0001193125-17-001704.txt : 20170104 0001193125-17-001704.hdr.sgml : 20170104 20170104151638 ACCESSION NUMBER: 0001193125-17-001704 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20161031 FILED AS OF DATE: 20170104 DATE AS OF CHANGE: 20170104 EFFECTIVENESS DATE: 20170104 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AB CORPORATE SHARES CENTRAL INDEX KEY: 0001274676 IRS NUMBER: 000000000 FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-21497 FILM NUMBER: 17505038 BUSINESS ADDRESS: STREET 1: ALLIANCEBERNSTEIN LP STREET 2: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 BUSINESS PHONE: 2129691000 MAIL ADDRESS: STREET 1: ALLIANCEBERNSTEIN LP STREET 2: 1345 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10105 FORMER COMPANY: FORMER CONFORMED NAME: ALLIANCEBERNSTEIN CORPORATE SHARES DATE OF NAME CHANGE: 20031230 0001274676 S000010876 AB CORPORATE INCOME SHARES C000030134 AB CORPORATE INCOME SHARES 0001274676 S000029560 AB Municipal Income Shares C000090717 AB Municipal Income Shares 0001274676 S000029838 AB Taxable Multi-Sector Income Shares C000091758 AB Taxable Multi-Sector Income Shares N-CSRS 1 d219135dncsrs.htm AB CORPORATE SHARES AB Corporate Shares

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21497

 

 

AB CORPORATE SHARES

(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: April 30, 2017

Date of reporting period: October 31, 2016

 

 

 


ITEM 1. REPORTS TO STOCKHOLDERS.

 


OCT    10.31.16

LOGO

 

SEMI-ANNUAL REPORT

AB CORPORATE INCOME SHARES

 


Investment Products Offered

 

•Are Not FDIC Insured

•May Lose Value

•Are Not Bank Guaranteed

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.

You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227-4618.

The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.

AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.

The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.


December 13, 2016

 

Semi-Annual Report

This report provides management’s discussion of fund performance for AB Corporate Income Shares (the “Fund”) for the semi-annual reporting period ended October 31, 2016. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by AllianceBernstein L.P. (the “Adviser”).

Investment Objective and Policies

The Fund’s investment objective is to earn high current income. The Fund invests, under normal circumstances, at least 80% of its net assets in US corporate bonds. The Fund may also invest in US government securities (other than US government securities that are mortgage-backed or asset-backed securities), repurchase agreements and forward contracts relating to US government securities. The Fund normally invests all of its assets in securities that are rated, at the time of purchase, at least BBB- or the equivalent. The Fund will not invest in unrated corporate debt securities. The Fund has the flexibility to invest in long- and short-term fixed-income securities. In making decisions about whether to buy or sell securities, the Adviser will consider, among other things, the strength of certain sectors of the fixed-income market relative to others, interest rates and other general market conditions and the credit quality of individual issuers.

The Fund also may: invest in convertible debt securities; invest up to 10% of its assets in inflation-indexed securities; invest up to 5% of its net assets in preferred stock; purchase and sell interest rate futures contracts and options; enter into swap transactions; invest in zero-coupon securities and “payment-in-kind” debentures; make secured loans of portfolio securities; and invest in US dollar-denominated fixed-income securities issued by non-US companies.

Investment Results

The table on page 6 shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays US Credit Bond Index, for the six- and 12-month periods ended October 31, 2016.

The Fund outperformed the benchmark in the six-month period, but underperformed in the 12-month period. Security selection contributed most to relative performance in the six-month period, due to gains from selections within the technology and financials sectors. Industry allocation also added to performance in the six-month period, primarily due to a lack of exposure to supranationals. Though neither security selection nor industry allocation had a meaningful impact on performance in the 12-month period, there were some positions of note: losses from selections within basic industries and an exposure to Treasuries outweighed positive returns from a

 

 

AB CORPORATE INCOME SHARES       1   


lack of exposure to supranationals and several other modest contributors. Yield-curve positioning did not have a significant effect on overall performance in either period, as gains from an overweight to intermediate maturities were offset by negative returns from an underweight in the long end of the curve.

The Fund utilized derivatives in the form of interest rate swaps for hedging purposes and credit default swaps for investment purposes during both periods, which had an immaterial impact on performance, in absolute terms.

Market Review and Investment Strategy

Bond markets generally increased in absolute terms over the 12-month period ended October 31, 2016, as global growth trends and central bank action in the world’s largest economies continued to diverge. After declining through the end of 2015 and beginning of 2016, oil prices rebounded through much of the period on the back of decreased global supply—which contributed to a rally in emerging-market debt sectors—though prices moved downward in October on the market’s rising skepticism that OPEC would reach a deal to limit crude production. Emerging-market sentiment was further boosted on positive political developments in Argentina and Brazil toward the end of the period.

In December 2015, the US Federal Reserve (the “Fed”) hiked rates for the first time in over nine years—a move that had been well-telegraphed and widely anticipated, and was generally accepted smoothly by bond investors. After some slower-than-expected US economic data through the first half of 2016, the Fed’s tone turned more hawkish in September (despite rates remaining unchanged) on the back of continued strengthening in the US labor market and growth in economic activity. In October, third quarter US GDP posted its best quarterly gain in two years (largely because of a surge in agricultural exports).

Central banks around the globe cut rates during the annual period, with some, including the Bank of Japan and the European Central Bank, dipping into negative rate territory. Volatility in Europe (and globally) spiked sharply in June after the UK voted to leave the European Union, a decision that was largely a surprise to investors. While investors initially responded by selling risk-sensitive assets, markets outside Europe quickly recovered. European markets began to stabilize as well, helped by the Bank of England’s first rate cut in seven years—to an historic low—and an aggressive asset-purchase program. Elsewhere, central banks in Australia and New Zealand also moved rates to record lows, while fiscal and monetary policy

 

 

2     AB CORPORATE INCOME SHARES


developments in Japan disappointed investors, who were expecting rate cuts or additional quantitative easing.

Yields in most developed markets fell in the 12-month period, with UK yields reaching historic lows in the months following the Brexit referendum in June. At the end of the period, trillions of dollars’ worth of government debt around the world lingered in negative territory. Developed-market treasuries generally outperformed emerging-market local-currency government bonds and investment-grade credit securities, but lagged the rally in global high yield. Energy and basics were among the top performing sectors

in each period, largely due to positive oil price action, while consumer-related sectors lagged the rising market.

On November 8, 2016, Donald Trump was elected as the 45th president of the United States, and the Congressional election outcome resulted in the Republican Party maintaining control of both the House of Representatives and the Senate. The Adviser believes that it will take time before the world has a clearer picture of the short- and long-term impact of the elections on the US economy and markets in general. The Adviser continues to monitor the markets, including for potential market volatility.

 

 

AB CORPORATE INCOME SHARES       3   


DISCLOSURES AND RISKS

 

Benchmark Disclosure

The Bloomberg Barclays US Credit Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays US Credit Bond Index represents the performance of the US credit securities within the US fixed-income market. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.

A Word About Risk

Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.

Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.

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 Fund may be subject to heightened interest rate risk due to rising rates as the current period of historically low interest rates ends. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.

Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.

Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.

 

(Disclosures, Risks and Note about Historical Performance continued on next page)

 

4     AB CORPORATE INCOME SHARES

Disclosures and Risks


DISCLOSURES AND RISKS

(continued from previous page)

 

Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.

Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.

These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.

An Important Note About Historical Performance The performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227-4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.

 

AB CORPORATE INCOME SHARES       5   

Disclosures and Risks


HISTORICAL PERFORMANCE

 

        
THE FUND VS. ITS BENCHMARK
PERIODS ENDED OCTOBER 31, 2016 (unaudited)
  NAV Returns        
  6 Months        12 Months         
AB Corporate Income Shares     2.92%           6.68%     

 

 
Bloomberg Barclays US Credit Bond Index     2.61%           6.87%     
        

See Disclosures, Risks and Note about Historical Performance on pages 4-5.

(Historical Performance continued on next page)

 

6     AB CORPORATE INCOME SHARES

Historical Performance


HISTORICAL PERFORMANCE

(continued from previous page)

 

AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2016 (unaudited)  
              NAV Returns  
       

1 Year

          6.68

5 Years

          5.07

Since Inception*

          6.20
       
AVERAGE ANNUAL RETURNS
AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2016 (unaudited)
 
              NAV Returns  
       

1 Year

          8.12

5 Years

          5.45

Since Inception*

          6.35

The prospectus fee table shows the fees and the total fund operating expenses of the Fund as 0.00% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses, except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.

 

*   Inception date: 12/11/2006.

See Disclosures, Risks and Note about Historical Performance on pages 4-5.

 

AB CORPORATE INCOME SHARES       7   

Historical Performance


EXPENSE EXAMPLE

(unaudited)

 

As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

     Beginning
Account Value
May 1, 2016
     Ending
Account Value
October 31, 2016
     Expenses Paid
During Period*
    Annualized
Expense Ratio*
 

Actual

   $   1,000       $   1,029.20       $   – 0  –      0.00

Hypothetical**

   $ 1,000       $ 1,025.21       $ – 0  –      0.00
*   Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates.

 

**   Assumes 5% annual return before expenses.

 

8     AB CORPORATE INCOME SHARES

Expense Example


PORTFOLIO SUMMARY

October 31, 2016 (unaudited)

 

PORTFOLIO STATISTICS

Net Assets ($mil): $61.1

 

LOGO

 

*   All data are as of October 31, 2016. The Fund’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details).

 

AB CORPORATE INCOME SHARES       9   

Portfolio Summary


PORTFOLIO OF INVESTMENTS

October 31, 2016 (unaudited)

 

     Principal
Amount
(000)
    U.S. $ Value  

 

 

CORPORATES – INVESTMENT
GRADE – 93.6%

    

Industrial – 52.3%

    

Basic – 3.4%

    

Alpek SAB de CV
4.50%, 11/20/22(a)

  

$

200

  

 

$

208,500

  

BHP Billiton Finance USA Ltd.
6.42%, 3/01/26

     67        83,149   

Celulosa Arauco y Constitucion SA
4.50%, 8/01/24

     200        210,619   

Dow Chemical Co. (The)
4.25%, 11/15/20

     186        200,273   

Eastman Chemical Co.
3.80%, 3/15/25

     65        67,620   

EI du Pont de Nemours & Co.
6.00%, 7/15/18

     150        161,396   

Georgia-Pacific LLC
5.40%, 11/01/20(a)

     110        123,379   

Glencore Funding LLC
4.00%, 4/16/25(a)

     50        49,250   

4.125%, 5/30/23(a)

     40        39,700   

International Paper Co.
3.00%, 2/15/27

     125        123,294   

LyondellBasell Industries NV
6.00%, 11/15/21

     200        232,764   

Monsanto Co.
2.85%, 4/15/25

     225        223,611   

3.375%, 7/15/24

     145        149,173   

Mosaic Co. (The)
5.625%, 11/15/43

     65        65,437   

Weyerhaeuser Co.
4.625%, 9/15/23

     120        132,732   
    

 

 

 
       2,070,897   
    

 

 

 

Capital Goods – 2.1%

    

Caterpillar Financial Services Corp.
1.35%, 5/18/19

     160        159,478   

General Electric Co.
4.50%, 3/11/44

     115        129,337   

5.875%, 1/14/38

     140        182,853   

Series D
5.00%, 1/21/21(b)

     104        110,178   

John Deere Capital Corp.
2.80%, 3/06/23

     155        159,767   

Molex Electronic Technologies LLC
2.878%, 4/15/20(a)

     130        129,920   

Owens Corning
7.00%, 12/01/36(c)

     110        136,541   

9.00%, 6/15/19

     210        243,571   

 

10     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Yamana Gold, Inc.
4.95%, 7/15/24

   $ 48      $ 49,296   
    

 

 

 
       1,300,941   
    

 

 

 

Communications - Media – 6.9%

    

21st Century Fox America, Inc.
7.43%, 10/01/26

     55        73,297   

8.875%, 4/26/23

     125        166,469   

CBS Corp.
3.375%, 3/01/22

     72        75,073   

4.90%, 8/15/44

     20        20,950   

5.75%, 4/15/20

     125        140,099   

Charter Communications Operating LLC/Charter Communications Operating Capital
4.908%, 7/23/25(a)

     355        382,886   

6.484%, 10/23/45(a)

     55        64,452   

Comcast Cable Communications Holdings, Inc.
9.455%, 11/15/22

     110        153,447   

Comcast Corp.
4.60%, 8/15/45

     175        194,291   

5.15%, 3/01/20

     165        183,543   

5.70%, 5/15/18

     100        106,643   

Cox Communications, Inc.
3.35%, 9/15/26(a)

     128        126,225   

Discovery Communications LLC
4.875%, 4/01/43

     84        79,929   

Grupo Televisa SAB
4.625%, 1/30/26

     200        213,338   

Moody’s Corp.
2.75%, 7/15/19

     79        80,926   

4.875%, 2/15/24

     100        112,568   

Omnicom Group, Inc.
3.60%, 4/15/26

     102        105,959   

4.45%, 8/15/20

     100        108,718   

S&P Global, Inc.
4.00%, 6/15/25

     140        150,150   

4.40%, 2/15/26

     111        123,083   

Scripps Networks Interactive, Inc.
2.75%, 11/15/19

     68        69,543   

TCI Communications, Inc.
7.875%, 2/15/26

     250        349,799   

Time Warner Cable LLC
4.50%, 9/15/42

     65        61,125   

5.875%, 11/15/40

     30        32,857   

6.55%, 5/01/37

     39        45,766   

Time Warner, Inc.
3.60%, 7/15/25

     250        259,799   

4.00%, 1/15/22

     140        149,857   

4.70%, 1/15/21

     60        65,844   

6.25%, 3/29/41

     85        103,916   

 

AB CORPORATE INCOME SHARES       11   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Viacom, Inc.
3.875%, 12/15/21

   $ 187      $ 197,887   

4.375%, 3/15/43

     42        38,640   

Walt Disney Co. (The)
0.875%, 7/12/19

     165        163,309   
    

 

 

 
       4,200,388   
    

 

 

 

Communications -
Telecommunications – 4.6%

    

American Tower Corp.
4.50%, 1/15/18

     40        41,353   

7.25%, 5/15/19

     150        167,292   

Ameritech Capital Funding Corp.
6.55%, 1/15/28

     130        151,557   

AT&T, Inc.
3.00%, 6/30/22

     195        197,728   

3.80%, 3/15/22

     90        94,738   

4.55%, 3/09/49(a)

     169        159,163   

4.75%, 5/15/46

     114        111,558   

British Telecommunications PLC
9.375%, 12/15/30(c)

     85        136,379   

Deutsche Telekom International Finance BV
8.75%, 6/15/30(c)

     40        61,036   

Sprint Spectrum Co. LLC/Sprint Spectrum Co. II LLC/Sprint Spectrum Co. III LLC
3.36%, 9/20/21(a)

     200        200,500   

Verizon Communications, Inc.
2.625%, 2/21/20

     215        219,252   

3.50%, 11/01/21

     585        618,113   

3.85%, 11/01/42

     245        224,222   

4.272%, 1/15/36

     185        185,757   

4.862%, 8/21/46

     154        163,113   

Vodafone Group PLC
4.375%, 2/19/43

     70        67,405   
    

 

 

 
       2,799,166   
    

 

 

 

Consumer Cyclical - Automotive – 3.1%

    

American Honda Finance Corp.
1.20%, 7/12/19

     165        163,842   

Ford Motor Co.
6.50%, 8/01/18

     225        243,316   

Ford Motor Credit Co. LLC
2.24%, 6/15/18

     250        251,463   

5.875%, 8/02/21

     575        652,928   

General Motors Co.
4.875%, 10/02/23

     170        183,045   

General Motors Financial Co., Inc.
3.50%, 7/10/19

     230        236,655   

4.00%, 1/15/25

     46        46,202   

 

12     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

4.30%, 7/13/25

   $ 50      $ 51,151   

5.25%, 3/01/26

     75        81,681   
    

 

 

 
       1,910,283   
    

 

 

 

Consumer Cyclical - Entertainment – 0.3%

    

Carnival Corp.
1.875%, 12/15/17

     180        181,154   
    

 

 

 

Consumer Cyclical - Other – 0.4%

    

Marriott International, Inc./MD
3.00%, 3/01/19

     151        154,951   

Wyndham Worldwide Corp.
2.50%, 3/01/18

     115        116,057   
    

 

 

 
       271,008   
    

 

 

 

Consumer Cyclical - Restaurants – 0.3%

    

McDonald’s Corp.
2.10%, 12/07/18

     42        42,518   

6.30%, 10/15/37

     100        128,443   
    

 

 

 
       170,961   
    

 

 

 

Consumer Cyclical - Retailers – 2.5%

    

Advance Auto Parts, Inc.
4.50%, 12/01/23

     115        123,252   

CVS Health Corp.
2.125%, 6/01/21

     160        160,014   

5.125%, 7/20/45

     85        99,160   

Dollar General Corp.
4.15%, 11/01/25

     114        122,079   

Home Depot, Inc. (The)
5.40%, 9/15/40

     130        161,226   

5.875%, 12/16/36

     30        39,754   

Lowe’s Cos., Inc.
3.70%, 4/15/46

     160        157,742   

Macy’s Retail Holdings, Inc.
3.875%, 1/15/22

     154        160,772   

Wal-Mart Stores, Inc.
5.25%, 9/01/35

     125        159,695   

Walgreens Boots Alliance, Inc.
3.10%, 6/01/23

     125        126,486   

3.30%, 11/18/21

     193        202,088   
    

 

 

 
       1,512,268   
    

 

 

 

Consumer Non-Cyclical – 14.0%

    

Abbott Laboratories
6.15%, 11/30/37

     120        152,342   

AbbVie, Inc.
1.75%, 11/06/17

     245        245,875   

2.90%, 11/06/22

     100        101,226   

3.60%, 5/14/25

     179        182,532   

4.70%, 5/14/45

     60        61,905   

 

AB CORPORATE INCOME SHARES       13   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Actavis Funding SCS
3.00%, 3/12/20

