/10/23 | 3 Month LIBOR | 2.896% | Quarterly/ Semi-Annual | 25,538 | –0 | – | 25,538 | |||||||||||||||||||||
NOK | 4,780 | 8/31/28 | 2.186% | 6 Month NIBOR | Annual/ Semi-Annual | (7,160 | ) | –0 | – | (7,160 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||
$ | 54,751 | $ | –0 | – | 54,751 | |||||||||||||||||||||||||
|
|
|
|
|
|
CREDIT DEFAULT SWAPS (see Note D)
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||||||
Citibank, NA | ||||||||||||||||||||||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | )% | Quarterly | 0.44 | % | USD | 98 | $ | (2,258 | ) | $ | (561 | ) | $ | (1,697 | ) | ||||||||||||||||
Sprint Communications, Inc., 7.000%, 8/15/20, 6/20/19* | (5.00 | ) | Quarterly | 0.44 | USD | 112 | (2,581 | ) | (665 | ) | (1,916 | ) | ||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 3 | 10 | 37 | (27 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- | (3.00 | ) | Monthly | 5.35 | USD | 55 | 6,649 | 4,505 | 2,144 | |||||||||||||||||||||||
CDX-CMBX.NA.BBB- | (3.00 | ) | Monthly | 5.35 | USD | 107 | 12,937 | 8,253 | 4,684 | |||||||||||||||||||||||
CDX-CMBX.NA.BBB- | (3.00 | ) | Monthly | 5.35 | USD | 107 | 12,937 | 7,972 | 4,965 | |||||||||||||||||||||||
CDX-CMBX.NA.BBB- | (3.00 | ) | Monthly | 5.35 | USD | 131 | 15,838 | 9,430 | 6,408 |
18
AB Variable Products Series Fund |
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Buy Contracts (continued) |
| |||||||||||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) % | Monthly | 0.57 | % | USD | 330 | $ | 1,194 | $ | 4,090 | $ | (2,896 | ) | ||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 4 | 14 | 36 | (22 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- | (3.00 | ) | Monthly | 5.17 | USD | 350 | 29,610 | 22,076 | 7,534 | |||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 42 | 152 | 561 | (409 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 408 | 1,475 | 4,277 | (2,802 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 122 | 441 | 1,268 | (827 | ) | ||||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 46 | 167 | 610 | (443 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 27 | 98 | 254 | (156 | ) | ||||||||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 50 | 181 | 645 | (464 | ) | ||||||||||||||||||||||
CDX-CMBX.NA.AAA | (0.50 | ) | Monthly | 0.57 | USD | 99 | 358 | 1,277 | (919 | ) | ||||||||||||||||||||||
Sale Contracts | ||||||||||||||||||||||||||||||||
Citigroup Global Markets, Inc. | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 22 | (3,537 | ) | (2,854 | ) | (683 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 37 | (5,949 | ) | (4,331 | ) | (1,618 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 54 | (8,683 | ) | (6,321 | ) | (2,362 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 73 | (11,739 | ) | (8,357 | ) | (3,382 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 107 | (17,206 | ) | (12,249 | ) | (4,957 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 107 | (17,205 | ) | (12,008 | ) | (5,197 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 73 | (11,739 | ) | (8,193 | ) | (3,546 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 132 | (21,226 | ) | (14,468 | ) | (6,758 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 78 | (12,543 | ) | (8,593 | ) | (3,950 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 29 | (4,664 | ) | (3,191 | ) | (1,473 | ) |
19
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts (continued) |
| |||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | % | Monthly | 8.38 | % | USD | 44 | $ | (7,075 | ) | $ | (5,708 | ) | $ | (1,367 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 62 | (9,969 | ) | (8,043 | ) | (1,926 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 44 | (7,075 | ) | (5,896 | ) | (1,179 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 5 | (804 | ) | (658 | ) | (146 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 52 | (8,357 | ) | (7,924 | ) | (433 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 32 | (5,146 | ) | (4,340 | ) | (806 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 60 | (9,648 | ) | (8,330 | ) | (1,318 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 31 | (4,982 | ) | (4,866 | ) | (116 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 5 | (803 | ) | (823 | ) | 20 | ||||||||||||||||||||||
Credit Suisse International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 318 | (51,164 | ) | (13,302 | ) | (37,862 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 350 | (56,280 | ) | (20,711 | ) | (35,569 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 56 | (9,000 | ) | (8,495 | ) | (505 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 94 | (15,115 | ) | (6,218 | ) | (8,897 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 28 | (4,502 | ) | (1,979 | ) | (2,523 | ) | |||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.A | 2.00 | Monthly | 3.37 | USD | 135 | (5,841 | ) | (2,700 | ) | (3,141 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 132 | (21,226 | ) | (9,460 | ) | (11,766 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 8 | (1,287 | ) | (470 | ) | (817 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 85 | (13,668 | ) | (7,149 | ) | (6,519 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 8 | (1,287 | ) | (959 | ) | (328 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 51 | (8,201 | ) | (6,571 | ) | (1,630 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 28 | (4,503 | ) | (3,275 | ) | (1,228 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 27 | (4,342 | ) | (3,157 | ) | (1,185 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 84 | (13,507 | ) | (9,253 | ) | (4,254 | ) |
20
AB Variable Products Series Fund |
Swap Counterparty & Referenced Obligation | Fixed Rate (Pay) Receive | Payment Frequency | Implied Credit Spread at December 31, 2018 | Notional Amount (000) | Market Value | Upfront Premiums Paid (Received) | Unrealized Appreciation/ (Depreciation) | |||||||||||||||||||||||||
Sale Contracts (continued) |
| |||||||||||||||||||||||||||||||
Goldman Sachs International | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | % | Monthly | 8.38 | % | USD | 14 | $ | (2,251 | ) | $ | (1,836 | ) | $ | (415 | ) | ||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 4 | (643 | ) | (621 | ) | (22 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 246 | (39,557 | ) | (12,302 | ) | (27,255 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 49 | (7,879 | ) | (4,329 | ) | (3,550 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 4 | (644 | ) | (367 | ) | (277 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 8 | (1,287 | ) | (747 | ) | (540 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 8 | (1,286 | ) | (808 | ) | (478 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 16 | (2,573 | ) | (1,766 | ) | (807 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 41 | (6,593 | ) | (5,706 | ) | (887 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 92 | (14,794 | ) | (12,472 | ) | (2,322 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 57 | (9,166 | ) | (6,210 | ) | (2,956 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 34 | (5,464 | ) | (5,344 | ) | (120 | ) | |||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 28 | (4,500 | ) | (4,679 | ) | 179 | ||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 39 | (6,268 | ) | (6,612 | ) | 344 | ||||||||||||||||||||||
JP Morgan Securities, LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 9 | (1,446 | ) | (1,174 | ) | (272 | ) | |||||||||||||||||||||
Morgan Stanley Capital Services LLC | ||||||||||||||||||||||||||||||||
CDX-CMBX.NA.BBB- | 3.00 | Monthly | 8.38 | USD | 35 | (5,628 | ) | (2,524 | ) | (3,104 | ) | |||||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (411,030) | $ | (224,284) | $ | (186,746) | |||||||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
21
INTERMEDIATE BOND PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
VARIANCE SWAPS (see Note D)
Swap Counterparty & | Volatility Strike Rate | Payment Frequency | Notional Amount (000) | Market Value | Upfront Premiums (Paid) Received | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||||
Buy Contracts | ||||||||||||||||||||||||||||
Deutsche Bank AG | ||||||||||||||||||||||||||||
AUD/JPY 1/14/20* | 11.12 | % | Maturity | AUD | 57 | $ | 1,427 | $ | –0– | $ | 1,427 | |||||||||||||||||
AUD/JPY 3/03/20* | 12.75 | Maturity | AUD | 35 | (655 | ) | –0– | (655 | ) | |||||||||||||||||||
Goldman Sachs Bank USA | ||||||||||||||||||||||||||||
AUD/JPY 3/10/20* | 12.90 | Maturity | AUD | 20 | (449 | ) | –0– | (449 | ) | |||||||||||||||||||
AUD/JPY 3/11/20* | 12.80 | Maturity | AUD | 15 | (289 | ) | –0– | (289 | ) | |||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 34 | $ | –0– | $ | 34 | |||||||||||||||||||||||
|
|
|
|
|
|
* | Termination date |
(a) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2018, the aggregate market value of these securities amounted to $8,423,971 or 18.6% of net assets. |
(b) | Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date. |
(c) | Security in which significant unobservable inputs (Level 3) were used in determining fair value. |
(d) | IO—Interest Only. |
(e) | Floating Rate Security. Stated interest/floor/ceiling rate was in effect at December 31, 2018. |
(f) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.16% of net assets as of December 31, 2018, are considered illiquid and restricted. Additional information regarding such securities follows: |
144A/Restricted & Illiquid Securities | Acquisition Date | Cost | Market Value | Percentage of Net Assets | ||||||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | $ | 43,142 | $ | 48,538 | 0.11 | % | |||||||||
Wells Fargo Credit Risk Transfer Securities Trust | 9/28/15 | 20,115 | 23,382 | 0.05 | % |
(g) | Inverse interest only security. |
(h) | Affiliated investments. |
(i) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
(j) | The rate shown represents the7-day yield as of period end. |
Currency Abbreviations:
ARS—Argentine Peso
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
22
AB Variable Products Series Fund |
MXN—Mexican Peso
NOK—Norwegian Krone
PLN—Polish Zloty
SEK—Swedish Krona
TWD—New Taiwan Dollar
USD—United States Dollar
Glossary:
ABS—Asset-Backed Securities
ARLLMONP—Argentina Blended Policy Rate
BOBL—Bundesobligationen
CBT—Chicago Board of Trade
CDX-CMBX.NA—North American Commercial Mortgage-Backed Index
CDX-NAIG—North American Investment Grade Credit Default Swap Index
CMBS—Commercial Mortgage-Backed Securities
CPI—Consumer Price Index
LIBOR—London Interbank Offered Rates
NIBOR—Norwegian Interbank Offered Rate
REIT—Real Estate Investment Trust
REMICs—Real Estate Mortgage Investment Conduits
TBA—To Be Announced
TIPS—Treasury Inflation Protected Security
See notes to financial statements.
23
INTERMEDIATE BOND PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $45,771,815) | $ | 45,277,476 | ||
Affiliated issuers (cost $938,303) | 938,303 | |||
Cash | 24,377 | |||
Cash collateral due from broker | 112,758 | |||
Foreign currencies, at value (cost $58,455) | 63,381 | |||
Interest receivable | 248,388 | |||
Market value on credit default swaps (net premiums paid $65,291) | 82,061 | |||
Unrealized appreciation on forward currency exchange contracts | 22,038 | |||
Receivable for variation margin on futures | 4,112 | |||
Receivable for variation margin on centrally cleared swaps | 1,908 | |||
Unrealized appreciation on variance swaps | 1,427 | |||
Affiliated dividends receivable | 836 | |||
Receivable for capital stock sold | 617 | |||
|
| |||
Total assets | 46,777,682 | |||
|
| |||
LIABILITIES |
| |||
Payable for investment securities purchased | 517,574 | |||
Market value on credit default swaps (net premiums received $289,575) | 493,091 | |||
Payable for capital stock redeemed | 225,804 | |||
Unrealized depreciation on forward currency exchange contracts | 86,635 | |||
Administrative fee payable | 17,822 | |||
Advisory fee payable | 16,042 | |||
Distribution fee payable | 2,389 | |||
Unrealized depreciation on variance swaps | 1,393 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses and other liabilities | 96,122 | |||
|
| |||
Total liabilities | 1,457,078 | |||
|
| |||
NET ASSETS | $ | 45,320,604 | ||
|
| |||
COMPOSITION OF NET ASSETS |
| |||
Capital stock, at par | $ | 4,452 | ||
Additionalpaid-in capital | 45,167,590 | |||
Distributable earnings | 148,562 | |||
|
| |||
$ | 45,320,604 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 33,266,491 | 3,258,569 | $ | 10.21 | |||||||
B | $ | 12,054,113 | 1,193,309 | $ | 10.10 |
See notes to financial statements.
24
INTERMEDIATE BOND PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Interest | $ | 1,623,975 | ||
Dividends | ||||
Unaffiliated issuers | 11,161 | |||
Affiliated issuers | 4,019 | |||
Other income | 120 | |||
|
| |||
1,639,275 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 219,816 | |||
Distribution fee—Class B | 33,669 | |||
Transfer agency—Class A | 3,030 | |||
Transfer agency—Class B | 1,154 | |||
Custodian | 104,233 | |||
Audit and tax | 81,007 | |||
Administrative | 69,904 | |||
Legal | 33,626 | |||
Directors’ fees | 24,784 | |||
Printing | 20,604 | |||
Miscellaneous | 7,618 | |||
|
| |||
Total expenses | 599,445 | |||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (230 | ) | ||
|
| |||
Net expenses | 599,215 | |||
|
| |||
Net investment income | 1,040,060 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN | ||||
Net realized gain (loss) on: | ||||
Investment transactions(a) | (425,422 | ) | ||
Forward currency exchange contracts | (17,736 | ) | ||
Futures | (259,994 | ) | ||
Swaps | 149,246 | |||
Swaptions written | 5,479 | |||
Foreign currency transactions | 84,220 | |||
Net change in unrealized appreciation/depreciation of: | ||||
Investments | (1,101,894 | ) | ||
Forward currency exchange contracts | 356 | |||
Futures | 40,648 | |||
Swaps | 21,619 | |||
Foreign currency denominated assets and liabilities | (28,095 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (1,531,573 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (491,513 | ) | |
|
|
(a) | Net of foreign capital gains taxes of $2,860. |
See notes to financial statements.
25
INTERMEDIATE BOND PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income | $ | 1,040,060 | $ | 1,136,647 | ||||
Net realized gain (loss) on investment and foreign currency transactions | (464,207 | ) | 328,561 | |||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (1,067,366 | ) | 444,907 | |||||
Contributions from Affiliates (see Note B) | –0 | – | 286 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (491,513 | ) | 1,910,401 | |||||
Distributions to Shareholders* |
| |||||||
Class A | (921,149 | ) | (1,675,499 | ) | ||||
Class B | (318,391 | ) | (627,848 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net decrease | (5,906,625 | ) | (4,860,694 | ) | ||||
|
|
|
| |||||
Total decrease | (7,637,678 | ) | (5,253,640 | ) | ||||
NET ASSETS |
| |||||||
Beginning of period | 52,958,282 | 58,211,922 | ||||||
|
|
|
| |||||
End of period | $ | 45,320,604 | $ | 52,958,282 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note I, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
26
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Intermediate Bond Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to generate income and price appreciation without assuming what AllianceBernstein L.P. (the “Adviser”) considers undue risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S.
27
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
The fair value of debt instruments, such as bonds, andover-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition,non-agency rated investments are classified as Level 3.
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively, the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.
Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss
28
AB Variable Products Series Fund |
expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.
Other fixed income investments, includingnon-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: |
| |||||||||||||||
Corporates—Investment Grade | $ | –0 | – | $ | 11,700,470 | $ | –0 | – | $ | 11,700,470 | ||||||
Mortgage Pass-Throughs | –0 | – | 8,777,311 | –0 | – | 8,777,311 | ||||||||||
Commercial Mortgage-Backed Securities | –0 | – | 4,983,670 | 834,652 | 5,818,322 | |||||||||||
Asset-Backed Securities | –0 | – | 2,798,001 | 1,241,405 | 4,039,406 | |||||||||||
Collateralized Mortgage Obligations | –0 | – | 3,797,223 | 46,889 | 3,844,112 | |||||||||||
Governments—Treasuries | –0 | – | 3,611,242 | –0 | – | 3,611,242 | ||||||||||
Inflation-Linked Securities | –0 | – | 2,277,687 | –0 | – | 2,277,687 | ||||||||||
Agencies | –0 | – | 1,612,318 | –0 | – | 1,612,318 | ||||||||||
Corporates—Non-Investment Grade | –0 | – | 1,593,727 | –0 | – | 1,593,727 | ||||||||||
Local Governments—US Municipal Bonds | –0 | – | 284,758 | –0 | – | 284,758 | ||||||||||
Preferred Stocks | –0 | – | 103,462 | –0 | – | 103,462 | ||||||||||
Emerging Markets—Corporate Bonds | –0 | – | 50,968 | –0 | – | 50,968 | ||||||||||
Quasi-Sovereigns | –0 | – | 30,781 | –0 | – | 30,781 | ||||||||||
Emerging Markets—Treasuries | –0 | – | 25,425 | –0 | – | 25,425 | ||||||||||
Short-Term Investments: | ||||||||||||||||
Governments—Treasuries | –0 | – | 1,423,558 | –0 | – | 1,423,558 | ||||||||||
Investment Companies | 938,303 | –0 | – | –0 | – | 938,303 | ||||||||||
Asset-Backed Securities | –0 | – | 83,929 | –0 | – | 83,929 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 938,303 | 43,154,530 | 2,122,946 | 46,215,779 | ||||||||||||
Other Financial Instruments(a): | ||||||||||||||||
Assets: |
| |||||||||||||||
Futures | 80,918 | –0 | – | –0 | – | 80,918 | (b) | |||||||||
Forward Currency Exchange Contracts | –0 | – | 22,038 | –0 | – | 22,038 | ||||||||||
Centrally Cleared Interest Rate Swaps | –0 | – | 61,911 | –0 | – | 61,911 | (b) | |||||||||
Credit Default Swaps | –0 | – | 82,061 | –0 | – | 82,061 | ||||||||||
Variance Swaps | –0 | – | 1,427 | –0 | – | 1,427 | ||||||||||
Liabilities: |
| |||||||||||||||
Futures | (18,169 | ) | –0 | – | –0 | – | (18,169 | )(b) | ||||||||
Forward Currency Exchange Contracts | –0 | – | (86,635 | ) | –0 | – | (86,635 | ) | ||||||||
Centrally Cleared Credit Default Swaps | –0 | – | (4,524 | ) | –0 | – | (4,524 | )(b) | ||||||||
Centrally Cleared Interest Rate Swaps | –0 | – | (7,160 | ) | –0 | – | (7,160 | )(b) | ||||||||
Credit Default Swaps | –0 | – | (493,091 | ) | –0 | – | (493,091 | ) | ||||||||
Variance Swaps | –0 | – | (1,393 | ) | –0 | – | (1,393 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 1,001,052 | $ | 42,729,164 | $ | 2,122,946 | $ | 45,853,162 | ||||||||
|
|
|
|
|
|
|
|
29
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
(a) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(b) | Only variation margin receivable/(payable) at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments. Centrally cleared swaps with upfront premiums are presented here at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.
Commercial Mortgage- Backed Securities | Asset-Backed Securities | Collateralized Mortgage Obligations | ||||||||||
Balance as of 12/31/17 | $ | 774,281 | $ | 1,409,964 | $ | 46,791 | ||||||
Accrued discounts/(premiums) | (61 | ) | 66 | –0 | – | |||||||
Realized gain (loss) | (17,853 | ) | 117 | –0 | – | |||||||
Change in unrealized appreciation/depreciation | (1,792 | ) | (7,762 | ) | 98 | |||||||
Purchases/Payups | 98,935 | 414,968 | –0 | – | ||||||||
Sales/Paydowns | (18,858 | ) | (575,948 | ) | –0 | – | ||||||
Transfers in to Level 3 | –0 | – | –0 | – | –0 | – | ||||||
Transfers out of Level 3 | –0 | – | –0 | – | –0 | – | ||||||
|
|
|
|
|
| |||||||
Balance as of 12/31/18 | $ | 834,652 | $ | 1,241,405 | $ | 46,889 | ||||||
|
|
|
|
|
| |||||||
Net change in unrealized appreciation/depreciation from investments held as of 12/31/18(a) | $ | (2,426 | ) | $ | (7,710 | ) | $ | 98 | ||||
|
|
|
|
|
| |||||||
Total | ||||||||||||
Balance as of 12/31/17 | $ | 2,231,036 | ||||||||||
Accrued discounts/(premiums) | 5 | |||||||||||
Realized gain (loss) | (17,736 | ) | ||||||||||
Change in unrealized appreciation/depreciation | (9,456 | ) | ||||||||||
Purchases/Payups | 513,903 | |||||||||||
Sales/Paydowns | (594,806 | ) | ||||||||||
Transfers in to Level 3 | –0 | – | ||||||||||
Transfers out of Level 3 | –0 | – | ||||||||||
|
| |||||||||||
Balance as of 12/31/18 | $ | 2,122,946 | ||||||||||
|
| |||||||||||
Net change in unrealized appreciation/depreciation from investments held as of 12/31/18(a) | $ | (10,038 | ) | |||||||||
|
|
(a) | The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation on investments and other financial instruments in the accompanying statement of operations. |
As of December 31, 2018, all Level 3 securities were priced by third party vendors.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
30
AB Variable Products Series Fund |
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-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.
31
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, .40% of the next $2.5 billion up to $5 billion, .35% of the excess over $5 billion up to $8 billion and .30% in excess of $8 billion, of the Portfolio’s average daily net assets. Effective January 30, 2018, the investment advisory agreement was amended to implement the final advisory fee breakpoint for assets in excess of $8 billion of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,904.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $286 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market
32
AB Variable Products Series Fund |
Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $230.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 12,143 | $ | 11,205 | $ | 938 | $ | 4 |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $23,237, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 14,995,032 | $ | 13,673,673 | ||||
U.S. government securities | 60,451,079 | 64,247,503 |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 46,716,080 | ||
|
| |||
Gross unrealized appreciation | $ | 837,307 | ||
Gross unrealized depreciation | (1,333,065 | ) | ||
|
| |||
Net unrealized depreciation | $ | (495,758 | ) | |
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal types of derivatives utilized by the Portfolio, as well as the methods in which they may be used are:
• | Futures |
The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and
33
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon fornon-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.
At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.
During the year ended December 31, 2018, the Portfolio held futures for hedging andnon-hedging purposes.
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging andnon-hedging purposes.
• | Option Transactions |
For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges andover-the-counter markets. Among other things, the Portfolio may use options transactions fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.
The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.
34
AB Variable Products Series Fund |
When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. 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 Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.
The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.
During the year ended December 31, 2018, the Portfolio held purchased swaptions fornon-hedging purposes.
During the year ended December 31, 2018, the Portfolio held written swaptions fornon-hedging purposes.
• | Swaps |
The Portfolio may enter into swaps to hedge its exposure to interest rates, credit risk or currencies. The Portfolio may also enter into swaps fornon-hedging purposes as a means of gaining market exposures, making direct investments in foreign currencies, as described below under “Currency Transactions.” A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Portfolio in accordance with the terms of the respective swaps to provide value and recourse to the Portfolio or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.
Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Portfolio and the counterparty and by the posting of collateral by the counterparty to the Portfolio to cover the Portfolio’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Portfolio accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received 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
35
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
(“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 aphased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.
At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less thannon-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.
Interest Rate Swaps:
The Portfolio is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Portfolio holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Portfolio may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Portfolio may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.
In addition, the Portfolio may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Portfolio anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Portfolio with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Portfolio receiving or paying, as the case may be, only the net amount of the two payments).
During the year ended December 31, 2018, the Portfolio held interest rate swaps for hedging andnon-hedging purposes.
Credit Default Swaps:
The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.
In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same referenced obligations with the same counterparty. As of December 31, 2018, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.
36
AB Variable Products Series Fund |
Credit default swaps may involve greater risks than if a Portfolio had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Portfolio is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Portfolio is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Portfolio coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Portfolio.
Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.
During the year ended December 31, 2018, the Portfolio held credit default swaps for hedging andnon-hedging purposes.
Variance Swaps:
The Portfolio may enter into variance swaps to hedge equity market risk or adjust exposure to the equity markets. Variance swaps are contracts in which two parties agree to exchange cash payments based on the difference between the stated level of variance and the actual variance realized on underlying asset(s) or index(es). Actual “variance” as used here is defined as the sum of the square of the returns on the reference asset(s) or index(es) (which in effect is a measure of its “volatility”) over the length of the contract term. So the parties to a variance swap can be said to exchange actual volatility for a contractually stated rate of volatility.
During the year ended December 31, 2018, the Portfolio held variance swaps for hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended December 31, 2018, the Portfolio 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 | $ | 80,918 | * | Receivable/Payable for variation margin on futures | $ | 18,169 | * | ||||
Credit contracts | Receivable/Payable for variation margin on centrally cleared swaps | 8,792 | * |
37
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Interest rate contracts | Receivable/Payable for variation margin on centrally cleared swaps | $ | 61,911 | * | Receivable/Payable for variation margin on centrally cleared swaps | $ | 7,160 | * | ||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | 22,038 | Unrealized depreciation on forward currency exchange contracts | 86,635 | ||||||||
Credit contracts | Market value on credit default swaps | 82,061 | Market value on credit default swaps | 493,091 | ||||||||
Equity contracts | Unrealized appreciation on variance swaps | 1,427 | Unrealized depreciation on variance swaps | 1,393 | ||||||||
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| |||||||||
Total | $ | 257,147 | $ | 606,448 | ||||||||
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* | Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative unrealized appreciation/(depreciation) on futures and centrally cleared swaps as reported in the portfolio of investments. |
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Interest rate contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | $ | (239,616 | ) | $ | 40,648 | ||||
Equity contracts | Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures | (20,378 | ) | –0– | ||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | (17,736 | ) | 356 | ||||||
Interest rate contracts | Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments | (8,559 | ) | –0– | ||||||
Interest rate contracts | Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written | 5,479 | –0– | |||||||
Interest rate contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 116,609 | 48,155 | |||||||
Credit contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | 32,637 | (26,570 | ) | ||||||
Equity contracts | Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps | –0– | 34 | |||||||
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|
|
| |||||||
Total | $ | (131,564 | ) | $ | 62,623 | |||||
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38
AB Variable Products Series Fund |
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Futures: | ||||
Average original value of buy contracts | $ | 8,563,896 | ||
Average original value of sale contracts | $ | 5,661,055 | ||
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 1,908,080 | ||
Average principal amount of sale contracts | $ | 6,851,757 | ||
Purchased Swaptions: | ||||
Average notional amount | $ | 2,650,000 | (a) | |
Swaptions Written: | ||||
Average notional amount | $ | 6,375,000 | (a) | |
Centrally Cleared Interest Rate Swaps: | ||||
Average notional amount | $ | 13,853,266 | ||
Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 1,814,077 | ||
Average notional amount of sale contracts | $ | 2,712,878 | ||
Centrally Cleared Credit Default Swaps: | ||||
Average notional amount of buy contracts | $ | 760,000 | (b) | |
Average notional amount of sale contracts | $ | 260,000 | (a) | |
Variance Swaps: | ||||
Average notional amount | $ | 108,659 |
(a) | Positions were open for one month during the year. |
(b) | Positions were open for nine months during the year. |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Citigroup Global Markets, Inc. | $ | 48,371 | $ | (48,371 | ) | $ | –0 | – | $ | –0 | – | $ | –0 | – | ||||||
Credit Suisse International | 30,818 | (30,818 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Deutsche Bank AG | 8,153 | (8,153 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 265 | (265 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
HSBC Bank USA | 2,048 | –0 | – | –0 | – | –0 | – | 2,048 | ||||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley Capital Services LLC | 1,876 | (1,876 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Royal Bank of Scotland PLC | 424 | –0 | – | –0 | – | –0 | – | 424 | ||||||||||||
Standard Chartered Bank | 213 | (213 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
State Street Bank & Trust Co. | 13,358 | (6,472 | ) | –0 | – | –0 | – | 6,886 | ||||||||||||
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| |||||||||||
Total | $ | 105,526 | $ | (96,168 | ) | $ | –0 | – | $ | –0 | – | $ | 9,358 | ^ | ||||||
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39
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Citibank, NA | $ | 72,111 | $ | –0 | – | $ | –0 | – | $ | –0 | – | $ | 72,111 | |||||||
Citigroup Global Markets, Inc. | 168,350 | (48,371 | ) | –0 | – | –0 | – | 119,979 | ||||||||||||
Credit Suisse International | 136,061 | (30,818 | ) | –0 | – | –0 | – | 105,243 | ||||||||||||
Deutsche Bank AG | 84,789 | (8,153 | ) | –0 | – | –0 | – | 76,636 | ||||||||||||
Goldman Sachs Bank USA/Goldman Sachs International | 103,643 | (265 | ) | –0 | – | –0 | – | 103,378 | ||||||||||||
JP Morgan Securities, LLC | 1,446 | –0 | – | –0 | – | –0 | – | 1,446 | ||||||||||||
Morgan Stanley & Co., Inc./Morgan Stanley Capital Services LLC | 6,605 | (1,876 | ) | –0 | – | –0 | – | 4,729 | ||||||||||||
Standard Chartered Bank | 1,642 | (213 | ) | –0 | – | –0 | – | 1,429 | ||||||||||||
State Street Bank & Trust Co. | 6,472 | (6,472 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
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Total | $ | 581,119 | $ | (96,168 | ) | $ | –0 | – | $ | –0 | – | $ | 484,951 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
3. TBA and Dollar Rolls
The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.
The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the year ended December 31, 2018, the Portfolio earned drop income of $55,185 which is included in interest income in the accompanying statement of operations.
40
AB Variable Products Series Fund |
NOTE E: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 157,318 | 71,422 | $ | 1,619,528 | $ | 762,494 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 90,575 | 159,268 | 921,149 | 1,675,499 | ||||||||||||||||
Shares redeemed | (603,884 | ) | (576,733 | ) | (6,197,517 | ) | (6,173,251 | ) | ||||||||||||
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Net decrease | (355,991 | ) | (346,043 | ) | $ | (3,656,840 | ) | $ | (3,735,258 | ) | ||||||||||
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Class B |
| |||||||||||||||||||
Shares sold | 83,073 | 106,949 | $ | 850,206 | $ | 1,130,081 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 31,618 | 60,254 | 318,391 | 627,848 | ||||||||||||||||
Shares redeemed | (336,571 | ) | (272,822 | ) | (3,418,382 | ) | (2,883,365 | ) | ||||||||||||
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Net decrease | (221,880 | ) | (105,619 | ) | $ | (2,249,785 | ) | $ | (1,125,436 | ) | ||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 81% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE F: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Below Investment Grade Security Risk—Investments in fixed-income securities with lower ratings (“junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.
Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, generally, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.
Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Portfolio’s assets can decline as can the value of the Portfolio’s distributions. This risk is significantly greater if the Portfolio invests a significant portion of its assets in fixed-income securities with longer maturities.
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
41
INTERMEDIATE BOND PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Mortgage-Related and/or Other Asset-Backed Securities Risk—Investments in mortgage-related and other asset-backed securities are subject to certain additional risks. The value of these securities may be particularly sensitive to changes in interest rates. These risks include “extension risk”, which is the risk that, in periods of rising interest rates, issuers may delay the payment of principal, and “prepayment risk”, which is the risk that in periods of falling interest rates, issuers may pay principal sooner than expected, exposing the Portfolio to a lower rate of return upon reinvestment of principal. Mortgage-backed securities offered by nongovernmental issuers and other asset-backed securities may be subject to other risks, such as higher rates of default in the mortgages or assets backing the securities or risks associated with the nature and servicing of mortgages or assets backing the securities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of portfolio shares. Over recent years, liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Active Trading Risk—The Portfolio expects to engage in active and frequent trading of its portfolio securities and its portfolio turnover rate is expected to exceed 100%. A higher rate of portfolio turnover increases transaction costs, which may negatively affect the Portfolio’s return. In addition, a high rate of portfolio turnover may result in substantial short-term gains, which may have adverse tax consequences for Contractholders.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE G: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE H: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 794,650 | $ | 1,775,674 | ||||
Net long-term capital gains | 444,890 | 527,673 | ||||||
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Total taxable distributions paid | $ | 1,239,540 | $ | 2,303,347 | ||||
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42
AB Variable Products Series Fund |
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 1,285,374 | ||
Accumulated capital and other losses | (642,524 | )(a) | ||
Unrealized appreciation/(depreciation) | (494,288 | )(b) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 148,562 | ||
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(a) | As of December 31, 2018, the Portfolio had a net capital loss carryforward of $581,603. As of December 31, 2018, the cumulative deferred loss on straddles was $60,921. |
(b) | The differences betweenbook-basis andtax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as eithershort-term orlong-term capital losses. As of December 31, 2018, the Portfolio had a netshort-term capital loss carryforward of $406,073 and a netlong-term capital loss carryforward of $175,530, which may be carried forward for an indefinite period.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additionalpaid-in capital.
NOTE I: Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic310-20), Premium Amortization on Purchased Callable Debt Securities which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU2017-08 does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU2017-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE J: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
43
INTERMEDIATE BOND PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $10.56 | $10.65 | $10.63 | $11.37 | $11.22 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .23 | (b) | .23 | .28 | † | .27 | .28 | |||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.31 | ) | .14 | .23 | (.27 | ) | .44 | |||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (.08 | ) | .37 | .51 | –0 | – | .72 | |||||||||||||
|
|
|
|
|
|
|
|
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| |||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.13 | ) | (.36 | ) | (.35 | ) | (.40 | ) | (.41 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.14 | ) | (.10 | ) | (.14 | ) | (.34 | ) | (.16 | ) | ||||||||||
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|
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| |||||||||||
Total dividends and distributions | (.27 | ) | (.46 | ) | (.49 | ) | (.74 | ) | (.57 | ) | ||||||||||
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|
|
|
|
|
| |||||||||||
Net asset value, end of period | $10.21 | $10.56 | $10.65 | $10.63 | $11.37 | |||||||||||||||
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| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset | (.72 | )% | 3.52 | % | 4.71 | %† | .01 | % | 6.48 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $33,267 | $38,172 | $42,183 | $47,554 | $56,437 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.16 | % | 1.11 | % | 1.06 | % | .96 | % | .88 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.16 | % | 1.11 | % | 1.06 | % | .96 | % | .88 | % | ||||||||||
Net investment income | 2.20 | %(b) | 2.11 | % | 2.60 | %† | 2.44 | % | 2.46 | % | ||||||||||
Portfolio turnover rate ** | 155 | % | 216 | % | 156 | % | 230 | % | 262 | % |
See footnote summary on page 45.
44
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $10.45 | $10.54 | $10.53 | $11.26 | $11.11 | |||||||||||||||
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| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .20 | (b) | .20 | .25 | † | .24 | .25 | |||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.31 | ) | .14 | .22 | (.26 | ) | .43 | |||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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| |||||||||||
Net increase (decrease) in net asset value from operations | (.11 | ) | .34 | .47 | (.02 | ) | .68 | |||||||||||||
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| |||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.10 | ) | (.33 | ) | (.32 | ) | (.37 | ) | (.37 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.14 | ) | (.10 | ) | (.14 | ) | (.34 | ) | (.16 | ) | ||||||||||
|
|
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|
|
|
|
|
| |||||||||||
Total dividends and distributions | (.24 | ) | (.43 | ) | (.46 | ) | (.71 | ) | (.53 | ) | ||||||||||
|
|
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|
|
|
|
| |||||||||||
Net asset value, end of period | $10.10 | $10.45 | $10.54 | $10.53 | $11.26 | |||||||||||||||
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|
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|
|
| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset | (1.01 | )% | 3.28 | % | 4.36 | %† | (.18 | )% | 6.22 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $12,054 | $14,786 | $16,029 | $17,681 | $19,891 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.41 | % | 1.36 | % | 1.32 | % | 1.21 | % | 1.13 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.41 | % | 1.36 | % | 1.32 | % | 1.21 | % | 1.13 | % | ||||||||||
Net investment income | 1.95 | %(b) | 1.87 | % | 2.36 | %† | 2.19 | % | 2.21 | % | ||||||||||
Portfolio turnover rate ** | 155 | % | 216 | % | 156 | % | 230 | % | 262 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.03 | .28% | .29% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016 and December 31, 2015 by .03%, .03% and .03%, respectively. |
** | The Portfolio accounts for dollar roll transactions as purchases and sales. |
45
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Intermediate Bond Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Intermediate Bond Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
46
INTERMEDIATE BOND PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Intermediate Bond Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||
4,054,514 | 58,167 | 186,572 |
* | Mr. Foulk retired on December 31, 2018. |
47
INTERMEDIATE BOND PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and Chief Executive Officer | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Michael Canter(2),Vice President Shawn E. Keegan(2),Vice President Douglas J. Peebles(2),Vice President Greg J. Wilensky(2),Vice President Emilie D. Wrapp,Secretary | Michael B. Reyes,Senior Analyst Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIANAND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the Adviser’s U.S. Core Fixed Income Investment Team. Messrs. Canter, Keegan, Peebles and Wilensky are the investment professionals with the most significant responsibility for theday-to-day management of the Portfolio’s portfolio. |
48
INTERMEDIATE BOND PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
49
INTERMEDIATE BOND PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
50
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None | |||||
* | The address for the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund as defined in the “1940 Act”, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
51
INTERMEDIATE BOND PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS*, AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Michael Canter 49 | Vice President | Senior Vice President of the Adviser**, with which she has been associated since prior to 2014. He is also the Director of US Multi-Sector and Securitized Assets. | ||
Shawn E. Keegan 47 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Douglas J. Peebles 53 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of Fixed Income. | ||
Greg J. Wilensky 51 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Director of US Multi-Sector Fixed Income, US Inflation-Linked Fixed Income and Stable Value Investments. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
52
INTERMEDIATE BOND PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Intermediate Bond Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement,
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Intermediate Bond Portfolio (the “Fund”) at a meeting held onNovember 6-8, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
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AB Variable Products Series Fund |
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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s former Senior Officer/Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund and the underlying fund advised by the Adviser in which the Fund invests, including, but not limited to, benefits relating to12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an independent service provider (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended July 31, 2018 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.
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
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 compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to 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 anysub-advised funds pursuing a similar investment strategy as 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 also discussed these matters with their independent fee consultant. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-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 andsub-advised fund clients as compared to the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
In connection with their review of the Fund’s advisory fee, the directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration 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 discussed economies of scale with their independent fee consultant. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
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VPS-IB-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | INTERNATIONAL GROWTH PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
INTERNATIONAL GROWTH | ||
PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—International Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in an international portfolio of equity securities of companies selected by the Adviser for their growth potential within various market sectors. Examples of the types of market sectors in which the Portfolio may invest include, but are not limited to, information technology (which includes telecommunications), health care, financial services, infrastructure, energy and natural resources, and consumer groups.
The Portfolio invests, under normal circumstances, in the equity securities of companies located in at least three countries (and normally substantially more) other than the United States. The Portfolio invests in securities of companies in both developed- and emerging-market countries. Geographic distribution of the Portfolio’s investments among countries or regions also will be a product of the stock selection process rather than apre-determined allocation.
The Portfolio may also invest in synthetic foreign equity securities, which are various types of warrants used internationally that entitle a holder to buy or sell underlying securities. The Adviser expects that normally the Portfolio’s portfolio will tend to emphasize investments in larger capitalization companies, although the Portfolio may invest in smaller or medium capitalization companies.
The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Morgan Stanley Capital International (“MSCI”) World Indexex-US (net), and the Morgan Stanley Capital International All Country World Index (“MSCI ACWI”)ex-US (net) for theone-, five- and10-year periods ended December 31, 2018.
All share classes underperformed the benchmark and the MSCI ACWIex-US (net) for the annual period. Versus the benchmark, security selection detracted, particularly in the consumer discretionary, utilities and technology sectors. An underweight to energy also detracted. Security selection in financials and cash holdings (held for transactional purposes) in a declining equity market also contributed. Security selection was positive, as holdings in Ireland and India contributed, while holdings in France and the US detracted.