   $ 90      $ 92,664   

Altria Group, Inc.
4.75%, 5/05/21

     370        412,787   

Amgen, Inc.
2.70%, 5/01/22

     120        122,192   

3.125%, 5/01/25

     160        162,678   

3.45%, 10/01/20

     175        184,541   

4.40%, 5/01/45

     90        91,511   

Anheuser-Busch InBev Finance, Inc.
3.65%, 2/01/26

     196        206,243   

4.70%, 2/01/36

     150        166,281   

4.90%, 2/01/46

     80        91,483   

Baxalta, Inc.
3.60%, 6/23/22

     131        136,438   

4.00%, 6/23/25

     110        115,136   

Becton Dickinson and Co.
2.675%, 12/15/19

     42        43,284   

3.25%, 11/12/20

     79        82,652   

3.734%, 12/15/24

     36        38,373   

Biogen, Inc.
3.625%, 9/15/22

     92        98,050   

4.05%, 9/15/25

     90        95,906   

Bunge Ltd. Finance Corp.
3.50%, 11/24/20

     104        108,530   

Celgene Corp.
3.625%, 5/15/24

     110        113,351   

3.875%, 8/15/25

     100        104,760   

ConAgra Foods, Inc.
3.20%, 1/25/23

     32        32,771   

Eli Lilly & Co.
2.75%, 6/01/25

     215        222,563   

Express Scripts Holding Co.
4.75%, 11/15/21

     85        94,045   

Forest Laboratories LLC
4.375%, 2/01/19(a)

     105        110,293   

Gilead Sciences, Inc.
1.85%, 9/04/18

     120        121,007   

4.60%, 9/01/35

     100        107,356   

Grupo Bimbo SAB de CV
4.50%, 1/25/22(a)

     100        108,354   

JM Smucker Co. (The)
2.50%, 3/15/20

     42        42,828   

3.00%, 3/15/22

     65        67,605   

Johnson & Johnson
4.50%, 12/05/43

     80        96,930   

Kraft Heinz Foods Co.
3.50%, 6/06/22

     215        227,028   

 

14     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Laboratory Corp. of America Holdings
3.20%, 2/01/22

   $ 42      $ 43,687   

3.60%, 2/01/25

     41        42,405   

McKesson Corp.
4.75%, 3/01/21

     140        154,164   

7.50%, 2/15/19

     105        118,735   

Medtronic, Inc.
2.50%, 3/15/20

     150        153,972   

3.15%, 3/15/22

     130        137,052   

4.375%, 3/15/35

     150        164,549   

Merck & Co., Inc.
2.75%, 2/10/25

     500        509,695   

Mylan NV
3.75%, 12/15/20(a)

     146        152,453   

3.95%, 6/15/26(a)

     70        69,819   

Mylan, Inc.
2.60%, 6/24/18

     140        141,826   

Newell Brands, Inc.
3.15%, 4/01/21

     33        34,362   

3.85%, 4/01/23

     157        166,610   

PepsiCo, Inc.
1.25%, 4/30/18

     230        230,262   

4.875%, 11/01/40

     110        127,536   

Perrigo Co. PLC
4.00%, 11/15/23

     200        205,132   

Pfizer, Inc.
1.95%, 6/03/21

     125        125,567   

Procter & Gamble Co. (The)
5.80%, 8/15/34

     175        243,969   

Reynolds American, Inc.
3.25%, 6/12/20

     57        59,520   

4.85%, 9/15/23

     40        45,127   

Stryker Corp.
2.625%, 3/15/21

     43        43,811   

Teva Pharmaceutical Finance Co. BV
2.95%, 12/18/22

     70        70,784   

Teva Pharmaceutical Finance Netherlands III BV
2.80%, 7/21/23

     122        120,053   

3.15%, 10/01/26

     287        279,118   

Tyson Foods, Inc.
2.65%, 8/15/19

     24        24,534   

3.95%, 8/15/24

     75        79,606   

4.50%, 6/15/22

     110        120,624   

Whirlpool Corp.
3.70%, 3/01/23

     120        126,716   

Wyeth LLC
6.00%, 2/15/36

     100        128,373   

 

AB CORPORATE INCOME SHARES       15   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Zimmer Biomet Holdings, Inc.
2.70%, 4/01/20

   $ 90      $ 91,520   

3.55%, 4/01/25

     70        71,219   
    

 

 

 
       8,524,320   
    

 

 

 

Energy – 7.7%

    

Anadarko Finance Co.
Series B
7.50%, 5/01/31

     45        57,125   

Anadarko Petroleum Corp.
3.45%, 7/15/24

     35        34,770   

6.20%, 3/15/40

     35        40,381   

6.375%, 9/15/17

     34        35,428   

Apache Finance Canada Corp.
7.75%, 12/15/29

     35        45,749   

Boardwalk Pipelines LP
4.95%, 12/15/24

     65        67,608   

BP Capital Markets PLC
2.75%, 5/10/23

     185        186,818   

Canadian Natural Resources Ltd.
3.90%, 2/01/25

     110        112,201   

ConocoPhillips Co.
5.95%, 3/15/46

     45        56,267   

ConocoPhillips Holding Co.
6.95%, 4/15/29

     101        128,226   

Enbridge Energy Partners LP
4.20%, 9/15/21

     100        105,920   

Encana Corp.
3.90%, 11/15/21

     70        70,826   

Energy Transfer Partners LP
3.60%, 2/01/23

     65        64,810   

Enterprise Products Operating LLC
3.70%, 2/15/26

     90        91,790   

3.75%, 2/15/25

     140        144,683   

4.90%, 5/15/46

     45        46,302   

5.25%, 1/31/20

     140        153,827   

Halliburton Co.
3.50%, 8/01/23

     63        64,377   

3.80%, 11/15/25

     85        88,424   

Hess Corp.
3.50%, 7/15/24

     36        35,066   

4.30%, 4/01/27

     67        66,700   

7.875%, 10/01/29

     23        28,225   

Husky Energy, Inc.
3.95%, 4/15/22

     50        53,204   

Kinder Morgan Energy Partners LP
5.30%, 9/15/20

     100        109,199   

Kinder Morgan, Inc./DE
5.05%, 2/15/46

     175        169,523   

 

16     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Marathon Oil Corp.
6.80%, 3/15/32

   $ 35      $ 38,045   

Marathon Petroleum Corp.
5.125%, 3/01/21

     120        132,940   

5.85%, 12/15/45

     65        65,572   

Noble Energy, Inc.
3.90%, 11/15/24

     100        102,814   

4.15%, 12/15/21

     65        68,951   

5.625%, 5/01/21

     80        82,947   

ONEOK Partners LP
3.375%, 10/01/22

     55        56,049   

4.90%, 3/15/25

     30        32,693   

Plains All American Pipeline LP/PAA Finance Corp.
3.60%, 11/01/24

     91        89,683   

4.65%, 10/15/25

     90        95,402   

Regency Energy Partners LP/Regency Energy Finance Corp.
5.00%, 10/01/22

     310        332,644   

Schlumberger Holdings Corp.
3.00%, 12/21/20(a)

     120        124,514   

3.625%, 12/21/22(a)

     120        128,271   

Shell International Finance BV
3.40%, 8/12/23

     390        410,387   

Spectra Energy Capital LLC
8.00%, 10/01/19

     23        26,366   

Spectra Energy Partners LP
2.95%, 9/25/18

     77        78,551   

4.50%, 3/15/45

     50        49,669   

4.60%, 6/15/21

     75        81,229   

Suncor Energy, Inc.
3.60%, 12/01/24

     110        114,256   

6.50%, 6/15/38

     27        34,618   

Sunoco Logistics Partners Operations LP
3.90%, 7/15/26

     100        101,307   

Valero Energy Corp.
6.125%, 2/01/20

     70        79,052   

Williams Partners LP
3.60%, 3/15/22

     200        203,566   

3.90%, 1/15/25

     69        68,818   

Williams Partners LP/ACMP Finance Corp.
4.875%, 5/15/23

     40        40,511   
    

 

 

 
       4,696,304   
    

 

 

 

Services – 1.0%

    

Amazon.com, Inc.
4.80%, 12/05/34

     135        154,091   

eBay, Inc.
2.60%, 7/15/22

     160        159,846   

3.80%, 3/09/22

     150        159,112   

 

AB CORPORATE INCOME SHARES       17   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Visa, Inc.
2.80%, 12/14/22

   $ 150      $ 155,989   
    

 

 

 
       629,038   
    

 

 

 

Technology – 5.5%

    

Apple, Inc.
2.85%, 5/06/21

     175        182,601   

3.45%, 2/09/45

     210        194,036   

Cisco Systems, Inc.
1.65%, 6/15/18

     150        151,054   

5.90%, 2/15/39

     45        58,784   

Diamond 1 Finance Corp./Diamond 2 Finance Corp.
4.42%, 6/15/21(a)

     250        261,427   

Fidelity National Information Services, Inc.
3.875%, 6/05/24

     245        258,821   

4.50%, 8/15/46

     65        63,504   

Hewlett Packard Enterprise Co.
6.60%, 10/15/45(a)

     50        51,714   

HP, Inc.
3.75%, 12/01/20

     14        14,724   

4.30%, 6/01/21

     80        86,007   

4.375%, 9/15/21

     25        26,911   

4.65%, 12/09/21

     89        97,015   

Intel Corp.
3.70%, 7/29/25

     120        131,096   

4.90%, 7/29/45

     45        51,695   

International Business Machines Corp.
2.25%, 2/19/21

     125        127,622   

KLA-Tencor Corp.
4.65%, 11/01/24

     134        146,466   

Lam Research Corp.
2.75%, 3/15/20

     115        116,774   

Microsoft Corp.
3.45%, 8/08/36

     320        315,906   

Oracle Corp.
3.875%, 7/15/20

     250        269,643   

3.90%, 5/15/35

     175        178,254   

Seagate HDD Cayman
4.75%, 1/01/25

     45        42,885   

4.875%, 6/01/27

     80        72,281   

Texas Instruments, Inc.
1.75%, 5/01/20

     115        115,825   

Total System Services, Inc.
2.375%, 6/01/18

     105        105,683   

3.80%, 4/01/21

     66        69,622   

Verisk Analytics, Inc.
5.50%, 6/15/45

     60        62,998   

 

18     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Xerox Corp.
2.80%, 5/15/20

   $ 95      $ 94,810   
    

 

 

 
       3,348,158   
    

 

 

 

Transportation - Railroads – 0.2%

    

Burlington Northern Santa Fe LLC
4.55%, 9/01/44

     85        94,012   
    

 

 

 

Transportation - Services – 0.3%

    

Ryder System, Inc.
2.50%, 3/01/18

     185        187,380   

5.85%, 11/01/16

     28        28,000   
    

 

 

 
       215,380   
    

 

 

 
       31,924,278   
    

 

 

 

Financial Institutions – 36.0%

    

Banking – 24.6%

    

ABN AMRO Bank NV
Series E
6.25%, 9/13/22(a)

     255        263,990   

Bank of America Corp.
3.875%, 8/01/25

     125        131,559   

4.00%, 1/22/25

     465        478,110   

4.10%, 7/24/23

     200        214,974   

4.20%, 8/26/24

     60        62,699   

5.00%, 5/13/21

     235        260,531   

Series G
3.30%, 1/11/23

     140        144,006   

Barclays PLC
3.65%, 3/16/25

     200        196,366   

BB&T Corp.
5.25%, 11/01/19

     275        302,163   

BNP Paribas SA
4.375%, 5/12/26(a)

     200        205,988   

Capital One Bank USA, NA
3.375%, 2/15/23

     275        280,897   

Citigroup, Inc.
2.65%, 10/26/20

     320        325,123   

3.40%, 5/01/26

     70        71,171   

3.50%, 5/15/23

     170        174,173   

3.70%, 1/12/26

     245        255,096   

3.875%, 3/26/25

     90        92,142   

5.875%, 1/30/42

     75        94,306   

Compass Bank
2.75%, 9/29/19

     250        249,951   

5.50%, 4/01/20

     110        117,395   

Cooperatieve Rabobank UA
4.375%, 8/04/25

     250        263,302   

11.00%, 6/30/19(a)(b)

     130        156,637   

 

AB CORPORATE INCOME SHARES       19   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Credit Agricole SA
4.375%, 3/17/25(a)

   $ 310      $ 316,396   

Credit Suisse Group Funding Guernsey Ltd.
3.45%, 4/16/21(a)

     250        254,618   

Deutsche Bank AG
Series G
3.375%, 5/12/21

     126        123,970   

Discover Bank/Greenwood DE
3.10%, 6/04/20

     250        256,733   

Fifth Third Bancorp
3.50%, 3/15/22

     31        32,611   

Goldman Sachs Group, Inc. (The)
3.75%, 5/22/25-2/25/26

     310        323,536   

3.85%, 7/08/24

     350        369,309   

4.25%, 10/21/25

     205        214,486   

Series D
6.00%, 6/15/20

     480        542,288   

HSBC Holdings PLC
3.90%, 5/25/26

     200        207,018   

4.875%, 1/14/22

     115        126,185   

HSBC USA, Inc.
2.75%, 8/07/20

     300        305,020   

Huntington National Bank (The)
2.00%, 6/30/18

     300        301,721   

JPMorgan Chase & Co.
2.295%, 8/15/21

     588        588,461   

3.125%, 1/23/25

     440        443,545   

3.875%, 9/10/24

     110        114,881   

3.90%, 7/15/25

     120        127,477   

Lloyds Banking Group PLC
4.582%, 12/10/25(a)

     200        203,233   

Mitsubishi UFJ Financial Group, Inc.
3.85%, 3/01/26

     200        214,816   

Morgan Stanley
3.125%, 7/27/26

     50        49,762   

5.625%, 9/23/19

     604        664,995   

Series G
4.00%, 7/23/25

     103        109,754   

4.35%, 9/08/26

     50        53,085   

5.50%, 7/24/20

     395        439,802   

Nationwide Building Society
4.00%, 9/14/26(a)

     250        246,494   

Northgroup Preferred Capital Corp.
6.378%, 10/15/17(a)(b)

     68        68,340   

People’s United Financial, Inc.
3.65%, 12/06/22

     83        85,128   

PNC Bank NA
1.45%, 7/29/19

     350        348,367   

 

20     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Santander Holdings USA, Inc.
2.65%, 4/17/20

   $ 200      $ 199,851   

3.45%, 8/27/18

     130        132,888   

Santander UK Group Holdings PLC
2.875%, 8/05/21

     200        199,056   

Societe Generale SA
4.25%, 8/19/26(a)

     200        199,252   

Standard Chartered PLC
4.30%, 2/19/27(a)

     200        197,786   

State Street Corp.
4.956%, 3/15/18

     240        249,974   

SunTrust Bank/Atlanta GA
7.25%, 3/15/18

     145        155,622   

Synchrony Financial
2.70%, 2/03/20

     110        111,200   

3.75%, 8/15/21

     200        209,842   

UBS Group Funding Jersey Ltd.
4.125%, 9/24/25(a)

     200        208,629   

US Bank NA/Cincinnati OH
1.45%, 1/29/18

     310        310,957   

Wells Fargo & Co.
3.00%, 10/23/26

     155        153,936   

3.30%, 9/09/24

     200        205,504   

Series G
4.30%, 7/22/27

     280        297,581   

Series N
2.15%, 1/30/20

     375        377,793   

Wells Fargo Bank NA
1.65%, 1/22/18

     310        311,054   

Zions Bancorporation
4.50%, 6/13/23

     13        13,511   
    

 

 

 
       15,007,046   
    

 

 

 

Brokerage – 0.2%

    

TD Ameritrade Holding Corp.
2.95%, 4/01/22

     115        118,881   
    

 

 

 

Finance – 0.1%

    

International Lease Finance Corp.
6.25%, 5/15/19

     90        97,312   
    

 

 

 

Insurance – 6.8%

    

Aetna, Inc.
2.40%, 6/15/21

     114        115,034   

Allstate Corp. (The)
3.15%, 6/15/23

     200        209,996   

6.125%, 5/15/37

     78        76,830   

American International Group, Inc.
3.75%, 7/10/25

     225        234,886   

8.175%, 5/15/58

     65        87,061   

 

AB CORPORATE INCOME SHARES       21   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Anthem, Inc.
7.00%, 2/15/19

   $ 255      $ 284,557   

Aon Corp.
8.205%, 1/01/27

     100        132,000   

Aon PLC
4.60%, 6/14/44

     70        73,457   

Assurant, Inc.
2.50%, 3/15/18

     105        106,034   

Cigna Corp.
4.00%, 2/15/22

     175        187,539   

7.875%, 5/15/27

     65        89,257   

Guardian Life Insurance Co. of America (The)
7.375%, 9/30/39(a)

     42        58,216   

Hartford Financial Services Group, Inc. (The)
5.50%, 3/30/20

     100        111,124   

6.10%, 10/01/41

     45        53,841   

Humana, Inc.
7.20%, 6/15/18

     180        196,252   

Lincoln National Corp.
3.35%, 3/09/25

     166        170,367   

4.85%, 6/24/21

     200        219,313   

8.75%, 7/01/19

     82        95,599   

MetLife Capital Trust IV
7.875%, 12/15/37(a)

     150        192,000   

Nationwide Mutual Insurance Co.
9.375%, 8/15/39(a)

     90        137,594   

Peachtree Corners Funding Trust
3.976%, 2/15/25(a)

     110        110,398   

Progressive Corp. (The)
6.70%, 6/15/37

     112        110,600   

Prudential Financial, Inc.
4.50%, 11/15/20

     239        261,338   

5.375%, 5/15/45

     100        103,950   

Series B
5.75%, 7/15/33

     135        158,514   

Reliance Standard Life Global Funding II
2.50%, 4/24/19(a)

     140        141,707   

Swiss Re America Holding Corp.
7.00%, 2/15/26

     90        114,256   

UnitedHealth Group, Inc.
3.875%, 10/15/20

     170        182,954   

XLIT Ltd.
5.50%, 3/31/45

     70        67,658   

6.25%, 5/15/27

     75        89,171   
    

 

 

 
       4,171,503   
    

 

 

 

REITS – 4.3%

    

Alexandria Real Estate Equities, Inc.
3.90%, 6/15/23

     100        104,424   

 

22     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Brixmor Operating Partnership LP
3.875%, 8/15/22

   $ 65      $ 67,965   

EPR Properties
5.25%, 7/15/23

     175        186,974   

Essex Portfolio LP
3.25%, 5/01/23

     56        57,158   

3.375%, 1/15/23

     125        128,676   

HCP, Inc.
6.70%, 1/30/18

     160        170,178   

Hospitality Properties Trust
5.00%, 8/15/22

     210        227,127   

Mid-America Apartments LP
3.75%, 6/15/24

     115        119,331   

Omega Healthcare Investors, Inc.
4.50%, 1/15/25

     108        109,768   

Realty Income Corp.
3.00%, 1/15/27

     50        49,133   

5.75%, 1/15/21

     210        237,930   

Simon Property Group LP
2.20%, 2/01/19

     183        185,935   

Spirit Realty LP
4.45%, 9/15/26(a)

     65        64,006   

Ventas Realty LP
4.125%, 1/15/26

     120        127,766   

Ventas Realty LP/Ventas Capital Corp.
2.00%, 2/15/18

     216        217,015   

Vornado Realty LP
5.00%, 1/15/22

     215        237,097   

Washington Real Estate Investment Trust
4.95%, 10/01/20

     140        149,651   

Welltower, Inc.
4.00%, 6/01/25

     85        88,997   

4.25%, 4/01/26

     95        101,360   
    

 

 

 
       2,630,491   
    

 

 

 
       22,025,233   
    

 

 

 

Utility – 4.6%

    

Electric – 3.9%

    

Berkshire Hathaway Energy Co.
6.125%, 4/01/36

     150        196,285   

CMS Energy Corp.
6.25%, 2/01/20

     165        186,896   

Consolidated Edison Co. of New York, Inc.
4.45%, 6/15/20

     100        109,452   

Series 07-A
6.30%, 8/15/37

     30        39,985   

Consolidated Edison, Inc.
2.00%, 5/15/21

     103        103,186   

 

AB CORPORATE INCOME SHARES       23   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Dominion Resources, Inc./VA
4.70%, 12/01/44

   $ 135      $ 147,732   

Duke Energy Corp.
2.10%, 6/15/18

     245        247,385   

Empresa Nacional de Electricidad SA/Chile
4.25%, 4/15/24

     33        34,903   

Enersis Americas SA
4.00%, 10/25/26

     53        52,926   

Entergy Corp.
4.00%, 7/15/22

     153        164,529   

Exelon Corp.
5.10%, 6/15/45

     250        282,701   

Exelon Generation Co. LLC
4.25%, 6/15/22

     150        159,663   

Jersey Central Power & Light Co.
4.70%, 4/01/24(a)

     196        213,442   

Pacific Gas & Electric Co.
4.50%, 12/15/41

     50        55,400   

PacifiCorp
6.00%, 1/15/39

     70        92,530   

PSEG Power LLC
3.00%, 6/15/21

     160        163,689   

Southern Power Co.
4.15%, 12/01/25

     97        103,774   

Trans-Allegheny Interstate Line Co.
3.85%, 6/01/25(a)

     15        15,848   
    

 

 

 
       2,370,326   
    

 

 

 

Natural Gas – 0.7%

    

GNL Quintero SA
4.634%, 7/31/29(a)

     200        210,000   

NiSource Finance Corp.
6.80%, 1/15/19

     100        110,790   

Southern Co. Gas Capital Corp.
5.25%, 8/15/19

     105        114,173   
    

 

 

 
       434,963   
    

 

 

 
       2,805,289   
    

 

 

 

Non Corporate Sectors – 0.7%

    

Agencies - Not Government
Guaranteed – 0.7%

    

Aeropuerto Internacional de Tocumen SA
5.625%, 5/18/36(a)

     200        211,000   

NTPC Ltd.
Series E
4.75%, 10/03/22(a)

     200        218,779   
    

 

 

 
       429,779   
    

 

 

 

Total Corporates – Investment Grade
(cost $55,460,724)

       57,184,579   
    

 

 

 

 

24     AB CORPORATE INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

GOVERNMENTS – TREASURIES – 1.9%

    

United States – 1.9%

    

U.S. Treasury Bonds
2.50%, 5/15/46

   $ 245      $ 240,512   

3.125%, 2/15/42

     295        328,360   

3.625%, 8/15/43

     495        601,792   
    

 

 

 

Total Governments – Treasuries
(cost $1,179,019)

       1,170,664   
    

 

 

 
    

QUASI-SOVEREIGNS – 0.8%

    

Quasi-Sovereign Bonds – 0.8%

    

Mexico – 0.8%

    

Petroleos Mexicanos
3.50%, 7/18/18-1/30/23

     372        356,878   

4.875%, 1/24/22

     95        97,119   

6.75%, 9/21/47(a)

     14        13,878   
    

 

 

 

Total Quasi-Sovereigns
(cost $470,023)

       467,875   
    

 

 

 
    

CORPORATES – NON-INVESTMENT
GRADE – 0.4%

    

Financial Institutions – 0.2%

    

Banking – 0.1%

    

Standard Chartered PLC
6.409%, 1/30/17(a)(b)

     100        97,125   
    

 

 

 

Finance – 0.1%

    

Navient Corp.
4.875%, 6/17/19

     46        46,403   
    

 

 

 
       143,528   
    

 

 

 

Industrial – 0.2%

    

Basic – 0.1%

    

CF Industries, Inc.
4.95%, 6/01/43

     37        30,696   
    

 

 

 

Energy – 0.1%

    

Diamond Offshore Drilling, Inc.
4.875%, 11/01/43

     90        65,929   
    

 

 

 
       96,625   
    

 

 

 

Total Corporates – Non-Investment Grade
(cost $259,435)

       240,153   
    

 

 

 
     Shares        

PREFERRED STOCKS – 0.3%

    

Financial Institutions – 0.3%

    

Banking – 0.3%

    

US Bancorp
6.00%
(cost $182,155)

     6,550        167,745   
    

 

 

 

 

AB CORPORATE INCOME SHARES       25   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

GOVERNMENTS – SOVEREIGN
AGENCIES – 0.1%

    

Colombia – 0.1%

    

Ecopetrol SA
5.875%, 9/18/23
(cost $76,443)

   $ 77        82,582   
    

 

 

 
    

SHORT-TERM INVESTMENTS – 0.4%

    

Time Deposit – 0.4%

    

State Street Time Deposit
0.01%, 11/01/16
(cost $258,967)

     259        258,967   
    

 

 

 

Total Investments – 97.5%

    

(cost $57,886,766)

       59,572,565   

Other assets less liabilities – 2.5%

       1,514,334   
    

 

 

 

Net Assets – 100.0%

     $ 61,086,899   
    

 

 

 

CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)

 

                Rate Type        
Clearing Broker/
(Exchange)
  Notional
Amount
(000)
   

Termination

Date

   

Payments
made

by the Fund

    Payments
received
by the
Fund
    Unrealized
Appreciation/
(Depreciation)
 

Citigroup Global Markets, Inc./(CME Group)

  $     1,170        9/09/21        3 Month LIBOR        1.132   $ 11,254   

Citigroup Global Markets, Inc./(CME Group)

    200        11/02/26        3 Month LIBOR        1.714     (165

Citigroup Global Markets, Inc./(CME Group)

    215        5/02/34        3 Month LIBOR        3.363     49,417   

Citigroup Global Markets, Inc./(CME Group)

    60        11/04/44        3 Month LIBOR        3.049     13,976   

Citigroup Global Markets, Inc./(CME Group)

    60        5/05/45        3 Month LIBOR        2.562     7,267   

Citigroup Global Markets, Inc./(CME Group)

    60        6/02/46        3 Month LIBOR        2.186     1,876   

Citigroup Global Markets, Inc./(CME Group)

    690        7/15/46        3 Month LIBOR        1.783     (46,090

Citigroup Global Markets, Inc./(CME Group)

    270        9/02/46        3 Month LIBOR        1.736         (22,123

Citigroup Global Markets, Inc./(CME Group)

    50        11/02/46        3 Month LIBOR        2.086     (3
         

 

 

 
          $ 15,409   
         

 

 

 

 

26     AB CORPORATE INCOME SHARES

Portfolio of Investments


CREDIT DEFAULT SWAPS (see Note C)

 

Swap Counterparty &
Referenced Obligation
  Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
October 31,
2016
    Notional
Amount
(000)
    Market
Value
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation/
(Depreciation)
 

Sale Contracts

           

Credit Suisse International

           

Kohl’s Corp.,
6.250%, 12/15/17,
6/20/19*

    1.00     0.64   $     34      $     298      $     (242   $     540   

 

*   Termination date

INTEREST RATE SWAPS (see Note C)

 

                Rate Type        
Swap
Counterparty
  Notional
Amount
(000)
   

Termination

Date

   

Payments
made

by the Fund

    Payments
received
by the
Fund
    Unrealized
Appreciation/
(Depreciation)
 

Deutsche Bank AG

  $     600        6/10/43        3 Month LIBOR        3.191   $     158,118   

JPMorgan Chase Bank, NA

    350        6/10/33        3 Month LIBOR        3.027     61,050   
         

 

 

 
          $ 219,168   
         

 

 

 

 

(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 October 31, 2016, the aggregate market value of these securities amounted to $6,496,176 or 10.6% 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)   Variable rate coupon, rate shown as of October 31, 2016.

Glossary:

CME Chicago Mercantile Exchange

LIBOR London Interbank Offered Rates

REIT Real Estate Investment Trust

See notes to financial statements.

 

AB CORPORATE INCOME SHARES       27   

Portfolio of Investments


STATEMENT OF ASSETS & LIABILITIES

October 31, 2016 (unaudited)

 

Assets   

Investments in securities, at value (cost $57,886,766)

   $ 59,572,565   

Cash collateral due from broker

     95,584   

Receivable for investment securities sold

     841,375   

Interest receivable

     635,368   

Unrealized appreciation on interest rate swaps

     219,168   

Receivable for shares of beneficial interest sold

     93,576   

Receivable due from Adviser

     1,902   

Unrealized appreciation on credit default swaps

     540   
  

 

 

 

Total assets

     61,460,078   
  

 

 

 
Liabilities   

Dividends payable

     168,772   

Payable for investment securities purchased

     110,836   

Payable for shares of beneficial interest redeemed

     87,965   

Payable for variation margin on exchange-traded derivatives

     5,364   

Upfront premium received on credit default swaps

     242   
  

 

 

 

Total liabilities

     373,179   
  

 

 

 

Net Assets

   $ 61,086,899   
  

 

 

 
Composition of Net Assets   

Shares of beneficial interest, at par

   $ 54   

Additional paid-in capital

     59,657,248   

Undistributed net investment income

     34,483   

Accumulated net realized loss on investment transactions

     (525,802

Net unrealized appreciation on investments

     1,920,916   
  

 

 

 
   $     61,086,899   
  

 

 

 

Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 5,394,714 common shares outstanding)

   $ 11.32   
  

 

 

 

See notes to financial statements.

 

28     AB CORPORATE INCOME SHARES

Statement of Assets & Liabilities


STATEMENT OF OPERATIONS

Six Months Ended October 31, 2016 (unaudited)

 

Investment Income      

Interest

   $     1,070,648      

Dividends

     5,104      
  

 

 

    

Total investment income

      $     1,075,752   
     

 

 

 
Realized and Unrealized Gain (Loss) on Investment Transactions      

Net realized gain on:

     

Investment transactions

        701,284   

Swaps

        57,431   

Net change in unrealized appreciation/
depreciation of:

     

Investments

        110,306   

Swaps

        (49,294
     

 

 

 

Net gain on investment transactions

        819,727   
     

 

 

 

Net Increase in Net Assets from Operations

      $     1,895,479   
     

 

 

 

See notes to financial statements.

 

AB CORPORATE INCOME SHARES       29   

Statement of Operations


STATEMENT OF CHANGES IN NET ASSETS

 

 

     Six Months Ended
October 31, 2016
(unaudited)
    Year Ended
April 30,

2016
 
Increase (Decrease) in Net Assets from Operations     

Net investment income

   $ 1,075,752      $ 2,159,241   

Net realized gain (loss) on investment transactions

     758,715        (533,832

Net change in unrealized appreciation/depreciation of investments

     61,012        58,394   
  

 

 

   

 

 

 

Net increase in net assets from operations

     1,895,479        1,683,803   
Dividends to Shareholders from     

Net investment income

     (1,095,422     (2,163,375
Transactions in Shares of Beneficial Interest     

Net increase (decrease)

     (3,055,551     18,883,357   
  

 

 

   

 

 

 

Total increase (decrease)

     (2,255,494     18,403,785   
Net Assets     

Beginning of period

     63,342,393        44,938,608   
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $34,483 and $54,153, respectively)

   $     61,086,899      $     63,342,393   
  

 

 

   

 

 

 

See notes to financial statements.

 

30     AB CORPORATE INCOME SHARES

Statement of Changes in Net Assets


NOTES TO FINANCIAL STATEMENTS

October 31, 2016 (unaudited)

 

NOTE A

Significant Accounting Policies

AB Corporate Shares (the “Trust”) was organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated January 26, 2004. The Trust is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust operates as a “series” company currently offering three separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares and AB Taxable Multi-Sector Income Shares. Each portfolio is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Corporate Income Shares the (“Fund”).

Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.

1. Security Valuation

Portfolio securities are valued at their current market value determined on the basis of market quotations or, if market quotations are not readily available or are deemed unreliable, at “fair value” as determined in accordance with procedures established by and under the general supervision of the Trust’s Board of Trustees (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

 

AB CORPORATE INCOME SHARES       31   

Notes to Financial Statements


 

 

over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

 

32     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

2. Fair Value Measurements

In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.

 

   

Level 1—quoted prices in active markets for identical investments

   

Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

   

Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a

 

AB CORPORATE INCOME SHARES       33   

Notes to Financial Statements


 

 

valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2016:

 

Investments in
Securities:

  Level 1     Level 2     Level 3     Total  

Assets:

       

Corporates – Investment Grade

  $ – 0  –    $ 57,184,579      $ – 0  –    $ 57,184,579   

Governments – Treasuries

    – 0  –      1,170,664        – 0  –      1,170,664   

Quasi-Sovereigns

    – 0  –      467,875        – 0  –      467,875   

Corporates – Non-Investment Grade

    – 0  –      240,153        – 0  –      240,153   

Preferred Stocks

    167,745        – 0  –      – 0  –      167,745   

Governments – Sovereign Agencies

    – 0  –      82,582        – 0  –      82,582   

Short-Term Investments

    – 0  –      258,967        – 0  –      258,967   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

    167,745        59,404,820        – 0  –      59,572,565   

Other Financial Instruments(a):

       

Assets:

       

Centrally Cleared Interest Rate Swaps

    – 0  –      83,790        – 0  –      83,790 (b) 

Credit Default Swaps

    – 0  –      540        – 0  –      540   

Interest Rate Swaps

    – 0  –      219,168        – 0  –      219,168   

Liabilities:

       

Centrally Cleared Interest Rate Swaps

    – 0  –      (68,381     – 0  –      (68,381 )(b) 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total(c)

  $   167,745      $   59,639,937      $   – 0  –    $   59,807,682   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)   

Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/depreciation on the instrument.

 

(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.

 

(c)   

There were no transfers between any levels during the reporting period.

The Fund 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 Fund. 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

 

34     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

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 a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.

In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).

3. Taxes

It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.

In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.

4. Investment Income and Investment Transactions

Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income.

 

AB CORPORATE INCOME SHARES       35   

Notes to Financial Statements


 

 

5. Dividends and Distributions

Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.

NOTE B

Advisory Fee and Other Transactions with Affiliates

Under the terms of the Advisory Agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee paid by their investment adviser to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The Advisory Agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.

The Fund has entered into a Distribution Agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.

AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.

 

36     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

NOTE C

Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2016 were as follows:

 

     Purchases      Sales  

Investment securities (excluding
U.S. government securities)

   $     16,613,068       $     17,879,465   

U.S. government securities

     2,567,495         4,586,183   

The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:

 

Gross unrealized appreciation

   $     1,939,201   

Gross unrealized depreciation

     (253,402
  

 

 

 

Net unrealized appreciation

   $ 1,685,799   
  

 

 

 

1. Derivative Financial Instruments

The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.

The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:

 

   

Swaps

The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.

Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value

 

AB CORPORATE INCOME SHARES       37   

Notes to Financial Statements


 

 

at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received are recognized as cost or proceeds on the statement of assets and liabilities and are amortized on a straight line basis over the life of the contract. Amortized upfront premiums are included in net realized gain/(loss) from swaps on the statement of operations. Fluctuations in the value of swaps are recorded as a component of net change in unrealized appreciation/depreciation of swaps on the statement of operations.

Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.

At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps,

 

38     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Interest Rate Swaps:

The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.

In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).

During the six months ended October 31, 2016, the Fund held interest rate swaps for hedging purposes.

Credit Default Swaps:

The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and

 

AB CORPORATE INCOME SHARES       39   

Notes to Financial Statements


 

 

a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same reference obligation with the same counterparty. As of October 31, 2016, the Fund did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sale Contracts outstanding.

Credit default swaps may involve greater risks than if a Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.

Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.

 

40     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

During the six months ended October 31, 2016, the Fund held credit default swaps for non-hedging purposes.

The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain derivative financial instrument’s 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.

Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.

The Fund’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.

 

AB CORPORATE INCOME SHARES       41   

Notes to Financial Statements


 

 

During the six months ended October 31, 2016, the Fund had entered into the following derivatives:

 

    

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of
Assets and
Liabilities
Location

  Fair Value    

Statement of
Assets and
Liabilities
Location

  Fair
Value
 

Interest rate contracts

 

Receivable/Payable for variation margin on exchange-traded derivatives

 

$

83,790

 

Receivable/Payable for variation margin on exchange-traded derivatives

 

$

68,381

Interest rate contracts

 

Unrealized appreciation on interest rate swaps

 

 

219,168

  

   

Credit contracts

  Unrealized appreciation on credit default swaps     540       
   

 

 

     

 

 

 

Total

    $     303,498        $     68,381   
   

 

 

     

 

 

 

 

*   Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments.