Derivatives in the form of currency forwards were utilized for hedging purposes, which detracted for the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the period. Investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during 2018 as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions
1
AB Variable Products Series Fund |
dampened investor sentiment in China toward the end of the period.
The Portfolio’s exposures remain focused on secular growth themes, particularly those promoting social and environmental sustainability. This has helped the Portfolio’s Senior Investment Management Team (the “Team”) to identify companies with strong competitive advantages and high returns on invested capital that the Team believes are more likely to sustain higher-than-average growth over the long term. The Team believes organic sales and earnings growth, not multiple expansion, will be a key driver of returns going forward. The Portfolio is positioned particularly well in this regard.
2
INTERNATIONAL GROWTH PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI World Indexex-US and the MSCI ACWIex-US are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio.The MSCI World Indexex-US (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets, excluding the US. The MSCI ACWIex-US (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed and emerging markets, excluding the US. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns include the reinvestment of dividends after deduction ofnon-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s growth approach, may underperform the market generally.
Foreign(Non-US) Risk: Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk: Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk: Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk: To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
(Disclosures, Risks and Note About Historical Performance continued on next page)
3
DISCLOSURES AND RISKS | ||
(continued) | AB Variable Products Series Fund |
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
INTERNATIONAL GROWTH PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
International Growth Portfolio Class A | -17.41% | 0.14% | 5.77% | |||||||||
International Growth Portfolio Class B | -17.60% | -0.11% | 5.51% | |||||||||
Primary Benchmark: MSCI World Indexex-US (net) | -14.09% | 0.34% | 6.24% | |||||||||
MSCI ACWIex-US (net) | -14.20% | 0.68% | 6.57% | |||||||||
1 Average annual returns.
|
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.24% and 1.49% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. The Fund’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios, net of contractual fee waivers and/or expense reimbursements as 1.19% and 1.44% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2020 and may be extended by the Adviser for additionalone-year terms. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in International Growth Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages3-4.
5
INTERNATIONAL GROWTH PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 865.50 | $ | 6.25 | 1.33 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,018.50 | $ | 6.77 | 1.33 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 864.60 | $ | 7.43 | 1.58 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,017.24 | $ | 8.03 | 1.58 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
6
INTERNATIONAL GROWTH PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
HDFC Bank Ltd. | $ | 1,530,061 | 3.1 | % | ||||
Siemens AG | 1,511,531 | 3.0 | ||||||
Partners Group Holding AG | 1,483,756 | 3.0 | ||||||
Swedbank AB—Class A | 1,454,590 | 2.9 | ||||||
Credicorp Ltd. | 1,406,053 | 2.8 | ||||||
AIA Group Ltd. | 1,395,544 | 2.8 | ||||||
Kingspan Group PLC | 1,389,119 | 2.8 | ||||||
Koninklijke DSM NV | 1,354,799 | 2.7 | ||||||
Schneider Electric SE | 1,330,713 | 2.7 | ||||||
Housing Development Finance Corp., Ltd. | 1,326,832 | 2.7 | ||||||
|
|
|
| |||||
$ | 14,182,998 | 28.5 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Financials | $ | 12,789,819 | 25.8 | % | ||||
Information Technology | 6,565,598 | 13.2 | ||||||
Industrials | 6,523,153 | 13.2 | ||||||
Health Care | 5,925,941 | 12.0 | ||||||
Consumer Staples | 5,369,001 | 10.8 | ||||||
Consumer Discretionary | 3,854,632 | 7.8 | ||||||
Materials | 2,330,939 | 4.7 | ||||||
Communication Services | 1,898,776 | 3.8 | ||||||
Utilities | 1,722,035 | 3.5 | ||||||
Short-Term Investments | 2,554,402 | 5.2 | ||||||
|
|
|
| |||||
Total Investments | $ | 49,534,296 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
7
INTERNATIONAL GROWTH PORTFOLIO | ||
COUNTRY BREAKDOWN1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COUNTRY | U.S.$ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Germany | $ | 5,290,836 | 10.7 | % | ||||
India | 5,084,270 | 10.3 | ||||||
France | 5,083,134 | 10.3 | ||||||
United Kingdom | 4,525,145 | 9.1 | ||||||
China | 4,357,195 | 8.8 | ||||||
Switzerland | 3,945,754 | 8.0 | ||||||
Netherlands | 2,918,739 | 5.9 | ||||||
Ireland | 2,675,423 | 5.4 | ||||||
United States | 2,602,231 | 5.2 | ||||||
Sweden | 2,592,079 | 5.2 | ||||||
Denmark | 1,964,447 | 4.0 | ||||||
Japan | 1,663,288 | 3.4 | ||||||
Peru | 1,406,053 | 2.8 | ||||||
Other | 2,871,300 | 5.7 | ||||||
Short-Term Investments | 2,554,402 | 5.2 | ||||||
|
|
|
| |||||
Total Investments | $ | 49,534,296 | 100.0 | % |
1 | All data are as of December 31, 2018. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. “Other” country weightings represent 2.8% or less in the following countries: Belgium, Hong Kong and Taiwan. |
8
INTERNATIONAL GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–94.5% | ||||||||
FINANCIALS–25.7% | ||||||||
BANKS–11.1% | ||||||||
Credicorp Ltd. | 6,343 | $ | 1,406,053 | |||||
HDFC Bank Ltd. | 50,347 | 1,530,061 | ||||||
Svenska Handelsbanken AB–Class A | 102,240 | 1,137,489 | ||||||
Swedbank AB–Class A | 65,079 | 1,454,590 | ||||||
|
| |||||||
5,528,193 | ||||||||
|
| |||||||
CAPITAL MARKETS–5.3% | ||||||||
London Stock Exchange Group PLC | 22,260 | 1,154,861 | ||||||
Partners Group Holding AG(a) | 2,439 | 1,483,756 | ||||||
|
| |||||||
2,638,617 | ||||||||
|
| |||||||
CONSUMER FINANCE–2.1% | ||||||||
Bharat Financial Inclusion Ltd.(b) | 71,270 | 1,033,399 | ||||||
|
| |||||||
INSURANCE–4.5% | ||||||||
AIA Group Ltd. | 168,000 | 1,395,544 | ||||||
Prudential PLC | 48,567 | 867,234 | ||||||
|
| |||||||
2,262,778 | ||||||||
|
| |||||||
THRIFTS & MORTGAGE FINANCE–2.7% | ||||||||
Housing Development Finance Corp., Ltd. | 47,174 | 1,326,832 | ||||||
|
| |||||||
12,789,819 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–13.2% | ||||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–3.0% | ||||||||
Halma PLC | 57,248 | 997,284 | ||||||
Keyence Corp. | 1,000 | 505,446 | ||||||
|
| |||||||
1,502,730 | ||||||||
|
| |||||||
IT SERVICES–1.6% | ||||||||
Wirecard AG | 5,190 | 782,404 | ||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–6.3% | ||||||||
ASML Holding NV | 5,261 | 824,185 | ||||||
Infineon Technologies AG | 54,502 | 1,091,221 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 169,000 | 1,227,148 | ||||||
|
| |||||||
3,142,554 | ||||||||
|
| |||||||
SOFTWARE–2.3% | ||||||||
Dassault Systemes SE | 9,580 | 1,137,910 | ||||||
|
| |||||||
6,565,598 | ||||||||
|
| |||||||
INDUSTRIALS–13.1% | ||||||||
BUILDING PRODUCTS–2.8% | ||||||||
Kingspan Group PLC | 32,405 | 1,389,119 | ||||||
|
| |||||||
COMMERCIAL SERVICES & SUPPLIES–2.1% | ||||||||
China Everbright International Ltd. | 1,177,148 | 1,054,875 | ||||||
|
| |||||||
ELECTRICAL EQUIPMENT–5.2% | ||||||||
Schneider Electric SE | 19,618 | $ | 1,330,713 | |||||
Vestas Wind Systems A/S | 16,340 | 1,236,915 | ||||||
|
| |||||||
2,567,628 | ||||||||
|
| |||||||
INDUSTRIAL CONGLOMERATES–3.0% | ||||||||
Siemens AG | 13,544 | 1,511,531 | ||||||
|
| |||||||
6,523,153 | ||||||||
|
| |||||||
HEALTH CARE–11.9% | ||||||||
HEALTH CARE EQUIPMENT & SUPPLIES–1.5% | ||||||||
Koninklijke Philips NV | 21,100 | 739,755 | ||||||
|
| |||||||
HEALTH CARE PROVIDERS & SERVICES–2.4% | ||||||||
Apollo Hospitals Enterprise Ltd. | 66,462 | 1,193,978 | ||||||
|
| |||||||
LIFE SCIENCES TOOLS & SERVICES–6.4% | ||||||||
Gerresheimer AG | 12,670 | 832,558 | ||||||
ICON PLC(b) | 4,770 | 616,332 | ||||||
QIAGEN NV(b) | 22,210 | 758,932 | ||||||
Tecan Group AG | 4,940 | 961,502 | ||||||
|
| |||||||
3,169,324 | ||||||||
|
| |||||||
PHARMACEUTICALS–1.6% | ||||||||
Roche Holding AG | 2,050 | 508,931 | ||||||
Vectura Group PLC(b) | 351,400 | 313,953 | ||||||
|
| |||||||
822,884 | ||||||||
|
| |||||||
5,925,941 | ||||||||
|
| |||||||
CONSUMER STAPLES–10.8% | ||||||||
FOOD PRODUCTS–6.1% | ||||||||
Danone SA | 10,520 | 741,477 | ||||||
Kerry Group PLC–Class A | 12,990 | 1,286,304 | ||||||
Nestle SA | 12,217 | 991,565 | ||||||
|
| |||||||
3,019,346 | ||||||||
|
| |||||||
HOUSEHOLD PRODUCTS–2.3% | ||||||||
Unicharm Corp. | 35,800 | 1,157,842 | ||||||
|
| |||||||
PERSONAL PRODUCTS–2.4% | ||||||||
Unilever PLC | 22,700 | 1,191,813 | ||||||
|
| |||||||
5,369,001 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–7.8% | ||||||||
AUTO COMPONENTS–2.5% | ||||||||
Aptiv PLC | 19,928 | 1,226,967 | ||||||
|
| |||||||
INTERNET & DIRECT MARKETING RETAIL–1.7% | ||||||||
Alibaba Group Holding Ltd. (Sponsored ADR)(b) | 5,960 | 816,937 | ||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–3.6% | ||||||||
EssilorLuxottica SA | 7,022 | 890,094 | ||||||
Shenzhou International Group Holdings Ltd. | 81,000 | 920,634 | ||||||
|
| |||||||
1,810,728 | ||||||||
|
| |||||||
3,854,632 | ||||||||
|
|
9
INTERNATIONAL GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
MATERIALS–4.7% | ||||||||
CHEMICALS–4.7% | ||||||||
Chr Hansen Holding A/S | 8,196 | $ | 727,532 | |||||
Koninklijke DSM NV | 16,700 | 1,354,799 | ||||||
Umicore SA | 6,230 | 248,608 | ||||||
|
| |||||||
2,330,939 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–3.8% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES–2.1% | ||||||||
Deutsche Telekom AG | 63,137 | 1,073,122 | ||||||
|
| |||||||
INTERACTIVE MEDIA & SERVICES–1.7% | ||||||||
Tencent Holdings Ltd. | 20,600 | 825,654 | ||||||
|
| |||||||
1,898,776 | ||||||||
|
| |||||||
UTILITIES–3.5% | ||||||||
MULTI-UTILITIES–2.0% | ||||||||
Suez | 74,406 | 982,940 | ||||||
|
| |||||||
WATER UTILITIES–1.5% | ||||||||
Beijing Enterprises Water Group Ltd.(b) | 1,448,000 | 739,095 | ||||||
|
| |||||||
1,722,035 | ||||||||
|
| |||||||
Total Common Stocks | 46,979,894 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–5.1% | ||||||||
INVESTMENT COMPANIES–5.1% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(c)(d)(e) | 2,554,402 | $ | 2,554,402 | |||||
|
| |||||||
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–99.6% | 49,534,296 | |||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–3.1% | ||||||||
INVESTMENT COMPANIES–3.1% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(c)(d)(e) | 1,517,411 | 1,517,411 | ||||||
|
| |||||||
TOTAL INVESTMENTS–102.7% | 51,051,707 | |||||||
Other assets less | (1,360,428 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 49,691,279 | ||||||
|
|
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Bank of America, NA | GBP | 474 | USD | 611 | 2/14/19 | $ | 6,010 | |||||||||||||||||
Bank of America, NA | USD | 140 | KRW | 155,766 | 2/20/19 | 339 | ||||||||||||||||||
Barclays Bank PLC | CNY | 6,218 | USD | 893 | 1/24/19 | (12,223 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 3,389 | CAD | 4,473 | 2/14/19 | (109,235 | ) | |||||||||||||||||
BNP Paribas SA | USD | 125 | CNY | 860 | 1/24/19 | 444 | ||||||||||||||||||
BNP Paribas SA | INR | 8,425 | USD | 119 | 3/18/19 | (813 | ) | |||||||||||||||||
Citibank, NA | SEK | 14,587 | USD | 1,624 | 2/14/19 | (27,220 | ) | |||||||||||||||||
Citibank, NA | USD | 2,630 | GBP | 2,007 | 2/14/19 | (66,685 | ) | |||||||||||||||||
Citibank, NA | USD | 5,605 | JPY | 632,286 | 2/14/19 | 181,006 | ||||||||||||||||||
Citibank, NA | USD | 1,737 | KRW | 1,949,949 | 2/20/19 | 16,710 | ||||||||||||||||||
Deutsche Bank AG | INR | 288,225 | USD | 4,039 | 3/18/19 | (71,475 | ) | |||||||||||||||||
Goldman Sachs Bank USA | CNY | 915 | USD | 132 | 1/24/19 | (1,552 | ) | |||||||||||||||||
Goldman Sachs Bank USA | USD | 778 | INR | 57,059 | 3/18/19 | 36,111 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,982 | AUD | 2,733 | 2/14/19 | (55,764 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 519 | ZAR | 7,335 | 2/14/19 | (11,667 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 3,437 | USD | 887 | 1/03/19 | 217 |
10
AB Variable Products Series Fund |
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Morgan Stanley & Co., Inc. | BRL | 3,437 | USD | 874 | 1/03/19 | $ | (12,464 | ) | ||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 882 | BRL | 3,437 | 1/03/19 | 4,700 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 887 | BRL | 3,437 | 1/03/19 | (217 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 501 | RUB | 33,356 | 1/24/19 | (22,992 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 873 | BRL | 3,437 | 2/04/19 | 12,430 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 523 | AUD | 727 | 2/14/19 | (10,550 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | KRW | 517,965 | USD | 460 | 2/20/19 | (5,412 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 125 | TWD | 3,801 | 3/14/19 | (43 | ) | |||||||||||||||||
Natwest Markets PLC | CNY | 908 | USD | 131 | 1/24/19 | (1,706 | ) | |||||||||||||||||
Natwest Markets PLC | USD | 175 | CNY | 1,222 | 1/24/19 | 3,075 | ||||||||||||||||||
Standard Chartered Bank | USD | 391 | CNY | 2,725 | 1/24/19 | 5,845 | ||||||||||||||||||
Standard Chartered Bank | KRW | 143,709 | USD | 128 | 2/20/19 | (1,619 | ) | |||||||||||||||||
State Street Bank & Trust Co. | AUD | 196 | USD | 142 | 2/14/19 | 3,923 | ||||||||||||||||||
State Street Bank & Trust Co. | CAD | 281 | USD | 208 | 2/14/19 | 2,016 | ||||||||||||||||||
State Street Bank & Trust Co. | CHF | 432 | USD | 442 | 2/14/19 | 594 | ||||||||||||||||||
State Street Bank & Trust Co. | CHF | 1,853 | USD | 1,868 | 2/14/19 | (23,775 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 1,418 | USD | 1,647 | 2/14/19 | 16,489 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 6,260 | USD | 7,160 | 2/14/19 | (37,815 | ) | |||||||||||||||||
State Street Bank & Trust Co. | GBP | 374 | USD | 484 | 2/14/19 | 6,144 | ||||||||||||||||||
State Street Bank & Trust Co. | GBP | 475 | USD | 603 | 2/14/19 | (3,670 | ) | |||||||||||||||||
State Street Bank & Trust Co. | JPY | 127,518 | USD | 1,139 | 2/14/19 | (27,858 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 1,388 | CHF | 1,373 | 2/14/19 | 13,824 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 970 | EUR | 851 | 2/14/19 | 8,483 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 294 | EUR | 256 | 2/14/19 | (5 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 160 | �� | GBP | 125 | 2/14/19 | (247 | ) | ||||||||||||||||
State Street Bank & Trust Co. | USD | 1,799 | JPY | 199,748 | 2/14/19 | 29,400 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 334 | MXN | 6,848 | 2/14/19 | 12,446 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 291 | NOK | 2,440 | 2/14/19 | (8,456 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 69 | NZD | 102 | 2/14/19 | (394 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 306 | ZAR | 4,410 | 2/14/19 | (797 | ) | |||||||||||||||||
State Street Bank & Trust Co. | ZAR | 1,763 | USD | 124 | 2/14/19 | 1,859 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | (152,589 | ) | ||||||||||||||||||||||
|
|
(a) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(b) | Non-income producing security. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
11
INTERNATIONAL GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Currency Abbreviations:
AUD—Australian Dollar
BRL—Brazilian Real
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
MXN—Mexican Peso
NOK—Norwegian Krone
NZD—New Zealand Dollar
RUB—Russian Ruble
SEK—Swedish Krona
TWD—New Taiwan Dollar
USD—United States Dollar
ZAR—South African Rand
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
12
INTERNATIONAL GROWTH PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $42,043,482) | $ | 46,979,894 | (a) | |
Affiliated issuers (cost $4,071,813—including investment of cash collateral for securities loaned of $1,517,411) | 4,071,813 | |||
Foreign currencies, at value (cost $39,565) | 39,902 | |||
Unrealized appreciation on forward currency exchange contracts | 362,065 | |||
Receivable for investment securities sold | 302,259 | |||
Unaffiliated dividends receivable | 120,221 | |||
Receivable for capital stock sold | 8,371 | |||
Affiliated dividends receivable | 2,918 | |||
|
| |||
Total assets | 51,887,443 | |||
|
| |||
LIABILITIES | ||||
Payable for collateral received on securities loaned | 1,517,411 | |||
Unrealized depreciation on forward currency exchange contracts | 514,654 | |||
Payable for capital stock redeemed | 42,695 | |||
Advisory fee payable | 27,865 | |||
Administrative fee payable | 17,822 | |||
Distribution fee payable | 5,663 | |||
Payable for investment securities purchased and foreign currency transactions | 2,784 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 67,064 | |||
|
| |||
Total liabilities | 2,196,164 | |||
|
| |||
NET ASSETS | $ | 49,691,279 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 2,639 | ||
Additionalpaid-in capital | 43,309,315 | |||
Distributable earnings | 6,379,325 | |||
|
| |||
$ | 49,691,279 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 21,521,675 | 1,133,547 | $ | 18.99 | |||||||
B | $ | 28,169,604 | 1,505,713 | $ | 18.71 |
(a) | Includes securities on loan with a value of $1,453,948 (see Note E). |
See notes to financial statements.
13
INTERNATIONAL GROWTH PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $118,164) | $ | 1,151,041 | ||
Affiliated issuers | 29,216 | |||
Interest | 2,399 | |||
Securities lending income | 7,612 | |||
|
| |||
1,190,268 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 462,040 | |||
Distribution fee—Class B | 87,157 | |||
Transfer agency—Class A | 1,861 | |||
Transfer agency—Class B | 2,423 | |||
Custodian | 94,640 | |||
Audit and tax | 69,976 | |||
Administrative | 69,930 | |||
Legal | 34,310 | |||
Directors’ fees | 24,784 | |||
Printing | 24,562 | |||
Miscellaneous | 8,623 | |||
|
| |||
Total expenses | 880,306 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (10,519 | ) | ||
|
| |||
Net expenses | 869,787 | |||
|
| |||
Net investment income | 320,481 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain (loss) on: | ||||
Investment transactions | 1,290,381 | |||
Forward currency exchange contracts | (197,879 | ) | ||
Foreign currency transactions | 277,700 | |||
Net change in unrealized appreciation/depreciation of: | ||||
Investments(a) | (12,286,899 | ) | ||
Forward currency exchange contracts | (210,263 | ) | ||
Foreign currency denominated assets and liabilities | (3,942 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (11,130,902 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (10,810,421 | ) | |
|
|
(a) | Net of decrease in accrued foreign capital gains taxes of $434. |
See notes to financial statements.
14
INTERNATIONAL GROWTH PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment income | $ | 320,481 | $ | 99,708 | ||||
Net realized gain on investment and foreign currency transactions | 1,370,202 | 11,762,934 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (12,501,104 | ) | 7,503,715 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (10,810,421 | ) | 19,366,357 | |||||
Distributions to Shareholders | ||||||||
Class A | (178,413 | ) | (329,359 | ) | ||||
Class B | (140,185 | ) | (356,101 | ) | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net decrease | (10,504,589 | ) | (6,244,113 | ) | ||||
|
|
|
| |||||
Total increase (decrease) | (21,633,608 | ) | 12,436,784 | |||||
NET ASSETS | ||||||||
Beginning of period | 71,324,887 | 58,888,103 | ||||||
|
|
|
| |||||
End of period | $ | 49,691,279 | $ | 71,324,887 | ||||
|
|
|
|
See notes to financial statements.
15
INTERNATIONAL GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB International Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
16
AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Financials | $ | 2,936,114 | $ | 9,853,705 | $ | –0 | – | $ | 12,789,819 | |||||||
Information Technology | –0 | – | 6,565,598 | –0 | – | 6,565,598 | ||||||||||
Industrials | –0 | – | 6,523,153 | –0 | – | 6,523,153 | ||||||||||
Health Care | 616,332 | 5,309,609 | –0 | – | 5,925,941 | |||||||||||
Consumer Staples | –0 | – | 5,369,001 | –0 | – | 5,369,001 | ||||||||||
Consumer Discretionary | 2,043,904 | 1,810,728 | –0 | – | 3,854,632 | |||||||||||
Materials | –0 | – | 2,330,939 | –0 | – | 2,330,939 | ||||||||||
Communication Services | –0 | – | 1,898,776 | –0 | – | 1,898,776 | ||||||||||
Utilities | 982,940 | 739,095 | –0 | – | 1,722,035 | |||||||||||
Short-Term Investments | 2,554,402 | –0 | – | –0 | – | 2,554,402 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 1,517,411 | –0 | – | –0 | – | 1,517,411 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 10,651,103 | 40,400,604 | (a) | –0 | – | 51,051,707 |
17
INTERNATIONAL GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Forward Currency Exchange Contracts | $ | –0 | – | $ | 362,065 | $ | –0 | – | $ | 362,065 | ||||||
Liabilities: | ||||||||||||||||
Forward Currency Exchange Contracts | –0 | – | (514,654 | ) | –0 | – | (514,654 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c)(d)(e) | $ | 10,651,103 | $ | 40,248,015 | $ | –0 | – | $ | 50,899,118 | |||||||
|
|
|
|
|
|
|
|
(a) | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | An amount of $3,096,672 was transferred from Level 1 to Level 2 due to the above mentioned foreign equity fair valuation using third party vendor modeling tools during the reporting period. |
(d) | An amount of $1,356,045 was transferred from Level 2 to Level 1 as the above mentioned foreign equity fair valuation by the third party vendor was not applied during the reporting period. |
(e) | An amount of $2,148,726 was transferred from Level 2 to Level 1 due to increase in trading volume during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
18
AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B : Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. Effective September 4, 2018, the Adviser has contractually agreed to waive its management fee and/or bear expenses of the Portfolio in order to reduce the Portfolio’s total operating expenses by an amount equal to 0.05% on an annual basis of the average net assets for Class A and Class B. For the year ended December 31, 2018, such reimbursements/waivers amounted to $8,693. This fee waiver and/or expense reimbursement agreement extends through May 1, 2020 and then may be extended by the Adviser for additionalone-year terms.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may
19
INTERNATIONAL GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,930.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $1,101.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 12,216 | $ | 9,661 | $ | 2,555 | $ | 18 | ||||||||||
Government Money Market Portfolio* | 1,757 | 16,776 | 17,016 | 1,517 | 11 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 4,072 | $ | 29 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $30,710, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
20
AB Variable Products Series Fund |
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 19,559,095 | $ | 28,361,292 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 46,142,915 | ||
|
| |||
Gross unrealized appreciation | $ | 9,094,992 | ||
Gross unrealized depreciation | (4,183,459 | ) | ||
|
| |||
Net unrealized appreciation | $ | 4,911,533 | ||
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|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single
21
INTERNATIONAL GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered, the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended December 31, 2018, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | $ | 362,065 | Unrealized depreciation on forward currency exchange contracts | $ | 514,654 | ||||||
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| |||||||||
Total | $ | 362,065 | $ | 514,654 | ||||||||
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Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | $ | (197,879 | ) | $ | (210,263 | ) | |||
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| |||||||
Total | $ | (197,879 | ) | $ | (210,263 | ) | ||||
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The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 27,345,888 | ||
Average principal amount of sale contracts | $ | 22,597,950 |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 6,349 | $ | –0 | – | $ | –0 | – | $ | –0 | – | $ | 6,349 | |||||||
BNP Paribas SA | 444 | (444 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Citibank, NA | 197,716 | (93,905 | ) | –0 | – | –0 | – | 103,811 | ||||||||||||
Goldman Sachs Bank USA | 36,111 | (1,552 | ) | –0 | – | –0 | – | 34,559 | ||||||||||||
Morgan Stanley & Co., Inc. | 17,347 | (17,347 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Natwest Markets PLC | 3,075 | (1,706 | ) | –0 | – | –0 | – | 1,369 | ||||||||||||
Standard Chartered Bank | 5,845 | (1,619 | ) | –0 | – | –0 | – | 4,226 | ||||||||||||
State Street Bank & Trust Co. | 95,178 | (95,178 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
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| |||||||||||
Total | $ | 362,065 | $ | (211,751 | ) | $ | –0 | – | $ | –0 | – | $ | 150,314 | ^ | ||||||
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22
AB Variable Products Series Fund |
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Barclays Bank PLC | $ | 121,458 | $ | –0 | – | $ | –0 | – | $ | –0 | – | $ | 121,458 | |||||||
BNP Paribas SA | 813 | (444 | ) | –0 | – | –0 | – | 369 | ||||||||||||
Citibank, NA | 93,905 | (93,905 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Deutsche Bank AG | 71,475 | –0 | – | –0 | – | –0 | – | 71,475 | ||||||||||||
Goldman Sachs Bank USA | 1,552 | (1,552 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
JPMorgan Chase Bank, NA | 67,431 | –0 | – | –0 | – | –0 | – | 67,431 | ||||||||||||
Morgan Stanley & Co., Inc. | 51,678 | (17,347 | ) | –0 | – | –0 | – | 34,331 | ||||||||||||
Natwest Markets PLC | 1,706 | (1,706 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Standard Chartered Bank | 1,619 | (1,619 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
State Street Bank & Trust Co. | 103,017 | (95,178 | ) | –0 | – | –0 | – | 7,839 | ||||||||||||
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| |||||||||||
Total | $ | 514,654 | $ | (211,751 | ) | $ | –0 | – | $ | –0 | – | $ | 302,903 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $1,453,948 and had received cash collateral which has been invested into Government Money Market Portfolio of $1,517,411. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $7,612 and $10,597 from the borrowers and Government Money Market Portfolio, respectively, for the year ended December 31, 2018; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as
23
INTERNATIONAL GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $725. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 74,551 | 97,457 | $ | 1,661,704 | $ | 2,078,227 | ||||||||||||||
Shares issued in reinvestment of dividends | 8,058 | 15,198 | 178,413 | 329,359 | ||||||||||||||||
Shares redeemed | (258,862 | ) | (304,481 | ) | (5,757,016 | ) | (6,242,518 | ) | ||||||||||||
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| |||||||||||
Net decrease | (176,253 | ) | (191,826 | ) | $ | (3,916,899 | ) | $ | (3,834,932 | ) | ||||||||||
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Class B | ||||||||||||||||||||
Shares sold | 209,646 | 523,356 | $ | 4,614,692 | $ | 10,934,597 | ||||||||||||||
Shares issued in reinvestment of dividends | 6,419 | 16,664 | 140,185 | 356,101 | ||||||||||||||||
Shares redeemed | (508,518 | ) | (663,245 | ) | (11,342,567 | ) | (13,699,879 | ) | ||||||||||||
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Net decrease | (292,453 | ) | (123,225 | ) | $ | (6,587,690 | ) | $ | (2,409,181 | ) | ||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 80% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Capitalization Risk—Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
24
AB Variable Products Series Fund |
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 318,598 | $ | 685,460 | ||||
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Total taxable distributions paid | $ | 318,598 | $ | 685,460 | ||||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 210,945 | ||
Undistributed capital gains | 1,272,102 | |||
Unrealized appreciation/(depreciation) | 4,909,940 | (a) | ||
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Total accumulated earnings/(deficit) | $ | 6,392,987 | ||
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(a) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses realized for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
25
INTERNATIONAL GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $23.15 | $17.34 | $18.62 | $19.04 | $19.27 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .15 | (b) | .06 | (b) | .11 | (b)† | .15 | .24 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (4.16 | ) | 6.00 | (1.39 | ) | (.50 | ) | (.47 | ) | |||||||||||
Contributions from Affiliates | –0 | – | –0 | – | –0 | – | –0 | – | .00 | (c) | ||||||||||
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Net increase (decrease) in net asset value from operations | (4.01 | ) | 6.06 | (1.28 | ) | (.35 | ) | (.23 | ) | |||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.15 | ) | (.25 | ) | –0 | – | (.07 | ) | –0 | – | ||||||||||
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Net asset value, end of period | $18.99 | $23.15 | $17.34 | $18.62 | $19.04 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d) | (17.41 | )% | 35.02 | %* | (6.87 | )%†* | (1.87 | )% | (1.19 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $21,528 | $30,318 | $26,045 | $33,090 | $38,924 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.27 | % | 1.24 | % | 1.27 | % | 1.11 | % | 1.07 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.29 | % | 1.24 | % | 1.27 | % | 1.11 | % | 1.07 | % | ||||||||||
Net investment income | .69 | %(b) | .30 | %(b) | .60 | %(b)† | .78 | % | 1.20 | % | ||||||||||
Portfolio turnover rate | 33 | % | 52 | % | 52 | % | 17 | % | 29 | % |
See footnote summary on page 27.
26
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $22.80 | $1 7.09 | $18.39 | $18.81 | $19.08 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .09 | (b) | .01 | (b) | .07 | (b)† | .10 | .20 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (4.09 | ) | 5.90 | (1.37 | ) | (.51 | ) | (.47 | ) | |||||||||||
Contributions from Affiliates | –0 | – | –0 | – | –0 | – | –0 | – | .00 | (c) | ||||||||||
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Net increase (decrease) in net asset value from operations | (4.00 | ) | 5.91 | (1.30 | ) | (.41 | ) | (.27 | ) | |||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.09 | ) | (.20 | ) | –0 | – | (.01 | ) | –0 | – | ||||||||||
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Net asset value, end of period | $18.71 | $22.80 | $17.09 | $18.39 | $18.81 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d) | (17.60 | )% | 34.63 | %* | (7.07 | )%†* | (2.17 | )% | (1.41 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $28,177 | $41,007 | $32,843 | $40,566 | $47,884 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.52 | % | 1.49 | % | 1.52 | % | 1.36 | % | 1.36 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.54 | % | 1.49 | % | 1.52 | % | 1.36 | % | 1.36 | % | ||||||||||
Net investment income | .43 | %(b) | .04 | %(b) | .37 | %(b)† | .52 | % | 1.02 | % | ||||||||||
Portfolio turnover rate | 33 | % | 52 | % | 52 | % | 17 | % | 29 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total Return | ||
$.04 | .22% | .23% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017 and December 31, 2016 by .01% and .09%, respectively. |
See notes to financial statements.
27
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB International Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB International Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
28
2018 TAX INFORMATION (unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the earnings of the Portfolio for the taxable year ended December 31, 2018.
The Portfolio intends to make an election to pass through foreign taxes to its shareholders. For the taxable year ended December 31, 2018, $47,471 of foreign taxes may be passed through and the associated foreign source income for information reporting purposes is $1,087,811.
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INTERNATIONAL GROWTH PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB International Growth Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr. | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||
2,453,555 | 63,835 | 112,594 |
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INTERNATIONAL GROWTH | ||
PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) | Robert M. Keith,President and Carol C. McMullen(1) Garry L. Moody(1) | |
Earl D. Weiner(1) | ||
OFFICERS | ||
Daniel C. Roarty(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
(2) | Theday-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the Global Growth and Thematic Investment Team. Mr. Roarty is the investment professional with the most significant responsibility for theday-to-day management of the Portfolio’s portfolio. |
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INTERNATIONAL GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership experience and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi- conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
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AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company andnon-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
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INTERNATIONAL GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for the Portfolio’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the “1940 Act”, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
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AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Daniel C. Roarty 47 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of Thematic and Sustainable Equities. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABIS and ABI are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at (800)227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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INTERNATIONAL GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB International Growth Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement, including the management fees, were fair and reasonable in light of the services performed under the
36
AB Variable Products Series Fund |
Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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INTERNATIONAL GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Growth Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
39
INTERNATIONAL GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
40
AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional clients. In this regard, the Adviser noted, among other things, that, compared to institutional accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
41
VPS-IG-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | INTERNATIONAL VALUE PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
INTERNATIONAL VALUE PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—International Value Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of established companies selected from more than 40 industries and more than 40 developed- and emerging-market countries. These countries currently include the developed nations in Europe and the Far East, Canada, Australia and emerging-market countries worldwide. Under normal market conditions, the Portfolio invests significantly, at least 40%—unless market conditions are not deemed favorable by the Adviser, in securities ofnon-US companies. In addition, the Portfolio invests, under normal circumstances, in the equity securities of companies located in at least three countries.
The Portfolio invests in companies that are determined by the Adviser to be undervalued, using a fundamental value approach. In selecting securities for the Portfolio, the Adviser uses its fundamental and quantitative research to identify companies whose stocks are priced low in relation to their perceived long-term earnings power.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. The Adviser evaluates currency and equity positions separately and may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge a portion of its currency risk, the Portfolio may from time to time invest in currency-related derivatives, including forward currency exchange contracts, futures, options on futures, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments. The Portfolio may invest in depositary receipts, instruments of supranational entities denominated in the currency of any country, securities of multinational companies and “semi-governmental securities”, and enter into forward commitments.
INVESTMENT RESULTS
The table on page 4 shows the Portfolio’s performance compared to its benchmark, the Morgan Stanley Capital International Europe, Australasia and the Far East (“MSCI EAFE”) Index (net), for theone-, five- and10-year periods ended December 31, 2018.
During the annual period, all share classes of the Portfolio underperformed the benchmark. Security selection drove underperformance, relative to the benchmark, mostly because of selection within consumer staples and materials. Security selection within utilities was positive. Sector selection also detracted, as losses from underweights to health care and utilities and an overweight to consumer discretionary offset gains from an overweight to energy and underweights to industrials and financials. In terms of country positioning (a result ofbottom-up security analysis combined with fundamental research), overweights to Austria and Italy and an underweight to Switzerland detracted, while overweights to Norway and Finland and an underweight to Germany added.
The Portfolio used derivatives in the form of forwards for hedging and investment purposes, which detracted from absolute returns during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Non-US equities ended 2018 in negative territory amid fears of slowing global growth and an increasinglyrisk-off sentiment among investors. Despite a relatively strong start to the year, volatility spiked toward the end of 2018 as investors worried about changing monetary policy and worsening trade conflicts. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Stocks in Japan were weak on fears of slowing growth, particularly in China.
The Portfolio’s Senior Investment Management Team (the “Team”) has continued to identify opportunities against a changing market backdrop. The Team has flexibility to adjust the Portfolio’s positions in real time when warranted, and to maintain conviction through short-term volatility. As markets face new uncertainties, the Team believes that this disciplined approach is the best way to capture the long-term potential for equities.
1
INTERNATIONAL VALUE PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The MSCI EAFE Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio.The MSCI EAFE Index (net, free float-adjusted, market capitalization weighted) represents the equity market performance of developed markets, excluding the US and Canada. MSCI makes no express or implied warranties or representations, and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices, any securities or financial products. This report is not approved, reviewed or produced by MSCI. Net returns reflect the reinvestment of dividends after the deduction ofnon-US withholding tax. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk:The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s value approach, may underperform the market generally.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging-Market Risk:Investments in emerging-market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk:Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk:When the Portfolio borrows money or otherwise leverages its portfolio, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase agreements, forward commitments, or by borrowing money.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
(Disclosures, Risks and Note About Historical Performance continued on next page)
2
AB Variable Products Series Fund |
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
3
INTERNATIONAL VALUE PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARK PERIODS ENDED DECEMBER 31, 2018 (unaudited) | Net Asset Value Returns | |||||||||||
1 Year | 5 Years1 | 10 Years1 | ||||||||||
International Value Portfolio Class A | -22.79% | -1.50% | 4.04% | |||||||||
International Value Portfolio Class B | -22.98% | -1.75% | 3.78% | |||||||||
MSCI EAFE Index (net) | -13.79% | 0.53% | 6.32% | |||||||||
1 Average annual returns. | ||||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 0.86% and 1.11% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 to 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the International Value Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages2-3.