 

Derivative Type

 

Location of Gain
or (Loss) on
Derivatives
Within Statement
of Operations

  Realized Gain
or (Loss) on
Derivatives
    Change in
Unrealized
Appreciation or
(Depreciation)
 

Interest rate contracts

  Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps   $ 57,212      $ (49,563

Credit contracts

  Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps     219        269   
   

 

 

   

 

 

 

Total

    $     57,431      $     (49,294
   

 

 

   

 

 

 

 

42     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2016:

 

Interest Rate Swaps:

  

Average notional amount

   $ 950,000   

Centrally Cleared Interest Rate Swaps:

  

Average notional amount

   $     1,463,571   

Credit Default Swaps:

  

Average notional amount of sale contracts

   $ 33,934   

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.

All derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2016:

 

Counterparty

  Derivative
Assets
Subject to a MA
    Derivative
Available
for Offset
    Cash
Collateral
Received*
    Security
Collateral
Received
    Net Amount of
Derivatives
Assets
 

OTC Derivatives:

  

       

Credit Suisse International

  $ 298      $ – 0  –    $ – 0  –    $ – 0  –    $ 298   

Deutsche Bank AG

    158,118        – 0  –      – 0  –      – 0  –      158,118   

JPMorgan Chase Bank, NA

    61,050        – 0  –      – 0  –      – 0  –      61,050   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $     219,466      $ – 0  –    $ – 0  –    $ – 0  –    $     219,466
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
         

Counterparty

  Derivative
Liabilities
Subject to a MA
    Derivative
Available
for Offset
    Cash
Collateral
Pledged*
    Security
Collateral
Pledged
    Net Amount of
Derivatives
Liabilities
 

Exchange-Traded Derivatives:

  

     

Citigroup Global Markets, Inc.**

  $ 5,364      $ – 0  –    $ (5,364   $ – 0  –    $ – 0  – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 5,364      $     – 0  –    $     (5,364   $     – 0  –    $ – 0  – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*   The actual collateral received/pledged is more than the amount reported due to over-collateralization.

 

**   Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at October 31, 2016.

 

^   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.

 

AB CORPORATE INCOME SHARES       43   

Notes to Financial Statements


 

 

NOTE D

Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

 

            
     Shares           Amount        
     Six Months Ended
October 31, 2016
(unaudited)
   

Year Ended
April 30,

2016

         

Six Months Ended
October 31, 2016

(unaudited)

    Year Ended
April 30,
2016
       
  

 

 

   
Class A             

Shares sold

     422,498        2,748,692        $ 4,801,570      $ 30,364,556     

 

   

Shares redeemed

     (689,261     (1,043,837       (7,857,121     (11,481,199  

 

   

Net increase (decrease)

     (266,763     1,704,855        $ (3,055,551   $ 18,883,357     

 

   

NOTE E

Risks Involved in Investing in the Fund

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Fund’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Fund’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.

Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.

Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.

Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.

 

44     AB CORPORATE INCOME SHARES

Notes to Financial Statements


 

 

Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.

NOTE F

Distributions to Shareholders

The tax character of distributions to be paid for the year ending April 30, 2017 will be determined at the end of the current fiscal year.

The tax character of distributions paid during the fiscal years ended April 30, 2016 and April 30, 2015 were as follows:

 

     2016      2015  

Distributions paid from:

  

Ordinary income

   $     2,163,375       $     1,671,364   
  

 

 

    

 

 

 

Total distributions paid

   $ 2,163,375       $ 1,671,364   
  

 

 

    

 

 

 

As of April 30, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 248,985   

Accumulated capital and other losses

         (1,270,806 )(a) 

Unrealized appreciation/(depreciation)

     1,828,796 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 806,975 (c) 
  

 

 

 

 

(a)   

On April 30, 2016, the Fund had a capital loss carryforward of $704,752. During the fiscal year, the Fund utilized $18,316 of capital loss carryforwards to offset current year net realized gains. On April 30, 2016, the Fund had a post-October short-term capital loss deferral of $196,456 and a post-October long-term capital loss deferral of $369,598. These losses are deemed to arise on May 1, 2016.

 

(b)   

The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the tax treatment of swaps.

 

(c)   

The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable.

For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-enactment capital losses must be utilized prior to the pre-enactment capital losses, which are subject to expiration. Post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of April 30, 2016, the Fund

 

AB CORPORATE INCOME SHARES       45   

Notes to Financial Statements


 

 

had a net short-term capital loss carryforward of $704,752 which will expire in 2018.

NOTE G

New Accounting Pronouncements

In May 2015, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2015-07 (the “ASU”) which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share practical expedient but do not utilize that practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Management has evaluated the implications of these changes and there will be no impact to the financial statements.

NOTE H

Other

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.

NOTE I

Subsequent Events

Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.

 

46     AB CORPORATE INCOME SHARES

Notes to Financial Statements


FINANCIAL HIGHLIGHTS

Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period

 

    Six Months
Ended
October 31,
2016
(unaudited)
    Year Ended April 30,  
      2016     2015     2014     2013     2012  
 

 

 

 

Net asset value, beginning of period

    $  11.19        $  11.36        $  11.13        $  11.42        $  10.83        $  10.59   
 

 

 

 

Income From Investment Operations

           

Net investment income(a)

    .19        .39        .43        .42        .43        .46   

Net realized and unrealized gain (loss) on investment transactions

    .17        (.16     .22        (.29     .59        .27   
 

 

 

 

Net increase in net asset value from operations

    .36        .23        .65        .13        1.02        .73   
 

 

 

 

Less: Dividends

           

Dividends from net investment income

    (.23     (.40     (.42     (.42     (.43     (.49
 

 

 

 

Net asset value, end of period

    $  11.32        $  11.19        $  11.36        $  11.13        $  11.42        $  10.83   
 

 

 

 

Total Return

           

Total investment return based on net asset value(b)

    2.92  %      2.12  %      5.94  %*      1.31  %*      9.53  %*      7.02  % 

Ratios/Supplemental Data

           

Net assets, end of period (000’s omitted)

    $61,087        $63,342        $44,939        $45,989        $42,799        $46,848   

Ratio to average net assets of:

           

Net investment income

    3.37  %^      3.60  %      3.76  %      3.89  %      3.79  %      4.42  % 

Portfolio turnover rate

    31  %      59  %      42  %      61  %      89  %      91  % 

 

(a)   Based on average shares outstanding.

 

(b)   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 the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized.

 

*   Includes the impact of proceeds received and credited to the Fund resulting from class action settlements, which enhanced the Fund’s performance for the years ended April 30, 2015, April 30, 2014 and April 30, 2013 by 0.01%, 0.05% and 0.03%, respectively.

 

^   Annualized.

See notes to financial statements.

 

AB CORPORATE INCOME SHARES       47   

Financial Highlights


BOARD OF TRUSTEES

 

Marshall C. Turner, Jr.(1) , Chairman

John H. Dobkin(1)

Michael J. Downey(1)

William H. Foulk, Jr.(1)

D. James Guzy(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

Philip L. Kirstein,

Senior Vice President and Independent Compliance Officer

Douglas J. Peebles, Senior

Vice President

Shawn E. Keegan(2), Vice President

  

Ashish C. Shah(2), Vice President

Emilie D. Wrapp, Secretary

Joseph J. Mantineo, Treasurer and Chief Financial Officer

Phyllis J. Clarke, Controller

Vincent S. Noto, Chief Compliance Officer

 

Custodian and Accounting Agent

State Street Bank and Trust Company
State Street Corporation CCB/5
1 Iron Street
Boston, MA 02210

 

Principal Underwriter

AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105

 

Transfer Agent

AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
Toll-Free (800) 221-5672

  

Legal Counsel

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

 

Independent Registered Public Accounting Firm

Ernst & Young LLP

5 Times Square

New York, NY 10036

 

(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 Trust’s Portfolio are made by the Corporate Income Shares Investment Team. Messrs. Shawn E. Keegan and Ashish C. Shah are the investment professionals primarily responsible for the day-to-day management of the Trust’s Portfolio.

 

48     AB CORPORATE INCOME SHARES

Board of Trustees


 

 

Information Regarding the Review and Approval of the Fund’s Advisory Agreement

The disinterested trustees (the “trustees”) of AB Corporate Shares (the “Fund”) unanimously approved the continuance of the Advisory Agreement with the Adviser in respect of AB Corporate Income Shares (the “Portfolio”) at a meeting held on
November 3-5, 2015.

Prior to approval of the continuance of the Advisory Agreement in respect of the Portfolio, the trustees 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 trustees also reviewed an independent evaluation prepared by the Fund’s Senior Officer (who is also the Fund’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee (zero) for the Portfolio was reasonable. The trustees also discussed the proposed continuance in private sessions with counsel and the Fund’s Senior Officer.

The trustees noted that the Portfolio is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The trustees also noted that no advisory fee is payable by the Portfolio, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Portfolio’s ordinary expenses. The trustees noted that the Fund acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The trustees further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Portfolio as an investment vehicle for their clients.

The trustees considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as trustees or directors 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 trustees and its responsiveness, frankness and attention to concerns raised by the trustees 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 trustees noted that they have four regular meetings each

 

AB CORPORATE INCOME SHARES       49   


 

 

year, at each of which they receive presentations from the Adviser on the investment results of the Portfolio and review extensive materials and information presented by the Adviser.

The trustees also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the trustees did not identify any particular information that was all-important or controlling, and different trustees may have attributed different weights to the various factors. The trustees determined that the selection of the Adviser to manage the Portfolio, and the overall arrangements between the Portfolio 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 trustees considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the trustees’ determination included the following:

Nature, Extent and Quality of Services Provided

The trustees 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 Portfolio. They also noted the professional experience and qualifications of the Portfolio’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Portfolio’s other service providers, also was considered. The trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement.

Costs of Services Provided and Profitability

The trustees reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2013 and 2014 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s Senior Officer. The trustees considered that while the Adviser does not receive any advisory fee or expense reimbursement from the Portfolio, it does receive fees paid by the Sponsors. They also noted that the Adviser bears certain costs in providing services to the Portfolio and in paying its ordinary expenses. The trustees 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 trustees noted that the profitability information reflected all revenues and expenses of the Adviser’s

 

50     AB CORPORATE INCOME SHARES


 

 

relationship with the Portfolio. The trustees 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, including, in the case of the Portfolio, the fact that it does not pay an advisory fee. The trustees focused on the profitability of the Adviser’s relationship with the Portfolio before taxes. The trustees noted that the Adviser’s relationship with the Portfolio was not profitable to it in 2013 or 2014.

Fall-Out Benefits

The trustees considered the other benefits to the Adviser and its affiliates from their relationships with the Portfolio. The trustees noted that the Adviser is compensated by the Sponsors. The trustees understood that the Adviser might also derive reputational and other benefits from its association with the Portfolio.

Investment Results

In addition to the information reviewed by the trustees in connection with the meeting, the trustees receive detailed performance information for the Portfolio at each regular Board meeting during the year. At the November 2015 meeting, the trustees reviewed information prepared by Broadridge showing the performance of the Portfolio as compared with that of funds selected by Broadridge (the “Performance Universe”), and information prepared by the Adviser showing the Portfolio’s performance as compared with the Barclays U.S. Credit Bond Index (the “Index”), in each case for the 1-, 3- and 5-year periods ended July 31, 2015, and (in the case of comparisons with the Index) the period since inception (December 2006 inception). The trustees noted that, on a gross return basis, the Portfolio was in the 4th quintile of the Performance Universe for the 1-year period, and in the 2nd quintile of the Performance Universe for the 3- and 5-year periods. The Portfolio outperformed the Index in all periods. The trustees were cognizant that the Portfolio was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Portfolio. The trustees had asked the Adviser to provide information showing the weighting of the Portfolio in representative SMAs and the overall performance of those SMAs versus their stated benchmarks. The materials provided to the trustees in respect of the Portfolio included its weighting in the AllianceBernstein Strategic Research Balanced SMA and the performance of that SMA relative to a blended index consisting of 50% Standard & Poor’s 500 Index and 50% Barclays Capital Government/Credit Index (the “BCG/CI”) and against the BCG/CI. The trustees noted that the

 

AB CORPORATE INCOME SHARES       51   


 

 

SMA showed generally favorable performance relative to its two benchmarks. Based on their review, the trustees concluded that the Portfolio’s relative performance was satisfactory.

Advisory Fees

The trustees considered the advisory fee rate paid by the Portfolio to the Adviser (zero) and information provided by Broadridge showing the fees paid by other fund families used in wrap fee programs similar to that of the Portfolio. The trustees 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 trustees noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Portfolio. The trustees reviewed the fee arrangements between the Adviser and each of the current Sponsors and noted that such fees were negotiated on an arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the trustees acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Portfolio paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Portfolio (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to portfolio management at the Portfolio level is the same for all Sponsors. The trustees also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.

The Adviser informed the trustees that there were no institutional products managed by it that have a substantially similar investment style.

Since the Portfolio does not bear ordinary expenses, the trustees did not consider comparative expense information.

Economies of Scale

Since the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Portfolio and the Portfolio’s expense ratio is zero, the trustees did not consider the extent to which fee levels in the Advisory Agreement reflect economies of scale. They did note, however, that the fee payable to the Adviser by the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.

 

52     AB CORPORATE INCOME SHARES


THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS

AB FAMILY OF FUNDS

 

US EQUITY

 

US Core

Core Opportunities Fund

Select US Equity Portfolio

US Growth

Concentrated Growth Fund

Discovery Growth Fund

Growth Fund

Large Cap Growth Fund

Small Cap Growth Portfolio

US Value

Discovery Value Fund

Equity Income Fund

Growth & Income Fund

Small Cap Value Portfolio

Value Fund

INTERNATIONAL/ GLOBAL EQUITY

 

International/Global Core

Global Core Equity Portfolio

Global Equity & Covered Call Strategy Fund

International Portfolio

International Strategic Core Portfolio

Sustainable Global Thematic Fund*

Tax-Managed International Portfolio

International/Global Growth

International Growth Fund

International/Global Value

Asia ex-Japan Equity Portfolio

International Value Fund

FIXED INCOME

 

Municipal

High Income Municipal Portfolio

Intermediate California Municipal Portfolio

Intermediate Diversified Municipal Portfolio

Intermediate New York Municipal Portfolio

FIXED INCOME (continued)

 

Municipal Bond Inflation Strategy

Tax-Aware Fixed Income Portfolio

National Portfolio

Arizona Portfolio

California Portfolio

Massachusetts Portfolio

Michigan Portfolio

Minnesota Portfolio

New Jersey Portfolio

New York Portfolio

Ohio Portfolio

Pennsylvania Portfolio

Virginia Portfolio

Taxable

Bond Inflation Strategy

Global Bond Fund

High Income Fund

High Yield Portfolio

Income Fund

Intermediate Bond Portfolio

Limited Duration High Income Portfolio

Short Duration Portfolio

ALTERNATIVES

 

All Market Real Return Portfolio

Credit Long/Short Portfolio

Global Real Estate Investment Fund

Long/Short Multi-Manager Fund

Multi-Manager Alternative Strategies Fund

Select US Long/Short Portfolio

Unconstrained Bond Fund

MULTI-ASSET

 

All Market Income Portfolio

Emerging Markets Multi-Asset Portfolio

Global Risk Allocation Fund

MULTI-ASSET (continued)

 

Target-Date

Multi-Manager Select Retirement Allocation Fund

Multi-Manager Select 2010 Fund

Multi-Manager Select 2015 Fund

Multi-Manager Select 2020 Fund

Multi-Manager Select 2025 Fund

Multi-Manager Select 2030 Fund

Multi-Manager Select 2035 Fund

Multi-Manager Select 2040 Fund

Multi-Manager Select 2045 Fund

Multi-Manager Select 2050 Fund

Multi-Manager Select 2055 Fund

Wealth Strategies

Balanced Wealth Strategy

Conservative Wealth Strategy

Wealth Appreciation Strategy

Tax-Managed Balanced Wealth Strategy

Tax-Managed Wealth Appreciation Strategy

CLOSED-END FUNDS

 

AB Multi-Manager Alternative Fund

Alliance California Municipal Income Fund

AllianceBernstein Global High Income Fund

AllianceBernstein National Municipal Income Fund

 

We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

* Prior to November 1, 2016, the Fund was named Global Thematic Growth Fund.

 

AB CORPORATE INCOME SHARES       53   

AB Family of Funds


NOTES

 

 

54     AB CORPORATE INCOME SHARES


NOTES

 

 

AB CORPORATE INCOME SHARES       55   


NOTES

 

 

56     AB CORPORATE INCOME SHARES


NOTES

 

 

AB CORPORATE INCOME SHARES       57   


NOTES

 

 

58     AB CORPORATE INCOME SHARES


NOTES

 

 

AB CORPORATE INCOME SHARES       59   


NOTES

 

 

60     AB CORPORATE INCOME SHARES


LOGO

AB CORPORATE INCOME SHARES

1345 Avenue of the Americas

New York, NY 10105

800.221.5672

 

CIS-0152-1016                 LOGO


OCT    10.31.16

LOGO

 

SEMI-ANNUAL REPORT

AB MUNICIPAL INCOME SHARES


Investment Products Offered

 

•Are Not FDIC Insured

•May Lose Value

•Are Not Bank Guaranteed

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.

You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227-4618.

The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.

AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.

The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.


December 15, 2016

 

Semi-Annual Report

This report provides management’s discussion of fund performance for AB Municipal Income Shares (the “Fund”) for the semi-annual reporting period ended October 31, 2016. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by AllianceBernstein L.P. (the “Adviser”).

Investment Objectives and Policies

The investment objective of the Fund is to earn the highest level of current income, exempt from federal taxation, that is available consistent with what the Adviser considers to be an appropriate level of risk. The Fund pursues its objective by investing principally in high-yielding municipal securities that may be non-investment grade or investment grade. As a matter of fundamental policy, the Fund invests, under normal circumstances, at least 80% of its net assets in municipal securities that pay interest that is exempt from federal income tax. These securities may pay interest that is subject to the federal alternative minimum tax for certain taxpayers.

The Adviser selects securities for purchase or sale based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into

account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.