4
INTERNATIONAL VALUE PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 824.20 | $ | 4.00 | 0.87 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.82 | $ | 4.43 | 0.87 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 823.20 | $ | 5.15 | 1.12 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.56 | $ | 5.70 | 1.12 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
5
INTERNATIONAL VALUE PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Royal Dutch Shell PLC—Class A | $ | 17,572,497 | 4.8 | % | ||||
Roche Holding AG | 11,231,230 | 3.1 | ||||||
Novo Nordisk A/S—Class B | 10,768,060 | 2.9 | ||||||
British American Tobacco PLC | 9,343,017 | 2.5 | ||||||
Airbus SE | 8,478,563 | 2.3 | ||||||
Credit Suisse Group AG | 8,125,929 | 2.2 | ||||||
Japan Tobacco, Inc. | 8,121,537 | 2.2 | ||||||
Allianz SE | 7,718,688 | 2.1 | ||||||
Repsol SA | 7,550,204 | 2.1 | ||||||
Erste Group Bank AG | 7,478,022 | 2.0 | ||||||
|
|
|
| |||||
$ | 96,387,747 | 26.2 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Consumer Discretionary | $ | 61,310,567 | 16.8 | % | ||||
Financials | 54,769,697 | 15.1 | ||||||
Consumer Staples | 40,506,326 | 11.1 | ||||||
Industrials | 39,054,060 | 10.7 | ||||||
Energy | 38,522,970 | 10.6 | ||||||
Health Care | 36,043,355 | 9.9 | ||||||
Materials | 34,792,580 | 9.6 | ||||||
Information Technology | 23,274,671 | 6.4 | ||||||
Communication Services | 17,804,311 | 4.9 | ||||||
Utilities | 8,195,226 | 2.3 | ||||||
Real Estate | 5,474,583 | 1.5 | ||||||
Short-Term Investments | 4,029,883 | 1.1 | ||||||
|
|
|
| |||||
Total Investments | $ | 363,778,229 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
6
INTERNATIONAL VALUE PORTFOLIO | ||
COUNTRY BREAKDOWN1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COUNTRY | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Japan | $ | 102,961,765 | 28.3 | % | ||||
United Kingdom | 37,275,367 | 10.3 | ||||||
Germany | 29,350,755 | 8.1 | ||||||
China | 20,893,633 | 5.7 | ||||||
Switzerland | 19,357,159 | 5.3 | ||||||
France | 19,019,428 | 5.2 | ||||||
Denmark | 14,289,208 | 3.9 | ||||||
Finland | 12,980,452 | 3.6 | ||||||
Norway | 12,285,768 | 3.4 | ||||||
Hong Kong | 11,230,400 | 3.1 | ||||||
Italy | 10,205,975 | 2.8 | ||||||
South Korea | 9,887,795 | 2.7 | ||||||
Ireland | 8,249,477 | 2.3 | ||||||
Other | 51,761,164 | 14.2 | ||||||
Short-Term Investments | 4,029,883 | 1.1 | ||||||
|
|
|
| |||||
Total Investments | $ | 363,778,229 | 100.0 | % |
1 | All data are as of December 31, 2018. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 2.2% or less in the following countries: Australia, Austria, Canada, India, Israel, Portugal, Spain, Sweden and Taiwan. |
7
INTERNATIONAL VALUE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–98.0% | ||||||||
CONSUMER DISCRETIONARY–16.7% | ||||||||
AUTO COMPONENTS–5.0% | ||||||||
Hankook Tire Co., Ltd.(a) | 109,434 | $ | 3,933,256 | |||||
Magna International, Inc.–Class A | 120,220 | 5,463,999 | ||||||
NGK Spark Plug Co., Ltd. | 267,900 | 5,303,058 | ||||||
Valeo SA | 125,830 | 3,669,905 | ||||||
|
| |||||||
18,370,218 | ||||||||
|
| |||||||
AUTOMOBILES–4.7% | ||||||||
Honda Motor Co., Ltd. | 209,200 | 5,511,387 | ||||||
Peugeot SA | 322,160 | 6,870,960 | ||||||
Subaru Corp. | 226,600 | 4,840,936 | ||||||
|
| |||||||
17,223,283 | ||||||||
|
| |||||||
HOUSEHOLD DURABLES–3.3% | ||||||||
Nikon Corp. | 355,800 | 5,299,680 | ||||||
Panasonic Corp. | 757,900 | 6,808,534 | ||||||
|
| |||||||
12,108,214 | ||||||||
|
| |||||||
LEISURE PRODUCTS–1.6% | ||||||||
Amer Sports Oyj(a) | 133,746 | 5,879,867 | ||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–2.1% | ||||||||
HUGO BOSS AG | 68,260 | 4,207,838 | ||||||
Pandora A/S | 86,250 | 3,521,147 | ||||||
|
| |||||||
7,728,985 | ||||||||
|
| |||||||
61,310,567 | ||||||||
|
| |||||||
FINANCIALS–14.9% | ||||||||
BANKS–8.7% | ||||||||
Bank of Ireland Group PLC | 955,233 | 5,312,740 | ||||||
BOC Hong Kong Holdings Ltd. | 1,494,000 | 5,545,319 | ||||||
DNB ASA | 24,483 | 392,993 | ||||||
Erste Group Bank AG(a) | 225,530 | 7,478,022 | ||||||
ICICI Bank Ltd. | 1,161,080 | 6,002,124 | ||||||
Mitsubishi UFJ Financial Group, Inc. | 1,448,800 | 7,110,207 | ||||||
|
| |||||||
31,841,405 | ||||||||
|
| |||||||
CAPITAL MARKETS–2.2% | ||||||||
Credit Suisse Group AG(a) | 743,337 | 8,125,929 | ||||||
|
| |||||||
CONSUMER FINANCE–0.8% | ||||||||
Hitachi Capital Corp. | 149,000 | 3,132,823 | ||||||
|
| |||||||
INSURANCE–3.2% | ||||||||
Allianz SE | 38,410 | 7,718,688 | ||||||
PICC Property & Casualty Co., Ltd.–Class H | 3,872,000 | 3,950,852 | ||||||
|
| |||||||
11,669,540 | ||||||||
|
| |||||||
54,769,697 | ||||||||
|
| |||||||
CONSUMER STAPLES–11.0% | ||||||||
BEVERAGES–1.1% | ||||||||
Coca-Cola Bottlers Japan Holdings, Inc. | 136,600 | 4,073,559 | ||||||
|
| |||||||
FOOD PRODUCTS–3.2% | ||||||||
Orkla ASA | 794,440 | $ | 6,220,386 | |||||
WH Group Ltd.(b) | 7,402,000 | 5,685,081 | ||||||
|
| |||||||
11,905,467 | ||||||||
|
| |||||||
HOUSEHOLD PRODUCTS–1.9% | ||||||||
Henkel AG & Co. KGaA (Preference Shares) | 64,660 | 7,062,746 | ||||||
|
| |||||||
TOBACCO–4.8% | ||||||||
British American Tobacco PLC | 293,630 | 9,343,017 | ||||||
Japan Tobacco, Inc. | 341,800 | 8,121,537 | ||||||
|
| |||||||
17,464,554 | ||||||||
|
| |||||||
40,506,326 | ||||||||
|
| |||||||
INDUSTRIALS–10.7% | ||||||||
AEROSPACE & DEFENSE–7.1% | ||||||||
AerCap Holdings NV(a) | 74,160 | 2,936,736 | ||||||
Airbus SE | 88,930 | 8,478,563 | ||||||
BAE Systems PLC | 811,600 | 4,746,929 | ||||||
Leonardo SpA | 554,321 | 4,883,688 | ||||||
MTU Aero Engines AG | 26,910 | 4,886,900 | ||||||
|
| |||||||
25,932,816 | ||||||||
|
| |||||||
AIRLINES–3.1% | ||||||||
Japan Airlines Co., Ltd. | 209,600 | 7,428,447 | ||||||
Qantas Airways Ltd. | 989,190 | 4,035,423 | ||||||
|
| |||||||
11,463,870 | ||||||||
|
| |||||||
MACHINERY–0.5% | ||||||||
Glory Ltd. | 73,700 | 1,657,374 | ||||||
|
| |||||||
39,054,060 | ||||||||
|
| |||||||
ENERGY–10.4% | ||||||||
OIL, GAS & CONSUMABLE FUELS–10.4% | ||||||||
JXTG Holdings, Inc. | 1,303,000 | 6,767,164 | ||||||
PetroChina Co., Ltd.–Class H | 10,690,000 | 6,633,105 | ||||||
Repsol SA | 456,610 | 7,340,940 | ||||||
Royal Dutch Shell PLC (Euronext Amsterdam)–Class A | 408,410 | 12,037,830 | ||||||
Royal Dutch Shell PLC–Class A | 188,044 | 5,534,667 | ||||||
|
| |||||||
38,313,706 | ||||||||
|
| |||||||
HEALTH CARE–9.8% | ||||||||
HEALTH CARE EQUIPMENT & SUPPLIES–1.1% | ||||||||
Hoya Corp. | 68,400 | 4,124,523 | ||||||
|
| |||||||
PHARMACEUTICALS–8.7% | ||||||||
Novo Nordisk A/S–Class B | 234,460 | 10,768,060 | ||||||
Ono Pharmaceutical Co., Ltd. | 270,400 | 5,521,758 | ||||||
Roche Holding AG | 45,240 | 11,231,230 | ||||||
Teva Pharmaceutical Industries Ltd. (Sponsored ADR)(a) | 285,200 | 4,397,784 | ||||||
|
| |||||||
31,918,832 | ||||||||
|
| |||||||
36,043,355 | ||||||||
|
|
8
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
MATERIALS–9.5% | ||||||||
CHEMICALS–3.7% | ||||||||
Air Water, Inc. | 232,800 | $ | 3,508,588 | |||||
Incitec Pivot Ltd. | 60,845 | 140,645 | ||||||
Johnson Matthey PLC | 157,200 | 5,612,924 | ||||||
Nippon Shokubai Co., Ltd. | 8,500 | 541,859 | ||||||
Tosoh Corp. | 296,500 | 3,845,929 | ||||||
|
| |||||||
13,649,945 | ||||||||
|
| |||||||
CONSTRUCTION MATERIALS–1.5% | ||||||||
Buzzi Unicem SpA | 308,570 | 5,322,287 | ||||||
|
| |||||||
CONTAINERS & PACKAGING–1.0% | ||||||||
BillerudKorsnas AB(c) | 321,910 | 3,845,220 | ||||||
|
| |||||||
METALS & MINING–3.3% | ||||||||
First Quantum Minerals Ltd. | 299,610 | 2,422,864 | ||||||
Norsk Hydro ASA | 1,251,890 | 5,672,389 | ||||||
Yamato Kogyo Co., Ltd. | 166,000 | 3,879,874 | ||||||
|
| |||||||
11,975,127 | ||||||||
|
| |||||||
34,792,579 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–6.4% | ||||||||
COMMUNICATIONS EQUIPMENT–2.0% | ||||||||
Nokia Oyj | 1,223,160 | 7,100,586 | ||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.8% | ||||||||
SCREEN Holdings Co., Ltd. | 67,800 | 2,842,482 | ||||||
SUMCO Corp.(c) | 91,900 | 1,023,490 | ||||||
Taiwan Semiconductor Manufacturing Co., Ltd. | 875,000 | 6,353,575 | ||||||
|
| |||||||
10,219,547 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.6% | ||||||||
Samsung Electronics Co., Ltd. | 171,050 | 5,954,539 | ||||||
|
| |||||||
23,274,672 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–4.9% | ||||||||
DIVERSIFIED TELECOMMUNICATION SERVICES–3.4% | ||||||||
China Unicom Hong Kong Ltd. | 5,806,000 | 6,185,753 | ||||||
Nippon Telegraph & Telephone Corp. | 150,700 | 6,148,455 | ||||||
|
| |||||||
12,334,208 | ||||||||
|
| |||||||
ENTERTAINMENT–1.5% | ||||||||
Nintendo Co., Ltd. | 20,600 | 5,470,103 | ||||||
|
| |||||||
17,804,311 | ||||||||
|
| |||||||
UTILITIES–2.2% | ||||||||
ELECTRIC UTILITIES–1.1% | ||||||||
EDP–Energias de Portugal SA | 1,163,800 | $ | 4,071,303 | |||||
|
| |||||||
GAS UTILITIES–1.1% | ||||||||
ENN Energy Holdings Ltd. | 464,000 | 4,123,923 | ||||||
|
| |||||||
8,195,226 | ||||||||
|
| |||||||
REAL ESTATE–1.5% | ||||||||
REAL ESTATE MANAGEMENT & DEVELOPMENT–1.5% | ||||||||
Aroundtown SA | 659,910 | 5,474,583 | ||||||
|
| |||||||
Total Common Stocks | 359,539,082 | |||||||
|
| |||||||
RIGHTS–0.1% | ||||||||
ENERGY–0.1% | ||||||||
OIL, GAS & CONSUMABLE FUELS–0.1% | ||||||||
Repsol SA,expiring 1/09/19(a)(c) | 456,610 | 209,264 | ||||||
|
| |||||||
SHORT-TERM INVESTMENTS–1.1% | ||||||||
INVESTMENT COMPANIES–1.1% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(d)(e)(f) | 4,029,883 | 4,029,883 | ||||||
|
| |||||||
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–99.2% | 363,778,229 | |||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.4% | ||||||||
INVESTMENT COMPANIES–1.4% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(d)(e)(f) | 5,148,721 | 5,148,721 | ||||||
|
| |||||||
TOTAL INVESTMENTS–100.6% | 368,926,950 | |||||||
Other assets less liabilities–(0.6)% | (2,116,912 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 366,810,038 | ||||||
|
|
9
INTERNATIONAL VALUE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Bank of America, NA | USD | 545 | CAD | 711 | 1/17/19 | $ | (24,304 | ) | ||||||||||||||||
Bank of America, NA | USD | 810 | GBP | 622 | 1/17/19 | (16,305 | ) | |||||||||||||||||
Bank of America, NA | USD | 1,571 | NOK | 13,545 | 1/17/19 | (3,744 | ) | |||||||||||||||||
Bank of America, NA | USD | 8,279 | SEK | 73,517 | 1/17/19 | 25,279 | ||||||||||||||||||
Bank of America, NA | EUR | 1,172 | USD | 1,346 | 4/16/19 | (8,336 | ) | |||||||||||||||||
Barclays Bank PLC | GBP | 1,554 | USD | 1,990 | 1/17/19 | 7,811 | ||||||||||||||||||
Barclays Bank PLC | HKD | 6,924 | USD | 885 | 1/17/19 | 299 | ||||||||||||||||||
Barclays Bank PLC | ILS | 16,924 | USD | 4,693 | 1/17/19 | 162,316 | ||||||||||||||||||
Barclays Bank PLC | JPY | 2,555,220 | USD | 22,985 | 1/17/19 | (346,623 | ) | |||||||||||||||||
Barclays Bank PLC | NOK | 58,674 | USD | 7,106 | 1/17/19 | 315,528 | ||||||||||||||||||
Barclays Bank PLC | USD | 25,519 | CHF | 25,042 | 1/17/19 | (10,010 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 806 | GBP | 618 | 1/17/19 | (17,544 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 987 | ILS | 3,703 | 1/17/19 | 4,026 | ||||||||||||||||||
Barclays Bank PLC | USD | 765 | NOK | 6,710 | 1/17/19 | 11,991 | ||||||||||||||||||
Barclays Bank PLC | USD | 733 | NZD | 1,124 | 1/17/19 | 21,956 | ||||||||||||||||||
Barclays Bank PLC | CNY | 15,452 | USD | 2,224 | 1/24/19 | (26,727 | ) | |||||||||||||||||
Barclays Bank PLC | USD | 1,799 | CNY | 12,408 | 1/24/19 | 8,792 | ||||||||||||||||||
Barclays Bank PLC | USD | 485 | KRW | 546,689 | 2/20/19 | 6,155 | ||||||||||||||||||
BNP Paribas SA | JPY | 146,116 | USD | 1,300 | 1/17/19 | (34,290 | ) | |||||||||||||||||
Citibank, NA | AUD | 1,095 | USD | 802 | 1/17/19 | 30,246 | ||||||||||||||||||
Citibank, NA | CAD | 12,084 | USD | 9,305 | 1/17/19 | 450,231 | ||||||||||||||||||
Citibank, NA | CHF | 4,173 | USD | 4,223 | 1/17/19 | (28,101 | ) | |||||||||||||||||
Citibank, NA | EUR | 1,210 | USD | 1,398 | 1/17/19 | 9,811 | ||||||||||||||||||
Citibank, NA | EUR | 879 | USD | 1,008 | 1/17/19 | (673 | ) | |||||||||||||||||
Citibank, NA | JPY | 416,297 | USD | 3,729 | 1/17/19 | (72,591 | ) | |||||||||||||||||
Citibank, NA | USD | 3,464 | EUR | 2,965 | 1/17/19 | (63,042 | ) | |||||||||||||||||
Citibank, NA | USD | 27,111 | GBP | 20,442 | 1/17/19 | (1,037,557 | ) | |||||||||||||||||
Citibank, NA | USD | 2,459 | JPY | 275,470 | 1/17/19 | 56,318 | ||||||||||||||||||
Citibank, NA | USD | 567 | CNY | 3,967 | 1/24/19 | 10,796 | ||||||||||||||||||
Citibank, NA | KRW | 11,514,438 | USD | 10,256 | 2/20/19 | (98,674 | ) | |||||||||||||||||
Citibank, NA | EUR | 1,155 | USD | 1,330 | 4/16/19 | (4,682 | ) | |||||||||||||||||
Citibank, NA | JPY | 175,464 | USD | 1,596 | 4/16/19 | (18,034 | ) | |||||||||||||||||
Citibank, NA | USD | 1,722 | AUD | 2,377 | 4/16/19 | (44,909 | ) | |||||||||||||||||
Credit Suisse International | GBP | 1,035 | USD | 1,353 | 1/17/19 | 32,650 | ||||||||||||||||||
Credit Suisse International | USD | 11,028 | GBP | 8,466 | 1/17/19 | (229,894 | ) | |||||||||||||||||
Credit Suisse International | USD | 4,644 | JPY | 512,182 | 1/17/19 | 32,292 | ||||||||||||||||||
Credit Suisse International | USD | 3,507 | NOK | 29,479 | 1/17/19 | (95,181 | ) | |||||||||||||||||
Credit Suisse International | EUR | 861 | USD | 989 | 4/16/19 | (6,092 | ) | |||||||||||||||||
Credit Suisse International | USD | 3,427 | EUR | 3,008 | 4/16/19 | 49,497 | ||||||||||||||||||
Deutsche Bank AG | CHF | 5,703 | USD | 5,761 | 1/17/19 | (48,264 | ) | |||||||||||||||||
Deutsche Bank AG | EUR | 1,362 | USD | 1,558 | 1/17/19 | (4,523 | ) | |||||||||||||||||
Deutsche Bank AG | GBP | 1,193 | USD | 1,547 | 1/17/19 | 25,239 | ||||||||||||||||||
Deutsche Bank AG | JPY | 342,618 | USD | 3,046 | 1/17/19 | (82,840 | ) | |||||||||||||||||
Deutsche Bank AG | USD | 1,089 | CHF | 1,083 | 1/17/19 | 13,835 | ||||||||||||||||||
Deutsche Bank AG | USD | 1,338 | GBP | 1,010 | 1/17/19 | (49,355 | ) | |||||||||||||||||
Deutsche Bank AG | INR | 134,673 | USD | 1,887 | 3/18/19 | (33,397 | ) | |||||||||||||||||
Deutsche Bank AG | USD | 1,051 | GBP | 827 | 4/16/19 | 8,237 | ||||||||||||||||||
Goldman Sachs Bank USA | GBP | 1,098 | USD | 1,394 | 1/17/19 | (6,532 | ) |
10
AB Variable Products Series Fund |
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
Goldman Sachs Bank USA | SEK | 11,043 | USD | 1,210 | 1/17/19 | $ | (37,610 | ) | ||||||||||||||||
Goldman Sachs Bank USA | USD | 1,642 | GBP | 1,253 | 1/17/19 | (43,665 | ) | |||||||||||||||||
Goldman Sachs Bank USA | USD | 1,314 | HKD | 10,270 | 1/17/19 | (1,463 | ) | |||||||||||||||||
Goldman Sachs Bank USA | USD | 2,941 | JPY | 329,428 | 1/17/19 | 67,268 | ||||||||||||||||||
Goldman Sachs Bank USA | USD | 434 | KRW | 486,409 | 2/20/19 | 3,085 | ||||||||||||||||||
Goldman Sachs Bank USA | INR | 81,058 | USD | 1,120 | 3/18/19 | (36,219 | ) | |||||||||||||||||
Goldman Sachs Bank USA | JPY | 108,670 | USD | 989 | 4/16/19 | (10,107 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | JPY | 339,466 | USD | 3,020 | 1/17/19 | (80,060 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 3,718 | AUD | 5,117 | 1/17/19 | (112,910 | ) | |||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,401 | HKD | 10,969 | 1/17/19 | 111 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 599 | JPY | 67,800 | 1/17/19 | 20,405 | ||||||||||||||||||
JPMorgan Chase Bank, NA | USD | 1,310 | EUR | 1,141 | 4/16/19 | 8,561 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | EUR | 2,205 | USD | 2,537 | 1/17/19 | 7,540 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | EUR | 3,820 | USD | 4,358 | 1/17/19 | (23,918 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | HKD | 14,315 | USD | 1,835 | 1/17/19 | 6,027 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | JPY | 157,316 | USD | 1,402 | 1/17/19 | (34,554 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 1,425 | AUD | 1,984 | 1/17/19 | (27,408 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 567 | CAD | 748 | 1/17/19 | (19,041 | ) | |||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 10,721 | JPY | 1,205,130 | 1/17/19 | 282,857 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | USD | 842 | CNY | 5,855 | 1/24/19 | 11,303 | ||||||||||||||||||
Morgan Stanley & Co., Inc. | EUR | 1,352 | USD | 1,562 | 4/16/19 | (987 | ) | |||||||||||||||||
Natwest Markets PLC | AUD | 1,049 | USD | 759 | 1/17/19 | 19,508 | ||||||||||||||||||
Natwest Markets PLC | CAD | 1,083 | USD | 828 | 1/17/19 | 34,486 | ||||||||||||||||||
Natwest Markets PLC | CHF | 1,100 | USD | 1,113 | 1/17/19 | (7,221 | ) | |||||||||||||||||
Natwest Markets PLC | EUR | 1,203 | USD | 1,372 | 1/17/19 | (8,253 | ) | |||||||||||||||||
Natwest Markets PLC | JPY | 424,422 | USD | 3,761 | 1/17/19 | (114,811 | ) | |||||||||||||||||
Natwest Markets PLC | NOK | 102,719 | USD | 12,606 | 1/17/19 | 718,299 | ||||||||||||||||||
Natwest Markets PLC | USD | 1,099 | AUD | 1,509 | 1/17/19 | (36,098 | ) | |||||||||||||||||
Natwest Markets PLC | USD | 2,406 | EUR | 2,102 | 1/17/19 | 5,449 | ||||||||||||||||||
Natwest Markets PLC | USD | 1,107 | EUR | 964 | 1/17/19 | (1,257 | ) | |||||||||||||||||
Natwest Markets PLC | USD | 1,305 | GBP | 1,018 | 1/17/19 | (7,012 | ) | |||||||||||||||||
Natwest Markets PLC | USD | 2,780 | JPY | 313,822 | 1/17/19 | 85,300 | ||||||||||||||||||
Natwest Markets PLC | USD | 939 | NOK | 8,228 | 1/17/19 | 12,761 | ||||||||||||||||||
Natwest Markets PLC | USD | 1,963 | NOK | 16,465 | 1/17/19 | (57,307 | ) | |||||||||||||||||
Standard Chartered Bank | JPY | 199,048 | USD | 1,765 | 1/17/19 | (52,754 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 6,298 | JPY | 705,405 | 1/17/19 | 143,329 | ||||||||||||||||||
Standard Chartered Bank | CNY | 147,093 | USD | 21,110 | 1/24/19 | (315,503 | ) | |||||||||||||||||
Standard Chartered Bank | TWD | 178,151 | USD | 5,843 | 3/14/19 | (18,971 | ) | |||||||||||||||||
Standard Chartered Bank | INR | 245,689 | USD | 3,374 | 3/18/19 | (130,197 | ) | |||||||||||||||||
Standard Chartered Bank | USD | 945 | INR | 67,865 | 3/18/19 | 22,856 | ||||||||||||||||||
State Street Bank & Trust Co. | AUD | 1,445 | USD | 1,022 | 1/17/19 | 3,695 | ||||||||||||||||||
State Street Bank & Trust Co. | CHF | 6,356 | USD | 6,424 | 1/17/19 | (50,095 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 695 | USD | 798 | 1/17/19 | 1,008 | ||||||||||||||||||
State Street Bank & Trust Co. | EUR | 1,927 | USD | 2,198 | 1/17/19 | (11,781 | ) | |||||||||||||||||
State Street Bank & Trust Co. | JPY | 76,200 | USD | 681 | 1/17/19 | (14,858 | ) | |||||||||||||||||
State Street Bank & Trust Co. | SEK | 7,880 | USD | 880 | 1/17/19 | (9,654 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 13,490 | AUD | 18,896 | 1/17/19 | (176,633 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 1,376 | CAD | 1,828 | 1/17/19 | (36,299 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 1,378 | EUR | 1,210 | 1/17/19 | 10,330 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 8,381 | EUR | 7,095 | 1/17/19 | (242,430 | ) |
11
INTERNATIONAL VALUE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Counterparty | Contracts to Deliver (000) | In Exchange For (000) | Settlement Date | Unrealized Appreciation/ (Depreciation) | ||||||||||||||||||||
State Street Bank & Trust Co. | USD | 849 | ILS | 3,139 | 1/17/19 | $ | (8,402 | ) | ||||||||||||||||
State Street Bank & Trust Co. | USD | 3,375 | JPY | 379,194 | 1/17/19 | 87,852 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 2,638 | NOK | 22,948 | 1/17/19 | 17,443 | ||||||||||||||||||
State Street Bank & Trust Co. | USD | 1,145 | NOK | 9,793 | 1/17/19 | (11,698 | ) | |||||||||||||||||
State Street Bank & Trust Co. | EUR | 1,050 | USD | 1,209 | 4/16/19 | (4,197 | ) | |||||||||||||||||
State Street Bank & Trust Co. | USD | 823 | AUD | 1,147 | 4/16/19 | (14,117 | ) | |||||||||||||||||
UBS AG | �� | EUR | 1,575 | USD | 1,809 | 1/17/19 | 2,491 | |||||||||||||||||
UBS AG | GBP | 599 | USD | 755 | 1/17/19 | (8,790 | ) | |||||||||||||||||
UBS AG | JPY | 67,400 | USD | 598 | 1/17/19 | (17,104 | ) | |||||||||||||||||
UBS AG | USD | 615 | EUR | 540 | 1/17/19 | 4,379 | ||||||||||||||||||
UBS AG | USD | 1,721 | EUR | 1,499 | 4/16/19 | 12,059 | ||||||||||||||||||
|
| |||||||||||||||||||||||
$ | (1,323,901 | ) | ||||||||||||||||||||||
|
|
(a) | Non-income producing security. |
(b) | Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security is considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At December 31, 2018, the market value of this security amounted to $5,685,081 or 1.5% of net assets. |
(c) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(d) | Affiliated investments. |
(e) | The rate shown represents the7-day yield as of period end. |
(f) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Currency Abbreviations:
AUD—Australian Dollar
CAD—Canadian Dollar
CHF—Swiss Franc
CNY—Chinese Yuan Renminbi
EUR—Euro
GBP—Great British Pound
HKD—Hong Kong Dollar
ILS—Israeli Shekel
INR—Indian Rupee
JPY—Japanese Yen
KRW—South Korean Won
NOK—Norwegian Krone
NZD—New Zealand Dollar
SEK—Swedish Krona
TWD—New Taiwan Dollar
USD—United States Dollar
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
12
INTERNATIONAL VALUE PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $401,148,922) | $ | 359,748,346 | (a) | |
Affiliated issuers (cost $9,178,604—including investment of cash collateral for securities loaned of $5,148,721) | 9,178,604 | |||
Cash | 10 | |||
Cash collateral due from broker | 253,000 | |||
Foreign currencies, at value (cost $1,025,577) | 1,016,209 | |||
Unrealized appreciation on forward currency exchange contracts | 2,871,707 | |||
Receivable for investment securities sold | 2,012,514 | |||
Unaffiliated dividends and interest receivable | 1,335,833 | |||
Receivable for capital stock sold | 383,162 | |||
Affiliated dividends receivable | 3,411 | |||
|
| |||
Total assets | 376,802,796 | |||
|
| |||
LIABILITIES |
| |||
Payable for collateral received on securities loaned | 5,148,721 | |||
Unrealized depreciation on forward currency exchange contracts | 4,195,608 | |||
Advisory fee payable | 222,930 | |||
Payable for capital stock redeemed | 115,251 | |||
Distribution fee payable | 62,774 | |||
Administrative fee payable | 17,842 | |||
Payable for investment securities purchased and foreign currency transactions | 14,392 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses and other liabilities | 215,034 | |||
|
| |||
Total liabilities | 9,992,758 | |||
|
| |||
NET ASSETS | $ | 366,810,038 | ||
|
| |||
COMPOSITION OF NET ASSETS |
| |||
Capital stock, at par | $ | 29,804 | ||
Additionalpaid-in capital | 412,572,358 | |||
Accumulated loss | (45,792,124 | ) | ||
|
| |||
$ | 366,810,038 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 57,234,097 | 4,621,740 | $ | 12.38 | |||||||
B | $ | 309,575,941 | 25,182,447 | $ | 12.29 |
(a) | Includes securities on loan with a value of $4,938,176 (see Note E). |
See notes to financial statements.
13
INTERNATIONAL VALUE PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $1,466,079) | $ | 11,476,453 | ||
Affiliated issuers | 212,104 | |||
Securities lending income | 56,715 | |||
|
| |||
11,745,272 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 3,385,689 | |||
Distribution fee—Class B | 976,376 | |||
Transfer agency—Class A | 753 | |||
Transfer agency—Class B | 4,857 | |||
Custodian | 170,052 | |||
Printing | 110,864 | |||
Administrative | 69,268 | |||
Audit and tax | 67,121 | |||
Legal | 49,461 | |||
Directors’ fees | 24,784 | |||
Miscellaneous | 22,679 | |||
|
| |||
Total expenses | 4,881,904 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (14,079 | ) | ||
|
| |||
Net expenses | 4,867,825 | |||
|
| |||
Net investment income | 6,877,447 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain (loss) on: | ||||
Investment transactions(a) | 11,287,514 | |||
Forward currency exchange contracts | (4,157,384 | ) | ||
Foreign currency transactions | (694,073 | ) | ||
Net change in unrealized appreciation/depreciation of: | ||||
Investments | (121,676,153 | ) | ||
Forward currency exchange contracts | (738,104 | ) | ||
Foreign currency denominated assets and liabilities | (36,801 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (116,015,001 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (109,137,554 | ) | |
|
|
(a) | Net of foreign capital gains taxes of $77,257. |
See notes to financial statements.
14
INTERNATIONAL VALUE PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income | $ | 6,877,447 | $ | 9,215,792 | ||||
Net realized gain on investment and foreign currency transactions | 6,436,057 | 39,896,634 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (122,451,058 | ) | 62,373,737 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (109,137,554 | ) | 111,486,163 | |||||
Distributions to Shareholders |
| |||||||
Class A | (1,075,905 | ) | (1,129,445 | ) | ||||
Class B | (4,249,239 | ) | (8,153,923 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net decrease | (4,626,158 | ) | (123,775,055 | ) | ||||
|
|
|
| |||||
Total decrease | (119,088,856 | ) | (21,572,260 | ) | ||||
NET ASSETS |
| |||||||
Beginning of period | 485,898,894 | 507,471,154 | ||||||
|
|
|
| |||||
End of period | $ | 366,810,038 | $ | 485,898,894 | ||||
|
|
|
|
See notes to financial statements.
15
INTERNATIONAL VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB International Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of
16
AB Variable Products Series Fund |
these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks: | ||||||||||||||||
Consumer Discretionary | $ | 5,463,999 | $ | 55,846,568 | $ | –0 | – | $ | 61,310,567 | |||||||
Financials | –0 | – | 54,769,697 | –0 | – | 54,769,697 | ||||||||||
Consumer Staples | –0 | – | 40,506,326 | –0 | – | 40,506,326 | ||||||||||
Industrials | 2,936,736 | 36,117,324 | –0 | – | 39,054,060 | |||||||||||
Energy | –0 | – | 38,313,706 | –0 | – | 38,313,706 | ||||||||||
Health Care | 4,397,784 | 31,645,571 | –0 | – | 36,043,355 | |||||||||||
Materials | 2,422,864 | 32,369,715 | –0 | – | 34,792,579 | |||||||||||
Information Technology | –0 | – | 23,274,672 | –0 | – | 23,274,672 | ||||||||||
Communication Services | –0 | – | 17,804,311 | –0 | – | 17,804,311 | ||||||||||
Utilities | –0 | – | 8,195,226 | –0 | – | 8,195,226 | ||||||||||
Real Estate | –0 | – | 5,474,583 | –0 | – | 5,474,583 | ||||||||||
Rights | 209,264 | –0 | – | –0 | – | 209,264 | ||||||||||
Short-Term Investments | 4,029,883 | –0 | – | –0 | – | 4,029,883 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 5,148,721 | –0 | – | –0 | – | 5,148,721 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 24,609,251 | 344,317,699 | (a) | –0 | – | 368,926,950 |
17
INTERNATIONAL VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Other Financial Instruments(b): | ||||||||||||||||
Assets: | ||||||||||||||||
Forward Currency Exchange Contracts | $ | –0 | – | $ | 2,871,707 | $ | –0 | – | $ | 2,871,707 | ||||||
Liabilities: | ||||||||||||||||
Forward Currency Exchange Contracts | –0 | – | (4,195,608 | ) | –0 | – | (4,195,608 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c)(d) | $ | 24,609,251 | $ | 342,993,798 | $ | –0 | – | $ | 367,603,049 | |||||||
|
|
|
|
|
|
|
|
(a) | A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | An amount of $11,022,378 was transferred from Level 1 to Level 2 due to the above mentioned foreign equity fair valuation using third party vendor modeling tools during the reporting period. |
(d) | There were no transfers from Level 2 to Level 1 during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
18
AB Variable Products Series Fund |
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2018, there were no expenses waived by the Adviser.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In
19
INTERNATIONAL VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,268.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $3,120.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 58,219 | $ | 54,189 | $ | 4,030 | $ | 43 | ||||||||||
Government Money Market Portfolio* | 15,541 | 211,203 | 221,595 | 5,149 | 169 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 9,179 | $ | 212 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $147,766, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to
20
AB Variable Products Series Fund |
its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 186,358,324 | $ | 199,297,872 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 414,158,027 | ||
|
| |||
Gross unrealized appreciation | 25,434,004 | |||
Gross unrealized depreciation | (70,664,685 | ) | ||
|
| |||
Net unrealized depreciation | $ | (45,230,681 | ) | |
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:
• | Forward Currency Exchange Contracts |
The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and fornon-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.
A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on forward currency exchange contracts. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.
During the year ended December 31, 2018, the Portfolio held forward currency exchange contracts for hedging andnon-hedging purposes.
The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) with its OTC derivative contract counterparties in order to, among other things, reduce its credit risk to OTC counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the OTC counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment(close-out netting) in the event of default or termination. In the event of a default by an OTC counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.
The Portfolio’s ISDA Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Portfolio decline below specific levels (“net asset contingent features”). If these levels are triggered,
21
INTERNATIONAL VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
the Portfolio’s OTC counterparty has the right to terminate such transaction and require the Portfolio to pay or receive a settlement amount in connection with the terminated transaction. If OTC derivatives were held at period end, please refer to netting arrangements by the OTC counterparty tables below for additional details.
During the year ended December 31, 2018, the Portfolio had entered into the following derivatives:
Asset Derivatives | Liability Derivatives | |||||||||||
Derivative Type | Statement of | Fair Value | Statement of | Fair Value | ||||||||
Foreign currency contracts | Unrealized appreciation on forward currency exchange contracts | $ | 2,871,707 | Unrealized depreciation on forward currency exchange contracts | $ | 4,195,608 | ||||||
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|
|
| |||||||||
Total | $ | 2,871,707 | $ | 4,195,608 | ||||||||
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|
|
|
Derivative Type | Location of Gain or (Loss) on Derivatives | Realized Gain or (Loss) on Derivatives | Change in Unrealized Appreciation or (Depreciation) | |||||||
Foreign currency contracts | Net realized gain (loss) on forward currency exchange contracts; Net change in unrealized appreciation/depreciation of forward currency exchange contracts | $ | (4,157,384 | ) | $ | (738,104 | ) | |||
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|
|
| |||||||
Total | $ | (4,157,384 | ) | $ | (738,104 | ) | ||||
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|
|
|
The following table represents the average monthly volume of the Portfolio’s derivative transactions during the year ended December 31, 2018:
Forward Currency Exchange Contracts: | ||||
Average principal amount of buy contracts | $ | 180,273,462 | ||
Average principal amount of sale contracts | $ | 188,063,871 |
For financial reporting purposes, the Portfolio does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.
All OTC derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’s derivative assets and liabilities by OTC counterparty net of amounts available for offset under ISDA Master Agreements (“MA”) and net of the related collateral received/pledged by the Portfolio as of December 31, 2018. Exchange-traded derivatives and centrally cleared swaps are not subject to netting arrangements and as such are excluded from the table.
Counterparty | Derivatives Assets Subject to a MA | Derivatives Available for Offset | Cash Collateral Received* | Security Collateral Received* | Net Amount of Derivatives Assets | |||||||||||||||
Bank of America, NA | $ | 25,279 | $ | (25,279 | ) | $ | –0 | – | $ | –0 | – | $ | –0 | – | ||||||
Barclays Bank PLC | 538,874 | (400,904 | ) | –0 | – | –0 | – | 137,970 | ||||||||||||
Citibank, NA | 557,402 | (557,402 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Credit Suisse International | 114,439 | (114,439 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Deutsche Bank AG | 47,311 | (47,311 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Goldman Sachs Bank USA | 70,353 | (70,353 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
JPMorgan Chase Bank, NA | 29,077 | (29,077 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Morgan Stanley & Co., Inc. | 307,727 | (105,908 | ) | –0 | – | –0 | – | 201,819 | ||||||||||||
Natwest Markets PLC | 875,803 | (231,959 | ) | –0 | – | –0 | – | 643,844 | ||||||||||||
Standard Chartered Bank | 166,185 | (166,185 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
State Street Bank & Trust Co. | 120,328 | (120,328 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
UBS AG | 18,929 | (18,929 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
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|
| |||||||||||
Total | $ | 2,871,707 | $ | (1,888,074 | ) | $ | –0 | – | $ | –0 | – | $ | 983,633 | ^ | ||||||
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|
22
AB Variable Products Series Fund |
Counterparty | Derivatives Liabilities Subject to a MA | Derivatives Available for Offset | Cash Collateral Pledged* | Security Collateral Pledged* | Net Amount of Derivatives Liabilities | |||||||||||||||
Bank of America, NA | $ | 52,689 | $ | (25,279 | ) | $ | –0 | – | $ | –0 | – | $ | 27,410 | |||||||
Barclays Bank PLC | 400,904 | (400,904 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
BNP Paribas SA | 34,290 | –0 | – | –0 | – | –0 | – | 34,290 | ||||||||||||
Citibank, NA | 1,368,263 | (557,402 | ) | –0 | – | –0 | – | 810,861 | ||||||||||||
Credit Suisse International | 331,167 | (114,439 | ) | –0 | – | –0 | – | 216,728 | ||||||||||||
Deutsche Bank AG | 218,379 | (47,311 | ) | –0 | – | –0 | – | 171,068 | ||||||||||||
Goldman Sachs Bank USA | 135,596 | (70,353 | ) | –0 | – | –0 | – | 65,243 | ||||||||||||
JPMorgan Chase Bank, NA | 192,970 | (29,077 | ) | –0 | – | –0 | – | 163,893 | ||||||||||||
Morgan Stanley & Co., Inc. | 105,908 | (105,908 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Natwest Markets PLC | 231,959 | (231,959 | ) | –0 | – | –0 | – | –0 | – | |||||||||||
Standard Chartered Bank | 517,425 | (166,185 | ) | (253,000 | ) | –0 | – | 98,240 | ||||||||||||
State Street Bank & Trust Co. | 580,164 | (120,328 | ) | –0 | – | –0 | – | 459,836 | ||||||||||||
UBS AG | 25,894 | (18,929 | ) | –0 | – | –0 | – | 6,965 | ||||||||||||
|
|
|
|
|
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|
|
|
| |||||||||||
Total | $ | 4,195,608 | $ | (1,888,074 | ) | $ | (253,000 | ) | $ | –0 | – | $ | 2,054,534 | ^ | ||||||
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* | The actual collateral received/pledged may be more than the amount reported due to over-collateralization. |
^ | Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty. |
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $4,938,176 and had received cash collateral which has been invested into Government Money Market Portfolio of $5,148,721. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $56,715 and $169,442 from the borrowers and Government Money Market Portfolio, respectively, for the
23
INTERNATIONAL VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
year ended December 31, 2018; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $10,959. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 1,917,576 | 256,719 | $ | 30,564,317 | $ | 3,886,362 | ||||||||||||||
Shares issued in reinvestment of dividends | 76,053 | 71,092 | 1,075,905 | 1,129,445 | ||||||||||||||||
Shares redeemed | (624,835 | ) | (642,841 | ) | (9,705,915 | ) | (9,555,629 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net increase (decrease) | 1,368,794 | (315,030 | ) | $ | 21,934,307 | $ | (4,539,822 | ) | ||||||||||||
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| |||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 2,042,981 | 862,955 | $ | 30,014,125 | $ | 13,009,333 | ||||||||||||||
Shares issued in reinvestment of dividends | 304,899 | 518,006 | 4,249,239 | 8,153,923 | ||||||||||||||||
Shares redeemed | (3,972,067 | ) | (9,534,251 | ) | (60,823,829 | ) | (140,398,489 | ) | ||||||||||||
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|
| |||||||||||||
Net decrease | (1,624,187 | ) | (8,153,290 | ) | $ | (26,560,465 | ) | $ | (119,235,233 | ) | ||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 50% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory or other uncertainties.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
24
AB Variable Products Series Fund |
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 5,325,144 | $ | 9,283,368 | ||||
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| |||||
Total taxable distributions paid | $ | 5,325,144 | $ | 9,283,368 | ||||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Accumulated capital losses | $ | 0 | (a) | |
Other losses | (538,232 | )(b) | ||
Unrealized appreciation/(depreciation) | (45,253,892 | )(c) | ||
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| |||
Total accumulated earnings/(deficit) | $ | (45,792,124 | ) | |
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|
(a) | During the fiscal year, the Portfolio utilized $9,408,940 of capital loss carry forwards to offset current year net realized gains. The Portfolio also had $40,760,405 of capital loss carryforwards expire during the fiscal year. |
(b) | As of December 31, 2018, the Portfolio had a qualified late-year ordinary loss deferral of $538,232. |
(c) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of passive foreign investment companies (PFICs), and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments. |
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, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the expiration of capital loss carryforwards and taxable overdistributions resulted in a net decrease in accumulated loss and a net decrease in additional paid-in capital. These reclassifications had no effect on net assets.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
25
INTERNATIONAL VALUE PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $16.30 | $13.28 | $13.52 | $13.53 | $14.99 | |||||||||||||||
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| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .25 | (b) | .31 | (b) | .30 | (b)† | .30 | .48 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (3.94 | ) | 3.06 | (.37 | ) | .05 | (1.40 | ) | ||||||||||||
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| |||||||||||
Net increase (decrease) in net asset value from operations | (3.69 | ) | 3.37 | (.07 | ) | .35 | (.92 | ) | ||||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.23 | ) | (.35 | ) | (.17 | ) | (.36 | ) | (.54 | ) | ||||||||||
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Net asset value, end of period | $12.38 | $16.30 | $13.28 | $13.52 | $13.53 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c) | (22.79 | )% | 25.42 | %* | (.50 | )%†* | 2.59 | % | (6.21 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $57,234 | $53,014 | $47,385 | $48,665 | $50,504 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .86 | % | .85 | % | .86 | % | .85 | % | .85 | % | ||||||||||
Expenses, before waivers/reimbursements | .87 | % | .86 | % | .86 | % | .85 | % | .85 | % | ||||||||||
Net investment income | 1.65 | %(b) | 2.05 | %(b) | 2.27 | %(b)† | 2.09 | % | 3.25 | % | ||||||||||
Portfolio turnover rate | 42 | % | 45 | % | 64 | % | 74 | % | 64 | % |
See footnote summary on page 27.
26
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $16.15 | $13.16 | $13.41 | $13.41 | $14.86 | |||||||||||||||
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| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .23 | (b) | .27 | (b) | .27 | (b)† | .26 | .45 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (3.92 | ) | 3.02 | (.38 | ) | .06 | (1.40 | ) | ||||||||||||
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| |||||||||||
Net increase (decrease) in net asset value from operations | (3.69 | ) | 3.29 | (.11 | ) | .32 | (.95 | ) | ||||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.17 | ) | (.30 | ) | (.14 | ) | (.32 | ) | (.50 | ) | ||||||||||
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| |||||||||||
Net asset value, end of period | $12.29 | $16.15 | $13.16 | $13.41 | $13.41 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c) | (22.98 | )% | 25.09 | %* | (.80 | )%†* | 2.40 | % | (6.46 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $309,576 | $432,885 | $460,086 | $550,746 | $615,682 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.11 | % | 1.10 | % | 1.11 | % | 1.10 | % | 1.10 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.11 | % | 1.11 | % | 1.11 | % | 1.10 | % | 1.10 | % | ||||||||||
Net investment income | 1.50 | %(b) | 1.83 | %(b) | 2.04 | %(b)† | 1.85 | % | 3.06 | % | ||||||||||
Portfolio turnover rate | 42 | % | 45 | % | 64 | % | 74 | % | 64 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.002 | .01% | .01% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017 and December 31, 2016 by .01% and .07%, respectively. |
See notes to financial statements.
27
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB International Value Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB International Value Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
28
2018 TAX INFORMATION (unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the earnings of the Portfolio for the taxable year ended December 31, 2018.
The Portfolio intends to make an election to pass through foreign taxes to its shareholders. For the taxable year ended December 31, 2018, $975,391 of foreign taxes may be passed through and the associated foreign source income for information reporting purposes is $9,793,204.
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INTERNATIONAL VALUE PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB International Value Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
27,164,886 | 589,392 | 1,794,273 |
* | Mr. Foulk retired on December 31, 2018. |
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INTERNATIONAL VALUE PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman | Carol C. McMullen(1) | |
Michael J. Downey(1) | Garry L. Moody(1) | |
Nancy P. Jacklin(1) | Earl D. Weiner(1) | |
Robert M. Keith, President and Chief Executive Officer | ||
OFFICERS | ||
Tawhid Ali(2),Vice President Avi Lavi(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the International Value Senior Investment Management Team.Messrs. Ali and Lavi are the investment professionals with the most significant responsibility for theday-to-day management of the Portfolio’s portfolio. |
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INTERNATIONAL VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas NewYork, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None | |||||
INDEPENDENT DIRECTOR | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
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AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTOR (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company andnon-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None |
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INTERNATIONAL VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTOR (continued) | ||||||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
34
AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Tawhid Ali 47 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of European Value Equities. | ||
Avi Lavi 52 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of International Value Equities. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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INTERNATIONAL VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB International Value Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement,
36
AB Variable Products Series Fund |
including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
37
INTERNATIONAL VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
38
AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Value Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
39
INTERNATIONAL VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
40
AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
41
VPS-IV-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | LARGE CAP GROWTH PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
LARGE CAP GROWTH PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Large Cap Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in equity securities of a limited number of large, carefully selected, high-quality US companies. The Portfolio invests primarily in the domestic equity securities of companies selected by the Adviser for their growth potential within various market sectors. The Portfolio emphasizes investments in large, seasoned companies. Under normal circumstances, the Portfolio will invest at least 80% of its net assets in common stocks of large-capitalization companies.
The Adviser expects that normally the Portfolio’s portfolio will tend to emphasize investments in securities issued by US companies, although it may invest in foreign securities. The Adviser’s research focus is on companies with high sustainable growth prospects, high or improving return on invested capital, transparent business models, and strong and lasting competitive advantages.
The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in securities. ETFs may provide more efficient and economical exposure to the types of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 1000 Growth Index, in addition to the broad market as measured by the Standard & Poor’s (“S&P”) 500 Index, for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio outperformed the primary benchmark and the S&P 500 Index for the annual period. Stock selection in the health care, technology and industrials sectors contributed to performance, relative to the benchmark. Stock selection in the consumer-discretionary and consumer-staples sectors, along with an underweight to the consumer-discretionary sector, detracted.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the period as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment, and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during the period as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
The Portfolio’s Senior Investment Management Team (the “Team”) follows abottom-up stock picking methodology that seeks to identify companies that meet its investment criteria of healthy balance sheets, competitive advantages, strong cash flow generation, transparent business models and sustainable growth. The Portfolio is conservatively positioned amid the current uncertainty in the global macro environment. The Team remains laser-focused in identifying companies that generate high return on assets with high reinvestment rate opportunities.
1
LARGE CAP GROWTH PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 1000® Growth Index and the S&P 500® Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 1000 Growth Index represents the performance oflarge-cap growth companies within the US. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk: The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s growth approach, may underperform the market generally.
Focused Portfolio Risk: Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value (“NAV”).
Foreign(Non-US) Risk: Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk: The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
LARGE CAP GROWTH PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Large Cap Growth Portfolio Class A | 2.58% | 12.00% | 15.25% | |||||||||
Large Cap Growth Portfolio Class B | 2.32% | 11.72% | 14.96% | |||||||||
Primary Benchmark: Russell 1000 Growth Index | -1.51% | 10.40% | 15.29% | |||||||||
S&P 500 Index | -4.38% | 8.49% | 13.12% | |||||||||
1 Average annual returns. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.69% and 0.94% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Large Cap Growth Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
LARGE CAP GROWTH PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 941.30 | $ | 3.28 | 0.67 | % | $ | 3.33 | 0.68 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,021.83 | $ | 3.41 | 0.67 | % | $ | 3.47 | 0.68 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 940.10 | $ | 4.50 | 0.92 | % | $ | 4.55 | 0.93 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.57 | $ | 4.69 | 0.92 | % | $ | 4.74 | 0.93 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
4
LARGE CAP GROWTH PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Alphabet, Inc.—Class C | $ | 32,165,011 | 7.9 | % | ||||
Visa, Inc.—Class A | 19,310,211 | 4.7 | ||||||
Microsoft Corp. | 18,571,262 | 4.5 | ||||||
UnitedHealth Group, Inc. | 17,229,388 | 4.2 | ||||||
Home Depot, Inc. (The) | 16,407,264 | 4.0 | ||||||
Monster Beverage Corp. | 16,287,784 | 4.0 | ||||||
NIKE, Inc.—Class B | 14,094,310 | 3.5 | ||||||
Intuitive Surgical, Inc. | 13,816,842 | 3.4 | ||||||
PayPal Holdings, Inc. | 12,422,784 | 3.0 | ||||||
Zoetis, Inc. | 11,998,525 | 2.9 | ||||||
|
|
|
| |||||
$ | 172,303,381 | 42.1 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Information Technology | $ | 101,651,640 | 24.8 | % | ||||
Health Care | 91,527,663 | 22.4 | ||||||
Consumer Discretionary | 60,991,915 | 14.9 | ||||||
Communication Services | 51,736,627 | 12.6 | ||||||
Consumer Staples | 34,972,662 | 8.6 | ||||||
Industrials | 31,239,579 | 7.6 | ||||||
Materials | 9,588,227 | 2.3 | ||||||
Financials | 5,244,343 | 1.3 | ||||||
Short-Term Investments | 22,378,071 | 5.5 | ||||||
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|
|
| |||||
Total Investments | $ | 409,330,727 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
5
LARGE CAP GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–94.6% | ||||||||
INFORMATION TECHNOLOGY–24.9% | ||||||||
COMMUNICATIONS EQUIPMENT–2.0% | ||||||||
Arista Networks, Inc.(a) | 37,909 | $ | 7,987,426 | |||||
|
| |||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & | ||||||||
Amphenol Corp.–Class A | 25,176 | 2,039,760 | ||||||
Cognex Corp. | 64,782 | 2,505,120 | ||||||
IPG Photonics Corp.(a) | 17,336 | 1,963,995 | ||||||
|
| |||||||
6,508,875 | ||||||||
|
| |||||||
IT SERVICES–8.1% | ||||||||
Fiserv, Inc.(a) | 21,620 | 1,588,854 | ||||||
PayPal Holdings, Inc.(a) | 147,732 | 12,422,784 | ||||||
Visa, Inc.–Class A | 146,356 | 19,310,211 | ||||||
|
| |||||||
33,321,849 | ||||||||
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| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.9% | ||||||||
ASML Holding NV ADR | 17,780 | 2,766,924 | ||||||
Texas Instruments, Inc. | 17,140 | 1,619,730 | ||||||
Xilinx, Inc. | 133,762 | 11,392,509 | ||||||
|
| |||||||
15,779,163 | ||||||||
|
| |||||||
SOFTWARE–6.9% | ||||||||
Adobe, Inc.(a) | 28,540 | 6,456,890 | ||||||
ANSYS, Inc.(a) | 1,159 | 165,667 | ||||||
Microsoft Corp. | 182,842 | 18,571,262 | ||||||
Paycom Software, Inc.(a) | 19,760 | 2,419,612 | ||||||
salesforce.com, Inc.(a) | 4,340 | 594,450 | ||||||
|
| |||||||
28,207,881 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–2.4% | ||||||||
Apple, Inc. | 62,422 | 9,846,446 | ||||||
|
| |||||||
101,651,640 | ||||||||
|
| |||||||
HEALTH CARE–22.4% | ||||||||
BIOTECHNOLOGY–6.4% | ||||||||
Biogen, Inc.(a) | 36,096 | 10,862,008 | ||||||
Regeneron Pharmaceuticals, Inc.(a) | 22,593 | 8,438,486 | ||||||
Vertex Pharmaceuticals, Inc.(a) | 40,571 | 6,723,020 | ||||||
|
| |||||||
26,023,514 | ||||||||
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| |||||||
HEALTH CARE EQUIPMENT & SUPPLIES–8.0% | ||||||||
Edwards Lifesciences Corp.(a) | 78,297 | 11,992,751 | ||||||
Intuitive Surgical, Inc.(a) | 28,850 | 13,816,842 | ||||||
Stryker Corp. | 43,584 | 6,831,792 | ||||||
|
| |||||||
32,641,385 | ||||||||
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| |||||||
HEALTH CARE PROVIDERS & SERVICES–4.2% | ||||||||
UnitedHealth Group, Inc. | 69,161 | $ | 17,229,388 | |||||
|
| |||||||
HEALTH CARE TECHNOLOGY–0.2% | ||||||||
Veeva Systems, Inc.–Class A(a) | 9,256 | 826,746 | ||||||
|
| |||||||
LIFE SCIENCES TOOLS & SERVICES–0.7% | ||||||||
Mettler-Toledo International, Inc.(a) | 4,965 | 2,808,105 | ||||||
|
| |||||||
PHARMACEUTICALS–2.9% | ||||||||
Zoetis, Inc. | 140,268 | 11,998,525 | ||||||
|
| |||||||
91,527,663 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–14.9% | ||||||||
INTERNET & DIRECT MARKETING RETAIL–2.9% | ||||||||
Booking Holdings, Inc.(a) | 6,950 | 11,970,819 | ||||||
|
| |||||||
MULTILINE RETAIL–0.4% | ||||||||
Dollar Tree, Inc.(a) | 19,481 | 1,759,524 | ||||||
|
| |||||||
SPECIALTY RETAIL–8.1% | ||||||||
Burlington Stores, Inc.(a) | 21,118 | 3,435,265 | ||||||
Home Depot, Inc. (The) | 95,491 | 16,407,264 | ||||||
TJX Cos., Inc. (The) | 124,238 | 5,558,408 | ||||||
Ulta Salon Cosmetics & Fragrance, Inc.(a) | 31,720 | 7,766,325 | ||||||
|
| |||||||
33,167,262 | ||||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–3.5% | ||||||||
NIKE, Inc.–Class B | 190,104 | 14,094,310 | ||||||
|
| |||||||
60,991,915 | ||||||||
|
| |||||||
COMMUNICATION SERVICES–12.6% | ||||||||
ENTERTAINMENT–2.0% | ||||||||
Activision Blizzard, Inc. | 77,437 | 3,606,241 | ||||||
Electronic Arts, Inc.(a) | 57,364 | 4,526,593 | ||||||
|
| |||||||
8,132,834 | ||||||||
|
| |||||||
INTERACTIVE MEDIA & SERVICES–10.6% | ||||||||
Alphabet, Inc.–Class C(a) | 31,059 | 32,165,011 | ||||||
Facebook, Inc.–Class A(a) | 87,259 | 11,438,782 | ||||||
|
| |||||||
43,603,793 | ||||||||
|
| |||||||
51,736,627 | ||||||||
|
| |||||||
CONSUMER STAPLES–8.6% | ||||||||
BEVERAGES–5.6% | ||||||||
Constellation Brands, Inc.–Class A | 41,640 | 6,696,545 | ||||||
Monster Beverage Corp.(a) | 330,918 | 16,287,784 | ||||||
|
| |||||||
22,984,329 | ||||||||
|
|
6
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
FOOD & STAPLES RETAILING–3.0% | ||||||||
Costco Wholesale Corp. | 58,850 | $ | 11,988,333 | |||||
|
| |||||||
34,972,662 | ||||||||
|
| |||||||
INDUSTRIALS–7.6% | ||||||||
BUILDING PRODUCTS–3.0% | ||||||||
Allegion PLC | 85,849 | 6,843,024 | ||||||
AO Smith Corp. | 74,420 | 3,177,734 | ||||||
Lennox International, Inc. | 11,411 | 2,497,411 | ||||||
|
| |||||||
12,518,169 | ||||||||
|
| |||||||
COMMERCIAL SERVICES & SUPPLIES–1.5% | ||||||||
Copart, Inc.(a) | 128,198 | 6,125,301 | ||||||
|
| |||||||
ELECTRICAL EQUIPMENT–0.5% | ||||||||
AMETEK, Inc. | 28,690 | 1,942,313 | ||||||
|
| |||||||
INDUSTRIAL CONGLOMERATES–1.5% | ||||||||
Roper Technologies, Inc. | 22,964 | 6,120,365 | ||||||
|
| |||||||
MACHINERY–0.6% | ||||||||
IDEX Corp. | 18,880 | 2,383,789 | ||||||
|
| |||||||
TRADING COMPANIES & DISTRIBUTORS–0.5% | ||||||||
Fastenal Co. | 41,110 | 2,149,642 | ||||||
|
| |||||||
31,239,579 | ||||||||
|
| |||||||
MATERIALS–2.3% | ||||||||
CHEMICALS–2.3% | ||||||||
Sherwin-Williams Co. (The) | 24,369 | $ | 9,588,227 | |||||
|
| |||||||
FINANCIALS–1.3% | ||||||||
CAPITAL MARKETS–1.3% | ||||||||
MarketAxess Holdings, Inc. | 11,436 | 2,416,541 | ||||||
S&P Global, Inc. | 16,640 | 2,827,802 | ||||||
|
| |||||||
5,244,343 | ||||||||
|
| |||||||
Total Common Stocks | 386,952,656 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–5.5% | ||||||||
INVESTMENT COMPANIES–5.5% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(b)(c)(d) | 22,378,071 | 22,378,071 | ||||||
|
| |||||||
TOTAL INVESTMENTS–100.1% | 409,330,727 | |||||||
Other assets less liabilities–(0.1)% | (404,306 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 408,926,421 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Affiliated investments. |
(c) | The rate shown represents the7-day yield as of period end. |
(d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
7
LARGE CAP GROWTH PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $294,536,656) | $ | 386,952,656 | ||
Affiliated issuers (cost $22,378,071) | 22,378,071 | |||
Unaffiliated dividends receivable | 77,548 | |||
Affiliated dividends receivable | 50,813 | |||
Receivable for capital stock sold | 35,351 | |||
|
| |||
Total assets | 409,494,439 | |||
|
| |||
LIABILITIES | ||||
Payable for capital stock redeemed | 224,994 | |||
Advisory fee payable | 198,202 | |||
Distribution fee payable | 44,524 | |||
Audit and tax fee payable | 31,616 | |||
Printing fee payable | 29,372 | |||
Administrative fee payable | 17,636 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 21,468 | |||
|
| |||
Total liabilities | 568,018 | |||
|
| |||
NET ASSETS | $ | 408,926,421 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 8,147 | ||
Additionalpaid-in capital | 247,318,104 | |||
Distributable earnings | 161,600,170 | |||
|
| |||
$ | 408,926,421 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 190,899,357 | 3,689,123 | $ | 51.75 | |||||||
B | $ | 218,027,064 | 4,457,911 | $ | 48.91 |
See notes to financial statements.
8
LARGE CAP GROWTH PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers | $ | 2,788,837 | ||
Affiliated issuers | 377,982 | |||
Interest | 34,643 | |||
|
| |||
3,201,462 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 2,683,563 | |||
Distribution fee—Class B | 587,380 | |||
Transfer agency—Class A | 3,785 | |||
Transfer agency—Class B | 4,178 | |||
Custodian | 101,657 | |||
Administrative | 69,147 | |||
Printing | 55,960 | |||
Legal | 47,175 | |||
Audit and tax | 43,967 | |||
Directors’ fees | 24,782 | |||
Miscellaneous | 9,430 | |||
|
| |||
Total expenses | 3,631,024 | |||
Less: expenses waived and reimbursed by the Adviser (see Note B) | (23,308 | ) | ||
|
| |||
Net expenses | 3,607,716 | |||
|
| |||
Net investment loss | (406,254 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS | ||||
Net realized gain on investment transactions | 70,143,110 | |||
Net change in unrealized appreciation/depreciation of investments | (58,055,525 | ) | ||
|
| |||
Net gain on investment transactions | 12,087,585 | |||
|
| |||
NET INCREASE IN NET ASSETS FROM OPERATIONS | $ | 11,681,331 | ||
|
|
See notes to financial statements.
9
LARGE CAP GROWTH PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment loss | $ | (406,254 | ) | $ | (419,892 | ) | ||
Net realized gain on investment transactions | 70,143,110 | 52,939,123 | ||||||
Net change in unrealized appreciation/depreciation of investments | (58,055,525 | ) | 65,619,253 | |||||
|
|
|
| |||||
Net increase in net assets from operations | 11,681,331 | 118,138,484 | ||||||
Distributions to Shareholders | ||||||||
Class A | (23,052,799 | ) | (11,465,663 | ) | ||||
Class B | (27,070,582 | ) | (13,633,647 | ) | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net increase (decrease) | 18,042,010 | (44,751,279 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | (20,400,040 | ) | 48,287,895 | |||||
NET ASSETS | ||||||||
Beginning of period | 429,326,461 | 381,038,566 | ||||||
|
|
|
| |||||
End of period | $ | 408,926,421 | $ | 429,326,461 | ||||
|
|
|
|
See notes to financial statements.
10
LARGE CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Large Cap Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
11
LARGE CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks(a) | $ | 386,952,656 | $ | –0 | – | $ | –0 | – | $ | 386,952,656 | ||||||
Short-Term Investments | 22,378,071 | –0 | – | –0 | – | 22,378,071 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 409,330,727 | –0 | – | –0 | – | 409,330,727 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 409,330,727 | $ | –0 | – | $ | –0 | – | $ | 409,330,727 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the
12
AB Variable Products Series Fund |
Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific
13
LARGE CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .60% of the first $2.5 billion, .50% of the next $2.5 billion and .45% in excess of $5 billion, of the Portfolio’s average daily net assets. Effective February 3, 2017, the advisory fee was reduced from ..75% to .60% of the first $2.5 billion, .65% to .50% of the next $2.5 billion and .60% to .45% in excess of $5 billion of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,147.
14
AB Variable Products Series Fund |
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $23,308.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 92,991 | $ | 70,613 | $ | 22,378 | $ | 378 |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $64,272, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 189,296,971 | $ | 231,026,532 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 317,224,685 | ||
|
| |||
Gross unrealized appreciation | $ | 102,701,364 | ||
Gross unrealized depreciation | (10,595,322 | ) | ||
|
| |||
Net unrealized appreciation | $ | 92,106,042 | ||
|
|
15
LARGE CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 131,142 | 307,126 | $ | 7,751,764 | $ | 15,850,176 | ||||||||||||||
Shares issued in reinvestment of distributions | 401,687 | 226,684 | 23,052,799 | 11,465,663 | ||||||||||||||||
Shares redeemed | (542,535 | ) | (774,660 | ) | (31,574,803 | ) | (40,887,713 | ) | ||||||||||||
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|
|
|
|
|
|
| |||||||||||||
Net decrease | (9,706 | ) | (240,850 | ) | $ | (770,240 | ) | $ | (13,571,874 | ) | ||||||||||
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| |||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 453,785 | 484,079 | $ | 25,080,408 | $ | 24,170,743 | ||||||||||||||
Shares issued in reinvestment of distributions | 498,629 | 282,504 | 27,070,582 | 13,633,647 | ||||||||||||||||
Shares redeemed | (608,637 | ) | (1,336,010 | ) | (33,338,740 | ) | (68,983,795 | ) | ||||||||||||
|
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|
|
|
|
| |||||||||||||
Net increase (decrease) | 343,777 | (569,427 | ) | $ | 18,812,250 | $ | (31,179,405 | ) | ||||||||||||
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|
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|
|
|
|
At December 31, 2018, certain shareholders of the Portfolio owned 63% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE F: Risks Involved in Investing in the Portfolio
Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
16
AB Variable Products Series Fund |
NOTE G: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE H: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 581,143 | $ | –0 | – | |||
Net long-term capital gains | 49,542,238 | 25,099,310 | ||||||
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| |||||
Total taxable distributions paid | $ | 50,123,381 | $ | 25,099,310 | ||||
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|
|
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 3,266,247 | ||
Undistributed capital gains | 66,227,880 | |||
Unrealized appreciation/(depreciation) | 92,106,042 | (a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 161,600,169 | ||
|
|
(a) | The difference between book-basis andtax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additionalpaid-in capital.
NOTE I: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE J: Subsequent Events
At a meeting held on November6-8, 2018, the Board of the Fund approved the acquisition of the assets and assumption of the liabilities of AB Growth Portfolio (the “Acquired Portfolio,” and together with the Portfolio, the “Portfolios”) by the Portfolio, each a series of the Fund. The Portfolios have the same investment objective and similar investment strategies.
At the time of the acquisition, all of the Acquired Portfolio’s assets and liabilities will be transferred to the Portfolio, and shareholders of the Acquired Portfolio will receive shares of the same class of the Portfolio.
17
LARGE CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The Acquired Portfolio will distribute to its shareholders information about the acquisition. The acquisition does not require approval of either Portfolio’s shareholders. The acquisition is expected to be consummated on or about April 18, 2019.
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
18
LARGE CAP GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $56.34 | $45.22 | $49.50 | $48.83 | $42.78 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (loss) (a) | .02 | (b) | .02 | (b) | (.03 | )(b)† | .02 | .02 | ||||||||||||
Net realized and unrealized gain on investment transactions | 2.09 | 14.10 | 1.44 | 5.33 | 6.03 | |||||||||||||||
Contributions from Affiliates | –0 | – | –0 | – | .00 | (c) | –0 | – | –0 | – | ||||||||||
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Net increase in net asset value from operations | 2.11 | 14.12 | 1.41 | 5.35 | 6.05 | |||||||||||||||
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Less: Distributions | ||||||||||||||||||||
Distributions from net realized gain on investment transactions | (6.70 | ) | (3.00 | ) | (5.69 | ) | (4.68 | ) | –0 | – | ||||||||||
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Net asset value, end of period | $51.75 | $56.34 | $45.22 | $49.50 | $48.83 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d) | 2.58 | % | 31.98 | %* | 2.63 | %†* | 11.11 | %* | 14.14 | %* | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $190,899 | $208,392 | $178,136 | $191,568 | $189,620 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements ‡ | .68 | % | .70 | % | .85 | % | .82 | % | .83 | % | ||||||||||
Expenses, before waivers/reimbursements ‡ | .68 | % | .70 | % | .85 | % | .82 | % | .83 | % | ||||||||||
Net investment income (loss) | .04 | %(b) | .03 | %(b) | (.07 | )%(b)† | .04 | % | .04 | % | ||||||||||
Portfolio turnover rate | 46 | % | 48 | % | 59 | % | 65 | % | 65 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | 0 | %(e) | 0 | % | 0 | % | 0 | % | 0 | % |
See footnote summary on page 20.
19
LARGE CAP GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $53.70 | $43.32 | $47.77 | $47.38 | $41.62 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment loss (a) | (.12 | )(b) | (.11 | )(b) | (.14 | )(b)† | (.10 | ) | (.09 | ) | ||||||||||
Net realized and unrealized gain on investment transactions | 2.03 | 13.49 | 1.38 | 5.17 | 5.85 | |||||||||||||||
Contributions from Affiliates | –0 | – | –0 | – | .00 | (c) | –0 | – | –0 | – | ||||||||||
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Net increase in net asset value from operations | 1.91 | 13.38 | 1.24 | 5.07 | 5.76 | |||||||||||||||
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Less: Distributions | ||||||||||||||||||||
Distributions from net realized gain on investment transactions | (6.70 | ) | (3.00 | ) | (5.69 | ) | (4.68 | ) | –0 | – | ||||||||||
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Net asset value, end of period | $48.91 | $53.70 | $43.32 | $47.77 | $47.38 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | 2.32 | % | 31.67 | % | 2.36 | %† | 10.86 | % | 13.84 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $218,027 | $220,934 | $202,903 | $267,171 | $237,452 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements ‡ | .93 | % | .95 | % | 1.10 | % | 1.07 | % | 1.08 | % | ||||||||||
Expenses, before waivers/reimbursements ‡ | .93 | % | .95 | % | 1.10 | % | 1.07 | % | 1.08 | % | ||||||||||
Net investment loss | (.21 | )%(b) | (.21 | )%(b) | (.32 | )%(b)† | (.21 | )% | (.21 | )% | ||||||||||
Portfolio turnover rate | 46 | % | 48 | % | 59 | % | 65 | % | 65 | % | ||||||||||
‡ Expense ratios exclude the estimated acquired fund fees of affiliated/unaffiliated underlying |
| |||||||||||||||||||
portfolios | 0 | %(e) | 0 | % | 0 | % | 0 | % | 0 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(e) | Less than 0.01%. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total Return | ||
$.005 | .01% | .01% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 by .03%, .01%, .09% and .02%, respectively. |
See notes to financial statements.
20
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Large Cap Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Large Cap Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
21
2018 TAX INFORMATION(unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 100% of dividends paid qualify for the dividends received deduction.
22
LARGE CAP GROWTH PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”) – AB Large Cap Growth Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
6,856,691 | 301,837 | 313,825 |
* | Mr. Foulk retired on December 31, 2018. |
23
LARGE CAP GROWTH PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) | Carol C. McMullen(1) Garry L. Moody(1) | |
Nancy P. Jacklin(1) | Earl D. Weiner(1) | |
Robert M. Keith,President and | ||
OFFICERS | ||
Frank V. Caruso(2),Vice President John H. Fogarty(2),Vice President Vinay Thapar,(2) Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free1-(800)221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | Theday-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the U.S. Large Cap Growth Investment Team. Messrs. Caruso, Fogarty and Thapar are the investment professionals with the most significant responsibility for theday-to-day management of the Portfolio’s portfolio. |
24
LARGE CAP GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas NewYork, NY 10105 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
25
LARGE CAP GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company andnon-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
26
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Garry L. Moody,## (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in Section 2(a)(19) of the Investment Company Act of 1940, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
27
LARGE CAP GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Frank V. Caruso 62 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of US Growth Equities. | ||
John H. Fogarty 49 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Vinay Thapar 40 | Vice President | Senior Vice President of the Adviser**, with which he was associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. | ||
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at (800)227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
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LARGE CAP GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Large Cap Growth Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement,
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LARGE CAP GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
30
AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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LARGE CAP GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Large Cap Growth Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
32
AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable. The directors noted that the reduction in the advisory fee rate effective since February 3, 2017 would likely impact the Adviser’s profitability analysis in future years.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
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LARGE CAP GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
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 at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective since February 3, 2017) with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with those for two other AB Funds with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the Fund’s expense ratio effective since February 3, 2017, when the advisory fee rate was reduced. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
34
VPS-LCG-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | REAL ESTATE INVESTMENT PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
REAL ESTATE INVESTMENT | ||
PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Real Estate Investment Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
At a meeting of the Board of Directors of AB Variable Products Series Fund, Inc. held on November6-8, 2018, the Board approved the liquidation and termination of the Portfolio (the “Liquidation”). The Portfolio expects to make liquidating distributions on or shortly after April 19, 2019 and will convert its assets to cash shortly before this date. The insurance company separate accounts through which owners of variable insurance contracts hold interests in the Portfolio will give such Contractholders notice of the Liquidation as well as information about allocating their variable insurance contract assets to other investment options available under their contracts.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is total return from long-term growth of capital and income. Under normal circumstances, the Portfolio invests at least 80% of its net assets in the equity securities of real estate investment trusts (“REITs”), and other real estate industry companies, such as real estate operating companies. The Portfolio seeks to invest in real estate companies whose underlying portfolios are diversified geographically and by property type.
The Portfolio’s investment policies seek to emphasize investment in companies determined by the Adviser to be undervalued relative to their peers. The Portfolio may invest in short-term investment-grade debt securities and other fixed-income securities.
The Portfolio invests in equity securities that include common stock, shares of beneficial interests of REITs and securities with common stock characteristics, such as preferred stock or convertible securities (“real estate equity securities”). The Portfolio may invest in foreign securities and enter into forward commitments and standby commitment agreements.
Currencies can have a dramatic impact on equity returns, significantly adding to returns in some years and greatly diminishing them in others. Currency and equity positions are evaluated separately. The Adviser may seek to hedge the currency exposure resulting from securities positions when it finds the currency exposure unattractive. To hedge all or a portion of its currency risk, the Portfolio may, from time to time, invest in currency-related derivatives, including forward currency exchange contracts, futures contracts, options on futures contracts, swaps and options. The Adviser may also seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives.
The Portfolio may enter into other derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 5 shows the Portfolio’s performance compared to its primary benchmark, the Financial Times Stock Exchange National Association of Real Estate Investment Trusts (“FTSE NAREIT”) Equity REIT Index, in addition to the broad market as measured by the Standard & Poor’s (“S&P”) 500 Index, for theone-, five- and10-year periods ended December 31, 2018.
For the annual period, all share classes of the Portfolio underperformed the primary benchmark. Stock selection detracted, relative to the benchmark, mainly within the diversified and industrial/office sectors, while selection in the specialty sector contributed. Sector selection contributed to returns, primarily from an underweight to the specialty sector and an overweight to the residential sector, which was partially offset by an underweight to health care.
The Portfolio did not utilize derivatives nor was the Portfolio’s performance affected by leverage during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
The US real estate market fell during the annual period ended December 31, 2018, reflecting monetary tightening and expectations of slowing economic growth. The FTSE NAREIT Equity REIT Index finished the annual period down 4.04%. The S&P 500 Index also declined, falling 4.38% during the same period.
1
AB Variable Products Series Fund |
Most segments of the US property market were characterized by balanced fundamentals. Overall, demand growth remained healthy and supply growth normalized. Therefore, cash-flow growth was decelerating and nearing average levels. In the industrials sector, growth ine-commerce retailing supported ongoing demand growth, which resulted in high occupancy levels and strong rent growth. Fundamentals in the self-storage sector modestly weakened due to an increase of new supply in several cities. In the office sector, robust demand together with reasonable supply growth resulted in more leasing activity in most major cities, especially along the West Coast. Demand for space at high-quality retail malls and shopping centers remained healthy, though the costs necessary for landlords to lease vacated space rose. In the residential sector, rent growth has improved from low levels as supply growth abated, especially in coastal markets.
The Portfolio’s Senior Investment Management Team continues its search to find attractive opportunities across a range of sectors, focusing on attractively priced companies with improving fundamentals, together with the balance sheet strength to withstand periods of renewed volatility.
2
REAL ESTATE INVESTMENT PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The FTSE® NAREIT Equity REIT Index and the S&P 500® Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The FTSE NAREIT Equity REIT Index (market-value weighted index based upon the last closing price of the month) represents the performance oftax-qualified REITs listed on the NYSE, AMEX and the NASDAQ. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk:The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.
Interest-Rate Risk:Changes in interest rates will affect the value of investments in fixed-income securities. When interest rates rise, the value of existing investments in fixed-income securities tends to fall and this decrease in value may not be offset by higher income from new investments. The Portfolio may be subject to heightened interest-rate risk due to rising rates as the current period of historically low interest rates may be ending. Interest-rate risk is generally greater for fixed-income securities with longer maturities or durations.
Credit Risk:An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security and accrued interest. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.
Real Estate Risk:The Portfolio’s investments in the real estate market have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Leverage Risk:To the extent the Portfolio uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Portfolio’s investments.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk:Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past
(Disclosures, Risks and Note About Historical Performance continued on next page)
3
DISCLOSURES AND RISKS | ||
(continued) | AB Variable Products Series Fund |
performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
4
REAL ESTATE INVESTMENT PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Real Estate Investment Portfolio Class A2 | -4.13% | 6.82% | 12.09% | |||||||||
Real Estate Investment Portfolio Class B2 | -4.45% | 6.54% | 11.82% | |||||||||
Primary Benchmark: FTSE NAREIT Equity REIT Index | -4.04% | 8.32% | 12.53% | |||||||||
S&P 500 Index | -4.38% | 8.49% | 13.12% | |||||||||
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2018, by 0.04%. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.05% and 1.30% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Real Estate Investment Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on pages3-4.
5
REAL ESTATE INVESTMENT PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each classes’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 949.30 | $ | 5.70 | 1.16 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.36 | $ | 5.90 | 1.16 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 947.30 | $ | 6.92 | 1.41 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,018.10 | $ | 7.17 | 1.41 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
6
REAL ESTATE INVESTMENT PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Simon Property Group, Inc. | $ | 3,000,302 | 6.7 | % | ||||
American Tower Corp. | 2,980,300 | 6.7 | ||||||
Prologis, Inc. | 2,093,368 | 4.7 | ||||||
Equinix, Inc. | 1,856,933 | 4.2 | ||||||
Crown Castle International Corp. | 1,698,973 | 3.8 | ||||||
Digital Realty Trust, Inc. | 1,451,744 | 3.2 | ||||||
Essex Property Trust, Inc. | 1,427,122 | 3.2 | ||||||
HCP, Inc. | 1,299,024 | 2.9 | ||||||
Alexandria Real Estate Equities, Inc. | 1,249,202 | 2.8 | ||||||
Mid-America Apartment Communities, Inc. | 1,182,852 | 2.6 | ||||||
|
|
|
| |||||
$ | 18,239,820 | 40.8 | % |
INDUSTRY BREAKDOWN2
December 31, 2018 (unaudited)
INDUSTRY | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Specialized REITs | $ | 11,059,854 | 24.8 | % | ||||
Residential REITs | 8,045,805 | 18.1 | ||||||
Retail REITs | 7,040,510 | 15.8 | ||||||
Industrial REITs | 4,502,693 | 10.1 | ||||||
Office REITs | 4,334,913 | 9.7 | ||||||
Health Care REITs | 3,653,874 | 8.2 | ||||||
Hotel & Resort REITs | 2,082,443 | 4.7 | ||||||
Diversified REITs | 1,950,269 | 4.4 | ||||||
Real Estate Operating Companies | 714,974 | 1.6 | ||||||
IT Consulting & Other Services | 401,325 | 0.9 | ||||||
Alternative Carriers | 344,656 | 0.8 | ||||||
Short-Term Investments | 384,131 | 0.9 | ||||||
|
|
|
| |||||
Total Investments | $ | 44,515,447 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s industry breakdown is expressed as a percentage of total investments and may vary over time. |
Please note: The industry classifications presented herein are based on the industry categorization methodology of the Adviser.