The Fund may invest without limit in lower-rated securities (“junk bonds”), which may include securities having the lowest rating, and in unrated securities that, in the Adviser’s judgment, would be lower-rated securities if rated. The Fund may invest in fixed-income securities with any maturity or duration. The Fund will seek to increase income for shareholders by investing in longer maturity bonds. Consistent with its objective of seeking a higher level of income, the Fund may experience greater volatility and a higher risk of loss of principal than other municipal funds.

The Fund may also invest in: tender option bond transactions (“TOBs”); forward commitments; zero-coupon municipal securities and variable, floating and inverse floating-rate municipal securities; certain types of mortgage-related securities; and derivatives, such as options, futures contracts, forwards and swaps.

The Fund may make short sales of securities or maintain a short position, and may use other investment techniques. The Fund may use leverage for investment purposes to increase income through the use of TOBs and derivative instruments, such as interest rate swaps.

 

 

AB MUNICIPAL INCOME SHARES       1   


Investment Results

The table on page 7 shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays Municipal Bond Index, for the six- and 12-month periods ended October 31, 2016.

The Fund outperformed the benchmark for both periods. The Fund is used generally to provide exposure to lower-rated municipal bonds within separately managed account strategies. As such, the Fund is overweight in lower-rated (non-investment grade) bonds relative to the broad municipal market, as represented by the benchmark (which is composed of 100% investment grade bonds). This overweight was beneficial to relative returns during both periods.

For the six-month period, security selection within the health care sector contributed the most to performance, relative to the benchmark. Security selection within the local general obligation, education and special tax sectors also contributed, as did overweights in the health care sector. Security selection in the insured sector had a negative impact on returns. For the 12-month period, security selection within the health care sector again contributed the most to performance. Security selection within the education, transportation, industrials and special tax sectors, as well as an overweight in health care, also contributed. Security selection in the housing and insured sectors detracted from returns.

The Fund’s use of derivatives in the form of credit default swaps for investment purposes had no material impact on absolute performance during the six-month period, and added to performance for the 12-month period. Interest rate swaps used for hedging and investment purposes, and inflation (“CPI”) swaps, used for hedging purposes, had no material impact on performance during either period.

Market Review and Investment Strategy

After generally declining for the first half of the 12-month period, municipal bond yields for most maturities rose over the latter half. During the six-month period ended October 31, 2016, yields rose the most for short-maturity bonds as markets reflected a higher probability of the US Federal Reserve raising its target for the Federal Funds rate, and as a change in regulations for money market funds led to reduced demand for very short-term instruments. As a result, over the course of the 12-month period, yields were lower by 0.25% to 0.50% for bonds maturing beyond seven years, and those shorter in duration were little changed or increased in yield by up to 0.50%. Given how the Fund is used within the separately managed account strategies, it tends to be overweight longer-maturity bonds; this positioning benefited performance as longer-maturity bond yields declined more than shorter-

 

 

2     AB MUNICIPAL INCOME SHARES


maturity bond yields. Given the low level of yields and investors’ strong demand for income, lower-rated bonds performed well and credit spreads generally tightened over both periods. Municipal credit fundamentals remained consistent with continued slow economic growth as tax revenues continued to increase, though in some cases at a slower rate, and default rates remained low across the broad municipal market.

On November 8, 2016, Donald Trump was elected as the 45th president of the United States, and the Congressional election outcome resulted in the Republican Party maintaining control of both the House of Representatives and the Senate. The Adviser believes that it will take time before the world has a clearer picture of the short- and long-term impact of the elections on the US economy and markets in general. The Adviser continues to monitor the markets, including for potential market volatility.

The Fund may purchase municipal securities that are insured under

policies issued by certain insurance companies. Historically, insured municipal securities typically received a higher credit rating, which meant that the issuer of the securities paid a lower interest rate. As a result of declines in the credit quality and associated downgrades of most fund insurers, insurance has less value than it did in the past. The market now values insured municipal securities primarily based on the credit quality of the issuer of the security with little value given to the insurance feature. In purchasing such insured securities, the Adviser evaluates the risk and return of municipal securities through its own research. If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities insured by the insurance company may decline. As of October 31, 2016, the Fund’s percentages of investments in municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity were 2.38% and 0.03%, respectively.

 

 

AB MUNICIPAL INCOME SHARES       3   


DISCLOSURES AND RISKS

 

Benchmark Disclosure

The Bloomberg Barclays Municipal Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays Municipal Bond Index represents the performance of the long-term tax-exempt bond market consisting of investment-grade bonds. An investor cannot invest directly in an index, and its results are not indicative of the performance for any specific investment, including the Fund.

A Word About Risk

Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.

Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. Investments in fixed-income securities with lower ratings tend to have a higher probability that an issuer will default or fail to meet its payment obligations.

Municipal Market Risk: This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes or earthquakes. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.

Below Investment Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price

 

(Disclosures, Risks and Note about Historical Performance continued on next page)

 

4     AB MUNICIPAL INCOME SHARES

Disclosures and Risks


DISCLOSURES AND RISKS

(continued from previous page)

 

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.

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 Fund may be subject to heightened interest rate risk due to rising interest rates as the current period of historically low interest rates ends. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.

Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.

Leverage Risk: To the extent the Fund uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.

Liquidity Risk: Liquidity risk exists when particular investments, such as lower-rated securities, are difficult to purchase or sell, possibly preventing the Fund from selling out of these illiquid securities at an advantageous price. The Fund is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.

Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.

Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.

These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.

An Important Note About Historical Performance

The performance shown on the following pages represents past performance and does not guarantee future results. Current

 

(Disclosures, Risks and Note about Historical Performance continued on next page)

 

AB MUNICIPAL INCOME SHARES       5   

Disclosures and Risks


DISCLOSURES AND RISKS

(continued from previous page)

 

performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227-4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.

 

6     AB MUNICIPAL INCOME SHARES

Disclosures and Risks


HISTORICAL PERFORMANCE

 

        

THE FUND VS. ITS BENCHMARK

PERIODS ENDED OCTOBER 31, 2016 (unaudited)

  NAV Returns        
  6 Months        12 Months         
AB Municipal Income Shares     2.09%           8.30%     

 

 
Bloomberg Barclays Municipal Bond Index     0.49%           4.06%     

 

 
        

See Disclosures, Risks and Note about Historical Performance on pages 4-6.

(Historical Performance continued on next page)

 

AB MUNICIPAL INCOME SHARES       7   

Historical Performance


HISTORICAL PERFORMANCE

(continued from previous page)

 

 

AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2016 (unaudited)  
     NAV Returns  
  

1 Year

     8.30

5 Years

     8.31

Since Inception*

     7.58
  

AVERAGE ANNUAL RETURNS

AS OF THE MOST RECENT CALENDAR QUARTER-END
SEPTEMBER 30, 2016 (unaudited)

       
     NAV Returns  
  

1 Year

     11.13

5 Years

     8.65

Since Inception*

     7.95

The prospectus fee table shows the fees and the total fund operating expenses of the Fund as 0.00% (excluding interest expense of 0.01%) because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.

 

*   Inception date: 9/1/2010.

See Disclosures, Risks and Note about Historical Performance on pages 4-6.

 

8     AB MUNICIPAL INCOME SHARES

Historical Performance


EXPENSE EXAMPLE

(unaudited)

 

As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

     Beginning
Account Value
May 1, 2016
     Ending
Account Value
October 31, 2016
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Actual

   $     1,000       $     1,020.90       $     0.05         0.01

Hypothetical**

   $ 1,000       $ 1,025.16       $ 0.05         0.01
*   Expenses are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates.

 

**   Assumes 5% annual return before expenses.

 

AB MUNICIPAL INCOME SHARES       9   

Expense Example


PORTFOLIO SUMMARY

October 31, 2016 (unaudited)

 

PORTFOLIO STATISTICS

Net Assets ($mil): $1,454.4

 

LOGO

 

*   All data are as of October 31, 2016. The Fund’s quality rating breakdown is expressed as a percentage of the Fund’s total investments in municipal securities and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details). The quality ratings are determined by using the Standard & Poor’s Ratings Services (“S&P”), Moody’s Investors Services, Inc. (“Moody’s”) and Fitch Ratings, Ltd. (“Fitch”). The Fund considers the credit ratings issued by S&P, Moody’s and Fitch and uses the highest rating issued by the agencies. These ratings are a measure of the quality and safety of a bond or portfolio, based on the issuer’s financial condition. AAA is the highest (best) and D is the lowest (worst). If applicable, the Pre-refunded category includes bonds which are secured by U.S. government securities and therefore are deemed high-quality investment-grade by the Adviser. If applicable, Not Applicable (N/A) includes non-creditworthy investments, such as equities, currency contracts, futures and options. If applicable, the Not Rated category includes bonds that are not rated by a nationally recognized statistical rating organization. The Adviser evaluates the creditworthiness of non-rated securities based on a number of factors including, but not limited to, cash flows, enterprise value and economic environment.

 

10     AB MUNICIPAL INCOME SHARES

Portfolio Summary


PORTFOLIO OF INVESTMENTS

October 31, 2016 (unaudited)

 

     Principal
Amount
(000)
    U.S. $ Value  

 

 

MUNICIPAL OBLIGATIONS – 102.3%

    

Long-Term Municipal Bonds – 99.9%

    

Alabama – 3.2%

    

Alabama Special Care Facilities Financing Authority-Birmingham AL
(Methodist Home for the Aging) Series 2016-2015-1
5.75%, 6/01/35-6/01/45

   $ 4,650      $ 5,182,415   

County of Jefferson AL
(County of Jefferson AL Sch Warrants)
Series 2004A
5.00%, 1/01/24

     2,000        2,018,140   

County of Jefferson AL Sewer Revenue
Series 2013D
6.00%, 10/01/42

     11,645        13,852,077   

Cullman County Health Care Authority
(Cullman Regional Medical Center, Inc.)
Series 2009A
7.00%, 2/01/36

     400        431,152   

Infirmary Health System Special Care Facilities Financing Authority of Mobile
Series 2016A
5.00%, 2/01/36-2/01/41

     10,000        11,361,650   

Special Care Facilities Financing Authority of the City of Pell City Alabama
(Noland Health Services, Inc.)
Series 2012
5.00%, 12/01/31

     3,000        3,349,440   

Water Works Board of the City of Birmingham (The)
Series 2016B
5.00%, 1/01/35-1/01/36

     8,740        10,342,558   
    

 

 

 
       46,537,432   
    

 

 

 

Alaska – 0.7%

    

City of Koyukuk AK
Series 2011
7.75%, 10/01/41 (Pre-refunded/ETM)

     100        119,158   

State of Alaska International Airports System
Series 2016B
5.00%, 10/01/33-10/01/34

     9,000        10,540,965   
    

 

 

 
       10,660,123   
    

 

 

 

Arizona – 3.0%

    

Arizona Health Facilities Authority
(Beatitudes Campus (The))
Series 2007
5.10%, 10/01/22

     160        160,333   

5.20%, 10/01/37

     5,070        5,076,439   

 

AB MUNICIPAL INCOME SHARES       11   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Arizona Sports & Tourism Authority
Series 2012A
5.00%, 7/01/29

   $ 3,670      $ 4,095,940   

City of Mesa AZ Utility System Revenue
Series 2016
4.00%, 7/01/32

     5,000        5,531,450   

Glendale Industrial Development Authority
(Royal Oaks Life Care Community)
Series 2016
5.00%, 5/15/39

     2,700        3,085,101   

Industrial Development Authority of the City of
Phoenix (The)
(Great Hearts Academies)
Series 2014
5.00%, 7/01/44

     3,875        4,312,022   

Maricopa County Industrial Development Authority
(Banner Health Obligated Group)
Series 2016A
5.00%, 1/01/33-1/01/35(a)

     16,100        19,127,897   

Mohave County Industrial Development Authority
(Mohave Prison LLC)
Series 2008
8.00%, 5/01/25

     100        100,000   

Quechan Indian Tribe of Fort Yuma
Series 2012A
9.75%, 5/01/25

     100        114,038   

Salt Verde Financial Corp.
(Citigroup, Inc.)
Series 2007
5.00%, 12/01/37

     150        179,592   

University of Arizona
Series 2014
5.00%, 8/01/33

     1,000        1,179,620   
    

 

 

 
       42,962,432   
    

 

 

 

California – 7.3%

  

Abag Finance Authority for Nonprofit Corps.
(Episcopal Senior Communities)
Series 2011
6.125%, 7/01/41

     100        114,996   

Anaheim Housing & Public Improvements Authority
(Anaheim Electric Utility Fund)
Series 2016A
5.00%, 10/01/33-10/01/36

     7,900        9,057,825   

 

12     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Anaheim Public Financing Authority
(City of Anaheim CA Lease)
Series 2014A
5.00%, 5/01/31

   $ 1,460      $ 1,770,221   

Bay Area Toll Authority
Series 2013S
5.00%, 4/01/27

     1,000        1,210,440   

California Educational Facilities Authority
(Chapman University)
Series 2015
5.00%, 4/01/31-4/01/34

     11,845        13,905,802   

California Educational Facilities Authority
(University of the Pacific)
Series 2012A
5.00%, 11/01/42

     100        113,479   

California Municipal Finance Authority
Series 2011B
7.75%, 4/01/31 (Pre-refunded/ETM)

     85        104,513   

California Municipal Finance Authority
(Goodwill Industries of Sacramento Valley & Northern Nevada, Inc.)
Series 2012A
6.625%, 1/01/32(b)

     1,000        1,122,740   

Series 2014
5.00%, 1/01/35

     1,335        1,358,176   

California Municipal Finance Authority
(Partnerships to Uplift Communities Lakeview Terrace and Los Angeles Project)
Series 2012A
5.30%, 8/01/47

     1,025        1,072,365   

California Municipal Finance Authority
(Rocketship Education)
Series 2014A
7.00%, 6/01/34

     1,200        1,353,132   

7.25%, 6/01/43

     2,075        2,337,695   

California Municipal Finance Authority
(Rocketship Seven-Alma Academy)
Series 2012A
6.25%, 6/01/43

     765        833,896   

California Pollution Control Financing Authority
(Poseidon Resources Channelside LP)
Series 2012
5.00%, 11/21/45(b)

     6,405        7,116,467   

California School Finance Authority
(Partnerships to Uplift Communities Valley Project)
Series 2014A
6.40%, 8/01/34

     3,000        3,422,400   

 

AB MUNICIPAL INCOME SHARES       13   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

California School Finance Authority
(TRI Valley Learning Corp.)
Series 2012A
7.00%, 6/01/47

   $ 730      $ 568,203   

California Statewide Communities Development Authority
(Eskaton Properties, Inc. Obligated Group)
Series 2012
5.25%, 11/15/34

     530        586,419   

California Statewide Communities Development Authority
(Front Porch Communities & Services)
Series 2007A
5.125%, 4/01/37(b)

     100        100,788   

California Statewide Communities Development Authority
(Moldaw Residences)
Series 2014A
5.25%, 11/01/44

     1,200        1,338,252   

California Statewide Communities Development Authority
(Rocketship Four-Mosaic Elementary)
Series 2011A
8.50%, 12/01/41

     100        118,271   

California Statewide Communities Development Authority
(Rocklin Academy)
Series 2011A
8.25%, 6/01/41

     140        165,750   

California Statewide Communities Development Authority
(Terraces at San Joaquin Gardens (The))
Series 2012A
6.00%, 10/01/47

     250        278,305   

City of Roseville CA
(HP Campus Oaks Community Facilities District No 1)
Series 2016
5.50%, 9/01/46

     1,000        1,082,790   

City of San Buenaventura CA
(Community Memorial Health System)
Series 2011
7.50%, 12/01/41

     100        119,536   

City of San Jose CA Airport Revenue
AMBAC
Series 2007A
5.00%, 3/01/37

     100        101,227   

 

14     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Los Angeles CA Dept Wtr Pwr
5.00%, 7/01/31(c)

   $ 1,000      $ 1,211,880   

Municipal Improvement Corp. of Los Angeles
(Municipal Improvement Corp. of Los Angeles Lease)
Series 2016B
4.00%, 11/01/33

     7,000        7,638,540   

Oakland Unified School District/Alameda County
Series 2015A
5.00%, 8/01/30-8/01/40

     6,215        7,391,432   

San Francisco City & County Redevelopment Agency
(Mission Bay South Public Imp)
Series 2013A
5.00%, 8/01/31

     1,000        1,116,510   

San Francisco City & County Redevelopment Agency
(Successor Agency to the Redev of San Francisco – Mission Bay South)
NATL Series 2016C
5.00%, 8/01/41

     1,250        1,479,537   

San Joaquin Hills Transportation Corridor Agency
Series 2014A
5.00%, 1/15/44

     1,450        1,648,070   

Series 2014B
5.25%, 1/15/44

     1,000        1,149,890   

Southern California Logistics Airport Authority
XLCA
Series 2006
5.00%, 12/01/36-12/01/43

     1,685        1,648,169   

State of California
Series 2016
4.00%, 9/01/33-9/01/35

     18,000        19,721,720   

5.00%, 9/01/34

     7,500        9,008,700   

University of California CA Revenues
5.00%, 5/15/33(c)

     1,000        1,191,650   

West Contra Costa Healthcare District
Series 2011
6.25%, 7/01/42

     3,375        3,862,890   
    

 

 

 
       106,422,676   
    

 

 

 

Colorado – 1.3%

  

Colorado Educational & Cultural Facilities Authority
(Skyview Academy)
Series 2014
5.125%, 7/01/34(b)

     775        833,063   

 

AB MUNICIPAL INCOME SHARES       15   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

5.375%, 7/01/44(b)

   $ 1,360      $ 1,445,367   

Colorado Health Facilities Authority
(Catholic Health Initiatives)
Series 2013
5.25%, 1/01/40

     5,910        6,635,039   

Colorado Health Facilities Authority
(Evangelical Lutheran Good Samaritan Obligated Group)
Series 2012
5.00%, 12/01/42

     2,910        3,144,662   

Colorado Health Facilities Authority
(Parkview Medical Center, Inc. Obligated Group)
Series 2015B
5.00%, 9/01/30

     1,150        1,359,450   

Colorado Health Facilities Authority
(Sunny Vista Living Center)
Series 2015A
6.25%, 12/01/50(b)