7
REAL ESTATE INVESTMENT PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–99.0% |
| |||||||
REAL ESTATE–97.3% |
| |||||||
DIVERSIFIED REITS–4.4% |
| |||||||
Armada Hoffler Properties, Inc. | 51,170 | $ | 719,450 | |||||
Empire State Realty Trust, Inc.–Class A | 36,510 | 519,537 | ||||||
VEREIT, Inc. | 99,480 | 711,282 | ||||||
|
| |||||||
1,950,269 | ||||||||
|
| |||||||
HEALTH CARE REITS–8.2% |
| |||||||
HCP, Inc. | 46,510 | 1,299,024 | ||||||
Medical Properties Trust, Inc. | 55,310 | 889,385 | ||||||
Omega Healthcare Investors, Inc. | 19,820 | 696,673 | ||||||
Sabra Health Care REIT, Inc. | 46,650 | 768,792 | ||||||
|
| |||||||
3,653,874 | ||||||||
|
| |||||||
HOTEL & RESORT REITS–4.7% |
| |||||||
Park Hotels & Resorts, Inc. | 34,260 | 890,075 | ||||||
Pebblebrook Hotel Trust | 16,490 | 466,832 | ||||||
RLJ Lodging Trust | 44,240 | 725,536 | ||||||
|
| |||||||
2,082,443 | ||||||||
|
| |||||||
INDUSTRIAL REITS–10.1% |
| |||||||
Duke Realty Corp. | 38,000 | 984,200 | ||||||
Prologis, Inc. | 35,650 | 2,093,368 | ||||||
Rexford Industrial Realty, Inc. | 21,790 | 642,151 | ||||||
STAG Industrial, Inc. | 31,470 | 782,974 | ||||||
|
| |||||||
4,502,693 | ||||||||
|
| |||||||
OFFICE REITS–9.7% |
| |||||||
Alexandria Real Estate Equities, Inc. | 10,840 | 1,249,202 | ||||||
Boston Properties, Inc. | 9,550 | 1,074,852 | ||||||
Brandywine Realty Trust | 31,560 | 406,177 | ||||||
City Office REIT, Inc. | 21,200 | 217,300 | ||||||
Highwoods Properties, Inc. | 16,730 | 647,284 | ||||||
Kilroy Realty Corp. | 11,770 | 740,098 | ||||||
|
| |||||||
4,334,913 | ||||||||
|
| |||||||
REAL ESTATE OPERATING COMPANIES–1.6% | ||||||||
Essential Properties Realty Trust, Inc. | 51,660 | 714,974 | ||||||
|
| |||||||
RESIDENTIAL REITS–18.0% |
| |||||||
American Campus Communities, Inc. | 22,990 | 951,556 | ||||||
American Homes 4 Rent–Class A | 45,450 | 902,183 | ||||||
Apartment Investment & Management Co.–Class A | 16,790 | 736,745 | ||||||
Camden Property Trust | 12,100 | 1,065,405 | ||||||
Essex Property Trust, Inc. | 5,820 | 1,427,122 | ||||||
Independence Realty Trust, Inc. | 74,290 | 681,982 | ||||||
Mid-America Apartment Communities, Inc. | 12,360 | 1,182,852 | ||||||
Sun Communities, Inc. | 10,795 | 1,097,960 | ||||||
|
| |||||||
8,045,805 | ||||||||
|
| |||||||
RETAIL REITS–15.8% |
| |||||||
Agree Realty Corp. | 10,870 | 642,634 | ||||||
Brixmor Property Group, Inc. | 46,400 | 681,616 | ||||||
Macerich Co. (The) | 16,400 | $ | 709,792 | |||||
National Retail Properties, Inc. | 18,820 | 912,958 | ||||||
Regency Centers Corp. | 18,630 | 1,093,208 | ||||||
Simon Property Group, Inc. | 17,860 | 3,000,302 | ||||||
|
| |||||||
7,040,510 | ||||||||
|
| |||||||
SPECIALIZED REITS–24.8% | ||||||||
American Tower Corp. | 18,840 | 2,980,300 | ||||||
Crown Castle International Corp. | 15,640 | 1,698,973 | ||||||
CubeSmart | 26,300 | 754,547 | ||||||
Digital Realty Trust, Inc. | 13,625 | 1,451,744 | ||||||
EPR Properties | 7,790 | 498,794 | ||||||
Equinix, Inc. | 5,267 | 1,856,933 | ||||||
MGM Growth Properties LLC–Class A | 23,260 | 614,297 | ||||||
National Storage Affiliates Trust | 27,842 | 736,699 | ||||||
Public Storage | 2,310 | 467,567 | ||||||
|
| |||||||
11,059,854 | ||||||||
|
| |||||||
43,385,335 | ||||||||
|
| |||||||
SOFTWARE & | ||||||||
IT CONSULTING & OTHER SERVICES–0.9% | ||||||||
InterXion Holding NV(a) | 7,410 | 401,325 | ||||||
|
| |||||||
TELECOMMUNICATION SERVICES–0.8% | ||||||||
ALTERNATIVE CARRIERS–0.8% | ||||||||
Zayo Group Holdings, Inc.(a) | 15,090 | 344,656 | ||||||
|
| |||||||
Total Common Stocks | 44,131,316 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–0.9% | ||||||||
INVESTMENT COMPANIES–0.9% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 2.31%(b) (c) (d) | 384,131 | 384,131 | ||||||
|
| |||||||
Total Investments–99.9% | 44,515,447 | |||||||
Other assets less liabilities–0.1% | 44,279 | |||||||
|
| |||||||
Net Assets–100.0% | $ | 44,559,726 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Affiliated investments. |
(c) | The rate shown represents the7-day yield as of period end. |
(d) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
REIT—Real Estate Investment Trust
See notes to financial statements.
8
REAL ESTATE INVESTMENT PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $40,974,546) | $ | 44,131,316 | ||
Affiliated issuers (cost $384,131) | 384,131 | |||
Cash | 16,872 | |||
Foreign currencies, at value (cost $8,329) | 7,319 | |||
Unaffiliated dividends receivable | 235,902 | |||
Receivable for capital stock sold | 7,034 | |||
Affiliated dividends receivable | 808 | |||
|
| |||
Total assets | 44,783,382 | |||
|
| |||
LIABILITIES | ||||
Payable for capital stock redeemed | 114,037 | |||
Audit and tax fee payable | 43,825 | |||
Advisory fee payable | 20,493 | |||
Administrative fee payable | 17,636 | |||
Printing fee payable | 11,302 | |||
Distribution fee payable | 3,418 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 12,739 | |||
|
| |||
Total liabilities | 223,656 | |||
|
| |||
NET ASSETS | $ | 44,559,726 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par | $ | 5,401 | ||
Additionalpaid-in capital | 39,587,571 | |||
Distributable earnings | 4,966,754 | |||
|
| |||
$ | 44,559,726 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 28,312,523 | 3,440,001 | $ | 8.23 | |||||||
B | $ | 16,247,203 | 1,961,164 | $ | 8.28 |
See notes to financial statements.
9
REAL ESTATE INVESTMENT PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers | $ | 1,429,448 | ||
Affiliated issuers | 3,461 | |||
Interest | 554 | |||
|
| |||
1,433,463 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 266,442 | |||
Distribution fee—Class B | 44,908 | |||
Transfer agency—Class A | 2,719 | |||
Transfer agency—Class B | 1,601 | |||
Administrative | 69,147 | |||
Custodian | 60,813 | |||
Audit and tax | 57,221 | |||
Legal | 33,573 | |||
Printing | 26,321 | |||
Directors’ fees | 24,784 | |||
Miscellaneous | 1,505 | |||
|
| |||
Total expenses | 589,034 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (240 | ) | ||
|
| |||
Net expenses | 588,794 | |||
|
| |||
Net investment income | 844,669 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain on investment transactions | 871,768 | |||
Net change in unrealized appreciation/depreciation of: | ||||
Investments | (3,791,877 | ) | ||
Foreign currency denominated assets and liabilities | (539 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (2,920,648 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (2,075,979 | ) | |
|
|
See notes to financial statements.
10
REAL ESTATE INVESTMENT PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income | $ | 844,669 | $ | 760,056 | ||||
Net realized gain on investments | 871,768 | 2,155,889 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (3,792,416 | ) | 387,706 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (2,075,979 | ) | 3,303,651 | |||||
Distributions to Shareholders* |
| |||||||
Class A | (1,810,383 | ) | (2,382,678 | ) | ||||
Class B | (1,040,949 | ) | (1,265,858 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net decrease | (2,317,584 | ) | (761,253 | ) | ||||
|
|
|
| |||||
Total decrease | (7,244,895 | ) | (1,106,138 | ) | ||||
NET ASSETS |
| |||||||
Beginning of period | 51,804,621 | 52,910,759 | ||||||
|
|
|
| |||||
End of period | $ | 44,559,726 | $ | 51,804,621 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note J, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
11
REAL ESTATE INVESTMENT PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Real Estate Investment Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is total return from long-term growth of capital and income. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
12
AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: |
| |||||||||||||||
Common Stocks(a) | $ | 44,131,316 | $ | –0 | – | $ | –0 | – | $ | 44,131,316 | ||||||
Short-Term Investments | 384,131 | –0 | – | –0 | – | 384,131 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 44,515,447 | –0 | – | –0 | – | 44,515,447 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 44,515,447 | $ | –0 | – | $ | –0 | – | $ | 44,515,447 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
13
REAL ESTATE INVESTMENT PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
14
AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,147.
15
REAL ESTATE INVESTMENT PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $157.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 7,420 | $ | 7,036 | $ | 384 | $ | 2 | ||||||||||
Government Money Market Portfolio* | 0 | 3,750 | 3,750 | 0 | 1 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 384 | $ | 3 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $26,384, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 27,866,185 | $ | 31,215,172 | ||||
U.S. government securities | –0 | – | –0 | – |
16
AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 41,400,757 | ||
|
| |||
Gross unrealized appreciation | $ | 5,357,817 | ||
Gross unrealized depreciation | (2,243,127 | ) | ||
|
| |||
Net unrealized appreciation | $ | 3,114,690 | ||
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $719 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $83. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
17
REAL ESTATE INVESTMENT PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A |
| |||||||||||||||||||
Shares sold | 345,301 | 209,630 | $ | 3,011,165 | $ | 1,934,567 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 205,026 | 270,759 | 1,810,383 | 2,382,678 | ||||||||||||||||
Shares redeemed | (719,541 | ) | (701,136 | ) | (6,248,644 | ) | (6,508,769 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net decrease | (169,214 | ) | (220,747 | ) | $ | (1,427,096 | ) | $ | (2,191,524 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Class B |
| |||||||||||||||||||
Shares sold | 254,492 | 347,042 | $ | 2,205,695 | $ | 3,209,095 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 117,093 | 142,873 | 1,040,950 | 1,265,858 | ||||||||||||||||
Shares redeemed | (474,239 | ) | (326,273 | ) | (4,137,133 | ) | (3,044,682 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net increase (decrease) | (102,654 | ) | 163,642 | $ | (890,488 | ) | $ | 1,430,271 | ||||||||||||
|
|
|
|
|
|
|
|
At December 31, 2018, certain shareholders of the Portfolio owned 62% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.
Real Estate Risk—The Portfolio’s investments in the real estate market have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts, or “REITs”, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in tax laws.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
18
AB Variable Products Series Fund |
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 890,888 | $ | 1,214,271 | ||||
Net long-term capital gains | 1,960,444 | 2,434,265 | ||||||
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| |||||
Total taxable distributions paid | $ | 2,851,332 | $ | 3,648,536 | ||||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 922,456 | ||
Undistributed capital gains | 930,618 | |||
Unrealized appreciation/(depreciation) | 3,113,680 | (a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 4,966,754 | ||
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(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
19
REAL ESTATE INVESTMENT PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE K: Subsequent Events
At a meeting of the Board of the Fund held on November6-8, 2018, the Board approved the liquidation and termination of the Portfolio (the “Liquidation”). The Portfolio expects to make liquidating distributions on or shortly after April 19, 2019 and will convert its assets to cash shortly before this date. The insurance company separate accounts through which owners of variable insurance contracts hold interests in the Portfolio will give such contract holders notice of the Liquidation as well as information about allocating their variable insurance contract assets to other investment options available under their contracts.
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
20
REAL ESTATE INVESTMENT PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $9.11 | $9.22 | $9.08 | $10.00 | $11.18 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .16 | (b) | .14 | (b) | .18 | (b)† | .18 | .14 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.50 | ) | .44 | .56 | (.12 | ) | 2.39 | |||||||||||||
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Net increase (decrease) in net asset value from operations | (.34 | ) | .58 | .74 | .06 | 2.53 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.17 | ) | (.17 | ) | (.15 | ) | (.15 | ) | (.37 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.37 | ) | (.52 | ) | (.45 | ) | (.83 | ) | (3.34 | ) | ||||||||||
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Total dividends and distributions | (.54 | ) | (.69 | ) | (.60 | ) | (.98 | ) | (3.71 | ) | ||||||||||
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Net asset value, end of period | $8.23 | $9.11 | $9.22 | $9.08 | $10.00 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c) | (4.13 | )%* | 6.53 | % | 7.76 | %† | .80 | % | 25.35 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $28,313 | $32,883 | $35,294 | $35,970 | $38,003 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.12 | % | 1.05 | % | 1.08 | % | 1.07 | % | 1.08 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.12 | % | 1.05 | % | 1.08 | % | 1.07 | % | 1.08 | % | ||||||||||
Net investment income | 1.84 | %(b) | 1.54 | %(b) | 1.90 | %(b)† | 1.91 | % | 1.26 | % | ||||||||||
Portfolio turnover rate | 58 | % | 59 | % | 77 | % | 67 | % | 67 | % |
See footnote summary on page 22.
21
REAL ESTATE INVESTMENT PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $9.17 | $9.27 | $9.14 | $10.05 | $11.22 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .14 | (b) | .12 | (b) | .15 | (b)† | .16 | .11 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (.51 | ) | .45 | .56 | (.11 | ) | 2.40 | |||||||||||||
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Net increase (decrease) in net asset value from operations | (.37 | ) | .57 | .71 | .05 | 2.51 | ||||||||||||||
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Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.15 | ) | (.15 | ) | (.13 | ) | (.13 | ) | (.34 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (.37 | ) | (.52 | ) | (.45 | ) | (.83 | ) | (3.34 | ) | ||||||||||
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Total dividends and distributions | (.52 | ) | (.67 | ) | (.58 | ) | (.96 | ) | (3.68 | ) | ||||||||||
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Net asset value, end of period | $8.28 | $9.17 | $9.27 | $9.14 | $10.05 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c) | (4.45 | )%* | 6.37 | % | 7.38 | %† | .66 | % | 24.96 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $16,247 | $18,921 | $17,617 | $13,888 | $13,301 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.37 | % | 1.30 | % | 1.34 | % | 1.33 | % | 1.33 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.37 | % | 1.30 | % | 1.34 | % | 1.33 | % | 1.33 | % | ||||||||||
Net investment income | 1.58 | %(b) | 1.32 | %(b) | 1.56 | %(b)† | 1.67 | % | 1.03 | % | ||||||||||
Portfolio turnover rate | 58 | % | 59 | % | 77 | % | 67 | % | 67 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.002 | .02% | .02% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the year ended December 31, 2018 by .04%. |
22
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Real Estate Investment Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Real Estate Investment Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
23
2018 TAX INFORMATION(unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 1.79% of dividends paid qualify for the dividends received deduction.
24
REAL ESTATE INVESTMENT PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Real Estate Investment Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||
4,268,235 | 40,737 | 352,056 |
* | Mr. Foulk retired on December 31, 2018. |
25
REAL ESTATE INVESTMENT | ||
PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Eric J. Franco(2),Vice President Ajit D. Ketkar(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIAN AND ACCOUNTING AGENT | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | Ernst & Young LLP 5 Times Square New York, NY 10036 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | LEGAL COUNSEL Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free (800) 221-5672 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by its senior management team. Messrs. Franco and Ketkar are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
26
REAL ESTATE INVESTMENT PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, # 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr., ## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
DISINTERESTED DIRECTORS | ||||||||
Michael J. Downey, ## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
27
REAL ESTATE INVESTMENT PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin, ## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen, ## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
28
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Garry L. Moody, ## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner, ## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund as defined in the “1940 Act”, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
29
REAL ESTATE INVESTMENT PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Eric J. Franco 58 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Ajit D. Ketkar 47 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the adviser at(800) 227-4618, or visit www.abfunds.com for a free prospectus or SAI. |
30
AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Real Estate Investment Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement,
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MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Real Estate Investment Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
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AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
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MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional clients. In this regard, the Adviser noted, among other things, that, compared to institutional accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
36
VPS-REI-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS SERIES FUND, INC.
+ | SMALL CAP GROWTH PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
SMALL CAP GROWTH PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Small Cap Growth Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVES AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities with relatively smaller capitalizations as compared to the overall US market. Under normal circumstances, the Portfolio invests at least 80% of its net assets in equity securities of smaller companies. For these purposes, “smaller companies” are those that, at the time of investment, fall within the lowest 20% of the total US equity market capitalization (excluding, for purposes of this calculation, companies with market capitalizations of less than $10 million). Because the Portfolio’s definition of smaller companies is dynamic, the limits on market capitalization will change with the markets.
The Portfolio may invest in any company and industry and in any type of equity security with potential for capital appreciation. It invests in well-known and established companies and in new and less-seasoned companies. The Portfolio’s investment policies emphasize investments in companies that are demonstrating improving financial results and a favorable earnings outlook. The Portfolio may invest in foreign securities.
The Portfolio invests primarily in equity securities but may also invest in other types of securities, such as preferred stocks. The Portfolio may, at times, invest in shares of exchange-traded funds (“ETFs”) in lieu of making direct investments in securities. ETFs may provide more efficient and economical exposure to the types of companies and geographic locations in which the Portfolio seeks to invest than direct investments. The Portfolio may also invest up to 20% of its total assets in rights or warrants.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of ETFs. These transactions may be used, for example, in an effort to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its benchmark, the Russell 2000 Growth Index, for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio outperformed the benchmark for the annual period. Strong fundamental execution, against a backdrop that rewarded fundamental outperformers, drove much of the outperformance. Security selection contributed across most sectors, relative to the benchmark, particularly in technology, consumer/commercial services and health care. Stock selection in producer durables and financials detracted. A modest overweight to energy also detracted, given pronounced weakness in underlying commodity prices.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year that continued through much of the third quarter when US stock indices reached record highs, a sharply lower fourth quarter put most major US indices into negative territory for the year. Volatility spiked toward the end of 2018, as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment. Escalating trade tensions and slowing growth in China further dampened the growth outlook. The US Federal Reserve raised rates four times during 2018 as expected, but softened its tone in December, signaling that it might slow its pace of rate hikes in 2019. For the full year, US growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
The Portfolio continues to be built from the bottom up, with an emphasis on companies that can deliver fundamental outperformance. The Portfolio remains overweight in secular growth companies that have unique drivers or company-specific initiatives to support their future earnings growth, regardless of the macro backdrop. At the end of the reporting period, consumer/commercial services reflected the Portfolio’s largest overweight, with financial services the largest underweight.
1
SMALL CAP GROWTH PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 2000® Growth Index is unmanaged and does not reflect fees and expenses associated with the active management of a mutual fund portfolio.The Russell 2000 Growth Index represents the performance ofsmall-cap growth companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk:The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s growth approach, may underperform the market generally.
Capitalization Risk:Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
SMALL CAP GROWTH PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARK | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Small Cap Growth Portfolio Class A2 | -0.89% | 6.53% | 16.64% | |||||||||
Small Cap Growth Portfolio Class B2 | -1.11% | 6.26% | 16.34% | |||||||||
Russell 2000 Growth Index | -9.31% | 5.13% | 13.52% | |||||||||
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2018, by 0.05%.
|
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 1.38% and 1.62% for Class A and Class B shares, respectively, gross of any fee waivers or expense reimbursements. Contractual fee waivers and/or expense reimbursements limit the Portfolio’s annual operating expense ratios exclusive of expenses associated with acquired fund fees and expenses other than the advisory fees of any AB mutual funds in which the Portfolio may invest, interest expense, taxes, extraordinary expenses, and brokerage commissions and other transaction costs to 0.90% and 1.15% for Class A and Class B shares, respectively. These waivers/reimbursements may not be terminated before May 1, 2020 and may be extended by the Adviser for additionalone-year terms. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 to 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Small Cap Growth Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmark. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
SMALL CAP GROWTH PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each classes’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 847.10 | $ | 4.52 | 0.97 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.32 | $ | 4.94 | 0.97 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 845.70 | $ | 5.68 | 1.22 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.06 | $ | 6.21 | 1.22 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
SMALL CAP GROWTH PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Planet Fitness, Inc. | $ | 1,320,553 | 2.1 | % | ||||
Five Below, Inc. | 1,247,485 | 2.0 | ||||||
Vocera Communications, Inc. | 1,212,256 | 1.9 | ||||||
Etsy, Inc. | 1,132,451 | 1.8 | ||||||
LHC Group, Inc. | 1,078,681 | 1.7 | ||||||
iRhythm Technologies, Inc. | 1,075,411 | 1.7 | ||||||
Bright Horizons Family Solutions, Inc. | 1,012,523 | 1.6 | ||||||
Ingevity Corp. | 991,476 | 1.6 | ||||||
Trade Desk, Inc. (The)—Class A | 982,912 | 1.6 | ||||||
Teladoc Health, Inc. | 967,606 | 1.6 | ||||||
|
|
|
| |||||
$ | 11,021,354 | 17.6 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Health Care | $ | 15,062,469 | 24.0 | % | ||||
Information Technology | 13,887,693 | 22.2 | ||||||
Consumer Discretionary | 11,918,667 | 19.0 | ||||||
Industrials | 10,930,643 | 17.4 | ||||||
Financials | 5,094,917 | 8.1 | ||||||
Consumer Staples | 1,702,948 | 2.7 | ||||||
Materials | 1,618,445 | 2.6 | ||||||
Energy | 1,367,609 | 2.2 | ||||||
Short-Term | 1,148,012 | 1.8 | ||||||
|
|
|
| |||||
Total Investments | $ | 62,731,403 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
5
SMALL CAP GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–98.1% | ||||||||
HEALTH CARE–24.0% | ||||||||
BIOTECHNOLOGY–10.6% | ||||||||
Adamas Pharmaceuticals, | 23,425 | $ | 200,049 | |||||
Aimmune Therapeutics, Inc.(a) | 15,553 | 372,028 | ||||||
Allakos, Inc.(a)(b) | 4,958 | 259,155 | ||||||
Allogene Therapeutics, Inc.(a) | 9,841 | 265,018 | ||||||
Ascendis Pharma A/S (Sponsored ADR)(a) | 5,261 | 329,602 | ||||||
BeiGene Ltd. (Sponsored ADR)(a) | 2,927 | 410,541 | ||||||
Biohaven Pharmaceutical Holding Co., Ltd.(a) | 11,398 | 421,498 | ||||||
Blueprint Medicines Corp.(a) | 7,172 | 386,643 | ||||||
Deciphera Pharmaceuticals, Inc.(a) | 11,191 | 234,899 | ||||||
Exact Sciences Corp.(a) | 13,665 | 862,261 | ||||||
Loxo Oncology, Inc.(a) | 4,257 | 596,278 | ||||||
Madrigal Pharmaceuticals, Inc.(a) | 2,430 | 273,910 | ||||||
Neurocrine Biosciences, Inc.(a) | 6,350 | 453,453 | ||||||
NuCana PLC (ADR)(a)(b) | 10,866 | 157,557 | ||||||
Rubius Therapeutics, Inc.(a)(b) | 17,830 | 286,706 | ||||||
Sage Therapeutics, Inc.(a) | 2,606 | 249,629 | ||||||
Sarepta Therapeutics, Inc.(a) | 2,800 | 305,564 | ||||||
Ultragenyx Pharmaceutical, Inc.(a) | 8,033 | 349,275 | ||||||
Y-mAbs Therapeutics, Inc.(a) | 11,295 | 229,740 | ||||||
|
| |||||||
6,643,806 | ||||||||
|
| |||||||
HEALTH CARE EQUIPMENT & SUPPLIES–4.0% | ||||||||
iRhythm Technologies, Inc.(a) | 15,478 | 1,075,411 | ||||||
Penumbra, Inc.(a) | 5,493 | 671,245 | ||||||
Tactile Systems Technology, Inc.(a) | 16,799 | 765,195 | ||||||
|
| |||||||
2,511,851 | ||||||||
|
| |||||||
HEALTH CARE PROVIDERS & SERVICES–2.1% | ||||||||
Guardant Health, Inc.(a)(b) | 6,706 | 252,079 | ||||||
LHC Group, Inc.(a) | 11,490 | 1,078,681 | ||||||
|
| |||||||
1,330,760 | ||||||||
|
| |||||||
HEALTH CARE TECHNOLOGY–3.5% | ||||||||
Teladoc Health, Inc.(a) | 19,520 | 967,606 | ||||||
Vocera Communications, Inc.(a) | 30,807 | 1,212,256 | ||||||
|
| |||||||
2,179,862 | ||||||||
|
| |||||||
LIFE SCIENCES TOOLS & SERVICES–1.5% | ||||||||
ICON PLC(a) | 7,172 | 926,694 | ||||||
|
| |||||||
PHARMACEUTICALS–2.3% | ||||||||
Aerie Pharmaceuticals, Inc.(a) | 9,015 | 325,441 | ||||||
Aquestive Therapeutics, Inc.(a) | 13,573 | 85,510 | ||||||
GW Pharmaceuticals PLC (Sponsored ADR)(a) | 2,368 | 230,620 | ||||||
Intersect ENT, Inc.(a) | 20,790 | 585,862 | ||||||
Revance Therapeutics, Inc.(a) | 12,025 | 242,063 | ||||||
|
| |||||||
1,469,496 | ||||||||
|
| |||||||
15,062,469 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–22.1% | ||||||||
COMMUNICATIONS EQUIPMENT–1.0% | ||||||||
Ciena Corp.(a) | 18,495 | $ | 627,166 | |||||
|
| |||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–2.5% | ||||||||
Littelfuse, Inc. | 3,850 | 660,198 | ||||||
Novanta, Inc.(a) | 14,100 | 888,300 | ||||||
|
| |||||||
1,548,498 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.5% | ||||||||
Cree, Inc.(a) | 11,530 | 493,196 | ||||||
Monolithic Power Systems, Inc. | 4,221 | 490,691 | ||||||
Silicon Laboratories, Inc.(a) | 10,624 | 837,277 | ||||||
Universal Display Corp.(b) | 4,110 | 384,573 | ||||||
|
| |||||||
2,205,737 | ||||||||
|
| |||||||
SOFTWARE–14.1% | ||||||||
2U, Inc.(a) | 6,627 | 329,495 | ||||||
Altair Engineering, Inc.–Class A(a) | 27,482 | 757,954 | ||||||
Aspen Technology, Inc.(a) | 8,173 | 671,657 | ||||||
Blackline, Inc.(a) | 14,212 | 581,981 | ||||||
Bottomline Technologies DE, Inc.(a) | 5,260 | 252,480 | ||||||
Guidewire Software, Inc.(a) | 6,416 | 514,756 | ||||||
HubSpot, Inc.(a) | 7,490 | 941,718 | ||||||
New Relic, Inc.(a) | 11,386 | 921,924 | ||||||
Paylocity Holding Corp.(a) | 6,149 | 370,231 | ||||||
Rapid7, Inc.(a) | 28,570 | 890,241 | ||||||
RingCentral, Inc.–Class A(a) | 9,480 | 781,531 | ||||||
SailPoint Technologies Holding, Inc.(a) | 37,088 | 871,197 | ||||||
Trade Desk, Inc. (The)–Class A(a) | 8,469 | 982,912 | ||||||
|
| |||||||
8,868,077 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.0% | ||||||||
Pure Storage, Inc.–Class A(a) | 39,690 | 638,215 | ||||||
|
| |||||||
13,887,693 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–19.0% | ||||||||
DISTRIBUTORS–1.5% | ||||||||
Pool Corp. | 6,187 | 919,698 | ||||||
|
| |||||||
DIVERSIFIED CONSUMER SERVICES–4.2% | ||||||||
Bright Horizons Family Solutions, Inc.(a) | 9,085 | 1,012,523 | ||||||
Grand Canyon Education, Inc.(a) | 8,014 | 770,466 | ||||||
Strategic Education, Inc. | 7,650 | 867,663 | ||||||
|
| |||||||
2,650,652 | ||||||||
|
|
6
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
HOTELS, RESTAURANTS & LEISURE–4.9% | ||||||||
Hilton Grand Vacations, Inc.(a) | 32,578 | $ | 859,734 | |||||
Planet Fitness, Inc.(a) | 24,628 | 1,320,553 | ||||||
Wingstop, Inc. | 13,686 | 878,504 | ||||||
|
| |||||||
3,058,791 | ||||||||
|
| |||||||
INTERNET & DIRECT MARKETING RETAIL–3.7% | ||||||||
Etsy, Inc.(a) | 23,806 | 1,132,451 | ||||||
GrubHub, Inc.(a) | 8,730 | 670,551 | ||||||
Wayfair, Inc.–Class A(a) | 6,085 | 548,137 | ||||||
|
| |||||||
2,351,139 | ||||||||
|
| |||||||
MULTILINE RETAIL–1.4% | ||||||||
Ollie’s Bargain Outlet Holdings, Inc.(a) | 12,872 | 856,117 | ||||||
|
| |||||||
SPECIALTY RETAIL–3.3% | ||||||||
Five Below, Inc.(a) | 12,192 | 1,247,485 | ||||||
Sleep Number Corp.(a) | 26,309 | 834,785 | ||||||
|
| |||||||
2,082,270 | ||||||||
|
| |||||||
11,918,667 | ||||||||
|
| |||||||
INDUSTRIALS–17.4% | ||||||||
AEROSPACE & DEFENSE–2.4% | ||||||||
Hexcel Corp. | 12,594 | 722,140 | ||||||
Mercury Systems, Inc.(a) | 17,080 | 807,713 | ||||||
|
| |||||||
1,529,853 | ||||||||
|
| |||||||
BUILDING PRODUCTS–0.9% | ||||||||
Armstrong World Industries, Inc. | 10,061 | 585,651 | ||||||
|
| |||||||
COMMERCIAL SERVICES & SUPPLIES–1.8% | ||||||||
Cimpress NV(a) | 3,105 | 321,119 | ||||||
Tetra Tech, Inc. | 16,045 | 830,650 | ||||||
|
| |||||||
1,151,769 | ||||||||
|
| |||||||
CONSTRUCTION & ENGINEERING–0.8% | ||||||||
Dycom Industries, Inc.(a) | 9,323 | 503,815 | ||||||
|
| |||||||
INDUSTRIAL CONGLOMERATES–0.6% | ||||||||
Carlisle Cos., Inc. | 3,442 | 345,990 | ||||||
|
| |||||||
MACHINERY–6.5% | ||||||||
Gardner Denver Holdings, Inc.(a) | 33,429 | 683,623 | ||||||
Gates Industrial Corp. PLC(a) | 33,864 | 448,359 | ||||||
IDEX Corp. | 5,732 | 723,722 | ||||||
Lincoln Electric Holdings, Inc. | 8,149 | 642,549 | ||||||
Nordson Corp. | 6,360 | 759,066 | ||||||
RBC Bearings, Inc.(a) | 6,173 | 809,280 | ||||||
|
| |||||||
4,066,599 | ||||||||
|
| |||||||
ROAD & RAIL–2.3% | ||||||||
Knight-Swift Transportation Holdings, Inc. | 25,940 | 650,316 | ||||||
Saia, Inc.(a) | 13,710 | 765,292 | ||||||
|
| |||||||
1,415,608 | ||||||||
|
| |||||||
TRADING COMPANIES & DISTRIBUTORS–2.1% | ||||||||
H&E Equipment Services, Inc. | 33,566 | $ | 685,418 | |||||
SiteOne Landscape Supply, Inc.(a) | 11,687 | 645,940 | ||||||
|
| |||||||
1,331,358 | ||||||||
|
| |||||||
10,930,643 | ||||||||
|
| |||||||
FINANCIALS–8.1% | ||||||||
BANKS–3.3% | ||||||||
Cadence BanCorp | 33,040 | 554,411 | ||||||
Sterling Bancorp./DE | 20,530 | 338,951 | ||||||
Western Alliance Bancorp(a) | 18,072 | 713,663 | ||||||
Wintrust Financial Corp. | 7,374 | 490,297 | ||||||
|
| |||||||
2,097,322 | ||||||||
|
| |||||||
CAPITAL MARKETS–3.4% | ||||||||
Hamilton Lane, Inc.–Class A | 21,982 | 813,334 | ||||||
Houlihan Lokey, Inc. | 18,280 | 672,704 | ||||||
Stifel Financial Corp. | 15,137 | 626,975 | ||||||
|
| |||||||
2,113,013 | ||||||||
|
| |||||||
INSURANCE–1.4% | ||||||||
Trupanion, Inc.(a)(b) | 34,744 | 884,582 | ||||||
|
| |||||||
5,094,917 | ||||||||
|
| |||||||
CONSUMER STAPLES–2.7% | ||||||||
FOOD & STAPLES RETAILING–1.3% | ||||||||
Chefs’ Warehouse, Inc. (The)(a) | 24,951 | 797,933 | ||||||
|
| |||||||
FOOD PRODUCTS–1.4% | ||||||||
Freshpet, Inc.(a)(b) | 28,141 | 905,015 | ||||||
|
| |||||||
1,702,948 | ||||||||
|
| |||||||
MATERIALS–2.6% | ||||||||
CHEMICALS–2.6% | ||||||||
Ingevity Corp.(a) | 11,847 | 991,476 | ||||||
PolyOne Corp. | 21,922 | 626,969 | ||||||
|
| |||||||
1,618,445 | ||||||||
|
| |||||||
ENERGY–2.2% | ||||||||
ENERGY EQUIPMENT & SERVICES–0.6% | ||||||||
Oil States International, Inc.(a) | 24,731 | 353,158 | ||||||
|
| |||||||
OIL, GAS & CONSUMABLE FUELS–1.6% | ||||||||
Magnolia Oil & Gas Corp.(a) | 45,170 | 506,356 | ||||||
Matador Resources Co.(a) | 32,717 | 508,095 | ||||||
|
| |||||||
1,014,451 | ||||||||
|
| |||||||
1,367,609 | ||||||||
|
| |||||||
Total Common Stocks | 61,583,391 | |||||||
|
|
7
SMALL CAP GROWTH PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
SHORT-TERM INVESTMENTS–1.8% | ||||||||
INVESTMENT COMPANIES–1.8% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, | 1,148,012 | $ | 1,148,012 | |||||
|
| |||||||
Total Investments Before Security Lending Collateral for Securities Loaned–99.9% | 62,731,403 | |||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–3.9% | ||||||||
INVESTMENT COMPANIES–3.9% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, | 2,447,151 | $ | 2,447,151 | |||||
|
| |||||||
TOTAL INVESTMENTS–103.8% | 65,178,554 | |||||||
Other assets less | (2,358,467 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 62,820,087 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
ADR–American Depositary Receipt
See notes to financial statements.
8
SMALL CAP GROWTH PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS | ||||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $59,042,115) | $ | 61,583,391 | (a) | |
Affiliated issuers (cost $3,595,163—including investment of cash collateral for securities loaned of $2,447,151) | 3,595,163 | |||
Cash | 6,396 | |||
Receivable for investment securities sold | 212,943 | |||
Receivable for capital stock sold | 91,386 | |||
Unaffiliated dividends receivable | 19,815 | |||
Affiliated dividends receivable | 2,487 | |||
|
| |||
Total assets | 65,511,581 | |||
|
| |||
LIABILITIES | ||||
Payable for collateral received on securities loaned | 2,447,151 | |||
Payable for investment securities purchased | 119,827 | |||
Payable for capital stock redeemed | 25,470 | |||
Advisory fee payable | 22,563 | |||
Administrative fee payable | 17,822 | |||
Distribution fee payable | 8,305 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 50,150 | |||
|
| |||
Total liabilities | 2,691,494 | |||
|
| |||
NET ASSETS | $ | 62,820,087 | ||
|
| |||
COMPOSITION OF NET ASSETS | ||||
Capital stock, at par… | $ | 4,039 | ||
Additional paid-in capital | 51,489,472 | |||
Distributable earnings | 11,326,576 | |||
|
| |||
$ | 62,820,087 | |||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 22,724,279 | 1,370,923 | $ | 16.58 | |||||||
B | $ | 40,095,808 | 2,668,405 | $ | 15.03 |
(a) | Includes securities on loan with a value of $2,389,804 (see Note E). |
See notes to financial statements.
9
SMALL CAP GROWTH PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers | $ | 218,747 | ||
Affiliated issuers | 65,448 | |||
Interest | 1,538 | |||
|
| |||
285,733 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 513,610 | |||
Distribution fee—Class B | 103,777 | |||
Transfer agency—Class A | 1,679 | |||
Transfer agency—Class B | 2,521 | |||
Custodian | 85,034 | |||
Administrative | 70,087 | |||
Audit and tax | 43,727 | |||
Legal | 33,504 | |||
Directors’ fees | 24,782 | |||
Printing | 9,562 | |||
Miscellaneous | 1,621 | |||
|
| |||
Total expenses | 889,904 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (64,467 | ) | ||
|
| |||
Net expenses | 825,437 | |||
|
| |||
Net investment loss | (539,704 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS | ||||
Net realized gain on investment transactions | 9,717,843 | |||
Net change in unrealized appreciation/depreciation of investments | (11,367,796 | ) | ||
|
| |||
Net loss on investment transactions | (1,649,953 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $(2,189,657) | |||
|
|
See notes to financial statements.
10
SMALL CAP GROWTH PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment loss | $ | (539,704 | ) | $ | (531,122 | ) | ||
Net realized gain on investment transactions | 9,717,843 | 5,252,652 | ||||||
Net change in unrealized appreciation/depreciation of investments | (11,367,796 | ) | 7,427,912 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (2,189,657 | ) | 12,149,442 | |||||
Distributions to Shareholders | ||||||||
Class A | (1,292,890 | ) | –0 | – | ||||
Class B | (2,385,487 | ) | –0 | – | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net increase (decrease) | 19,253,347 | (213,569 | ) | |||||
|
|
|
| |||||
Total increase | 13,385,313 | 11,935,873 | ||||||
NET ASSETS | ||||||||
Beginning of period | 49,434,774 | 37,498,901 | ||||||
|
|
|
| |||||
End of period | $ | 62,820,087 | $ | 49,434,774 | ||||
|
|
|
|
See notes to financial statements.
11
SMALL CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Small Cap Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
Effective February 1, 2013, the Portfolio was closed to new investors except that Contractholders of variable products with investment options that included the Portfolio as of January 31, 2013, may continue to purchase shares of the Portfolio in accordance with the procedures for the purchase of shares in the prospectus of the separate account in which they invest, including through reinvestment of dividends and capital gains distributions. Effective August 10, 2015, the Portfolio reopened to new investors.
The Portfolio may (i) make additional exceptions that, in the Adviser’s judgment, do not adversely affect the Adviser’s ability to manage the Portfolio; (ii) reject any investment or refuse any exception, including those detailed above, that the Adviser believes will adversely affect its ability to manage the Portfolio; and (iii) close and/or reopen the Portfolio to new or existing Contractholders at any time.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or
12
AB Variable Products Series Fund |
more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
13
SMALL CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks(a) | $ | 61,583,391 | $ | –0 | – | $ | –0 | – | $ | 61,583,391 | ||||||
Short-Term Investments | 1,148,012 | –0 | – | –0 | – | 1,148,012 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 2,447,151 | –0 | – | –0 | – | 2,447,151 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 65,178,554 | –0 | – | –0 | – | 65,178,554 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 65,178,554 | $ | –0 | – | $ | –0 | – | $ | 65,178,554 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid.