     1,000        1,097,160   

Copperleaf Metropolitan District No 2
Series 2015
5.75%, 12/01/45

     1,000        1,048,450   

E-470 Public Highway Authority
Series 2010C
5.375%, 9/01/26

     1,000        1,110,860   

Plaza Metropolitan District No 1
Series 2013
5.00%, 12/01/40(b)

     1,500        1,596,825   

Regional Transportation District
(Denver Transit Partners LLC)
Series 2010
6.00%, 1/15/41

     200        226,628   

Sterling Ranch Community Authority Board
Series 2015A
5.75%, 12/01/45

     1,000        1,006,290   
    

 

 

 
       19,503,794   
    

 

 

 

Connecticut – 1.1%

    

Connecticut State Health & Educational Facility Authority
(Quinnipiac University)
Series 2015L
5.00%, 7/01/45

     5,750        6,536,600   

Connecticut State Health & Educational Facility Authority
(Seabury Retirement Community)
Series 2016A
5.00%, 9/01/46-9/01/53(b)

     2,475        2,651,140   

 

16     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

State of Connecticut
Series 2013E
5.00%, 8/15/31(c)

   $ 1,000      $ 1,170,700   

State of Connecticut Special Tax Revenue
Series 2012
5.00%, 1/01/31

     5,000        5,830,600   
    

 

 

 
       16,189,040   
    

 

 

 

Delaware – 0.3%

    

Delaware State Economic Development Authority
(Delaware Military Academy, Inc.)
Series 2014
5.00%, 9/01/44-9/01/49

     2,440        2,680,105   

Delaware State Economic Development Authority
(Newark Charter School, Inc.)
Series 2012
5.00%, 9/01/42

     1,310        1,461,973   
    

 

 

 
       4,142,078   
    

 

 

 

District of Columbia – 0.3%

    

District of Columbia
(Center for Strategic International Studies, Inc.)
Series 2011
6.625%, 3/01/41

     100        112,571   

District of Columbia
(Friendship Public Charter School, Inc.)
Series 2012
5.00%, 6/01/42

     1,420        1,568,376   

Series 2016A
5.00%, 6/01/46

     1,400        1,580,544   

Metropolitan Washington Airports Authority
Series 2016A
5.00%, 10/01/32

     500        590,345   
    

 

 

 
       3,851,836   
    

 

 

 

Florida – 8.3%

    

Alachua County Health Facilities Authority
(Bonita Springs Retirement Village, Inc.)
Series 2011A
8.125%, 11/15/46

     100        116,996   

Alachua County Health Facilities Authority
(East Ridge Retirement Village, Inc.)
Series 2014
6.25%, 11/15/44

     1,100        1,241,999   

 

AB MUNICIPAL INCOME SHARES       17   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Alachua County Health Facilities Authority
(Oak Hammock at the University of Florida, Inc.)
Series 2012A
8.00%, 10/01/46

   $ 435      $ 529,565   

Alachua County Health Facilities Authority
(Shands Teaching Hospital and Clinics Obligated Group)
Series 2014A
5.00%, 12/01/44

     1,000        1,129,790   

Bexley Community Development District
Series 2016
4.875%, 5/01/47

     1,000        971,400   

Cape Coral Health Facilities Authority
(Gulf Care, Inc. Obligated Group)
Series 2015
5.875%, 7/01/40(b)

     1,400        1,535,674   

6.00%, 7/01/45-7/01/50(b)

     4,015        4,414,082   

Capital Trust Agency, Inc.
(Million Air One LLC)
Series 2011
7.75%, 1/01/41(d)

     6,795        6,033,824   

Central Florida Expressway Authority
Series 2016B
5.00%, 7/01/34(a)

     5,500        6,517,830   

Citizens Property Insurance Corp.
Series 2012A
5.00%, 6/01/22

     6,725        7,956,146   

Series 2015A
5.00%, 6/01/20

     10,000        11,103,000   

City of Lakeland FL
(Florida Southern College)
Series 2012A
5.00%, 9/01/37-9/01/42

     2,350        2,594,518   

City of Lakeland FL
(Lakeland Regional Medical Center Obligated Group)
Series 2015
5.00%, 11/15/40

     5,610        6,290,717   

City of Tampa FL Solid Waste System Revenue
Series 2013
5.00%, 10/01/21

     3,000        3,431,040   

Collier County Industrial Development Authority
(Arlington of Naples (The))
Series 2014A
8.125%, 5/15/44(b)

     2,000        2,345,780   

 

18     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

County of Miami-Dade FL Aviation Revenue
Series 2014A
5.00%, 10/01/33

   $ 10,000      $ 11,391,400   

Series 2015A
5.00%, 10/01/31

     1,100        1,271,809   

Series 2016
5.00%, 10/01/33-10/01/34

     3,375        3,989,684   

Florida Development Finance Corp.
(Tuscan Isle ChampionsGate Obligated Group)
Series 2016A
6.375%, 6/01/46(b)

     1,400        1,443,918   

Florida Development Finance Corp.
(Tuscan Isle Obligated Group)
Series 2015A
7.00%, 6/01/35-6/01/45(b)

     4,900        5,237,645   

Lakewood Ranch Stewardship District
(Villages of Lakewood Ranch South Project)
Series 2016
5.125%, 5/01/46

     1,115        1,147,736   

Marshall Creek Community Development District
(Marshall Creek Community Development District 2015A)
Series 2015A
5.00%, 5/01/32

     1,680        1,709,064   

Martin County Health Facilities Authority
(Martin Memorial Medical Center, Inc.)
Series 2012
5.50%, 11/15/32-11/15/42

     1,950        2,190,783   

Martin County Industrial Development Authority
(Indiantown Cogeneration LP)
Series 2013
4.20%, 12/15/25

     1,150        1,200,543   

Miami Beach Health Facilities Authority
(Mount Sinai Medical Center of Florida, Inc.)
Series 2012
5.00%, 11/15/29

     2,885        3,245,279   

Series 2014
5.00%, 11/15/39

     2,000        2,248,700   

Miami-Dade County Expressway Authority
Series 2014A
5.00%, 7/01/34

     4,000        4,623,720   

Series 2016A
5.00%, 7/01/32-7/01/33

     8,150        9,774,101   

 

AB MUNICIPAL INCOME SHARES       19   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Mid-Bay Bridge Authority
Series 2011A
7.25%, 10/01/40 (Pre-refunded/ETM)

   $ 80      $ 102,750   

Series 2015A
5.00%, 10/01/40

     2,000        2,272,160   

Series 2015C
5.00%, 10/01/35-10/01/40

     2,750        3,192,725   

Palm Beach County Health Facilities Authority
Series 2007
5.875%, 11/15/37 (Pre-refunded/ETM)

     100        105,137   

Reedy Creek Improvement District
Series 2013A
5.00%, 6/01/24

     3,000        3,646,920   

Town of Davie FL
(Nova Southeastern University, Inc.)
Series 2013A
5.625%, 4/01/43

     3,765        4,462,767   

Volusia County School Board COP
Series 2014B
5.00%, 8/01/31

     1,625        1,904,370   
    

 

 

 
       121,373,572   
    

 

 

 

Georgia – 1.8%

    

Cedartown Polk County Hospital Authority
Series 2016
5.00%, 7/01/39

     4,000        4,562,000   

City of Atlanta Department of Aviation
(Hartsfield Jackson Atlanta Intl Airport)
Series 2012A
5.00%, 1/01/31

     1,390        1,595,692   

Series 2014A
5.00%, 1/01/33

     1,820        2,119,172   

Clarke County Hospital Authority
(Piedmont Healthcare, Inc. Obligated Group)
Series 2016
5.00%, 7/01/31(a)

     2,500        2,944,975   

Fayette County Hospital Authority/GA
(Piedmont Healthcare, Inc. Obligated Group)
Series 2016
5.00%, 7/01/34-7/01/36(a)

     10,710        12,371,068   

Fulton County Development Authority
(Piedmont Healthcare, Inc. Obligated Group)
Series 2016A
5.00%, 7/01/32(a)

     2,000        2,343,140   
    

 

 

 
       25,936,047   
    

 

 

 

Idaho – 0.2%

    

Idaho Health Facilities Authority
(The Terraces at Boise)
Series 2014A
8.00%, 10/01/44

     2,050        2,275,110   

 

20     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Idaho Housing & Finance Association
(Battelle Energy Alliance LLC)
Series 2010A
7.00%, 2/01/36

   $ 200      $ 231,908   
    

 

 

 
       2,507,018   
    

 

 

 

Illinois – 11.6%

    

Chicago Board of Education
Series 2012A
5.00%, 12/01/42

     2,940        2,572,206   

Series 2015C
5.25%, 12/01/35-12/01/39

     10,315        9,358,248   

Series 2016B
6.50%, 12/01/46

     1,900        1,933,573   

Chicago O’Hare International Airport
Series 2015C
5.00%, 1/01/34

     1,665        1,882,516   

Chicago Transit Authority
(Chicago Transit Authority Sales Tax)
Series 2011
5.25%, 12/01/23

     4,285        4,922,908   

Chicago Transit Authority
(City of Chicago IL Fed Hwy Grant)
AGC Series 2008
5.00%, 6/01/18

     1,170        1,238,890   

City of Chicago IL
Series 2008A
5.00%, 1/01/19

     525        536,025   

Series 2015A
5.00%, 1/01/19

     300        309,528   

City of Chicago IL
(Goldblatts Supportive Living Project)
Series 2013
6.375%, 12/01/52(e)

     1,050        942,669   

Series 2015
6.00%, 12/01/30(f)(g)

     2,320        2,325,243   

Illinois Finance Authority
(Ascension Health Credit Group)
Series 2012A
5.00%, 11/15/42

     3,600        4,074,084   

Illinois Finance Authority
(Greenfields of Geneva)
Series 2010A
8.125%, 2/15/40(d)

     3,000        2,064,090   

Illinois Finance Authority
(Illinois Institute of Technology)
Series 2006A
5.00%, 4/01/19-4/01/36

     465        465,349   

Illinois Finance Authority
(Lake Forest College)
Series 2012A
6.00%, 10/01/48

     400        432,112   

 

AB MUNICIPAL INCOME SHARES       21   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Illinois Finance Authority
(Lutheran Home & Services Obligated Group)
Series 2012
5.75%, 5/15/46

   $ 2,010      $ 2,103,787   

Illinois Finance Authority
(Mercy Health System Obligated Group)
Series 2016
5.00%, 12/01/40

     1,000        1,128,090   

Illinois Finance Authority
(Park Place of Elmhurst)
Series 2016A
6.20%, 5/15/30

     625        630,248   

6.33%, 5/15/48

     829        834,858   

6.44%, 5/15/55

     1,998        2,007,567   

Series 2016C
2.00%, 5/15/55(e)(k)

     609        26,175   

Illinois Finance Authority
(Plymouth Place, Inc.)
Series 2013
6.00%, 5/15/43

     3,500        3,889,200   

Series 2015
5.25%, 5/15/50

     2,000        2,180,720   

Illinois Finance Authority
(Presence Health Network Obligated Group)
Series 2016C
5.00%, 2/15/31

     11,500        12,862,405   

Illinois Finance Authority
(Silver Cross Hospital Obligated Group)
Series 2015C
5.00%, 8/15/35

     4,750        5,470,622   

Illinois Municipal Electric Agency
Series 2015A
5.00%, 2/01/22

     6,700        7,834,042   

Illinois State Toll Highway Authority
Series 2015A
5.00%, 1/01/31-1/01/32

     3,125        3,692,350   

Series 2015B
5.00%, 1/01/36-1/01/40

     5,250        6,090,309   

Series 2016A
5.00%, 12/01/32

     7,000        8,267,560   

Metropolitan Pier & Exposition Authority
Series 2015B
5.00%, 12/15/45

     13,300        14,616,301   

State of Illinois
Series 2012
5.00%, 8/01/21-3/01/31

     11,760        12,807,853   

Series 2014
5.00%, 5/01/31-5/01/35

     8,985        9,589,877   

 

22     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Series 2016
5.00%, 6/01/23

   $ 5,695      $ 6,266,664   

5.00%, 2/01/27(a)

     21,650        23,874,970   

Village of Antioch IL
(Village of Antioch IL Spl Tax)
Series 2016A
4.50%, 3/01/33

     4,400        4,399,736   

Series 2016B
7.00%, 3/01/33

     1,910        1,909,733   

Village of Pingree Grove IL Special Service Area No 7
Series 2015A
4.50%, 3/01/25

     1,166        1,216,989   

5.00%, 3/01/36

     2,963        3,115,209   

Series 2015B
6.00%, 3/01/36

     1,004        1,088,697   
    

 

 

 
       168,961,403   
    

 

 

 

Indiana – 1.3%

  

Indiana Finance Authority
(Bethany Circle of King’s Daughters’ of Madison Indiana, Inc. (The))
Series 2010
5.125%, 8/15/27

     1,000        1,088,120   

5.50%, 8/15/40-8/15/45

     3,020        3,308,734   

Indiana Finance Authority
(I-69 Development Partners LLC)
Series 2014
5.00%, 9/01/46

     1,000        1,044,700   

5.25%, 9/01/34

     3,500        3,750,040   

Indiana Finance Authority
(Marquette Manor)
Series 2015A
5.00%, 3/01/30

     1,000        1,111,320   

Indiana Finance Authority
(WVB East End Partners LLC)
Series 2013A
5.00%, 7/01/40-7/01/48

     6,980        7,838,867   
    

 

 

 
       18,141,781   
    

 

 

 

Kansas – 0.0%

  

Wichita KS Hlth Care FACS Revenue
(Kansas Masonic Home)
Series 2016I
5.00%, 12/01/31

     550        571,615   
    

 

 

 

 

AB MUNICIPAL INCOME SHARES       23   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Kentucky – 2.8%

  

Kentucky Economic Development Finance Authority
(Masonic Homes of Kentucky, Inc. Obligated Group)
Series 2012
5.375%, 11/15/42

   $ 1,685      $ 1,735,196   

5.50%, 11/15/45

     1,000        1,034,690   

Kentucky Economic Development Finance Authority
(Next Generation Kentucky Information Highway)
Series 2015A
5.00%, 7/01/40-1/01/45

     10,335        11,566,512   

Kentucky Economic Development Finance Authority
(Owensboro Health, Inc.)
Series 2010A
6.00%, 6/01/30

     200        226,228   

6.375%, 6/01/40

     1,525        1,722,106   

6.50%, 3/01/45

     1,000        1,136,060   

Kentucky Economic Development Finance Authority
(Rosedale Green)
Series 2015
5.50%, 11/15/35

     1,750        1,810,375   

5.75%, 11/15/45

     3,350        3,449,763   

Louisville/Jefferson County Metropolitan Government
(Norton Healthcare Obligated Group)
Series 2016
5.00%, 10/01/30

     15,350        18,298,735   
    

 

 

 
       40,979,665   
    

 

 

 

Louisiana – 0.7%

  

Jefferson Parish Hospital Service District No 2
Series 2011
6.375%, 7/01/41

     2,130        2,324,128   

Louisiana Local Government Environmental Facilities & Community Development Auth
(St James Place of Baton Rouge)
Series 2015A
6.00%, 11/15/35

     2,100        2,247,945   

Louisiana Local Government Environmental Facilities & Community Development Auth
(Woman’s Hospital Foundation)
Series 2010A
6.00%, 10/01/44

     400        463,164   

 

24     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Louisiana Public Facilities Authority
(Louisiana Pellets, Inc.)
Series 2013B
10.50%, 7/01/39(d)(h)

   $ 2,750      $ 1,588,125   

Series 2014A
7.50%, 7/01/23(d)(h)

     1,250        721,875   

Louisiana Public Facilities Authority
(Ochsner Clinic Foundation)
Series 2016
5.00%, 5/15/47

     1,120        1,262,912   

Port New Orleans Board of Commissioners
Series 2013B
5.00%, 4/01/29-4/01/31

     1,540        1,727,631   
    

 

 

 
       10,335,780   
    

 

 

 

Maine – 0.1%

  

Maine Health & Higher Educational Facilities Authority
(MaineGeneral Health Obligated Group)
Series 2011
7.50%, 7/01/32

     1,000        1,181,440   
    

 

 

 

Maryland – 0.3%

  

City of Westminster MD
(Lutheran Village at Miller’s Grant, Inc. (The))
Series 2014D
3.875%, 7/01/19

     1,125        1,145,633   

Maryland Health & Higher Educational Facilities Authority
(Meritus Medical Center, Inc.)
Series 2015
5.00%, 7/01/31

     3,245        3,742,004   
    

 

 

 
       4,887,637   
    

 

 

 

Massachusetts – 1.3%

  

Commonwealth of Massachusetts
Series 2016A
5.00%, 3/01/46

     2,000        2,327,000   

NATL Series 2000G
0.57%, 12/01/30(i)

     5,000        4,502,475   

Massachusetts Development Finance Agency
(Lowell General Hospital)
Series 2013G
5.00%, 7/01/37

     2,550        2,789,674   

Massachusetts Development Finance Agency
(Merrimack College)
Series 2012A
5.25%, 7/01/42

     745        832,061   

 

AB MUNICIPAL INCOME SHARES       25   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Massachusetts Development Finance Agency
(South Shore Hospital, Inc.)
Series 2016I
5.00%, 7/01/31-7/01/41

   $ 3,850      $ 4,492,466   

Massachusetts Development Finance Agency
(UMass Memorial Health Care Obligated Group)
Series 2016
5.00%, 7/01/41-7/01/46

     3,980        4,478,227   
    

 

 

 
       19,421,903   
    

 

 

 

Michigan – 8.9%

  

City of Detroit MI Sewage Disposal System Revenue
(Great Lakes Water Authority Sewage Disposal System)
Series 2012A
5.00%, 7/01/32

     4,400        4,881,448   

5.25%, 7/01/39

     4,825        5,407,522   

City of Detroit MI Water Supply System Revenue
(Great Lakes Water Authority Water Supply System)
Series 2011C
5.00%, 7/01/41

     1,060        1,148,658   

Detroit City School District
Series 2012A
5.00%, 5/01/31

     120        134,201   

Great Lakes Water Authority
(Great Lakes Water Authority Water Supply System)
Series 2016D
5.00%, 7/01/36