14
AB Variable Products Series Fund |
Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. Effective September 4, 2018, the Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .90% and 1.15% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2018, such reimbursements/waivers amounted to $59,676. This fee waiver and/or expense reimbursement agreement extends through May 1, 2020 and then may be extended by the Adviser for additionalone-year terms.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
15
SMALL CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $70,087.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $1,266.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 17,551 | $ | 16,403 | $ | 1,148 | $ | 19 | ||||||||||
Government Money Market Portfolio* | 4,718 | 31,646 | 33,917 | 2,447 | 46 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 3,595 | $ | 65 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $34,380, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits
16
AB Variable Products Series Fund |
payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 62,920,677 | $ | 48,440,749 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 63,761,694 | ||
|
| |||
Gross unrealized appreciation | $ | 8,553,423 | ||
Gross unrealized depreciation | (7,136,563 | ) | ||
|
| |||
Net unrealized appreciation | $ | 1,416,860 | ||
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any
17
SMALL CAP GROWTH PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $2,389,804 and had received cash collateral which has been invested into Government Money Market Portfolio of $2,447,151. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $45,947 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $3,525. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A | ||||||||||||||||||||
Shares sold | 117,606 | 75,951 | $ | 2,295,761 | $ | 1,157,881 | ||||||||||||||
Shares issued in reinvestment of distributions | 64,580 | –0 | – | 1,292,890 | –0 | – | ||||||||||||||
Shares redeemed | (296,890 | ) | (305,172 | ) | (5,668,570 | ) | (4,557,787 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net decrease | (114,704 | ) | (229,221 | ) | $ | (2,079,919 | ) | $ | (3,399,906 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Class B | ||||||||||||||||||||
Shares sold | 1,857,692 | 543,353 | $ | 32,182,622 | $ | 7,927,078 | ||||||||||||||
Shares issued in reinvestment of distributions | 131,359 | –0 | – | 2,385,487 | –0 | – | ||||||||||||||
Shares redeemed | (782,656 | ) | (343,471 | ) | (13,234,843 | ) | (4,740,741 | ) | ||||||||||||
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| |||||||||||||
Net increase | 1,206,395 | 199,882 | $ | 21,333,266 | $ | 3,186,337 | ||||||||||||||
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At December 31, 2018, certain shareholders of the Portfolio owned 74% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Capitalization Risk—Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
18
AB Variable Products Series Fund |
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Net long-term capital gains | $ | 3,678,377 | $ | –0 | – | |||
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| |||||
Total taxable distributions paid | $ | 3,678,377 | $ | –0 | – | |||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed capital gains | $ | 9,909,720 | ||
Unrealized appreciation/(depreciation) | 1,416,860 | (a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 11,326,580 | ||
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(a) | The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the tax treatment of passive foreign investment companies (PFICs). |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, permanent differences primarily due to the disallowance of a net operating loss resulted in a net increase in distributable earnings and a net decrease in additional paid-in capital. This reclassification had no effect on net assets.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
19
SMALL CAP GROWTH PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $17.53 | $13.07 | $17.31 | $20.97 | $23.47 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment loss(a) | (.13 | )(b) | (.18 | )(b) | (.12 | )(b)† | (.19 | ) | (.15 | ) | ||||||||||
Net realized and unrealized gain (loss) on investment transactions | .14 | + | 4.64 | 1.05 | .18 | (.30 | ) | |||||||||||||
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Net increase (decrease) in net asset value from operations | .01 | 4.46 | .93 | (.01 | ) | (.45 | ) | |||||||||||||
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Less: Distributions | ||||||||||||||||||||
Distributions from net realized gain on investment transactions | (.96 | ) | 0 | (5.17 | ) | (3.65 | ) | (2.05 | ) | |||||||||||
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Net asset value, end of period | $16.58 | $17.53 | $13.07 | $17.31 | $20.97 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value(c)* | (.89 | )% | 34.12 | % | 6.46 | %† | (1.25 | )% | (1.81 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $22,724 | $26,039 | $22,405 | $25,033 | $28,055 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(d) | 1.06 | % | 1.38 | % | 1.48 | % | 1.31 | % | 1.11 | % | ||||||||||
Expenses, before waivers/reimbursements(d) | 1.15 | % | 1.38 | % | 1.49 | % | 1.31 | % | 1.11 | % | ||||||||||
Net investment loss | (.65 | )%(b) | (1.19 | )%(b) | (.83 | )%(b)† | (.92 | )% | (.67 | )% | ||||||||||
Portfolio turnover rate | 73 | % | 69 | % | 60 | % | 72 | % | 84 | % |
See footnote summary on page 21.
20
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $16.00 | $11.96 | $16.30 | $20.00 | $22.54 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment loss(a) | (.16 | )(b) | (.20 | )(b) | (.15 | )(b)† | (.22 | ) | (.19 | ) | ||||||||||
Net realized and unrealized gain (loss) on investment transactions | .15 | + | 4.24 | .98 | .17 | (.30 | ) | |||||||||||||
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Net increase (decrease) in net asset value from operations | (.01 | ) | 4.04 | .83 | (.05 | ) | (.49 | ) | ||||||||||||
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Less: Distributions | ||||||||||||||||||||
Distributions from net realized gain on investment transactions | (.96 | ) | 0 | (5.17 | ) | (3.65 | ) | (2.05 | ) | |||||||||||
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Net asset value, end of period | $15.03 | $16.00 | $11.96 | $16.30 | $20.00 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value(c)* | (1.11 | )% | 33.78 | % | 6.22 | %† | (1.53 | )% | (2.08 | )% | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $40,096 | $23,396 | $15,094 | $19,857 | $59,763 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements(d) | 1.30 | % | 1.61 | % | 1.73 | % | 1.48 | % | 1.34 | % | ||||||||||
Expenses, before waivers/reimbursements(d) | 1.40 | % | 1.62 | % | 1.74 | % | 1.48 | % | 1.34 | % | ||||||||||
Net investment loss | (.88 | )%(b) | (1.42 | )%(b) | (1.08 | )%(b)† | (1.10 | )% | (.89 | )% | ||||||||||
Portfolio turnover rate | 73 | % | 69 | % | 60 | % | 72 | % | 84 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
(d) | In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the years ended December 31, 2018 and December 31, 2017, such waiver amounted to .01% and .01%, respectively. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment Income Per Share | Net Investment Income Ratio | Total Return | ||
$.004 | .03% | .03% |
+ | Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accordance with the Portfolio’s change in net realized and unrealized gain (loss) on investment transactions for the period. |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 by .05%, .03%, .08%, .02% and .01%, respectively. |
21
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Small Cap Growth Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Small Cap Growth Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
22
SMALL CAP GROWTH PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”) – AB Small Cap Growth Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||
3,649,981 | 63,161 | 158,036 |
* | Mr. Foulk retired on December 31, 2018. |
23
SMALL CAP GROWTH PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1), Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Bruce K. Aronow(2),Vice President Samantha S. Lau(2),Vice President Wen-Tse Tseng(2),Vice President Emilie D. Wrapp,Secretary | Michael B. Reyes,Senior Analyst Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIANAND ACCOUNTING AGENT | LEGAL COUNSEL | |
State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR | TRANSFER AGENT | |
AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC | ||
ACCOUNTING FIRM | ||
Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
(2) | The management of, and investment decisions for, the Portfolio’s portfolio are made by the Adviser’s Small Cap Growth Investment Team. Messrs. Aronow and Tseng, and Ms. Lau, members of the Adviser’s Small Cap Growth Investment Team, are the investment professionals with the most significant responsibility for theday-to-day management of the Portfolio’s portfolio. |
24
SMALL CAP GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business, with which he had been associated since prior to 2004. | 95 | None | |||||
DISINTERESTED DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensive non-profit board leadership experience, and currently serves on the boards of two education and science-related non-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
25
SMALL CAP GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance(1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company and non-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None | |||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995-2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees of the AB Funds since 2008. | 95 | None |
26
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE, (YEAR FIRST ELECTED**) | PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
DISINTERESTED DIRECTORS (continued) | ||||||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of various non-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal & Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes, and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
27
SMALL CAP GROWTH PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Bruce K. Aronow 52 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Samantha S. Lau 46 | Vice President | Senior Vice President of the Adviser**, with which she has been associated since prior to 2014. | ||
Wen-Tse Tseng 53 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABI and ABIS are affiliates of the Fund. |
The Fund’s Statement of Additional Information (SAI) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www. abfunds.com, for a free prospectus or SAI. |
28
SMALL CAP GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Small Cap Growth Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Agreement, including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Small Cap Growth Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
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AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
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SMALL CAP GROWTH PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as the Fund, and the different risk profile, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it may use ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund would be paid for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for
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AB Variable Products Series Fund |
setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
35
VPS-SCG-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | SMALL/MID CAP VALUE PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.
SMALL/MID CAP VALUE PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Small/Mid Cap Value Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of small- tomid-capitalization US companies. Under normal circumstances, the Portfolio invests at least 80% of its net assets in securities of small- tomid-capitalization companies. Because the Portfolio’s definition of small- tomid-capitalization companies is dynamic, the lower and upper limits on market capitalization will change with the markets. The Portfolio invests in companies that are determined by the Adviser to be undervalued, using the Adviser’s fundamental value approach. In selecting securities for the Portfolio’s portfolio, the Adviser uses its fundamental and quantitative research to identify companies whose long-term earnings power is not reflected in the current market price of their securities.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities issued bynon-US companies.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its primary benchmark, the Russell 2500 Value Index, in addition to the Russell 2500 Index, which representssmall/mid-cap stocks, for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio underperformed the primary benchmark and the Russell 2500 Index for the annual period. Stock selection in the consumer discretionary, industrials and financials sectors detracted, relative to the benchmark. An overweight and stock selection in technology contributed, as did stock selection in health care and real estate.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the year as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during 2018 as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmaller-cap peers.
The Portfolio’s Senior Investment Management Team (the “Team”) seeks to invest opportunistically in what it believes are undervalued companies with solid fundamentals, without sacrificing the Portfolio’s deep value discipline. The Team remains focused on attractively valued opportunities, which the Team believes are widespread across most industry sectors and regions. The Portfolio’s emphasis continues to be at the stock-specific level, as the Team looks for companies that offer compelling valuation, strong free cash flow and significant company-level catalysts.
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SMALL/MID CAP VALUE PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 2500® Value Index and the Russell 2500™ Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio. The Russell 2500 Value Index represents the performance of small- tomid-cap value companies within the US. The Russell 2500 Index represents the performance of 2,500 small- tomid-cap cap companies within the US. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk:The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s value approach, may underperform the market generally.
Capitalization Risk:Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk:Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
SMALL/MID CAP VALUE PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Small/Mid Cap Value Portfolio Class A2 | -15.03% | 4.42% | 12.95% | |||||||||
Small/Mid Cap Value Portfolio Class B2 | -15.29% | 4.15% | 12.67% | |||||||||
Primary Benchmark: Russell 2500 Value Index | -12.36% | 4.16% | 11.62% | |||||||||
Russell 2500 Index | -10.00% | 5.15% | 13.15% | |||||||||
1 Average annual returns. 2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2018, by 0.07%. |
| |||||||||||
The Portfolio’s current prospectus fee table shows the Portfolio’s total annual operating expense ratios as 0.82% and 1.07% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in the Small/Mid Cap Value Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
SMALL/MID CAP VALUE PORTFOLIO | ||
EXPENSE EXAMPLE (unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each class’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | Total Expenses Paid During Period+ | Total Annualized Expense Ratio+ | |||||||||||||||||||
Class A | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 828.30 | $ | 3.73 | 0.81 | % | $ | 3.78 | 0.82 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,021.12 | $ | 4.13 | 0.81 | % | $ | 4.18 | 0.82 | % | ||||||||||||
Class B | ||||||||||||||||||||||||
Actual | $ | 1,000 | $ | 827.00 | $ | 4.88 | 1.06 | % | $ | 4.88 | 1.06 | % | ||||||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.86 | $ | 5.40 | 1.06 | % | $ | 5.40 | 1.06 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
+ | In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
4
SMALL/MID CAP VALUE PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Everest Re Group Ltd. | $ | 11,767,751 | 2.1 | % | ||||
Reinsurance Group of America, Inc.—Class A | 11,411,917 | 2.0 | ||||||
Zions Bancorp NA | 9,506,516 | 1.7 | ||||||
US Foods Holding Corp. | 9,243,626 | 1.7 | ||||||
Camden Property Trust | 9,117,313 | 1.6 | ||||||
American Campus Communities, Inc. | 8,999,262 | 1.6 | ||||||
Finisar Corp. | 8,911,296 | 1.6 | ||||||
Sun Communities, Inc. | 8,717,462 | 1.6 | ||||||
Alliant Energy Corp. | 8,598,635 | 1.5 | ||||||
CubeSmart | 8,541,702 | 1.5 | ||||||
|
|
|
| |||||
$ | 94,815,480 | 16.9 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Financials | $ | 126,581,255 | 22.6 | % | ||||
Information Technology | 90,969,938 | 16.2 | ||||||
Industrials | 81,223,314 | 14.5 | ||||||
Real Estate | 62,546,273 | 11.2 | ||||||
Consumer Discretionary | 51,308,090 | 9.2 | ||||||
Energy | 34,652,343 | 6.2 | ||||||
Utilities | 32,500,025 | 5.8 | ||||||
Consumer Staples | 28,656,493 | 5.1 | ||||||
Materials | 22,328,791 | 4.0 | ||||||
Health Care | 18,150,781 | 3.2 | ||||||
Communication Services | 6,986,530 | 1.2 | ||||||
Short-Term Investments | 4,557,009 | 0.8 | ||||||
|
|
|
| |||||
Total Investments | $ | 560,460,842 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
5
SMALL/MID CAP VALUE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–98.8% |
| |||||||
FINANCIALS–22.5% |
| |||||||
BANKS–10.0% | ||||||||
Associated Banc-Corp. | 272,600 | $ | 5,394,754 | |||||
Comerica, Inc. | 93,110 | 6,395,726 | ||||||
Huntington Bancshares, Inc./OH | 328,907 | 3,920,571 | ||||||
Sterling Bancorp./DE | 388,550 | 6,414,960 | ||||||
Synovus Financial Corp. | 169,224 | 5,413,476 | ||||||
Texas Capital Bancshares, Inc.(a) | 122,097 | 6,237,936 | ||||||
Umpqua Holdings Corp. | 424,753 | 6,753,573 | ||||||
Webster Financial Corp. | 123,342 | 6,079,527 | ||||||
Zions Bancorp NA | 233,346 | 9,506,516 | ||||||
|
| |||||||
56,117,039 | ||||||||
|
| |||||||
CONSUMER FINANCE–0.7% | ||||||||
OneMain Holdings, Inc.(a) | 159,700 | 3,879,113 | ||||||
|
| |||||||
INSURANCE–9.4% | ||||||||
American Financial Group, Inc./OH | 72,130 | 6,529,929 | ||||||
Everest Re Group Ltd. | 54,040 | 11,767,751 | ||||||
First American Financial Corp. | 154,590 | 6,900,898 | ||||||
Hanover Insurance Group, Inc. (The) | 40,240 | 4,698,825 | ||||||
Kemper Corp. | 13,080 | 868,250 | ||||||
Old Republic International Corp. | 276,118 | 5,679,747 | ||||||
Reinsurance Group of America, Inc.–Class A | 81,380 | 11,411,917 | ||||||
Selective Insurance Group, Inc. | 79,995 | 4,874,895 | ||||||
|
| |||||||
52,732,212 | ||||||||
|
| |||||||
THRIFTS & MORTGAGE FINANCE–2.4% | ||||||||
BankUnited, Inc. | 242,998 | 7,275,360 | ||||||
Essent Group Ltd.(a) | 192,438 | 6,577,531 | ||||||
|
| |||||||
13,852,891 | ||||||||
|
| |||||||
126,581,255 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY–16.2% | ||||||||
COMMUNICATIONS EQUIPMENT–2.7% | ||||||||
Finisar Corp.(a) | 412,560 | 8,911,296 | ||||||
NetScout Systems, Inc.(a) | 261,010 | 6,167,666 | ||||||
|
| |||||||
15,078,962 | ||||||||
|
| |||||||
ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–2.5% | ||||||||
Anixter International, Inc.(a) | 56,729 | 3,080,952 | ||||||
Avnet, Inc. | 188,680 | 6,811,348 | ||||||
CDW Corp./DE | 27,390 | 2,219,960 | ||||||
Sanmina Corp.(a) | 81,240 | 1,954,634 | ||||||
|
| |||||||
14,066,894 | ||||||||
|
| |||||||
IT SERVICES–3.7% | ||||||||
Amdocs Ltd. | 103,130 | 6,041,355 | ||||||
Booz Allen Hamilton Holding Corp. | 144,186 | 6,498,463 | ||||||
Genpact Ltd. | 310,450 | 8,379,046 | ||||||
|
| |||||||
20,918,864 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.7% | ||||||||
Cypress Semiconductor Corp. | 451,420 | $ | 5,742,063 | |||||
Kulicke & Soffa Industries, Inc. | 104,140 | 2,110,918 | ||||||
MaxLinear, Inc.–Class A(a) | 254,477 | 4,478,795 | ||||||
Mellanox Technologies Ltd.(a) | 30,980 | 2,861,932 | ||||||
|
| |||||||
15,193,708 | ||||||||
|
| |||||||
SOFTWARE–3.2% | ||||||||
CommVault Systems, Inc.(a) | 63,553 | 3,755,347 | ||||||
Nuance Communications, Inc.(a) | 487,415 | 6,448,500 | ||||||
Verint Systems, Inc.(a) | 181,270 | 7,669,534 | ||||||
|
| |||||||
17,873,381 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.4% | ||||||||
NCR Corp.(a) | 339,607 | 7,838,129 | ||||||
|
| |||||||
90,969,938 | ||||||||
|
| |||||||
INDUSTRIALS–14.4% | ||||||||
AEROSPACE & DEFENSE–0.3% | ||||||||
AAR Corp. | 50,765 | 1,895,565 | ||||||
|
| |||||||
AIR FREIGHT & LOGISTICS–0.6% | ||||||||
Atlas Air Worldwide Holdings, Inc.(a) | 74,090 | 3,125,857 | ||||||
|
| |||||||
AIRLINES–3.4% | ||||||||
Alaska Air Group, Inc. | 134,200 | 8,166,070 | ||||||
Hawaiian Holdings, Inc. | 177,720 | 4,693,585 | ||||||
SkyWest, Inc. | 139,861 | 6,219,619 | ||||||
|
| |||||||
19,079,274 | ||||||||
|
| |||||||
COMMERCIAL SERVICES & SUPPLIES–0.8% | ||||||||
Steelcase, Inc.–Class A | 323,105 | 4,791,647 | ||||||
|
| |||||||
CONSTRUCTION & ENGINEERING–3.5% | ||||||||
AECOM(a) | 161,505 | 4,279,883 | ||||||
Granite Construction, Inc. | 118,740 | 4,782,847 | ||||||
Quanta Services, Inc. | 216,465 | 6,515,596 | ||||||
Tutor Perini Corp.(a) | 263,480 | 4,207,776 | ||||||
|
| |||||||
19,786,102 | ||||||||
|
| |||||||
ELECTRICAL EQUIPMENT–2.2% | ||||||||
EnerSys | 70,720 | 5,488,579 | ||||||
Regal Beloit Corp. | 98,462 | 6,897,263 | ||||||
|
| |||||||
12,385,842 | ||||||||
|
| |||||||
MACHINERY–2.2% | ||||||||
Oshkosh Corp. | 101,190 | 6,203,959 | ||||||
SPX FLOW, Inc.(a) | 82,125 | 2,498,242 | ||||||
Terex Corp. | 133,710 | 3,686,385 | ||||||
|
| |||||||
12,388,586 | ||||||||
|
| |||||||
TRADING COMPANIES & DISTRIBUTORS–1.4% | ||||||||
BMC Stock Holdings, Inc.(a) | 244,141 | 3,779,303 | ||||||
MRC Global, Inc.(a) | 326,340 | 3,991,138 | ||||||
|
| |||||||
7,770,441 | ||||||||
|
| |||||||
81,223,314 | ||||||||
|
|
6
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
REAL ESTATE–11.1% | ||||||||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–11.1% | ||||||||
American Campus Communities, Inc. | 217,426 | $ | 8,999,262 | |||||
Camden Property Trust | 103,547 | 9,117,313 | ||||||
CubeSmart | 297,724 | 8,541,702 | ||||||
Empire State Realty Trust, Inc.–Class A | 516,882 | 7,355,231 | ||||||
MGM Growth Properties LLC–Class A | 206,922 | 5,464,810 | ||||||
Park Hotels & Resorts, Inc. | 259,505 | 6,741,940 | ||||||
STAG Industrial, Inc. | 305,810 | 7,608,553 | ||||||
Sun Communities, Inc. | 85,709 | 8,717,462 | ||||||
|
| |||||||
62,546,273 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY–9.1% | ||||||||
AUTO COMPONENTS–1.6% | ||||||||
Cooper-Standard Holdings, Inc.(a) | 69,028 | 4,288,019 | ||||||
Lear Corp. | 37,374 | 4,591,770 | ||||||
|
| |||||||
8,879,789 | ||||||||
|
| |||||||
DIVERSIFIED CONSUMER SERVICES–1.9% | ||||||||
Houghton Mifflin Harcourt Co.(a) | 489,525 | 4,337,192 | ||||||
Sotheby’s(a) | 155,884 | 6,194,830 | ||||||
|
| |||||||
10,532,022 | ||||||||
|
| |||||||
HOTELS, RESTAURANTS & LEISURE–1.2% | ||||||||
Bloomin’ Brands, Inc. | 397,349 | 7,108,573 | ||||||
|
| |||||||
HOUSEHOLD DURABLES–1.9% | ||||||||
Lennar Corp.–Class A | 144,593 | 5,660,816 | ||||||
Taylor Morrison Home Corp.–Class A(a) | 315,150 | 5,010,885 | ||||||
|
| |||||||
10,671,701 | ||||||||
|
| |||||||
SPECIALTY RETAIL–1.6% | ||||||||
Michaels Cos., Inc. (The)(a) | 371,610 | 5,031,599 | ||||||
Signet Jewelers Ltd. | 131,350 | 4,172,990 | ||||||
|
| |||||||
9,204,589 | ||||||||
|
| |||||||
TEXTILES, APPAREL & LUXURY GOODS–0.9% | ||||||||
Skechers U.S.A., Inc.–Class A(a) | 214,566 | 4,911,416 | ||||||
|
| |||||||
51,308,090 | ||||||||
|
| |||||||
ENERGY–6.2% | ||||||||
ENERGY EQUIPMENT & SERVICES–2.9% | ||||||||
Dril-Quip, Inc.(a) | 111,704 | 3,354,471 | ||||||
Helix Energy Solutions Group, Inc.(a) | 333,230 | 1,802,774 | ||||||
Oil States International, Inc.(a) | 244,030 | 3,484,748 | ||||||
Patterson-UTI Energy, Inc. | 375,910 | 3,890,669 | ||||||
RPC, Inc.(b) | 372,210 | 3,673,713 | ||||||
|
| |||||||
16,206,375 | ||||||||
|
| |||||||
OIL, GAS & CONSUMABLE FUELS–3.3% | ||||||||
HollyFrontier Corp. | 71,060 | $ | 3,632,587 | |||||
Oasis Petroleum, Inc.(a) | 654,630 | 3,620,104 | ||||||
QEP Resources, Inc.(a) | 876,428 | 4,934,290 | ||||||
SM Energy Co. | 297,290 | 4,602,049 | ||||||
SRC Energy, Inc.(a) | 352,540 | 1,656,938 | ||||||
|
| |||||||
18,445,968 | ||||||||
|
| |||||||
34,652,343 | ||||||||
|
| |||||||
UTILITIES–5.8% | ||||||||
ELECTRIC UTILITIES–3.8% | ||||||||
Alliant Energy Corp. | 203,518 | 8,598,635 | ||||||
PNM Resources, Inc. | 143,720 | 5,905,455 | ||||||
Portland General Electric Co. | 148,830 | 6,823,856 | ||||||
|
| |||||||
21,327,946 | ||||||||
|
| |||||||
GAS UTILITIES–1.1% | ||||||||
Southwest Gas Holdings, Inc. | 77,290 | 5,912,685 | ||||||
|
| |||||||
MULTI-UTILITIES–0.9% | ||||||||
Black Hills Corp. | 83,775 | 5,259,394 | ||||||
|
| |||||||
32,500,025 | ||||||||
|
| |||||||
CONSUMER STAPLES–5.1% | ||||||||
BEVERAGES–1.2% | ||||||||
Cott Corp. | 479,419 | 6,683,101 | ||||||
|
| |||||||
FOOD & STAPLES RETAILING–1.6% | ||||||||
US Foods Holding Corp.(a) | 292,150 | 9,243,626 | ||||||
|
| |||||||
FOOD PRODUCTS–2.3% | ||||||||
Ingredion, Inc. | 65,861 | 6,019,695 | ||||||
Nomad Foods Ltd.(a) | 401,320 | 6,710,071 | ||||||
|
| |||||||
12,729,766 | ||||||||
|
| |||||||
28,656,493 | ||||||||
|
| |||||||
MATERIALS–4.0% | ||||||||
CHEMICALS–1.9% | ||||||||
Orion Engineered Carbons SA | 195,968 | 4,954,071 | ||||||
Trinseo SA | 127,440 | 5,834,203 | ||||||
|
| |||||||
10,788,274 | ||||||||
|
| |||||||
CONTAINERS & PACKAGING–1.2% | ||||||||
Graphic Packaging Holding Co. | 534,708 | 5,689,293 | ||||||
Sealed Air Corp. | 24,380 | 849,399 | ||||||
|
| |||||||
6,538,692 | ||||||||
|
| |||||||
METALS & MINING–0.9% | ||||||||
Alcoa Corp.(a) | 188,180 | 5,001,825 | ||||||
|
| |||||||
22,328,791 | ||||||||
|
| |||||||
HEALTH CARE–3.2% | ||||||||
HEALTH CARE PROVIDERS & SERVICES–1.9% | ||||||||
Molina Healthcare, Inc.(a) | 50,852 | 5,910,020 | ||||||
WellCare Health Plans, Inc.(a) | 19,411 | 4,582,743 | ||||||
|
| |||||||
10,492,763 | ||||||||
|
| |||||||
LIFE SCIENCES TOOLS & SERVICES–1.3% | ||||||||
ICON PLC(a) | 59,268 | 7,658,018 | ||||||
|
| |||||||
18,150,781 | ||||||||
|
|
7
SMALL/MID CAP VALUE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
(continued) | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMUNICATION SERVICES–1.2% | ||||||||
MEDIA–1.2% | ||||||||
Criteo SA (Sponsored ADR)(a) | 140,370 | $ | 3,189,207 | |||||
Scholastic Corp. | 94,320 | 3,797,323 | ||||||
|
| |||||||
6,986,530 | ||||||||
|
| |||||||
Total Common Stocks | 555,903,833 | |||||||
|
| |||||||
SHORT-TERM INVESTMENTS–0.8% | ||||||||
INVESTMENT COMPANIES–0.8% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, | 4,557,009 | 4,557,009 | ||||||
|
| |||||||
TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–99.6% | 560,460,842 | |||||||
|
| |||||||
INVESTMENTS OF CASH COLLATERAL FOR SECURITIES | ||||||||
INVESTMENT | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market | 2,472,505 | $ | 2,472,505 | |||||
|
| |||||||
TOTAL INVESTMENTS–100.0% | 562,933,347 | |||||||
Other assets less liabilities–0.0% | 59,317 | |||||||
|
| |||||||
NET ASSETS–100.0% | $ | 562,992,664 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
8
SMALL/MID CAP VALUE PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS |
| |||||||
Investments in securities, at value |
| |||||||
Unaffiliated issuers (cost $556,341,355) | $ | 555,903,833 | (a) | |||||
Affiliated issuers (cost $7,029,514—including investment of cash collateral for securities loaned of $2,472,505) | 7,029,514 | |||||||
Cash | 42 | |||||||
Unaffiliated dividends and interest receivable | 1,195,043 | |||||||
Receivable for capital stock sold | 1,182,704 | |||||||
Receivable for investment securities sold | 1,008,565 | |||||||
Affiliated dividends receivable | 15,995 | |||||||
|
| |||||||
Total assets | 566,335,696 | |||||||
|
| |||||||
LIABILITIES |
| |||||||
Payable for collateral received on securities loaned | 2,472,505 | |||||||
Advisory fee payable | 347,081 | |||||||
Payable for investment securities purchased | 251,063 | |||||||
Distribution fee payable | 77,160 | |||||||
Payable for capital stock redeemed | 75,972 | |||||||
Administrative fee payable | 17,842 | |||||||
Transfer Agent fee payable | 206 | |||||||
Accrued expenses | 101,203 | |||||||
|
| |||||||
Total liabilities | 3,343,032 | |||||||
|
| |||||||
NET ASSETS | $ | 562,992,664 | ||||||
|
| |||||||
COMPOSITION OF NET ASSETS |
| |||||||
Capital stock, at par | $ | 33,487 | ||||||
Additionalpaid-in capital | 493,316,951 | |||||||
Distributable earnings | 69,642,226 | |||||||
|
| |||||||
$ | 562,992,664 | |||||||
|
|
Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 188,051,807 | 11,108,997 | $ | 16.93 | |||||||
B | $ | 374,940,857 | 22,378,339 | $ | 16.75 |
(a) | Includes securities on loan with a value of $2,380,841 (see Note E). |
See notes to financial statements.
9
SMALL/MID CAP VALUE PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $34,506) | $ | 9,415,640 | ||
Affiliated issuers | 200,056 | |||
Interest | 10,392 | |||
|
| |||
9,626,088 | ||||
|
| |||
EXPENSES | ||||
Advisory fee (see Note B) | 5,074,899 | |||
Distribution fee—Class B | 1,128,849 | |||
Transfer agency—Class A | 2,114 | |||
Transfer agency—Class B | 4,241 | |||
Custodian | 124,566 | |||
Printing | 76,648 | |||
Administrative | 69,242 | |||
Legal | 57,604 | |||
Audit and tax | 50,547 | |||
Directors’ fees | 24,724 | |||
Miscellaneous | 21,085 | |||
|
| |||
Total expenses | 6,634,519 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (16,316 | ) | ||
|
| |||
Net expenses | 6,618,203 | |||
|
| |||
Net investment income | 3,007,885 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS | ||||
Net realized gain on investment transactions | 67,778,832 | |||
Net change in unrealized appreciation/depreciation of investments | (170,330,626 | ) | ||
|
| |||
Net loss on investment transactions | (102,551,794 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (99,543,909 | ) | |
|
|
See notes to financial statements.
10
SMALL/MID CAP VALUE PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS |
| |||||||
Net investment income | $ | 3,007,885 | $ | 2,068,051 | ||||
Net realized gain on investment transactions | 67,778,832 | 54,025,680 | ||||||
Net change in unrealized appreciation/depreciation of investments | (170,330,626 | ) | 27,557,556 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (99,543,909 | ) | 83,651,287 | |||||
DISTRIBUTIONS TO SHAREHOLDERS* |
| |||||||
Class A | (18,827,338 | ) | (11,971,356 | ) | ||||
Class B | (36,997,043 | ) | (23,744,012 | ) | ||||
CAPITAL STOCK TRANSACTIONS |
| |||||||
Net increase (decrease) | 15,207,829 | (31,401,524 | ) | |||||
|
|
|
| |||||
Total increase (decrease) | (140,160,461 | ) | 16,534,395 | |||||
NET ASSETS |
| |||||||
Beginning of period | 703,153,125 | 686,618,730 | ||||||
|
|
|
| |||||
End of period | $ | 562,992,664 | $ | 703,153,125 | ||||
|
|
|
|
* | The prior year’s amounts have been reclassified to conform with the current year’s presentation. See Note J, Recent Accounting Pronouncements, in the Notes to Financial Statements for more information. |
See notes to financial statements.
11
SMALL/MID CAP VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Small/Mid Cap Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the “Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
12
AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: | ||||||||||||||||
Common Stocks(a) | $ | 555,903,833 | $ | –0 | – | $ | –0 | – | $ | 555,903,833 | ||||||
Short-Term Investments | 4,557,009 | –0 | – | –0 | – | 4,557,009 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 2,472,505 | –0 | – | –0 | – | 2,472,505 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 562,933,347 | –0 | – | –0 | – | 562,933,347 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 562,933,347 | $ | –0 | – | $ | –0 | – | $ | 562,933,347 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
13
SMALL/MID CAP VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
14
AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2018, there were no expenses waived by the Adviser.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
15
SMALL/MID CAP VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,242.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $6,436.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 85,226 | $ | 80,669 | $ | 4,557 | $ | 104 | ||||||||||
Government Money Market Portfolio* | 18,302 | 140,034 | 155,863 | 2,473 | 96 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 7,030 | $ | 200 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $270,404, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 256,046,802 | $ | 287,790,260 | ||||
U.S. government securities | –0 | – | –0 | – |
16
AB Variable Products Series Fund |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 564,452,695 | ||
|
| |||
Gross unrealized appreciation | $ | 74,490,035 | ||
Gross unrealized depreciation | (76,009,383 | ) | ||
|
| |||
Net unrealized depreciation | $ | (1,519,348 | ) | |
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $2,380,841 and had received cash collateral which has been invested into Government Money Market Portfolio of $2,472,505. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned net securities lending income of $95,901 from Government Money Market Portfolio, inclusive of a rebate expense paid to the borrower, for the year ended December 31, 2018; this amount is reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $9,880. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
17
SMALL/MID CAP VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A |
| |||||||||||||||||||
Shares sold | 871,353 | 1,291,766 | $ | 18,001,497 | $ | 26,552,466 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 902,990 | 629,078 | 18,827,338 | 11,971,356 | ||||||||||||||||
Shares redeemed | (1,440,937 | ) | (2,537,276 | ) | (30,577,505 | ) | (51,958,746 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net increase (decrease) | 333,406 | (616,432 | ) | $ | 6,251,330 | $ | (13,434,924 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Class B |
| |||||||||||||||||||
Shares sold | 1,658,064 | 2,296,542 | $ | 33,516,890 | $ | 46,650,675 | ||||||||||||||
Shares issued in reinvestment of dividends and distributions | 1,790,757 | 1,258,294 | 36,997,043 | 23,744,012 | ||||||||||||||||
Shares redeemed | (2,929,462 | ) | (4,333,856 | ) | (61,557,434 | ) | (88,361,287 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net increase (decrease) | 519,359 | (779,020 | ) | $ | 8,956,499 | $ | (17,966,600 | ) | ||||||||||||
|
|
|
|
|
|
|
|
At December 31, 2018, certain shareholders of the Portfolio owned 71% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Capitalization Risk—Investments in small- andmid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.
Foreign (Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
18
AB Variable Products Series Fund |
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 2,075,837 | $ | 2,130,190 | ||||
Net long-term capital gains | 53,748,544 | 33,585,178 | ||||||
|
|
|
| |||||
Total taxable distributions | $ | 55,824,381 | $ | 35,715,368 | ||||
|
|
|
|
As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 7,552,486 | ||
Undistributed net capital gain | 63,609,090 | |||
Unrealized appreciation/(depreciation) | (1,519,348 | )(a) | ||
|
| |||
Total accumulated earnings/(deficit) | $ | 69,642,228 | ||
|
|
(a) | The difference between book-basis andtax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additionalpaid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Portfolio’s financial statements through this date.
19
SMALL/MID CAP VALUE PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $21.68 | $20.29 | $17.29 | $21.95 | $22.89 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .13 | (b) | .10 | (b) | .10 | (b)† | .11 | .17 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (3.04 | ) | 2.41 | 4.09 | (1.11 | ) | 1.82 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (2.91 | ) | 2.51 | 4.19 | (1.00 | ) | 1.99 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.11 | ) | (.09 | ) | (.11 | ) | (.17 | ) | (.17 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (1.73 | ) | (1.03 | ) | (1.08 | ) | (3.49 | ) | (2.76 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (1.84 | ) | (1.12 | ) | (1.19 | ) | (3.66 | ) | (2.93 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value, end of period | $16.93 | $21.68 | $20.29 | $17.29 | $21.95 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c)* | (15.03 | )% | 13.15 | % | 25.09 | %† | (5.49 | )% | 9.20 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $188,052 | $233,652 | $231,197 | $191,388 | $211,680 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .81 | % | .81 | % | .82 | % | .82 | % | .82 | % | ||||||||||
Expenses, before waivers/reimbursements | .81 | % | .82 | % | .83 | % | .82 | % | .82 | % | ||||||||||
Net investment income | .61 | %(b) | .47 | %(b) | .53 | %(b)† | .56 | % | .75 | % | ||||||||||
Portfolio turnover rate | 39 | % | 33 | % | 57 | % | 42 | % | 45 | % |
See footnote summary on page 21.
20
AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $21.48 | $20.12 | $17.15 | $21.79 | $22.74 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .07 | (b) | .05 | (b) | .05 | (b)† | .06 | .11 | ||||||||||||
Net realized and unrealized gain (loss) on investment transactions | (3.02 | ) | 2.39 | 4.06 | (1.09 | ) | 1.81 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in net asset value from operations | (2.95 | ) | 2.44 | 4.11 | (1.03 | ) | 1.92 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Less: Dividends and Distributions | ||||||||||||||||||||
Dividends from net investment income | (.05 | ) | (.05 | ) | (.06 | ) | (.12 | ) | (.11 | ) | ||||||||||
Distributions from net realized gain on investment transactions | (1.73 | ) | (1.03 | ) | (1.08 | ) | (3.49 | ) | (2.76 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total dividends and distributions | (1.78 | ) | (1.08 | ) | (1.14 | ) | (3.61 | ) | (2.87 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net asset value, end of period | $16.75 | $21.48 | $20.12 | $17.15 | $21.79 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total Return | ||||||||||||||||||||
Total investment return based on net asset value (c)* | (15.29 | )% | 12.85 | % | 24.79 | %† | (5.69 | )% | 8.95 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $374,941 | $469,501 | $455,422 | $386,875 | $447,378 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.06 | % | 1.06 | % | 1.07 | % | 1.07 | % | 1.07 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.06 | % | 1.07 | % | 1.08 | % | 1.07 | % | 1.07 | % | ||||||||||
Net investment income | .36 | %(b) | .22 | %(b) | .28 | %(b)† | .31 | % | .49 | % | ||||||||||
Portfolio turnover rate. | 39 | % | 33 | % | 57 | % | 42 | % | 45 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.001 | .003% | .003% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2018 and December 31, 2017 by .07% and .11%, respectively. |
See notes to financial statements.
21
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Small/Mid Cap Value Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Small/Mid Cap Value Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14 , 2019
22
2018 TAX INFORMATION(unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 100.00% of dividends paid qualify for the dividends received deduction.