     25,210        28,617,888   

Kalamazoo Hospital Finance Authority
(Bronson Healthcare Group Obligated Group)
Series 2016
4.00%, 5/15/31-5/15/36

     20,100        21,243,495   

Michigan Finance Authority
(Great Lakes Water Authority Sewage Disposal System)
Series 2014C
5.00%, 7/01/17-7/01/18

     2,000        2,084,610   

Series 2014C-1
5.00%, 7/01/44

     1,750        1,909,950   

Michigan Finance Authority
(Great Lakes Water Authority Water Supply System)
Series 2014D-4
5.00%, 7/01/29-7/01/34

     2,100        2,393,880   

 

26     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Series 2015D-1
5.00%, 7/01/34

   $ 2,000      $ 2,276,860   

Series 2015D-2
5.00%, 7/01/34

     3,400        3,829,488   

Michigan Finance Authority
(Henry Ford Health System Obligated Group)
Series 2016
4.00%, 11/15/35-11/15/36

     5,000        5,168,840   

5.00%, 11/15/32

     3,850        4,480,207   

Michigan Finance Authority
(MidMichigan Obligated Group)
Series 2014
5.00%, 6/01/34

     2,000        2,297,040   

Michigan Finance Authority
(Public Lighting Authority)
Series 2014B
5.00%, 7/01/31-7/01/33

     7,950        9,011,225   

Michigan State Building Authority
(Michigan State Building Authority Lease)
Series 2016I
5.00%, 10/15/32

     14,000        16,738,960   

Michigan State Hospital Finance Authority
(Henry Ford Health System Obligated Group)
Series 2006A
5.25%, 11/15/46

     100        100,155   

Michigan Strategic Fund
(Detroit Renewable Energy Obligated Group)
Series 2013
8.50%, 12/01/30(b)

     2,325        2,471,615   

Series 2016
9.00%, 12/01/25(a)(b)(j)

     8,970        7,330,194   

Michigan Strategic Fund
(Evangelical Homes of Michigan Obligated Group)
Series 2013
5.50%, 6/01/47

     2,000        2,178,820   

Michigan Tobacco Settlement Finance Authority
Series 2007A
6.00%, 6/01/48

     5,775        5,654,591   
    

 

 

 
       129,359,647   
    

 

 

 

Minnesota – 0.2%

  

City of Minneapolis MN
(Fairview Health Services Obligated Group)
Series 2015A
5.00%, 11/15/33

     1,000        1,170,160   

 

AB MUNICIPAL INCOME SHARES       27   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Western Minnesota Municipal Power Agency
Series 2015A
5.00%, 1/01/34

   $ 1,030      $ 1,228,471   
    

 

 

 
       2,398,631   
    

 

 

 

Mississippi – 0.7%

    

Mississippi Development Bank
Series 2016C
5.00%, 8/01/27

     7,830        9,680,777   
    

 

 

 

Missouri – 1.6%

    

Health & Educational Facilities Authority of the State of Missouri
(Lutheran Senior Services Obligated Group)
Series 2010
5.50%, 2/01/42

     100        108,346   

Kansas City Industrial Development Authority
(Kingswood Senior Living Community)
Series 2016
5.75%, 11/15/36(b)

     1,785        1,820,218   

6.00%, 11/15/46(b)

     4,400        4,524,916   

Lees Summit Industrial Development Authority
(John Knox Village Obligated Group)
Series 2016A
5.00%, 8/15/36(a)

     1,300        1,359,202   

Missouri Joint Municipal Electric Utility Commission
Series 2014
5.00%, 1/01/31

     3,240        3,774,697   

Missouri State Environmental Improvement & Energy Resources Authority
(Union Electric Co.)
NATL
1.86%, 9/01/33(i)

     1,025        928,646   

NATL Series 1992
1.453%, 12/01/22(i)

     550        505,488   

NATL Series 1998A
1.46%, 9/01/33(i)

     2,300        2,083,782   

NATL Series 1998B
1.74%, 9/01/33(i)

     1,125        1,019,244   

St Louis County Industrial Development Authority
(St Andrews Resources for Seniors)
Series 2015A
5.00%, 12/01/35

     2,000        2,101,160   

5.125%, 12/01/45

     4,500        4,643,190   
    

 

 

 
       22,868,889   
    

 

 

 

Nebraska – 0.2%

    

Central Plains Energy Project
(Goldman Sachs Group, Inc. (The))
Series 2012
5.00%, 9/01/32-9/01/42

     2,975        3,321,364   
    

 

 

 

 

28     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Nevada – 1.3%

    

City of Reno NV
Series 2007A
5.25%, 6/01/41 (Pre-refunded/ETM)

   $ 130      $ 133,358   

Las Vegas Redevelopment Agency
Series 2016
5.00%, 6/15/40

     1,800        2,059,902   

Las Vegas Valley Water District
Series 2016A
5.00%, 6/01/46

     14,000        16,417,380   
    

 

 

 
       18,610,640   
    

 

 

 

New Hampshire – 0.4%

    

New Hampshire Health and Education Facilities Authority Act
(Southern New Hampshire University)
Series 2012
5.00%, 1/01/42

     2,940        3,311,939   

Series 2016
5.00%, 1/01/41

     1,660        1,906,942   
    

 

 

 
       5,218,881   
    

 

 

 

New Jersey – 5.8%

    

City of Bayonne NJ
BAM Series 2016
5.00%, 7/01/39

     1,075        1,231,789   

Hudson County Improvement Authority
(County of Hudson NJ)
Series 2016
5.00%, 5/01/32

     3,645        4,359,857   

New Jersey Economic Development Authority
(New Jersey Economic Development Authority State Lease)
Series 2014U
5.00%, 6/15/21

     3,500        3,861,515   

Series 2015X
5.00%, 6/15/21

     15,920        17,564,377   

New Jersey Economic Development Authority
(UMM Energy Partners LLC)
Series 2012A
5.125%, 6/15/43

     735        786,112   

New Jersey Economic Development Authority
(United Airlines, Inc.)
Series 1999
5.25%, 9/15/29

     2,850        3,155,748   

Series 2000B
5.625%, 11/15/30

     1,475        1,688,196   

 

AB MUNICIPAL INCOME SHARES       29   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

New Jersey Health Care Facilities Financing Authority
(Holy Name Medical Center, Inc.)
Series 2010
5.00%, 7/01/25

   $ 100      $ 111,136   

New Jersey Transportation Trust Fund Authority
(New Jersey Transportation Fed Hwy Grant)
Series 2016
5.00%, 6/15/28(a)

     5,035        5,642,624   

New Jersey Transportation Trust Fund Authority
(New Jersey Transportation Trust Fund Authority State Lease)
Series 2014A
5.00%, 6/15/38

     1,000        1,089,030   

New Jersey Turnpike Authority
Series 2013A
5.00%, 1/01/27-1/01/32

     3,500        4,150,250   

Series 2015E
5.00%, 1/01/33-1/01/45

     15,400        17,890,054   

Series 2016A
5.00%, 1/01/33

     6,500        7,705,945   

NATL Series 2000D
1.103%, 1/01/30(i)

     1,175        1,074,206   

Tobacco Settlement Financing Corp./NJ
Series 2007-1A
5.00%, 6/01/41

     15,660        14,590,892   
    

 

 

 
       84,901,731   
    

 

 

 

New Mexico – 0.1%

    

New Mexico Hospital Equipment Loan Council
(Gerald Champion Regional Medical Center)
Series 2012
5.50%, 7/01/42

     1,060        1,169,106   
    

 

 

 

New York – 6.4%

    

Build NYC Resource Corp.
(Metropolitan College of New York)
Series 2014
5.25%, 11/01/34

     2,000        2,202,660   

City of Newburgh NY
Series 2012A
5.625%, 6/15/34

     245        275,044   

Metropolitan Transportation Authority
Series 2013B
5.00%, 11/15/27

     5,125        6,151,384   

Series 2013E
5.00%, 11/15/32

     4,425        5,237,740   

 

30     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Series 2016B
5.00%, 11/15/33

   $ 10,500      $ 12,498,255   

Series 2016C
5.00%, 11/15/36

     3,440        4,051,838   

Metropolitan Trnsp Auth NY
(Metro Trnsp Auth NY Ded Tax)
5.00%, 11/15/31(c)

     190        221,120   

Nassau County Industrial Development Agency
(Amsterdam House Continuing Care Retirement Community, Inc.)
Series 2014A
6.50%, 1/01/32

     75        77,552   

6.70%, 1/01/49

     454        479,242   

Series 2014B
5.50%, 7/01/20

     785        800,687   

Series 2014C
2.00%, 1/01/49(e)(h)(k)

     514        87,341   

New York Liberty Development Corp.
(7 World Trade Center II LLC)
Series 2012
5.00%, 3/15/44

     100        112,480   

New York Liberty Development Corp.
(Goldman Sachs Headquarters LLC)
Series 2005
5.25%, 10/01/35

     1,325        1,673,382   

New York NY GO
Series 2013A-1
5.00%, 10/01/28(c)

     500        592,720   

New York State Dormitory Authority
(State of New York Pers Income Tax)
Series 2015A
5.00%, 3/15/35

     2,250        2,653,627   

New York State Energy Research & Development Authority
(Consolidated Edison Co. of New York, Inc.)
AMBAC Series 2001B
1.453%, 10/01/36(i)

     3,200        2,917,546   

XLCA Series 2004A
1.295%, 1/01/39(i)

     4,100        3,776,559   

New York State Thruway Authority
(New York State Thruway Authority Gen Toll Road)
Series 2012I
5.00%, 1/01/37

     2,000        2,290,660   

Series 2016A
5.00%, 1/01/46

     3,800        4,388,202   

New York Transportation Development Corp.
(Laguardia Gateway Partners LLC)
Series 2016A
5.00%, 7/01/41-7/01/46

     10,320        11,281,936   

 

AB MUNICIPAL INCOME SHARES       31   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Orange County Funding Corp.
(The Hamlet at Wallkill)
Series 2013
6.50%, 1/01/46

   $ 1,125      $ 1,141,369   

Otsego County Capital Resource Corp.
(Hartwick College)
Series 2015A
5.00%, 10/01/30-10/01/35

     4,435        5,028,518   

Port Authority of New York & New Jersey
Series 2012
5.00%, 10/01/34

     3,900        4,452,006   

Series 2013-178
5.00%, 12/01/33

     5,000        5,841,500   

Triborough Bridge & Tunnel Authority
Series 2012B
5.00%, 11/15/28-11/15/29(c)

     1,950        2,314,196   

Ulster County Capital Resource Corp.
(Kingston Regional Senior Living Corp.)
Series 2014A
7.50%, 9/15/44(b)(j)

     360        326,480   

Series 2014B
7.00%, 9/15/44(b)

     410        434,055   

Ulster County Industrial Development Agency
(Kingston Regional Senior Living Corp.)
Series 2007A
6.00%, 9/15/27-9/15/37

     2,225        2,243,201   

Westchester County Local Development Corp.
(Kendal on Hudson)
Series 2013
5.00%, 1/01/34

     3,840        4,192,128   

Westchester County Local Development Corp.
(Westchester County Health Care Corp. Obligated Group)
Series 2016
5.00%, 11/01/46

     4,230        4,733,285   
    

 

 

 
       92,476,713   
    

 

 

 

North Carolina – 1.6%

    

North Carolina Medical Care Commission
(Aldersgate United Methodist Retirement Community, Inc.)
Series 2015
4.875%, 7/01/40

     5,000        5,381,800   

5.00%, 7/01/45

     1,000        1,081,670   

North Carolina Medical Care Commission
(Mission Health System, Inc./NC)
Series 2017
5.00%, 10/01/30-10/01/36(a)

     10,025        11,680,797   

 

32     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

North Carolina Medical Care Commission
(Pennybyrn at Maryfield)
Series 2015
5.00%, 10/01/30

   $ 2,250      $ 2,491,223   

North Carolina Medical Care Commission
(United Church Homes & Services Obligated Group)
Series 2015A
5.00%, 9/01/37

     1,735        1,860,163   
    

 

 

 
       22,495,653   
    

 

 

 

Ohio – 2.8%

    

American Municipal Power, Inc.
Series 2016A
5.00%, 2/15/37-2/15/38

     10,310        11,958,805   

Buckeye Tobacco Settlement Financing Authority
Series 2007A-2
5.875%, 6/01/47

     14,185        13,298,012   

County of Franklin OH
(First Community Village Obligated Group)
Series 2013
5.625%, 7/01/47

     2,300        2,311,454   

County of Hamilton OH
(Life Enriching Communities Obligated Group)
Series 2012
5.00%, 1/01/42

     1,030        1,109,588   

Dayton-Montgomery County Port Authority
(StoryPoint Troy Project)
Series 2015-1
7.00%, 1/15/40

     2,500        2,568,575   

Ohio Air Quality Development Authority
(FirstEnergy Generation LLC)
Series 2009D
4.25%, 8/01/29

     4,840        4,761,253   

Ohio Air Quality Development Authority
(FirstEnergy Nuclear Generation LLC)
Series 2009A
4.375%, 6/01/33

     3,820        3,761,401   

Toledo-Lucas County Port Authority
(StoryPoint Obligated Group)
Series 2016
6.375%, 1/15/51(a)

     1,000        1,000,170   
    

 

 

 
       40,769,258   
    

 

 

 

Oklahoma – 0.6%

    

Oklahoma Capitol Improvement Authority
(Oklahoma Capitol Improvement Authority State Lease)
Series 2016
4.00%, 7/01/32-7/01/34

     6,645        7,235,116   

 

AB MUNICIPAL INCOME SHARES       33   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Tulsa Airports Improvement Trust
(American Airlines, Inc.)
Series 2013A
5.50%, 6/01/35

   $ 1,125      $ 1,262,464   
    

 

 

 
       8,497,580   
    

 

 

 

Oregon – 0.0%

    

Hospital Facilities Authority of Multnomah County Oregon
(Mirabella at South Waterfront)
Series 2014A
5.00%, 10/01/19

     410        435,116   

Klamath Falls Intercommunity Hospital Authority
(Sky Lakes Medical Center, Inc.)
Series 2016
5.00%, 9/01/30

     200        237,756   
    

 

 

 
       672,872   
    

 

 

 

Pennsylvania – 8.2%

    

Allegheny County Higher Education Building Authority
(Chatham University)
Series 2012A
5.00%, 9/01/35

     230        255,958   

Bensalem Township School District
Series 2013
5.00%, 6/01/29

     8,570        10,296,341   

Cheltenham Township School District
Series 2016B
5.00%, 2/15/39

     1,780        2,041,375   

City of Philadelphia PA
Series 2013A
5.00%, 7/15/21

     1,200        1,376,364   

County of Lehigh PA
(Lehigh Valley Health Network Obligated Group)
Series 2016A
4.00%, 7/01/35

     18,200        19,395,012   

Cumberland County Municipal Authority
(Asbury Pennsylvania Obligated Group)
Series 2010
6.125%, 1/01/45

     180        193,511   

Series 2012
5.25%, 1/01/41

     1,000        1,079,480   

Lehigh County General Purpose Authority
(Good Shepherd Obligated Group (The))
Series 2016
4.00%, 11/01/41-11/01/46

     3,000        3,092,550   

 

34     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Montgomery County Industrial Development Authority/PA
(Philadelphia Presbytery Homes, Inc.)
Series 2010
6.50%, 12/01/25

   $ 200      $ 236,248   

Montgomery County Industrial Development Authority/PA
(Whitemarsh Continuing Care Retirement Community)
Series 2015
5.00%, 1/01/30

     1,040        1,077,284   

5.25%, 1/01/40

     4,740        4,850,158   

Moon Industrial Development Authority
(Baptist Home Society Obligated Group)
Series 2015
5.75%, 7/01/35

     5,135        5,625,598   

Norristown Area School District COP
Series 2012
5.00%, 4/01/32

     100        107,486   

Northeastern Pennsylvania Hospital & Education Authority
(Wilkes University)
Series 2012A
5.25%, 3/01/42

     265        298,313   

Series 2016A
5.00%, 3/01/37

     1,400        1,574,132   

Pennsylvania Economic Development Financing Authority
(National Railroad Passenger Corp. (The))
Series 2012A
5.00%, 11/01/41

     1,620        1,788,140   

Pennsylvania Economic Development Financing Authority
(PA Bridges Finco LP)
Series 2015
5.00%, 12/31/34

     2,830        3,167,845   

Pennsylvania Higher Educational Facilities Authority
(Drexel University)
Series 2016
5.00%, 5/01/32-5/01/33

     4,000        4,720,090   

Pennsylvania State University
Series 2016B
5.00%, 9/01/32

     2,000        2,444,940   

Pennsylvania Turnpike Commission
Series 2016
5.00%, 6/01/37

     4,000        4,532,920   

 

AB MUNICIPAL INCOME SHARES       35   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Pennsylvania Turnpike Commission
(Pennsylvania Turnpike Commission Oil Franchise Tax)
Series 2016A
5.00%, 12/01/31-12/01/32

   $ 5,760      $ 6,961,264   

Philadelphia Gas Works Co.
Series 2016
5.00%, 10/01/31-10/01/34

     5,300        6,190,862   

School District of Philadelphia (The)
Series 2015A
5.00%, 9/01/34-9/01/35

     2,615        2,866,530   

Series 2016F
5.00%, 9/01/33-9/01/36(a)

     4,000        4,426,300   

Scranton-Lackawanna Health & Welfare Authority
(Scranton Parking System Concession Project)
Series 2016A
5.00%, 1/01/51-1/01/57(b)

     12,110        12,715,690   

Series 2016B
6.08%, 1/01/26(b)

     1,070        1,060,338   

Series 2016C
Zero Coupon, 1/01/36(b)

     2,945        1,086,970   

Series 2016D
Zero Coupon, 1/01/57(b)

     61,525        4,659,288   

State Public School Building Authority
(Harrisburg School District) AGM
Series 2016A
5.00%, 12/01/30-12/01/32

     9,920        11,773,949   
    

 

 

 
       119,894,936   
    

 

 

 

Puerto Rico – 0.2%

    

Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth
(AES Puerto Rico LP)
Series 2000
6.625%, 6/01/26