23
SMALL/MID CAP VALUE PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—ABSmall-Mid Cap Value Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||||
30,874,999 | 503,376 | 1,490,986 |
* | Mr. Foulk retired on December 31, 2018. |
24
SMALL/MID CAP VALUE PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
James W. MacGregor(2),Vice President Shri Singhvi(2),Vice President Emilie D. Wrapp,Secretary Michael B. Reyes,Senior Analyst | Joseph J. Mantineo,Treasurer and Phyllis J. Clarke,Controller Vincent S. Noto, Chief Compliance Officer | |
CUSTODIANAND ACCOUNTING AGENT | LEGAL COUNSEL | |
State Street Bank and Trust Company State Street Corporation CCB/5 1 Iron Street Boston, MA 02210 | Seward & Kissel LLP One Battery Park Plaza New York, NY 10004 | |
DISTRIBUTOR AllianceBernstein Investments, Inc. 1345 Avenue of the Americas New York, NY 10105 | TRANSFER AGENT AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Toll-Free 1-(800) 221-5672 | |
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP 5 Times Square New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the Small/Mid-Cap Value Senior Investment Management Team. Messrs. MacGregor and Singhvi are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
25
SMALL/MID CAP VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith,# 1345 Avenue of the Americas NewYork, NY 10105 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he had been associated since prior to 2004. | 95 | None | |||||
INDEPENDENT DIRECTORS | ||||||||
Marshall C. Turner, Jr.,## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey,## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 |
26
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Nancy P. Jacklin,## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008–2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002–May 2006); Partner, Clifford Chance (1992–2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985–1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982–1985); and Attorney Advisor, U.S. Department of the Treasury (1973–1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen,## 63 | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company andnon-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
27
SMALL/MID CAP VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS IN AB FUND COMPLEX OVERSEEN BY DIRECTOR | OTHER PUBLIC COMPANY DIRECTORSHIPS CURRENTLY HELD BY DIRECTOR | |||||
INDEPENDENT DIRECTORS (continued) | ||||||||
Garry L. Moody,## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995–2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993–1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975–1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardIQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner,## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Fund’s disinterested Directors is c/o AllianceBernstein L.P., Attention: Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee and the Independent Directors Committee. |
28
AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
James W. MacGregor 51 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Shri Singhvi 45 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI **, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABIS and ABI are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at (800) 227-4618 or visit www.abfunds.com, for a free prospectus or SAI. |
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SMALL/MID CAP VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Small/Mid Cap Value Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds and the Adviser, as provided in the Proposed Agreement, including the management fees, were fair and reasonable in light of the services performed under the
30
AB Variable Products Series Fund |
Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
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SMALL/MID CAP VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the “15(c) provider”) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund andsub- advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
32
AB Variable Products Series Fund |
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Small/Mid Cap Value Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-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
33
SMALL/MID CAP VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 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.
34
AB Variable Products Series Fund |
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
35
VPS-SMCV-0151-1218
DEC 12.31.18
ANNUAL REPORT
AB VARIABLE PRODUCTS
SERIES FUND, INC.
+ | VALUE PORTFOLIO |
Investment Products Offered
• | Are Not FDIC Insured |
• | May Lose Value |
• | Are Not Bank Guaranteed |
AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.
You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227 4618.
The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year. The Fund’s portfolio holdings reports are available on the Commission’s website at www.sec.gov. The Fund’s portfolio holdings reports may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC 0330.
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.
VALUE PORTFOLIO | AB Variable Products Series Fund |
LETTER TO INVESTORS
February 14, 2019
The following is an update of AB Variable Products Series Fund—Value Portfolio (the “Portfolio”) for the annual reporting period ended December 31, 2018.
At a meeting held on November6-8, 2018, the Board of Directors of AB Variable Products Series Fund, Inc. (the “Fund”) approved the acquisition of the assets and assumption of the liabilities of the Portfolio by AB Growth and Income Portfolio (the “Acquiring Portfolio,” and together with the Portfolio, the “Portfolios”), each a series of the Fund. The Portfolios have the same investment objective and certain similarities in investment strategies, as both Portfolios seek long-term growth of capital and invest in the securities of US companies, using a value approach to investing.
At the time of the acquisition, all of the Portfolio’s assets and liabilities will be transferred to the Acquiring Portfolio, and shareholders of the Portfolio will receive shares of the same class of the Acquiring Portfolio.
The acquisition does not require approval of either Portfolio’s shareholders. The acquisition is expected to be consummated on or about April 18, 2019.
INVESTMENT OBJECTIVE AND POLICIES
The Portfolio’s investment objective is long-term growth of capital. The Portfolio invests primarily in a diversified portfolio of equity securities of US companies with relatively large market capitalizations that the Adviser believes are undervalued. The Portfolio invests in companies that are determined by the Adviser to be undervalued using the fundamental value approach of the Adviser. The fundamental value approach seeks to identify a universe of securities that are considered to be undervalued because they are attractively priced relative to their future earnings power and dividend-paying capability.
The Portfolio may enter into derivatives transactions, such as options, futures contracts, forwards and swaps. The Portfolio may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, including on individual securities and stock indices, futures contracts (including futures contracts on individual securities and stock indices) or shares of exchange-traded funds (“ETFs”). These transactions may be used, for example, to earn extra income, to adjust exposure to individual securities or markets, or to protect all or a portion of the Portfolio’s portfolio from a decline in value, sometimes within certain ranges.
The Portfolio may invest in securities ofnon-US issuers.
The Portfolio may, at times, invest in shares of ETFs in lieu of making direct investments in equity securities. ETFs may provide more efficient and economical exposure to the type of companies and geographic locations in which the Portfolio seeks to invest than direct investments.
INVESTMENT RESULTS
The table on page 3 shows the Portfolio’s performance compared to its primary benchmark, the Russell 1000 Value Index, and the broad US stock market, as represented by the Standard and Poor’s (“S&P”) 500 Index, for theone-, five- and10-year periods ended December 31, 2018.
All share classes of the Portfolio underperformed the primary benchmark for the annual period. Stock selection in the financials, health care and consumer staples sectors detracted from performance, relative to the benchmark. Stock selection and an overweight to technology contributed, as did stock selection in communication services.
The Portfolio did not utilize derivatives during the annual period.
MARKET REVIEW AND INVESTMENT STRATEGY
Global equities ended 2018 in negative territory, marking one of the worst years for the stock market in a decade. Despite a relatively strong start to the year and US stock indices reaching record highs, volatility spiked toward the end of the period as investors worried about the outlook for corporate earnings growth amid a more challenging global growth environment, and as the benefits of tax reform roll off. The US Federal Reserve raised rates four times during the period as expected, but softened its tone in December, and signaled that it might slow its pace of rate hikes in 2019. An upsurge in geopolitical uncertainty regarding Brexit and budget discussions between Italy and the European Union sparked a flight to quality in the region. Slowing Chinese growth and continuingUS-China trade tensions dampened investor sentiment in China toward the end of the period. In the US, growth stocks outperformed value stocks, in terms of style, andlarge-cap stocks outperformed theirsmall-cap peers.
The Portfolio’s Senior Investment Management Team (the “Team”) remains focused on attractively valued opportunities, which they believe are widespread across most industry sectors and regions. The Team believes that stock selection is critical, particularly in the current environment, and remains focused on companies with the best competitive positions, strongest balance sheets and cash flow.
1
VALUE PORTFOLIO | ||
DISCLOSURES AND RISKS | AB Variable Products Series Fund |
Benchmark Disclosure
The Russell 1000® Value Index and the S&P 500® Index are unmanaged and do not reflect fees and expenses associated with the active management of a mutual fund portfolio.The Russell 1000 Value Index represents the performance oflarge-cap value companies within the US. The S&P 500 Index includes 500 US stocks and is a common representation of the performance of the overall US stock market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Portfolio.
A Word About Risk
Market Risk:The value of the Portfolio’s assets will fluctuate as the stock or bond market fluctuates. The value of its investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market. It includes the risk that a particular style of investing, such as the Portfolio’s value approach, may underperform the market generally.
Foreign(Non-US) Risk:Investments in securities ofnon-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk:Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk:Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and may be subject to counterparty risk to a greater degree than more traditional investments.
Management Risk:The Portfolio is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions for the Portfolio, but there is no guarantee that its techniques will produce the intended results.
These risks are fully discussed in the Variable Products prospectus. As with all investments, you may lose money by investing in the Portfolio.
An Important Note About Historical Performance
The investment return and principal value of an investment in the Portfolio will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. Performance shown in this report represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. Please contact your financial advisor or insurance agent representative at your financial institution to obtain portfolio performance information current to the most recent month end.
Investors should consider the investment objectives, risks, charges and expenses of the Portfolio carefully before investing. For additional copies of the Portfolio’s prospectus or summary prospectus, which contains this and other information, call your financial advisor or (800) 227 4618. Please read the prospectus and/or summary prospectus carefully before investing.
All fees and expenses related to the operation of the Portfolio have been deducted, but no adjustment has been made for insurance company separate account or annuity contract charges, which would reduce total return to a contract owner. Performance assumes reinvestment of distributions and does not account for taxes.
There are additional fees and expenses associated with all Variable Products. These fees can include mortality and expense risk charges, administrative charges, and other charges that can significantly reduce investment returns. Those fees and expenses are not reflected in this annual report. You should consult your Variable Products prospectus for a description of those fees and expenses and speak to your insurance agent or financial representative if you have any questions. You should read the prospectus before investing or sending money.
2
VALUE PORTFOLIO | ||
HISTORICAL PERFORMANCE | AB Variable Products Series Fund |
THE PORTFOLIO VS. ITS BENCHMARKS | Net Asset Value Returns | |||||||||||
PERIODS ENDED DECEMBER 31, 2018 (unaudited) | 1 Year | 5 Years1 | 10 Years1 | |||||||||
Value Portfolio Class A2 | -15.17% | 2.13% | 8.68% | |||||||||
Value Portfolio Class B2 | -15.35% | 1.88% | 8.43% | |||||||||
Primary Benchmark: Russell 1000 Value Index | -8.27% | 5.95% | 11.18% | |||||||||
S&P 500 Index | -4.38% | 8.49% | 13.12% | |||||||||
1 Average annual returns. | ||||||||||||
2 Includes the impact of proceeds received and credited to the Portfolio resulting from class-action settlements, which enhanced the performance of all share classes of the Portfolio for the annual period ended December 31, 2018, by 0.09%. |
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The Portfolio’s current prospectus fee table shows the Portfolio’s total annual expense ratios as 0.87% and 1.12% for Class A and Class B shares, respectively. The Financial Highlights section of this report sets forth expense ratio data for the current reporting period; the expense ratios shown above may differ from the expense ratios in the Financial Highlights section since they are based on different time periods.
GROWTH OF A $10,000 INVESTMENT
12/31/2008 TO 12/31/2018 (unaudited)
This chart illustrates the total value of an assumed $10,000 investment in Value Portfolio Class A shares (from 12/31/2008 to 12/31/2018) as compared to the performance of the Portfolio’s benchmarks. The chart assumes the reinvestment of dividends and capital gains distributions.
See Disclosures, Risks and Note about Historical Performance on page 2.
3
VALUE PORTFOLIO | ||
EXPENSE EXAMPLE(unaudited) | AB Variable Products Series Fund |
As a shareholder of the Portfolio, 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 Portfolio expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Portfolio and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.
Actual Expenses
The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Hypothetical Example for Comparison Purposes
The table below provides information about hypothetical account values and hypothetical expenses based on the Portfolio’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Portfolio’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 Portfolio and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the second line of each classes’ table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning Account Value July 1, 2018 | Ending Account Value December 31, 2018 | Expenses Paid During Period* | Annualized Expense Ratio* | |||||||||||||
Class A | ||||||||||||||||
Actual | $ | 1,000 | $ | 873.50 | $ | 4.49 | 0.95 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,020.42 | $ | 4.84 | 0.95 | % | ||||||||
Class B | ||||||||||||||||
Actual | $ | 1,000 | $ | 872.90 | $ | 5.66 | 1.20 | % | ||||||||
Hypothetical (5% annual return before expenses) | $ | 1,000 | $ | 1,019.16 | $ | 6.11 | 1.20 | % |
* | Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 184/365 (to reflect theone-half year period). |
4
VALUE PORTFOLIO | ||
TEN LARGEST HOLDINGS1 | ||
December 31, 2018 (unaudited) | AB Variable Products Series Fund |
COMPANY | U.S. $ VALUE | PERCENT OF NET ASSETS | ||||||
Oracle Corp. | $ | 2,639,378 | 5.1 | % | ||||
Wells Fargo & Co. | 2,466,017 | 4.8 | ||||||
Comcast Corp.—Class A | 2,232,999 | 4.3 | ||||||
Pfizer, Inc. | 2,035,749 | 3.9 | ||||||
Bank of America Corp. | 1,701,762 | 3.3 | ||||||
EOG Resources, Inc. | 1,688,037 | 3.3 | ||||||
T-Mobile US, Inc. | 1,669,890 | 3.2 | ||||||
American Electric Power Co., Inc. | 1,410,120 | 2.7 | ||||||
Cigna Corp. | 1,384,707 | 2.7 | ||||||
Twenty-First Century Fox, Inc.—Class A | 1,380,948 | 2.7 | ||||||
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$ | 18,609,607 | 36.0 | % |
SECTOR BREAKDOWN2
December 31, 2018 (unaudited)
SECTOR | U.S. $ VALUE | PERCENT OF TOTAL INVESTMENTS | ||||||
Financials | $ | 10,724,855 | 20.8 | % | ||||
Health Care | 7,124,350 | 13.8 | ||||||
Information Technology | 6,400,394 | 12.4 | ||||||
Communication Services | 6,213,409 | 12.0 | ||||||
Energy | 5,008,943 | 9.7 | ||||||
Consumer Staples | 3,474,981 | 6.7 | ||||||
Consumer Discretionary | 3,255,985 | 6.3 | ||||||
Utilities | 3,054,063 | 5.9 | ||||||
Industrials | 2,445,984 | 4.7 | ||||||
Real Estate | 2,131,691 | 4.1 | ||||||
Materials | 1,863,793 | 3.6 | ||||||
Short-Term Investments | 1,707 | 0.0 | ||||||
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Total Investments | $ | 51,700,155 | 100.0 | % |
1 | Long-term investments. |
2 | The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. |
Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industrysub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.
5
VALUE PORTFOLIO | ||
PORTFOLIO OF INVESTMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
COMMON STOCKS–100.0% | ||||||||
FINANCIALS–20.8% | ||||||||
BANKS–10.7% | ||||||||
Bank of America Corp. | 69,065 | $ | 1,701,762 | |||||
Comerica, Inc. | 7,893 | 542,170 | ||||||
Wells Fargo & Co. | 53,516 | 2,466,017 | ||||||
Zions Bancorp NA | 19,762 | 805,104 | ||||||
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5,515,053 | ||||||||
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CONSUMER FINANCE–4.7% |
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Capital One Financial Corp. | 16,905 | 1,277,849 | ||||||
OneMain Holdings, Inc.(a) | 17,967 | 436,418 | ||||||
Synchrony Financial | 29,724 | 697,325 | ||||||
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2,411,592 | ||||||||
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INSURANCE–5.4% | ||||||||
Everest Re Group Ltd. | 4,451 | 969,250 | ||||||
Fidelity National Financial, Inc. | 31,590 | 993,189 | ||||||
Reinsurance Group of America, Inc.–Class A | 5,960 | 835,771 | ||||||
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2,798,210 | ||||||||
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10,724,855 | ||||||||
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HEALTH CARE–13.8% | ||||||||
BIOTECHNOLOGY–2.6% | ||||||||
Gilead Sciences, Inc. | 21,443 | 1,341,260 | ||||||
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HEALTH CARE PROVIDERS & SERVICES–2.7% | ||||||||
Cigna Corp. | 7,291 | 1,384,707 | ||||||
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PHARMACEUTICALS–8.5% | ||||||||
Novo Nordisk A/S (Sponsored ADR) | 27,524 | 1,268,030 | ||||||
Pfizer, Inc. | 46,638 | 2,035,749 | ||||||
Roche Holding AG (Sponsored ADR) | 18,374 | 571,064 | ||||||
Teva Pharmaceutical Industries Ltd. (Sponsored ADR)(a) | 33,952 | 523,540 | ||||||
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4,398,383 | ||||||||
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7,124,350 | ||||||||
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INFORMATION TECHNOLOGY–12.4% | ||||||||
COMMUNICATIONS EQUIPMENT–5.8% | ||||||||
Finisar Corp.(a) | 26,826 | 579,441 | ||||||
Juniper Networks, Inc. | 45,514 | 1,224,782 | ||||||
Nokia Oyj (Sponsored ADR)–Class A | 208,141 | 1,211,381 | ||||||
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3,015,604 | ||||||||
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SOFTWARE–5.1% |
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Oracle Corp. | 58,458 | 2,639,378 | ||||||
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TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.5% | ||||||||
NCR Corp.(a) | 14,649 | 338,099 | ||||||
Xerox Corp. | 20,613 | 407,313 | ||||||
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745,412 | ||||||||
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6,400,394 | ||||||||
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COMMUNICATION SERVICES–12.0% | ||||||||
ENTERTAINMENT–2.7% | ||||||||
Twenty-First Century Fox, Inc.–Class A | 28,698 | $ | 1,380,948 | |||||
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MEDIA–6.1% | ||||||||
Charter Communications, Inc.–Class A(a) | 3,262 | 929,572 | ||||||
Comcast Corp.–Class A | 65,580 | 2,232,999 | ||||||
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3,162,571 | ||||||||
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WIRELESS TELECOMMUNICATION SERVICES–3.2% | ||||||||
T-Mobile US, Inc.(a) | 26,252 | 1,669,890 | ||||||
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6,213,409 | ||||||||
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ENERGY–9.7% | ||||||||
ENERGY EQUIPMENT & SERVICES–1.4% | ||||||||
Dril-Quip, Inc.(a) | 6,985 | 209,760 | ||||||
RPC, Inc.(b) | 54,044 | 533,414 | ||||||
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743,174 | ||||||||
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OIL, GAS & CONSUMABLE FUELS–8.3% | ||||||||
Cimarex Energy Co. | 5,947 | 366,632 | ||||||
Devon Energy Corp. | 23,611 | 532,192 | ||||||
EOG Resources, Inc. | 19,356 | 1,688,037 | ||||||
Hess Corp. | 13,663 | 553,351 | ||||||
Marathon Petroleum Corp. | 19,074 | 1,125,557 | ||||||
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4,265,769 | ||||||||
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5,008,943 | ||||||||
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CONSUMER STAPLES–6.7% | ||||||||
BEVERAGES–2.1% | ||||||||
PepsiCo, Inc. | 10,144 | 1,120,709 | ||||||
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FOOD & STAPLES RETAILING–1.6% | ||||||||
US Foods Holding Corp.(a) | 25,623 | 810,712 | ||||||
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TOBACCO–3.0% | ||||||||
British American Tobacco PLC (Sponsored ADR) | 14,295 | 455,439 | ||||||
Philip Morris International, Inc. | 16,299 | 1,088,121 | ||||||
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1,543,560 | ||||||||
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3,474,981 | ||||||||
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CONSUMER DISCRETIONARY–6.3% | ||||||||
AUTO COMPONENTS–2.6% | ||||||||
Lear Corp. | 3,665 | 450,282 | ||||||
Magna International, Inc.–Class A | 19,759 | 898,046 | ||||||
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1,348,328 | ||||||||
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SPECIALTY RETAIL–2.9% | ||||||||
Gap, Inc. (The) | 27,515 | 708,786 | ||||||
Michaels Cos., Inc. (The)(a) | 34,366 | 465,316 | ||||||
Signet Jewelers Ltd. | 10,040 | 318,971 | ||||||
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1,493,073 | ||||||||
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6
AB Variable Products Series Fund |
Company | Shares | U.S. $ Value | ||||||
TEXTILES, APPAREL & LUXURY GOODS–0.8% | ||||||||
Skechers U.S.A., Inc.–Class A(a) | 18,112 | $ | 414,584 | |||||
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3,255,985 | ||||||||
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UTILITIES–5.9% | ||||||||
ELECTRIC UTILITIES–4.1% | ||||||||
American Electric Power Co., Inc. | 18,867 | 1,410,120 | ||||||
NextEra Energy, Inc. | 4,226 | 734,563 | ||||||
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2,144,683 | ||||||||
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MULTI-UTILITIES–1.8% | ||||||||
NiSource, Inc. | 35,873 | 909,380 | ||||||
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3,054,063 | ||||||||
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INDUSTRIALS–4.7% | ||||||||
AEROSPACE & DEFENSE–2.5% | ||||||||
Raytheon Co. | 8,626 | 1,322,797 | ||||||
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AIRLINES–2.2% | ||||||||
Alaska Air Group, Inc. | 9,210 | 560,429 | ||||||
JetBlue Airways Corp.(a) | 35,041 | 562,758 | ||||||
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1,123,187 | ||||||||
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2,445,984 | ||||||||
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REAL ESTATE–4.1% | ||||||||
EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–4.1% | ||||||||
CubeSmart | 14,360 | 411,988 | ||||||
Mid-America Apartment Communities, Inc. | 10,782 | 1,031,838 | ||||||
Sun Communities, Inc. | 6,763 | 687,865 | ||||||
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2,131,691 | ||||||||
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MATERIALS–3.6% | ||||||||
CHEMICALS–2.8% | ||||||||
CF Industries Holdings, Inc. | 12,336 | 536,739 | ||||||
Mosaic Co. (The) | 30,489 | 890,584 | ||||||
|
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1,427,323 | ||||||||
|
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METALS & MINING–0.8% | ||||||||
Alcoa Corp.(a) | 16,421 | 436,470 | ||||||
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1,863,793 | ||||||||
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Total Common Stocks | 51,698,448 | |||||||
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SHORT-TERM INVESTMENTS–0.0% | ||||||||
INVESTMENT COMPANIES–0.0% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio, | 1,707 | $ | 1,707 | |||||
|
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TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–100.0% | 51,700,155 | |||||||
|
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INVESTMENTS OF CASH COLLATERAL FOR SECURITIES | ||||||||
INVESTMENT COMPANIES–0.1% | ||||||||
AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, | 46,125 | 46,125 | ||||||
|
| |||||||
TOTAL INVESTMENTS–100.1% | 51,746,280 | |||||||
Other assets less liabilities–(0.1)% | (75,626 | ) | ||||||
|
| |||||||
NET ASSETS–100.0% | $ | 51,670,654 | ||||||
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(a) | Non-income producing security. |
(b) | Represents entire or partial securities out on loan. See Note E for securities lending information. |
(c) | Affiliated investments. |
(d) | The rate shown represents the7-day yield as of period end. |
(e) | To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800)227-4618. |
Glossary:
ADR—American Depositary Receipt
See notes to financial statements.
7
VALUE PORTFOLIO | ||
STATEMENT OF ASSETS & LIABILITIES | ||
December 31, 2018 | AB Variable Products Series Fund |
ASSETS |
| |||
Investments in securities, at value | ||||
Unaffiliated issuers (cost $51,859,896) | $ | 51,698,448 | (a) | |
Affiliated issuers (cost $47,832—including investment of cash collateral for securities loaned of $46,125) | 47,832 | |||
Cash | 8 | |||
Unaffiliated dividends receivable | 76,973 | |||
Receivable for investment securities sold | 62,876 | |||
Receivable for capital stock sold | 11,990 | |||
Affiliated dividends receivable | 221 | |||
Other assets | 14,816 | |||
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Total assets | 51,913,164 | |||
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LIABILITIES |
| |||
Payable for capital stock redeemed | 86,876 | |||
Payable for collateral received on securities loaned | 46,125 | |||
Audit and tax fee payable | 33,616 | |||
Advisory fee payable | 23,671 | |||
Administrative fee payable | 17,636 | |||
Distribution fee payable | 10,563 | |||
Transfer Agent fee payable | 206 | |||
Accrued expenses | 23,817 | |||
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Total liabilities | 242,510 | |||
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NET ASSETS | $ | 51,670,654 | ||
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COMPOSITION OF NET ASSETS |
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Capital stock, at par | $ | 3,584 | ||
Additionalpaid-in capital | 47,458,820 | |||
Distributable earnings | 4,208,250 | |||
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$ | 51,670,654 | |||
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Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value
Class | Net Assets | Shares Outstanding | Net Asset Value | |||||||||
A | $ | 984,645 | 67,845 | $ | 14.51 | |||||||
B | $ | 50,686,009 | 3,515,971 | $ | 14.42 |
(a) | Includes securities on loan with a value of $44,415 (see Note E). |
See notes to financial statements.
8
VALUE PORTFOLIO | ||
STATEMENT OF OPERATIONS | ||
Year Ended December 31, 2018 | AB Variable Products Series Fund |
INVESTMENT INCOME | ||||
Dividends | ||||
Unaffiliated issuers (net of foreign taxes withheld of $14,551) | $ | 1,275,233 | ||
Affiliated issuers | 13,521 | |||
Interest | 269 | |||
Securities lending income | 5,073 | |||
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| |||
1,294,096 | ||||
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| |||
EXPENSES | ||||
Advisory fee (see Note B) | 357,479 | |||
Distribution fee—Class B | 159,567 | |||
Transfer agency—Class A | 71 | |||
Transfer agency—Class B | 3,846 | |||
Administrative | 69,331 | |||
Custodian | 62,892 | |||
Audit and tax | 44,468 | |||
Legal | 34,310 | |||
Directors’ fees | 24,784 | |||
Miscellaneous | 3,815 | |||
|
| |||
Total expenses | 760,563 | |||
Less: expenses waived and reimbursed by the Adviser (see Notes B & E) | (977 | ) | ||
|
| |||
Net expenses | 759,586 | |||
|
| |||
Net investment income | 534,510 | |||
|
| |||
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS | ||||
Net realized gain on: | ||||
Investment transactions | 4,271,867 | |||
Foreign currency transactions | 188 | |||
Net change in unrealized appreciation/depreciation of: | ||||
Investments | (14,444,728 | ) | ||
Foreign currency denominated assets and liabilities | (134 | ) | ||
|
| |||
Net loss on investment and foreign currency transactions | (10,172,807 | ) | ||
|
| |||
NET DECREASE IN NET ASSETS FROM OPERATIONS | $ | (9,638,297 | ) | |
|
|
See notes to financial statements.
9
VALUE PORTFOLIO | ||
STATEMENT OF CHANGES IN NET ASSETS | AB Variable Products Series Fund |
Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS | ||||||||
Net investment income | $ | 534,510 | $ | 631,186 | ||||
Net realized gain on investment and foreign currency transactions | 4,272,055 | 4,813,959 | ||||||
Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities | (14,444,862 | ) | 3,965,651 | |||||
Contributions from Affiliates (see Note B) | –0 | – | 16,161 | |||||
|
|
|
| |||||
Net increase (decrease) in net assets from operations | (9,638,297 | ) | 9,426,957 | |||||
Distributions to Shareholders | ||||||||
Class A | (14,490 | ) | (15,850 | ) | ||||
Class B | (616,210 | ) | (838,398 | ) | ||||
CAPITAL STOCK TRANSACTIONS | ||||||||
Net decrease | (11,372,997 | ) | (16,468,635 | ) | ||||
|
|
|
| |||||
Total decrease | (21,641,994 | ) | (7,895,926 | ) | ||||
NET ASSETS | ||||||||
Beginning of period | 73,312,648 | 81,208,574 | ||||||
|
|
|
| |||||
End of period | $ | 51,670,654 | $ | 73,312,648 | ||||
|
|
|
|
See notes to financial statements.
10
VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
December 31, 2018 | AB Variable Products Series Fund |
NOTE A: Significant Accounting Policies
The AB Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as anopen-end series investment company. The Fund offers fourteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.
The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.
1. Security Valuation
Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Fund’s Board of Directors (the ��Board”).
In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g., last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.
Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded innon-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The
11
VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio generally values many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.
2. Fair Value Measurements
In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Portfolio would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Portfolio. Unobservable inputs reflect the Portfolio’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.
• | Level 1—quoted prices in active markets for identical investments |
• | Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.) |
• | Level 3—significant unobservable inputs (including the Portfolio’s own assumptions in determining the fair value of investments) |
Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.
The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of December 31, 2018:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Investments in Securities: | ||||||||||||||||
Assets: |
| |||||||||||||||
Common Stocks(a) | $ | 51,698,448 | $ | –0 | – | $ | –0 | – | $ | 51,698,448 | ||||||
Short-Term Investments | 1,707 | –0 | – | –0 | – | 1,707 | ||||||||||
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund | 46,125 | –0 | – | –0 | – | 46,125 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Investments in Securities | 51,746,280 | –0 | – | –0 | – | 51,746,280 | ||||||||||
Other Financial Instruments(b) | –0 | – | –0 | – | –0 | – | –0 | – | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total(c) | $ | 51,746,280 | $ | –0 | – | $ | –0 | – | $ | 51,746,280 | ||||||
|
|
|
|
|
|
|
|
(a) | See Portfolio of Investments for sector classifications. |
(b) | Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include swaps with upfront premiums, options written and swaptions written which are valued at market value. |
(c) | There were no transfers between any levels during the reporting period. |
The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.
12
AB Variable Products Series Fund |
The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.
The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on aday-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.
In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).
3. Currency Translation
Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.
Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.
4. Taxes
It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.
In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Portfolio’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Portfolio’s financial statements.
5. Investment Income and Investment Transactions
Dividend income is recorded on theex-dividend date or as soon as the Portfolio is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Portfolio amortizes premiums and accretes discounts as adjustments to interest income.
13
VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
6. Class Allocations
All income earned and expenses incurred by the Portfolio are borne on apro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.
7. Dividends and Distributions
Dividends and distributions to shareholders, if any, are recorded on theex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.
NOTE B: Advisory Fee and Other Transactions with Affiliates
Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the year ended December 31, 2018, there were no expenses waived by the Adviser.
During 2017, AXA S.A. (“AXA”), a French holding company for the AXA Group, a worldwide leader in life, property and casualty and health insurance and asset management, announced its intention to pursue the sale of a minority stake in its subsidiary, AXA Equitable Holdings, Inc. (“AXA Equitable”), the holding company for a diversified financial services organization, through an initial public offering (“IPO”). AXA Equitable is the holding company for a diverse group of financial services companies, including AllianceBernstein L.P., the investment adviser to the Funds (“the Adviser”). During the second quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held approximately 72.2% of the outstanding common stock of AXA Equitable as of September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million aggregate principal amount of its 7.25% mandatorily exchangeable notes (the “MxB Notes”) due May 15, 2021 and exchangeable into up to 43,125,000 shares of common stock (or approximately 7% of the outstanding shares of common stock of AXA Equitable). AXA retains ownership (including voting rights) of such shares of common stock until the MxB Notes are exchanged, which may be on a date that is earlier than the maturity date at AXA’s option upon the occurrence of certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA Equitable over time, subject to market conditions and other factors (the “Plan”). It is anticipated that one or more of the transactions contemplated by the Plan may ultimately result in the indirect transfer of a “controlling block” of voting securities of the Adviser (a “Change of Control Event”) and therefore may be deemed an “assignment” causing a termination of each Portfolio’s current investment advisory agreement. In order to ensure that the existing investment advisory services could continue uninterrupted, at meetings held in late July through early August 2018, the Boards of Directors/Trustees (each a “Board” and collectively, the “Boards”) approved new investment advisory agreements with the Adviser, in connection with the Plan. The Boards also agreed to call and hold a joint meeting of shareholders on October 11, 2018 for shareholders of each Portfolio to (1) approve the new investment advisory agreement with the Adviser that would be effective after the first Change of Control Event and (2) approve any future advisory agreement approved by the Board and that has terms not materially different from the current agreement, in the event there are subsequent Change of Control Events arising from completion of the Plan that terminate the advisory agreement after the first Change of Control Event. Approval of a future advisory agreement means that shareholders may not have another opportunity to vote on a new agreement with the Adviser even upon a change of control, as long as no single person or group of persons acting together gains “control” (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting, shareholders approved the new and future investment advisory agreements.
On November 20, 2018, AXA completed a public offering of 60,000,000 shares of AXA Equitable’s common stock and simultaneously sold 30,000,000 of such shares to AXA Equitable pursuant to a separate agreement with it. As a result AXA currently owns approximately 59.2% of the shares of common stock of AXA Equitable.
14
AB Variable Products Series Fund |
Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the year ended December 31, 2018, the reimbursement for such services amounted to $69,331.
During the year ended December 31, 2017, the Adviser reimbursed the Portfolio $16,161 for trading losses incurred due to a trade entry error.
The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $1,200 for the year ended December 31, 2018.
The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. Effective August 1, 2018, the Adviser has contractually agreed to waive .10% of the advisory fee of Government Money Market Portfolio until August 31, 2019. In connection with the investment by the Portfolio in Government Money Market Portfolio, the Adviser has contractually agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $242.
A summary of the Portfolio’s transactions in AB mutual funds for the year ended December 31, 2018 is as follows:
Fund | Market Value 12/31/17 (000) | Purchases at Cost (000) | Sales Proceeds (000) | Market Value 12/31/18 (000) | Dividend Income (000) | |||||||||||||||
Government Money Market Portfolio | $ | 0 | $ | 10,686 | $ | 10,684 | $ | 2 | $ | 4 | ||||||||||
Government Money Market Portfolio* | 1,364 | 16,381 | 17,699 | 46 | 10 | |||||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 48 | $ | 14 | ||||||||||||||||
|
|
|
|
* | Investments of cash collateral for securities lending transactions (see Note E). |
Brokerage commissions paid on investment transactions for the year ended December 31, 2018 amounted to $16,233, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.
NOTE C: Distribution Plan
The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.
The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.
In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.
The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.
15
VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE D: Investment Transactions
Purchases and sales of investment securities (excluding short-term investments) for the year ended December 31, 2018 were as follows:
Purchases | Sales | |||||||
Investment securities (excluding U.S. government securities) | $ | 22,200,541 | $ | 33,685,629 | ||||
U.S. government securities | –0 | – | –0 | – |
The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation are as follows:
Cost | $ | 52,129,374 | ||
|
| |||
Gross unrealized appreciation | $ | 6,283,818 | ||
Gross unrealized depreciation | (6,666,912 | ) | ||
|
| |||
Net unrealized depreciation | $ | (383,094 | ) | |
|
|
1. Derivative Financial Instruments
The Portfolio may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.
The Portfolio did not engage in derivatives transactions for the year ended December 31, 2018.
2. Currency Transactions
The Portfolio may invest innon-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).
NOTE E: Securities Lending
The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At December 31, 2018, the Portfolio had securities on loan with a value of $44,415 and had received cash collateral which has been invested into Government Money Market Portfolio of $46,125. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $5,073 and $10,440 from the borrowers and Government Money Market Portfolio, respectively, for the
16
AB Variable Products Series Fund |
year ended December 31, 2018; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the year ended December 31, 2018, such waiver amounted to $735. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.
NOTE F: Capital Stock
Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:
SHARES | AMOUNT | |||||||||||||||||||
Year Ended December 31, 2018 | Year Ended December 31, 2017 | Year Ended December 31, 2018 | Year Ended December 31, 2017 | |||||||||||||||||
Class A |
| |||||||||||||||||||
Shares sold | 6,811 | 15,153 | $ | 114,698 | $ | 246,774 | ||||||||||||||
Shares issued in reinvestment of dividends | 851 | 1,012 | 14,490 | 15,850 | ||||||||||||||||
Shares redeemed | (18,538 | ) | (31,966 | ) | (314,509 | ) | (507,161 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net decrease | (10,876 | ) | (15,801 | ) | $ | (185,321 | ) | $ | (244,537 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Class B |
| |||||||||||||||||||
Shares sold | 155,127 | 240,673 | $ | 2,545,015 | $ | 3,804,324 | ||||||||||||||
Shares issued in reinvestment of dividends | 36,397 | 53,882 | 616,210 | 838,398 | ||||||||||||||||
Shares redeemed | (858,764 | ) | (1,302,389 | ) | (14,348,901 | ) | (20,866,820 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
Net decrease | (667,240 | ) | (1,007,834 | ) | $ | (11,187,676 | ) | $ | (16,224,098 | ) | ||||||||||
|
|
|
|
|
|
|
|
At December 31, 2018, certain shareholders of the Portfolio owned 92% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.
NOTE G: Risks Involved in Investing in the Portfolio
Foreign(Non-U.S.) Risk—Investments in securities ofnon-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.
Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.
Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.
Indemnification Risk—In the ordinary course of business, the Portfolio enters into contracts that contain a variety of indemnifications. The Portfolio’s maximum exposure under these arrangements is unknown. However, the Portfolio has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Portfolio has not accrued any liability in connection with these indemnification provisions.
NOTE H: Joint Credit Facility
A number ofopen-end mutual funds managed by the Adviser, including the Portfolio, 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 Portfolio did not utilize the Facility during the year ended December 31, 2018.
17
VALUE PORTFOLIO | ||
NOTES TO FINANCIAL STATEMENTS | ||
(continued) | AB Variable Products Series Fund |
NOTE I: Distributions to Shareholders
The tax character of distributions paid during the fiscal years ended December 31, 2018 and December 31, 2017 were as follows:
2018 | 2017 | |||||||
Distributions paid from: | ||||||||
Ordinary income | $ | 630,700 | $ | 854,248 | ||||
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| |||||
Total taxable distributions paid | $ | 630,700 | $ | 854,248 | ||||
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As of December 31, 2018, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income | $ | 534,350 | ||
Undistributed capital gains | 4,056,996 | |||
Unrealized appreciation/(depreciation) | (383,094 | )(a) | ||
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| |||
Total accumulated earnings/(deficit) | $ | 4,208,252 | ||
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(a) | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales. |
For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2018, the Portfolio did not have any capital loss carryforwards.
During the current fiscal year, there were no permanent differences that resulted in adjustments to distributable earnings or additional paid-in capital.
NOTE J: Recent Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU2018-13, Fair Value Measurement (Topic 820), Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement which removes, modifies and adds disclosures to Topic 820. The amendments in this ASU2018-13 apply to all entities that are required, under existing U.S. GAAP, to make disclosures about recurring or nonrecurring fair value measurements. The amendments in this ASU2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. At this time, management is evaluating the implications of these changes on the financial statements.
In October 2018, the U.S. Securities and Exchange Commission adopted amendments to certain disclosure requirements included in RegulationS-X that had become “redundant, duplicative, overlapping, outdated or superseded, in light of the other Commission disclosure requirements, GAAP or changes in the information environment.” The compliance date for the amendments to RegulationS-X was November 5, 2018 (for reporting period end dates of September 30, 2018 or after). Management has adopted the amendments which simplified certain disclosure requirements on the financial statements.
NOTE K: Subsequent Events
At a meeting held on November6-8, 2018, the Board of the Fund approved the acquisition of the assets and assumption of the liabilities of the Portfolio by AB Growth and Income Portfolio (the “Acquiring Portfolio,” and together with the Portfolio, the “Portfolios”), each a series of the Fund. The Portfolios have the same investment objective and certain similarities in investment strategies, as both Portfolios seek long-term growth of capital and invest in the securities of U.S. companies, using a value approach to investing.
At the time of the acquisition, all of the Portfolio’s assets and liabilities will be transferred to the Acquiring Portfolio, and shareholders of the Portfolio will receive shares of the same class of the Acquiring Portfolio.
The acquisition does not require approval of either Portfolio’s shareholders. The acquisition is expected to be consummated on or about April 18, 2019.
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no other material events that would require disclosure in the Portfolio’s financial statements through this date.
18
VALUE PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS A | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $17.32 | $15.47 | $14.11 | $15.50 | $14.22 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .18 | (b) | .17 | (b) | .19 | (b)† | .21 | .26 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (2.78 | ) | 1.91 | 1.42 | (1.26 | ) | 1.31 | |||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net increase (decrease) in net asset value from operations | (2.60 | ) | 2.08 | 1.61 | (1.05 | ) | 1.57 | |||||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.21 | ) | (.23 | ) | (.25 | ) | (.34 | ) | (.29 | ) | ||||||||||
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Net asset value, end of period | $14.51 | $17.32 | $15.47 | $14.11 | $15.50 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | (15.17 | )% | 13.57 | % | 11.55 | %† | (6.95 | )% | 11.10 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $985 | $1,364 | $1,463 | $1,373 | $2,050 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | .92 | % | .87 | % | .88 | % | .81 | % | .79 | % | ||||||||||
Expenses, before waivers/reimbursements | .93 | % | .87 | % | .89 | % | .81 | % | .79 | % | ||||||||||
Net investment income | 1.07 | %(b) | 1.08 | %(b) | 1.30 | %(b)† | 1.38 | % | 1.74 | % | ||||||||||
Portfolio turnover rate | 34 | % | 36 | % | 68 | % | 83 | % | 42 | % |
See footnote summary on page 20.
19
VALUE PORTFOLIO | ||
FINANCIAL HIGHLIGHTS | ||
(continued) | AB Variable Products Series Fund |
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period
CLASS B | ||||||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||
Net asset value, beginning of period | $17.20 | $15.36 | $14.00 | $15.37 | $14.10 | |||||||||||||||
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Income From Investment Operations | ||||||||||||||||||||
Net investment income (a) | .14 | (b) | .13 | (b) | .15 | (b)† | .17 | .22 | ||||||||||||
Net realized and unrealized gain (loss) on investment and foreign currency transactions | (2.76 | ) | 1.89 | 1.42 | (1.25 | ) | 1.29 | |||||||||||||
Contributions from Affiliates | –0 | – | .00 | (c) | –0 | – | –0 | – | –0 | – | ||||||||||
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Net increase (decrease) in net asset value from operations | (2.62 | ) | 2.02 | 1.57 | (1.08 | ) | 1.51 | |||||||||||||
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Less: Dividends | ||||||||||||||||||||
Dividends from net investment income | (.16 | ) | (.18 | ) | (.21 | ) | (.29 | ) | (.24 | ) | ||||||||||
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Net asset value, end of period | $14.42 | $17.20 | $15.36 | $14.00 | $15.37 | |||||||||||||||
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Total Return | ||||||||||||||||||||
Total investment return based on net asset value (d)* | (15.35 | )% | 13.29 | % | 11.29 | %† | (7.17 | )% | 10.77 | % | ||||||||||
Ratios/Supplemental Data | ||||||||||||||||||||
Net assets, end of period (000’s omitted) | $50,686 | $71,949 | $79,746 | $85,064 | $112,143 | |||||||||||||||
Ratio to average net assets of: | ||||||||||||||||||||
Expenses, net of waivers/reimbursements | 1.17 | % | 1.12 | % | 1.13 | % | 1.06 | % | 1.04 | % | ||||||||||
Expenses, before waivers/reimbursements | 1.17 | % | 1.12 | % | 1.14 | % | 1.06 | % | 1.04 | % | ||||||||||
Net investment income | .82 | %(b) | .83 | %(b) | 1.06 | %(b)† | 1.14 | % | 1.51 | % | ||||||||||
Portfolio turnover rate | 34 | % | 36 | % | 68 | % | 83 | % | 42 | % |
(a) | Based on average shares outstanding. |
(b) | Net of expenses waived/reimbursed by the Adviser. |
(c) | Amount is less than $.005. |
(d) | Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized. |
† | For the year ended December 31, 2016, the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows: |
Net Investment | Net Investment | Total | ||
$.003 | .02% | .02% |
* | Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the years ended December 31, 2018, December 31, 2017, December 31, 2016, December 31, 2015 and December 31, 2014 by .09%, .13%, .02%, .17% and .04%, respectively. |
See notes to financial statements.
20
REPORT OF INDEPENDENT REGISTERED | ||
PUBLIC ACCOUNTING FIRM | AB Variable Products Series Fund |
To the Shareholders and the Board of Directors of AB Value Portfolio:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of AB Value Portfolio (the “Portfolio”) (one of the portfolios constituting AB Variable Products Series Fund, Inc. (the “Fund”)), including the portfolio of investments, as of December 31, 2018, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Portfolio (one of the portfolios constituting AB Variable Products Series Fund, Inc.) at December 31, 2018, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Portfolio’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of the Fund’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2018, by correspondence with the custodian and others or by other appropriate auditing procedures where replies from others were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more of the AB investment companies since 1968.
New York, New York
February 14, 2019
21
2018 TAX INFORMATION(unaudited) | AB Variable Products Series Fund |
For Federal income tax purposes, the following information is furnished with respect to the distributions paid by the Portfolio during the taxable year ended December 31, 2018. For corporate shareholders, 100% of dividends paid qualify for the dividends received deduction.
22
VALUE PORTFOLIO | ||
RESULTS OF SHAREHOLDERS MEETING | ||
(unaudited) | AB Variable Products Series Fund |
A Special Meeting of Shareholders of the AB Variable Products Series Fund, Inc. (the “Fund”)—AB Value Portfolio (the “Portfolio”) was held on October 11, 2018. A description of each proposal and number of shares voted at the Meeting are as follows (the proposal number shown below corresponds to the proposal number in the Fund’s proxy statement):
1. To approve and vote upon the election of Directors for the Fund, each such Director to serve for a term of indefinite duration and until his or her successor is duly elected and qualifies.
Director: | Voted For | Withheld Authority | ||||||
Michael J. Downey | 185,583,716 | 7,289,141 | ||||||
William H. Foulk, Jr.* | 185,019,810 | 7,853,047 | ||||||
Nancy P. Jacklin | 185,893,313 | 6,979,544 | ||||||
Robert M. Keith | 186,480,457 | 6,392,400 | ||||||
Carol C. McMullen | 185,989,602 | 6,883,255 | ||||||
Garry L. Moody | 186,334,076 | 6,538,781 | ||||||
Marshall C. Turner | 185,518,803 | 7,354,054 | ||||||
Earl D. Weiner | 185,570,565 | 7,302,293 |
2. To vote upon the approval of new advisory agreements for the Portfolio with AllianceBernstein L.P.
Voted For | Voted Against | Abstained | ||||||
3,476,496 | 61,043 | 223,972 |
* | Mr. Foulk retired on December 31, 2018. |
23
VALUE PORTFOLIO | AB Variable Products Series Fund |
BOARD OF DIRECTORS | ||
Marshall C. Turner, Jr.(1),Chairman Michael J. Downey(1) Nancy P. Jacklin(1) Robert M. Keith,President and | Carol C. McMullen(1) Garry L. Moody(1) Earl D. Weiner(1) | |
OFFICERS | ||
Cem Inal(2),Vice President Joseph G. Paul(2),Vice President Emilie D. Wrapp,Secretary Michael Reyes,Senior Analyst | Joseph J. Mantineo,Treasurerand Phyllis J. Clarke,Controller Vincent S. Noto,Chief Compliance Officer | |
CUSTODIANAND ACCOUNTING AGENT | LEGAL COUNSEL | |
State Street Bank and Trust Company | Seward & Kissel LLP | |
State Street Corporation CCB/5 1 Iron Street | One Battery Park Plaza New York, NY 10004 | |
Boston, MA 02210 | ||
DISTRIBUTOR | TRANSFER AGENT | |
AllianceBernstein Investments, Inc. | AllianceBernstein Investor Services, Inc. | |
1345 Avenue of the Americas | P.O. Box 786003 | |
New York, NY 10105 | San Antonio, TX 78278-6003 | |
Toll-free 1-(800) 221-5672 | ||
INDEPENDENT REGISTERED PUBLIC | ||
ACCOUNTING FIRM | ||
Ernst & Young LLP | ||
5 Times Square | ||
New York, NY 10036 |
(1) | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
(2) | The day-to-day management of, and investment decisions for, the Portfolio’s portfolio are made by the U.S. Value Senior Investment Management Team. Messrs. Inal and Paul are the investment professionals with the most significant responsibility for the day-to-day management of the Portfolio’s portfolio. |
24
VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | AB Variable Products Series Fund |
Board of Directors Information
The business and affairs of the Fund are managed under the direction of the Board of Directors. Certain information concerning the Fund’s Directors is set forth below.
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER PUBLIC DIRECTOR | |||||
INTERESTED DIRECTOR | ||||||||
Robert M. Keith, # 1345 Avenue of the Americas New York, NY 10105 58 (2010) | Senior Vice President of AllianceBernstein L.P. (the “Adviser”) and the head of AllianceBernstein Investments, Inc. (“ABI”) since July 2008; Director of ABI and President of the AB Mutual Funds. Previously, he served as Executive Managing Director of ABI from December 2006 to June 2008. Prior to joining ABI in 2006, Executive Managing Director of Bernstein Global Wealth Management, and prior thereto, Senior Managing Director and Global Head of Client Service and Sales of the Adviser’s institutional investment management business since 2004. Prior thereto, he was Managing Director and Head of North American Client Service and Sales in the Adviser’s institutional investment management business with which he has been associated since prior to 2004. | 95 | None | |||||
INDEPENDENT DIRECTOR | ||||||||
Marshall C. Turner, Jr., ## Chairman of the Board 77 (2005) | Private Investor since prior to 2014. Former Chairman and CEO of Dupont Photomasks, Inc. (components of semi-conductor manufacturing). He has extensive operating leadership, and venture capital investing experience, including five interim or full-time CEO roles, and prior service as general partner of institutional venture capital partnerships. He also has extensivenon-profit board leadership experience, and currently serves on the boards of two education and science-relatednon-profit organizations. He has served as a director of one AB Fund since 1992, and director or trustee of multiple AB Funds since 2005. He has been Chairman of the AB Funds since January 2014, and the Chairman of the Independent Directors Committees of such AB Funds since February 2014. | 95 | Xilinx, Inc. (programmable logic semi-conductors) since 2007 | |||||
Michael J. Downey, ## 75 (2005) | Private Investor since prior to 2014. Formerly, managing partner of Lexington Capital, LLC (investment advisory firm) from December 1997 until December 2003. He served as a Director of Prospect Acquisition Corp. (financial services) from 2007 until 2009. From 1987 until 1993, Chairman and CEO of Prudential Mutual Fund Management, director of the Prudential mutual funds, and member of the Executive Committee of Prudential Securities, Inc. He has served as a director or trustee of the AB Funds since 2005 and is a director and Chairman of one other registered investment company. | 95 | The Asia Pacific Fund, Inc. (registered investment company) since prior to 2014 | |||||
25
VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER PUBLIC DIRECTOR | |||||
INDEPENDENT DIRECTOR (continued) | ||||||||
Nancy P. Jacklin, ## 70 (2006) | Private Investor since prior to 2014. Professorial Lecturer at the Johns Hopkins School of Advanced International Studies (2008-2015). U.S. Executive Director of the International Monetary Fund (which is responsible for ensuring the stability of the international monetary system), (December 2002-May 2006); Partner, Clifford Chance (1992-2002); Sector Counsel, International Banking and Finance, and Associate General Counsel, Citicorp (1985-1992); Assistant General Counsel (International), Federal Reserve Board of Governors (1982-1985); and Attorney Advisor, U.S. Department of the Treasury (1973-1982). Member of the Bar of the District of Columbia and of New York; and member of the Council on Foreign Relations. She has served as a director or trustee of the AB Funds since 2006 and has been Chair of the Governance and Nominating Committees of the AB Funds since August 2014. | 95 | None | |||||
Carol C. McMullen, ## 63 (2016) | Managing Director of Slalom Consulting (consulting) since 2014, private investor and member of the Partners Healthcare Investment Committee. Formerly, Director of Norfolk & Dedham Group (mutual property and casualty insurance) from 2011 until November 2016; Director of Partners Community Physicians Organization (healthcare) from 2014 until December 2016; and Managing Director of The Crossland Group (consulting) from 2012 until 2013. She has held a number of senior positions in the asset and wealth management industries, including at Eastern Bank (where her roles included President of Eastern Wealth Management), Thomson Financial (Global Head of Sales for Investment Management), and Putnam Investments (where her roles included Head of Global Investment Research). She has served on a number of private company andnon-profit boards, and as a director or trustee of the AB Funds since June 2016. | 95 | None |
26
AB Variable Products Series Fund |
NAME, ADDRESS*, AGE AND (YEAR FIRST ELECTED)** | PRINCIPAL OCCUPATION(S), DURING PAST FIVE YEARS AND OTHER INFORMATION*** | PORTFOLIOS DIRECTOR | OTHER PUBLIC DIRECTOR | |||||
INDEPENDENT DIRECTOR (continued) | ||||||||
Garry L. Moody, ## 66 (2008) | Independent Consultant. Formerly, Partner, Deloitte & Touche LLP (1995- 2008) where he held a number of senior positions, including Vice Chairman, and U.S. and Global Investment Management Practice Managing Partner; President, Fidelity Accounting and Custody Services Company (1993-1995), where he was responsible for accounting, pricing, custody and reporting for the Fidelity mutual funds; and Partner, Ernst & Young LLP (1975-1993), where he served as the National Director of Mutual Fund Tax Services and Managing Partner of its Chicago Office Tax department. He is a member of the Trustee Advisory Board of BoardlQ, a biweekly publication focused on issues and news affecting directors of mutual funds. He has served as a director or trustee, and as Chairman of the Audit Committees, of the AB Funds since 2008. | 95 | None | |||||
Earl D. Weiner, ## 79 (2007) | Of Counsel, and Partner prior to January 2007, of the law firm Sullivan & Cromwell LLP and is a former member of the ABA Federal Regulation of Securities Committee Task Force to draft editions of the Fund Director’s Guidebook. He also serves as a director or trustee of variousnon-profit organizations and has served as Chairman or Vice Chairman of a number of them. He has served as a director or trustee of the AB Funds since 2007 and served as Chairman of the Governance and Nominating Committees of the AB Funds from 2007 until August 2014. | 95 | None |
* | The address for each of the Portfolio’s disinterested Directors is c/o AllianceBernstein L.P., Legal and Compliance Department—Mutual Fund Legal, 1345 Avenue of the Americas, New York, NY 10105. |
** | There is no stated term of office for the Fund’s Directors. |
*** | The information above includes each Director’s principal occupation during the last five years and other information relating to the experience, attributes and skills relevant to each Director’s qualifications to serve as a Director, which led to the conclusion that each Director should serve as a Director for the Fund. |
# | Mr. Keith is an “interested person” of the Fund, as defined in the 1940 Act, due to his position as a Senior Vice President of the Adviser. |
## | Member of the Audit Committee, the Governance and Nominating Committee, and the Independent Directors Committee. |
27
VALUE PORTFOLIO | ||
MANAGEMENT OF THE FUND | ||
(continued) | AB Variable Products Series Fund |
Officer Information
Certain information concerning the Portfolio’s Officers is listed below.
NAME, ADDRESS* AND AGE | PRINCIPAL POSITION(S) HELD WITH FUND | PRINCIPAL OCCUPATION DURING PAST FIVE YEARS | ||
Robert M. Keith 58 | President and Chief Executive Officer | See biography above. | ||
Joseph G. Paul 59 | Vice President | Senior Vice President of the Adviser**, with which he has been associated since prior to 2014. He is also Chief Investment Officer of US Value Equities. | ||
Cem Inal 50 | Vice President | Senior Vice President of the Adviser,** with which he has been associated since prior to 2014. | ||
Emilie D. Wrapp 63 | Secretary | Senior Vice President, Assistant General Counsel and Assistant Secretary of ABI**, with which she has been associated since prior to 2014. | ||
Michael B. Reyes 42 | Senior Analyst | Vice President of the Adviser**, with which he has been associated since prior to 2014. | ||
Joseph J. Mantineo 59 | Treasurer and Chief Financial Officer | Senior Vice President of AllianceBernstein Investor Services, Inc. (“ABIS”)**, with which he has been associated since prior to 2014. | ||
Phyllis J. Clarke 58 | Controller | Vice President of ABIS**, with which she has been associated since prior to 2014. | ||
Vincent S. Noto 54 | Chief Compliance Officer | Senior Vice President since 2015 and Mutual Fund Chief Compliance Officer of the Adviser** since 2014. Prior thereto, he was Vice President and Director of Mutual Fund Compliance of the Adviser** since 2012. |
* | The address for each of the Portfolio’s Officers is 1345 Avenue of the Americas, New York, NY 10105. |
** | The Adviser, ABIS and ABI are affiliates of the Fund. |
The Fund’s Statement of Additional Information (“SAI”) has additional information about the Fund’s Directors and Officers and is available without charge upon request. Contact your financial representative or the Adviser at(800) 227-4618, or visit www.abfunds.com, for a free prospectus or SAI. |
28
VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | AB Variable Products Series Fund |
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT
As described in more detail in the Proxy Statement for AB Variable Products Series Fund, Inc. (the “Company”) dated August 20, 2018, the Board of the Company, at a meeting held onJuly 31-August 2, 2018, approved a new advisory agreement with the Adviser (the “Proposed Agreement”) in respect of each fund organized as a series of the Company (the “Funds”), including AB Value Portfolio (the “Fund”), in connection with the planned disposition by AXA S.A. of its remaining shares of AXA Equitable Holdings, Inc. (the indirect holder of a majority of the partnership interests in the Adviser and the indirect parent of AllianceBernstein Corporation, the general partner of the Adviser) in one or more transactions and the related potential for one or more “assignments” (within the meaning of section 2(a)(4) of the Investment Company Act) of the advisory agreement for the Company in respect of the Funds, including the Fund, resulting in the automatic termination of such advisory agreement.
At the same meeting, the Board also considered and approved an interim advisory agreement with the Adviser (the “Interim Advisory Agreement”) for the Company in respect of the Funds, including the Fund, to be effective only in the event that stockholder approval of the Proposed Agreement had not been obtained as of the date of one or more transactions resulting in an “assignment” of the Adviser’s advisory agreement, resulting in the automatic termination of such advisory agreement.
The shareholders of the Fund subsequently approved the Proposed Agreement at an annual meeting of shareholders called for the purpose of electing Directors and voting on the Proposed Agreement.
A discussion regarding the basis for the Board’s approvals at a meeting held onJuly 31-August 2, 2018 is set forth below.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S PROPOSED NEW ADVISORY AGREEMENT AND INTERIM ADVISORY AGREEMENT IN THE CONTEXT OF POTENTIAL ASSIGNMENTS
At a meeting of the Board held on July31-August 2, 2018, the Adviser presented its recommendation that the Board consider and approve the Proposed Agreement in respect of each Fund. Section 15(c) of the 1940 Act provides that, after an initial period, a Fund’s Current Agreement will remain in effect only if the Board, including a majority of the Independent Directors, annually reviews and approves it. The Current Agreement in respect of each Fund had been approved by the Board within theone-year period prior to approval of the Proposed Agreement in respect of each Fund. In connection with their approval of the Proposed Agreement in respect of each Fund, the Board considered its conclusions in connection with its most recent approval of the Current Agreement, in particular in cases where the last approval of the Current Agreement in respect of a Fund was relatively recent, including the Board’s general satisfaction with the nature and quality of services being provided and, as applicable, in the case of certain Funds, actions taken or to be taken in an effort to improve investment performance or reduce expense ratios. The Directors also reviewed updated information provided by the Adviser in respect of each Fund. Also in connection with their approval of the Proposed Agreement, the Board considered a representation made to them at that time by the Adviser that there were no additional developments not already disclosed to the Board since its most recent approval of the Current Agreement in respect of a Fund that would be a material consideration to the Board in connection with its consideration of the Proposed Agreement, except for matters disclosed to the Board by the Adviser. The Directors considered the fact that the Proposed Agreement would have corresponding terms and conditions identical to those of the Current Agreement with the exception of the effective date and initial term under the Proposed Agreement.
The Directors considered their knowledge of the nature and quality of the services provided by the Adviser to each Fund gained from their experience as directors or trustees of registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the Directors and its responsiveness, frankness and attention to concerns raised by the Directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the Funds. The Directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of each Fund.
The Directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the Directors evaluated, among other things, the reasonableness of the management fees of the Funds they oversee. The Directors did not identify any particular information that wasall-important or controlling, and different Directors may have attributed different weights to the various factors. The Directors determined that the selection of the Adviser to manage the Funds, and the overall arrangements between the Funds
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
and the Adviser, as provided in the Proposed Agreement, including the management fees, were fair and reasonable in light of the services performed under the Current Agreement and to be performed under the Proposed Agreement, expenses incurred and to be incurred and such other matters as the Directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the Directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The Directors considered the scope and quality of services to be provided by the Adviser under the Proposed Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Funds. They also considered the information that had been provided to them by the Adviser concerning the anticipated implementation of the Plan and the Adviser’s representation that it did not anticipate that such implementation would affect the management or structure of the Adviser, have a material adverse effect on the Adviser, or adversely affect the quality of the services provided to the Funds by the Adviser and its affiliates. The Directors noted that the Adviser from time to time reviews each Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the Directors’ consideration. They also noted the professional experience and qualifications of each Fund’s portfolio management team and other senior personnel of the Adviser. The Directors also considered that the Proposed Agreement, similar to the Current Agreement, provides that the Funds will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Funds by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the Directors. The Directors noted that the Adviser did not request any reimbursements from certain Funds in the Fund’s latest fiscal year reviewed. The Directors noted that the methodology to be used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Funds’ other service providers, also was considered. The Directors concluded that, overall, they were satisfied with the nature, extent and quality of services to be provided to the Funds under the Proposed Agreement.
Costs of Services to be Provided and Profitability
The Directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of each Fund to the Adviser for calendar years 2016 and 2017, as applicable, that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Funds’ former Senior Officer/Independent Compliance Officer. The Directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The Directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with a Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund, as applicable. The Directors recognized that it is difficult to make comparisons of the profitability of the Proposed 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 each Fund before taxes and distribution expenses. The Directors noted that certain Funds were not profitable to the Adviser in one or more periods reviewed. The Directors concluded that the Adviser’s level of profitability from its relationship with the other Funds was not unreasonable.
Fall-Out Benefits
The Directors considered the other benefits to the Adviser and its affiliates from their relationships with the Funds, including, but not limited to, as applicable, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients) in the case of certain Funds;12b-1 fees and sales charges received by the principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Class B shares of the Funds; brokerage commissions paid by certain Funds to brokers affiliated with the Adviser; and transfer agency fees paid by the Funds to a wholly owned subsidiary of the Adviser. The Directors recognized that the Adviser’s profitability would be somewhat lower, and that a Fund’s unprofitability to the Adviser would be exacerbated, without these benefits. The Directors understood that the Adviser also might derive reputational and other benefits from its association with the Funds.
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AB Variable Products Series Fund |
Investment Results
In addition to the information reviewed by the Directors in connection with the Board meeting at which the Proposed Agreement was approved, the Directors receive detailed performance information for the Funds at each regular Board meeting during the year.
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ underperformance in certain periods. The Directors also reviewed updated performance information and, in some cases, discussed with the Adviser the reasons for changes in performance or continued underperformance. On the basis of this review, the Directors concluded that each Fund’s investment performance was acceptable.
Management Fees and Other Expenses
The Directors considered the management fee rate payable by each Fund to the Adviser and information prepared by an independent service provider (the ‘‘15(c) provider’’) concerning management fee rates payable by other funds in the same category as the Fund. The Directors recognized that it is difficult to make comparisons of management fees because there are variations in the services that are included in the fees paid by other funds. The Directors compared each Fund’s contractual management fee rate with a peer group median, and where applicable, took into account the impact on the management fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The Directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style to each Fund. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and in a report from the Funds’ Senior Analyst and noted the differences between a Fund’s fee schedule, on the one hand, and the Adviser’s institutional fee schedule and the schedule of fees charged by the Adviser to any offshore funds and for services to anysub-advised funds pursuing a similar investment strategy as the Fund, on the other, as applicable. The Directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the Directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The Adviser also informed the Directors that, in the case of certain Funds, there were no institutional products managed by the Adviser that have a substantially similar investment style. The Directors also discussed these matters with their independent fee consultant.
The Adviser reviewed with the Directors the significantly greater scope of the services it provides to each Fund relative to institutional, offshore fund and sub-advised fund clients, as applicable. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore orsub-advisory accounts, each Fund, as applicable, (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions and compliance obligations; (iii) must prepare and file or distribute regulatory and other communications about fund operations; and (iv) must provide shareholder servicing to retail investors. The Adviser also reviewed the greater legal risks presented by the large and changing population of Fund stockholders who may assert claims against the Adviser in individual or class actions, and the greater entrepreneurial risk in offering new fund products, which require substantial investment to launch, may not succeed, and generally must be priced to compete with larger, more established funds resulting in lack of profitability to the Adviser until a new fund achieves scale. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund andsub-advised fund clients as compared to the Funds, and the different risk profile, the Directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.
The Directors noted that certain of the Funds may invest in shares of exchange-traded funds (‘‘ETFs’’), subject to the restrictions and limitations of the 1940 Act as these may be varied as a result of exemptive orders issued by the SEC. The Directors also noted that ETFs pay advisory fees pursuant to their advisory contracts. The Directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures, in some cases pending purchases of underlying securities, that each Fund’s management fee would be for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.
With respect to each Fund’s management fee, the Directors considered the total expense ratios of the Fund in comparison to a peer group and peer universe selected by the 15(c) service provider. The Directors also considered the Adviser’s expense caps for certain Funds. The Directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to a Fund by others.
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CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
The Board’s consideration of the Proposed Agreement was informed by their most recent approval of the Current Agreement, and, in the case of certain Funds, their discussion with the Adviser of the reasons for those Funds’ expense ratios in certain periods. The Directors also reviewed updated expense ratio information and, in some cases, discussed with the Adviser the reasons for the expense ratios of certain Funds. On the basis of this review, the Directors concluded that each Fund’s expense ratio was acceptable.
Economies of Scale
The Directors noted that the management fee schedules for certain Funds do not contain breakpoints and that they had discussed their strong preference for breakpoints in advisory contracts with the Adviser. The Directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the Funds, and by the Adviser concerning certain of its views on economies of scale. The Directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Board meeting. The Directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The Directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The Directors observed that in the mutual fund industry as a whole, as well as among funds similar to each Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The Directors also noted that the advisory agreements for many funds do not have breakpoints at all.
The Directors informed the Adviser that they would monitor the asset levels of the Funds without breakpoints and their profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warrant doing so.
Interim Advisory Agreement
In approving the Interim Advisory Agreement, the Board with the assistance of independent counsel, considered similar factors to those considered in approving the Proposed Agreement. The Interim Advisory Agreement approved by the Board is identical to the Proposed Agreement, as well as the Current Agreement, in all material respects except for its proposed effective and termination dates and provisions intended to comply with the requirements of the relevant SEC rule, such as provisions requiring escrow of advisory fees. Under the Interim Advisory Agreement, the Adviser would continue to manage a Fund pursuant to the Interim Advisory Agreement until a new advisory agreement was approved by stockholders or until the end of the150-day period, whichever would occur earlier. All fees earned by the Adviser under the Interim Advisory Agreement would be held in escrow pending stockholder approval of the Proposed Agreement. Upon approval of a new advisory agreement by stockholders, the escrowed management fees would be paid to the Adviser, and the Interim Advisory Agreement would terminate.
INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S CURRENT ADVISORY AGREEMENT
The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Value Portfolio (the “Fund”) at a meeting held on May1-3, 2018 (the “Meeting”).
Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed additional materials, including materials from an outside consultant, who acted as their independent fee consultant, and 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.
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AB Variable Products Series Fund |
The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that wasall-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:
Nature, Extent and Quality of Services Provided
The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. The directors noted that the Adviser from time to time reviews the Fund’s investment strategies and from time to time proposes changes intended to improve the Fund’s relative or absolute performance for the directors’ consideration. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s former 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 2016 and 2017 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s former Independent Compliance Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.
Fall-Out Benefits
The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients);12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.
Investment Results
In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.
At the Meeting, the directors reviewed performance information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a group of
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VALUE PORTFOLIO | ||
CONTINUANCE DISCLOSURE | ||
(continued) | AB Variable Products Series Fund |
similar funds (“peer group”) and a larger group of similar funds (“peer universe”), each selected by the 15(c) service provider, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the1-,3-,5- and10-year periods ended February 28, 2018 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.
Advisory Fees and Other Expenses
The directors considered the advisory fee rate payable by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates payable by other funds in the same category as the Fund. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.
The directors also considered the Adviser’s fee schedule for other clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the materials 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 anysub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.
The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund andsub-advised fund clients. In this regard, the Adviser noted, among other things, that, compared to institutional and offshore accounts, the Fund (i) demands considerably more portfolio management, research and trading resources due to significantly higher daily cash flows; (ii) has more tax and regulatory restrictions; (iii) must prepare and distribute regulatory and other communications about fund operations; 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 andsub-advised fund clients as compared to funds such as 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 also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap (although the directors noted that the Fund’s expense ratio was currently below the Adviser’s expense cap). The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.
Economies of Scale
The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for
34
AB Variable Products Series Fund |
setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.
35
VPS-VAL-0151-1218
ITEM 2. CODE OF ETHICS.
(a) The registrant has adopted a code of ethics that applies to its principal executive officer, principal financial officer and principal accounting officer. A copy of the registrant’s code of ethics is filed herewith as Exhibit 12(a)(1).
(b) During the period covered by this report, no material amendments were made to the provisions of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, no implicit or explicit waivers to the provisions of the code of ethics adopted in 2(a) above were granted.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant’s Board of Directors has determined that independent directors William H. Foulk, Jr., Garry L. Moody and Marshall C. Turner, Jr. qualify as audit committee financial experts.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) - (c) The following table sets forth the aggregate fees billed by the independent auditor Ernst & Young LLP, for the Fund’s last two fiscal years for professional services rendered for: (i) the audit of the Fund’s annual financial statements included in the Fund’s annual report to stockholders; (ii) assurance and related services that are reasonably related to the performance of the audit of the Fund’s financial statements and are not reported under (i), which include multi-class distribution testing, advice and education on accounting and auditing issues, and consent letters; and (iii) tax compliance, tax advice and tax return preparation.
Audit Fees | Audit - Related Fees | Tax Fees | ||||||||||||||
AB Balanced Wealth Strategy Portfolio | 2017 | 72,197 | 45 | 20,394 | ||||||||||||
2018 | 72,197 | — | 29,226 | |||||||||||||
AB Global Thematic Growth Portfolio | 2017 | 41,926 | 22 | 10,459 | ||||||||||||
2018 | 41,926 | — | 22,238 | |||||||||||||
AB Growth Portfolio | 2017 | 31,404 | — | 8,888 | ||||||||||||
2018 | 31,404 | — | 18,081 | |||||||||||||
AB Growth & Income Portfolio | 2017 | 31,404 | 246 | 13,642 | ||||||||||||
2018 | 31,404 | 2,000 | 20,591 | |||||||||||||
AB Intermediate Bond Portfolio | 2017 | 67,988 | — | 10,055 | ||||||||||||
2018 | 67,988 | — | 20,103 | |||||||||||||
AB International Growth Portfolio | 2017 | 41,926 | 5 | 13,972 | ||||||||||||
2018 | 41,926 | — | 27,795 | |||||||||||||
AB International Value Portfolio | 2017 | 41,926 | 70 | 13,396 | ||||||||||||
2018 | 41,926 | — | 26,660 | |||||||||||||
AB Large Cap Growth Portfolio | 2017 | 31,404 | 70 | 8,950 | ||||||||||||
2018 | 31,404 | 2,000 | 18,081 | |||||||||||||
AB Real Estate Investment Portfolio | 2017 | 35,613 | — | 17,016 | ||||||||||||
2018 | 35,613 | — | 28,819 | |||||||||||||
AB Small Cap Growth Portfolio | 2017 | 31,404 | — | 8,906 | ||||||||||||
2018 | 31,404 | — | 18,095 | |||||||||||||
AB Small/Mid Cap Value Portfolio | 2017 | 35,613 | 108 | 13,357 | ||||||||||||
2018 | 35,613 | — | 20,311 | |||||||||||||
AB Value Portfolio | 2017 | 31,404 | 10 | 9,902 | ||||||||||||
2018 | 31,404 | — | 19,111 | |||||||||||||
AB Dynamic Asset Allocation Portfolio | 2017 | 85,147 | 93 | 24,471 | ||||||||||||
2018 | 85,147 | — | 29,231 | |||||||||||||
AB Global Bond Portfolio* | 2017 | 36,029 | — | 9,359 | ||||||||||||
2018 | — | — | 9,863 | |||||||||||||
AB Global Risk Allocation-Moderate Portfolio | 2017 | 36,029 | 19 | 10,187 | ||||||||||||
2018 | 36,029 | — | 23,383 |
* | Fund liquidated. |
(d) Not applicable.
(e) (1) Beginning with audit andnon-audit service contracts entered into on or after May 6, 2003, the Fund’s Audit Committee policies and procedures require thepre-approval of all audit andnon-audit services provided to the Fund by the Fund’s independent registered public accounting firm. The Fund’s Audit Committee policies and procedures also requirepre-approval of all audit andnon-audit services provided to the Adviser and Service Affiliates to the extent that these services are directly related to the operations or financial reporting of the Fund.
(e) (2) All of the amounts for Audit Fees, Audit-Related Fees and Tax Fees in the table under Item 4 (a) – (c) are for servicespre-approved by the Fund’s Audit Committee.
(f) Not applicable.
(g) The following table sets forth the aggregatenon-audit services provided to the Fund, the Fund’s Adviser and entities that control, are controlled by or under common control with the Adviser that provide ongoing services to the Fund:
All Fees for Non-Audit Services Provided to the Portfolio, the Adviser and Service Affiliates | Total Amount of Foregoing Column Pre-approved by the Audit Committee (Portion Comprised of Audit Related Fees) (Portion Comprised of Tax Fees) | |||||||||||
AB Balanced Wealth Strategy Portfolio | 2017 | $ | 743,554 | 20,439 | ||||||||
(45 | ) | |||||||||||
(20,394 | ) | |||||||||||
2018 | $ | 793,824 | $ | 29,226 | ||||||||
— | ||||||||||||
(29,226 | ) | |||||||||||
AB Global Thematic Growth Portfolio | 2017 | $ | 733,596 | 10,481 | ||||||||
(22 | ) | |||||||||||
(10,459 | ) | |||||||||||
2018 | $ | 786,836 | $ | 22,238 | ||||||||
— | ||||||||||||
(22,238 | ) | |||||||||||
AB Growth Portfolio | 2017 | $ | 732,003 | 8,888 | ||||||||
— | ||||||||||||
(8,888 | ) | |||||||||||
2018 | $ | 782,679 | $ | 18,081 | ||||||||
— | ||||||||||||
(18,081 | ) | |||||||||||
AB Growth & Income Portfolio | 2017 | $ | 737,003 | 13,888 | ||||||||
(246 | ) | |||||||||||
(13,642 | ) | |||||||||||
2018 | $ | 787,189 | $ | 22,591 | ||||||||
(2,000 | ) | |||||||||||
(20,591 | ) | |||||||||||
AB Intermediate Bond Portfolio | 2017 | $ | 733,170 | 10,055 | ||||||||
— | ||||||||||||
(10,055 | ) | |||||||||||
2018 | $ | 784,701 | $ | 20,103 | ||||||||
— | ||||||||||||
(20,103 | ) | |||||||||||
AB International Growth Portfolio | 2017 | $ | 737,092 | 13,977 | ||||||||
(5 | ) | |||||||||||
(13,972 | ) | |||||||||||
2018 | $ | 792,393 | $ | 27,795 | ||||||||
— | ||||||||||||
(27,795 | ) | |||||||||||
AB International Value Portfolio | 2017 | $ | 736,581 | 13,466 | ||||||||
(70 | ) | |||||||||||
(13,396 | ) | |||||||||||
2018 | $ | 791,258 | $ | 26,660 | ||||||||
— | ||||||||||||
(26,660 | ) |
AB Large Cap Growth Portfolio | 2017 | $ | 732,135 | 9,020 | ||||||||
(70 | ) | |||||||||||
(8,950 | ) | |||||||||||
2018 | $ | 784,679 | $ | 20,081 | ||||||||
(2,000 | ) | |||||||||||
(18,081 | ) | |||||||||||
AB Real Estate Investment Portfolio | 2017 | $ | 740,131 | 17,016 | ||||||||
— | ||||||||||||
(17,016 | ) | |||||||||||
2018 | $ | 793,417 | $ | 28,819 | ||||||||
— | ||||||||||||
(28,819 | ) | |||||||||||
AB Small Cap Growth Portfolio | 2017 | $ | 732,021 | 8,906 | ||||||||
— | ||||||||||||
(8,906 | ) | |||||||||||
2018 | $ | 782,693 | $ | 18,095 | ||||||||
— | ||||||||||||
(18,095 | ) | |||||||||||
AB Small/Mid Cap Value Portfolio | 2017 | $ | 736,580 | 13,465 | ||||||||
(108 | ) | |||||||||||
(13,357 | ) | |||||||||||
2018 | $ | 784,909 | $ | 20,311 | ||||||||
— | ||||||||||||
(20,311 | ) | |||||||||||
AB Value Portfolio | 2017 | $ | 733,027 | 9,912 | ||||||||
(10 | ) | |||||||||||
(9,902 | ) | |||||||||||
2018 | $ | 783,709 | $ | 19,111 | ||||||||
— | ||||||||||||
(19,111 | ) | |||||||||||
AB Dynamic Asset Allocation Portfolio | 2017 | $ | 747,679 | 24,564 | ||||||||
(93 | ) | |||||||||||
(24,471 | ) | |||||||||||
2018 | $ | 793,829 | $ | 29,231 | ||||||||
— | ||||||||||||
(29,231 | ) | |||||||||||
AB Global Bond Portfolio* | 2017 | $ | 732,474 | 9,359 | ||||||||
— | ||||||||||||
(9,359 | ) | |||||||||||
2018 | $ | 774,461 | $ | 9,863 | ||||||||
— | ||||||||||||
(9,863 | ) | |||||||||||
AB Global Risk Allocation-Moderate Portfolio | 2017 | $ | 733,321 | 10,206 | ||||||||
(19 | ) | |||||||||||
(10,187 | ) | |||||||||||
2018 | $ | 787,981 | $ | 23,383 | ||||||||
— | ||||||||||||
(23,383 | ) |
* | Fund liquidated. |
(h) The Audit Committee of the Fund has considered whether the provision of anynon-audit services notpre-approved by the Audit Committee provided by the Fund’s independent registered public accounting firm to the Adviser and Service Affiliates is compatible with maintaining the auditor’s independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to the registrant.
ITEM 6. SCHEDULE OF INVESTMENTS.
Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this FormN-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FORCLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 8. PORTFOLIO MANAGERS OFCLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable to the registrant.
ITEM 9. PURCHASES OF EQUITY SECURITIES BYCLOSED-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 Rule30a-3(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.
(b) There were no significant changes in the registrant’s internal controls over financial reporting that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
ITEM 12. EXHIBITS.
The following exhibits are attached to this FormN-CSR:
EXHIBIT NO. | DESCRIPTION OF EXHIBIT | |
12 (a) (1) | Code of ethics that is subject to the disclosure of Item 2 hereof | |
12 (b) (1) | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (b) (2) | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
12 (c) | Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of theSarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): AB Variable Products Series Fund, Inc.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President |
Date: February 14, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Robert M. Keith | |
Robert M. Keith | ||
President |
Date: February 14, 2019
By: | /s/ Joseph J. Mantineo | |
Joseph J. Mantineo | ||
Treasurer and Chief Financial Officer |
Date: February 14, 2019