     3,045        2,953,650   

Puerto Rico Industrial Tourist Educational Medical & Envirml Ctl Facs Fing Auth
(Sistema Universitario Ana G Mendez Incorporado)
Series 2012
5.375%, 4/01/42

     335        302,914   
    

 

 

 
       3,256,564   
    

 

 

 

Rhode Island – 0.3%

    

Rhode Island Health & Educational Building Corp.
(Tockwotton Home)
Series 2011
8.375%, 1/01/46

     3,150        3,667,923   
    

 

 

 

 

36     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

South Carolina – 0.2%

    

South Carolina Jobs-Economic Development Authority
(Lutheran Homes of South Carolina Obligated Group)
Series 2013
5.00%, 5/01/43

   $ 1,000      $ 1,031,290   

5.125%, 5/01/48

     1,000        1,035,430   

South Carolina Public Service Authority AMBAC
Series 2007A
5.00%, 1/01/32 (Pre-refunded/ETM)

     400        402,828   
    

 

 

 
       2,469,548   
    

 

 

 

Tennessee – 0.7%

    

Johnson City Health & Educational Facilities Board
(Mountain States Health Alliance Obligated Group)
Series 2012
5.00%, 8/15/42

     4,890        5,351,127   

Metropolitan Government Nashville & Davidson County Health & Educational Facs Bd
(Vanderbilt University Medical Center)
Series 2016
5.00%, 7/01/46

     2,435        2,809,795   

Shelby County Health Educational & Housing Facilities Board
(Village at Germantown, Inc. (The))
Series 2012
5.25%, 12/01/42

     1,000        1,040,000   

5.375%, 12/01/47

     800        834,672   
    

 

 

 
       10,035,594   
    

 

 

 

Texas – 9.1%

    

Arlington Higher Education Finance Corp.
(Harmony Public Schools)
Series 2016A
5.00%, 2/15/34-2/15/46

     7,945        9,291,774   

Arlington Higher Education Finance Corp.
(Wayside Schools)
Series 2016A
4.625%, 8/15/46

     2,450        2,473,397   

Central Texas Regional Mobility Authority
Series 2011
6.00%, 1/01/41 (Pre-refunded/ETM)

     120        143,093   

Series 2013
5.00%, 1/01/42

     3,500        3,893,050   

Series 2016
5.00%, 1/01/33-1/01/40

     6,855        7,801,162   

 

AB MUNICIPAL INCOME SHARES       37   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Central Texas Turnpike System
Series 2015C
5.00%, 8/15/42

   $ 6,800      $ 7,572,684   

City of Houston TX
(City of Houston TX Hotel Occupancy Tax)
Series 2015
5.00%, 9/01/30

     1,965        2,306,124   

City of Houston TX Airport System Revenue
(United Airlines, Inc.)
Series 2014
5.00%, 7/01/29

     3,155        3,500,662   

Series 2015B
5.00%, 7/15/30-7/15/35

     2,960        3,313,075   

Clifton Higher Education Finance Corp.
(IDEA Public Schools)
Series 2012
5.00%, 8/15/42

     530        581,739   

Series 2013
6.00%, 8/15/43

     1,000        1,169,460   

Series 2016A
5.00%, 8/15/34-8/15/36

     4,180        4,978,517   

County of Harris TX
(County of Harris TX Toll Road)
Series 2016A
5.00%, 8/15/32-8/15/34

     7,600        9,133,200   

Dallas County Flood Control District No 1
Series 2015
5.00%, 4/01/28(b)

     1,150        1,225,141   

Dallas/Fort Worth International Airport
Series 2012E
5.00%, 11/01/35

     1,500        1,656,135   

Decatur Hospital Authority
(Wise Regional Health System)
Series 2014A
5.25%, 9/01/44

     3,150        3,401,244   

Houston TX Util Sys
Series 2011D
5.00% HOUUTL, 11/15/28(c)

     400        467,204   

Mission Economic Development Corp.
(Natgasoline LLC)
Series 2016B
5.75%, 10/01/31(b)

     3,225        3,420,499   

New Hope Cultural Education Facilities Finance Corp.
(Wesleyan Homes, Inc.)
Series 2014
5.50%, 1/01/49

     1,700        1,788,842   

 

38     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

New Hope Cultural Education Facilities Finance Corp.
(Westminster Manor)
Series 2016
4.00%, 11/01/36

   $ 1,475      $ 1,481,033   

North East Texas Regional Mobility Authority
Series 2016
5.00%, 1/01/46

     2,500        2,848,375   

North Texas Education Finance Corp.
(Uplift Education)
Series 2012A
5.125%, 12/01/42

     280        309,890   

North Texas Tollway Authority
Series 2014B
5.00%, 1/01/31

     8,975        10,488,813   

Series 2015A
5.00%, 1/01/35

     7,000        8,066,730   

Series 2015B
5.00%, 1/01/34

     3,500        4,085,970   

Series 2016A
5.00%, 1/01/39

     4,000        4,643,440   

Red River Health Facilities Development Corp.
Series 2011A
8.00%, 11/15/46 (Pre-refunded/ETM)

     1,790        2,370,425   

Red River Health Facilities Development Corp.
(MRC Crossings Proj)
Series 2014A
7.75%, 11/15/44

     1,315        1,542,311   

Red River Health Facilities Development Corp.
(Wichita Falls Retirement Foundation)
Series 2012
5.50%, 1/01/32

     1,740        1,915,009   

Sanger Industrial Development Corp.
(Texas Pellets, Inc.)
Series 2012B
8.00%, 7/01/38(d)

     2,180        1,899,325   

Tarrant County Cultural Education Facilities Finance Corp.
(Baylor Scott & White Health Obligated Group)
Series 2016A
5.00%, 11/15/45

     1,000        1,158,460   

Tarrant County Cultural Education Facilities Finance Corp.
(Buckingham Senior Living Community, Inc.)
Series 2007

    

5.50%, 11/15/22

     200        206,872   

 

AB MUNICIPAL INCOME SHARES       39   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Tarrant County Cultural Education Facilities Finance Corp.
(Edgemere Retirement Senior Quality Lifestyles Corp.)
Series 2015B
5.00%, 11/15/30

   $ 4,000      $ 4,527,400   

Tarrant County Cultural Education Facilities Finance Corp.
(Stayton at Museum Way)
Series 2009A
8.25%, 11/15/39-11/15/44

     5,025        5,425,382   

Tarrant County Cultural Education Facilities Finance Corp.
(Trinity Terrace Project)
Series 2014A-1
5.00%, 10/01/44

     1,065        1,169,892   

Texas Municipal Gas Acquisition & Supply Corp. I
(Bank of America Corp.)
Series 2008D
6.25%, 12/15/26

     1,000        1,210,690   

Texas Private Activity Bond Surface Transportation Corp.
(Blueridge Transportation Group LLC)
Series 2016
5.00%, 12/31/40

     1,255        1,394,129   

Texas Private Activity Bond Surface Transportation Corp.
(LBJ Infrastructure Group LLC)
Series 2010
7.00%, 6/30/40

     660        778,391   

Texas Private Activity Bond Surface Transportation Corp.
(NTE Mobility Partners LLC)
Series 2009
6.875%, 12/31/39

     200        233,738   

Texas Private Activity Bond Surface Transportation Corp.
(NTE Mobility Partners Segments 3 LLC)
Series 2013
6.75%, 6/30/43

     3,600        4,395,348   

Travis County Health Facilities Development Corp.
(Longhorn Village)
Series 2012A
7.00%, 1/01/32

     1,200        1,352,820   

7.125%, 1/01/46

     2,430        2,726,168   

Viridian Municipal Management District
Series 2011
9.00%, 12/01/37 (Pre-refunded/ETM)

     75        102,314   
    

 

 

 
       132,449,927   
    

 

 

 

 

40     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Utah – 0.0%

    

Timber Lakes Water Special Service District
Series 2011
8.125%, 6/15/31

   $ 90      $ 97,491   

Utah Charter School Finance Authority
Series 2010
8.25%, 7/15/46 (Pre-refunded/ETM)

     100        114,192   

Utah Charter School Finance Authority
(Early Light Academy, Inc.)
Series 2010
8.50%, 7/15/46

     100        111,389   

Utah Charter School Finance Authority
(North Star Academy)
Series 2010A
7.00%, 7/15/45

     100        110,722   
    

 

 

 
       433,794   
    

 

 

 

Vermont – 0.5%

  

Vermont Economic Development Authority
(Wake Robin Corp.)
Series 2012
5.40%, 5/01/33

     200        219,894   

Vermont Educational & Health Buildings Financing Agency
(University of Vermont Health Network Obligated Group)
Series 2016A
5.00%, 12/01/34

     1,500        1,754,910   

Series 2016B
5.00%, 12/01/37-12/01/38

     4,420        5,106,704   
    

 

 

 
       7,081,508   
    

 

 

 

Virginia – 1.1%

  

Cherry Hill Community Development Authority
(Potomac Shores Project)
Series 2015
5.15%, 3/01/35(b)

     1,000        1,062,510   

Chesterfield County Economic Development Authority
(Brandermill Woods)
Series 2012
5.125%, 1/01/43

     1,030        1,066,009   

City of Chesapeake VA Chesapeake Expressway Toll Road Revenue
Series 2012A
5.00%, 7/15/47

     300        329,724   

Fairfax County Economic Development Authority
(Vinson Hall LLC)
Series 2013A
5.00%, 12/01/47

     1,955        2,057,168   

 

AB MUNICIPAL INCOME SHARES       41   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Tobacco Settlement Financing Corp./VA
Series 2007B-1
5.00%, 6/01/47

   $ 6,790      $ 6,271,040   

Virginia College Bldg Auth
(Virginia Lease 21st Century College Prog)
Series 2013A
5.00%, 2/01/28(c)

     550        654,929   

Virginia College Building Authority
(Marymount University)
Series 2015B
5.25%, 7/01/35(b)

     1,000        1,126,550   

Virginia Small Business Financing Authority
(Elizabeth River Crossings OpCo LLC)
Series 2012
5.50%, 1/01/42

     3,580        4,010,961   
    

 

 

 
       16,578,891   
    

 

 

 

Washington – 1.8%

  

King County Public Hospital District No 4
Series 2015A
5.00%, 12/01/30

     2,235        2,297,312   

Port of Seattle WA
Series 2015C
5.00%, 4/01/33

     5,035        5,758,429   

Washington Health Care Facilities Authority
(Multicare Health System Obligated Group)
Series 2012A
5.00%, 8/15/44

     1,000        1,109,340   

Washington Health Care Facilities Authority
(Providence Health & Services Obligated Group)
Series 2012A
5.00%, 10/01/42

     3,350        3,762,452   

Washington St GO
5.00%, 7/01/24(c)

     1,000        1,137,240   

Washington State Housing Finance Commission
(Mirabella)
Series 2012A
6.75%, 10/01/47

     3,550        3,964,249   

Washington State Housing Finance Commission
(Presbyterian Retirement Communities Northwest Obligated Group)
Series 2016A
5.00%, 1/01/36(b)

     2,025        2,201,438   

Washington State Housing Finance Commission
(Rockwood Retirement Communities)
Series 2014A
7.375%, 1/01/44(b)

     3,215        3,730,429   

 

42     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Washington State Housing Finance Commission
(Skyline at First Hill Proj)
Series 2007A
5.625%, 1/01/27-1/01/38

   $ 2,265      $ 2,282,894   
    

 

 

 
       26,243,783   
    

 

 

 

West Virginia – 0.2%

  

West Virginia Hospital Finance Authority
(West Virginia United Health System Obligated Group)
AGM Series 2004B
1.278%, 2/15/34(i)

     850        757,885   

West Virginia Hospital Finance Authority
(West Virginia United Health System, Inc.)
Series 2013A
5.50%, 6/01/44

     2,100        2,426,151   
    

 

 

 
       3,184,036   
    

 

 

 

Wisconsin – 1.4%

  

University of Wisconsin Hospitals & Clinics
Series 2013A
5.00%, 4/01/38

     4,155        4,740,273   

Wisconsin Public Finance Authority
(Bancroft Neurohealth/Bancroft Rehabilitation Services Obligated Group)
Series 2016
5.125%, 6/01/48(b)

     2,055        2,080,523   

Wisconsin Public Finance Authority
(Celanese US Holdings LLC)
Series 2016C
4.30%, 11/01/30

     2,060        2,193,859   

Series 2016D
4.05%, 11/01/30

     720        770,378   

Wisconsin Public Finance Authority
(Natgasoline LLC)
Series 2016
Zero Coupon, 6/30/21(b)

     7,000        6,836,760   

Wisconsin Public Finance Authority
(Pine Lake Preparatory, Inc.)
Series 2015
5.25%, 3/01/35(b)

     1,550        1,629,903   

Wisconsin Public Finance Authority
(Rose Villa)
Series 2014A
5.75%, 11/15/44

     1,000        1,089,800   

 

AB MUNICIPAL INCOME SHARES       43   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Wisconsin Public Finance Authority
(Seabury Retirement Community)
Series 2015A
5.00%, 9/01/30(b)

   $ 545      $ 597,009   
    

 

 

 
       19,938,505   
    

 

 

 

Total Long-Term Municipal Bonds
(cost $1,401,857,545)

       1,452,244,023   
    

 

 

 
    

Short-Term Municipal Notes – 2.4%

  

California – 0.2%

  

California Statewide Communities Development Authority
(Irvine Apartment Communities LP)
Series 2008W
0.53%, 9/15/29(l)

     3,500        3,500,000   
    

 

 

 

Illinois – 0.4%

  

Joliet Regional Port District
(Exxon Mobil Corp.)
Series 2089
0.50%, 10/01/24(l)

     5,700        5,700,000   
    

 

 

 

Louisiana – 1.0%

  

East Baton Rouge Parish Industrial Development Board, Inc.
(Exxon Mobil Corp.)
Series 2011
0.50%, 12/01/51(l)

     9,368        9,368,000   

Louisiana Offshore Terminal Authority
(Loop LLC)
0.57%, 9/01/17(l)

     5,300        5,300,000   
    

 

 

 
       14,668,000   
    

 

 

 

Minnesota – 0.8%

  

City of Minneapolis MN/St Paul Housing & Redevelopment Authority
(Allina Health System)
Series 2009B
0.52%, 11/15/35(l)

     11,500        11,500,000   
    

 

 

 

Total Short-Term Municipal Notes
(cost $35,368,000)

       35,368,000   
    

 

 

 

Total Municipal Obligations
(cost $1,437,225,545)

       1,487,612,023   
    

 

 

 

 

44     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

CORPORATES – INVESTMENT GRADE – 0.1%

    

Industrial – 0.1%

    

Capital Goods – 0.1%

    

Texas Pellets, Inc./German Pellets Texas LLC 8.00%, 12/31/16(g)
(cost $865,000)

   $ 865      $ 865,000   
    

 

 

 
     Shares        

SHORT-TERM INVESTMENTS – 1.7%

    

Investment Companies – 1.7%

    

AB Fixed Income Shares, Inc. –
Government Money Market Portfolio –
Class AB, 0.26%(m)(n)
(cost $24,871,901)

     24,871,901        24,871,901   
    

 

 

 

Total Investments – 104.1%
(cost $1,462,962,446)

       1,513,348,924   

Other assets less liabilities – (4.1)%

       (58,948,800
    

 

 

 

Net Assets – 100.0%

     $ 1,454,400,124   
    

 

 

 

INFLATION (CPI) SWAPS (see Note C)

 

                   Rate Type        
Swap
Counterparty
   Notional
Amount
(000)
     Termination
Date
     Payments
made
by the Fund
    Payments
received
by the
Fund
    Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

   $ 1,585         8/04/21         1.443%        CPI#      $ 35,042   

Citibank, NA

     9,300         12/14/20         1.548%        CPI#        125,027   

Deutsche Bank AG

         10,650         7/15/20         1.265%        CPI#        337,133   
            

 

 

 
             $     497,202   
            

 

 

 

 

#   Variable interest rate based on the rate of inflation as determined by the Consumer Price Index (CPI).

INTEREST RATE SWAPS (see Note C)

                   Rate Type        
Swap
Counterparty
   Notional
Amount
(000)
     Termination
Date
     Payments
made by the
Fund
    Payments
received
by the
Fund
    Unrealized
Appreciation/
(Depreciation)
 

Citibank, NA

   $ 31,000         6/10/22         0.906     SIFMA   $ 208,166   

Citibank, NA

     20,000         8/12/23         0.897     SIFMA     276,995   

Citibank, NA

         30,000         9/21/46         1.599     SIFMA     737,067   
            

 

 

 
       $     1,222,228   
            

 

 

 

 

*   Variable interest rate based on the Securities Industry & Financial Markets Association (SIFMA) Municipal Swap Index.

 

(a)   When-Issued or delayed delivery security.

 

AB MUNICIPAL INCOME SHARES       45   

Portfolio of Investments


 

 

 

(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 October 31, 2016, the aggregate market value of these securities amounted to $91,281,175 or 6.3% of net assets.

 

(c)   Security represents the underlying municipal obligation of an inverse floating rate obligation held by the Fund (see Note G).

 

(d)   Restricted and illiquid security.

 

Restricted & Illiquid
Securities
   Acquisition
Date
     Cost      Market
Value
     Percentage of
Net Assets
 

Capital Trust Agency, Inc.
(Million Air One LLC) Series 2011
7.75%%, 01/01/2041

     7/25/11-4/15/16       $     6,490,923       $     6,033,824         0.41

Illinois Finance Authority
(Greenfields of Geneva)
Series 2010A
8.125%, 02/15/2040

     12/02/13-12/18/13         2,886,209         2,064,090         0.14

Louisiana Public Facilities Authority
(Louisiana Pellets, Inc.)
Series 2013B
10.50%, 07/01/2039

     11/22/13         2,750,000         1,588,125         0.11

Louisiana Public Facilities Authority
(Louisiana Pellets, Inc.)
Series 2014A
7.50%, 07/01/2023

     7/31/14         1,250,000         721,875         0.05

Sanger Industrial Development Corp.
(Texas Pellets, Inc.)
Series 2012B
8.00%, 07/01/2038

     8/31/12-5/08/13         2,257,389         1,899,325         0.13

 

(e)   Illiquid security.

 

(f)   Coupon rate adjusts periodically based upon a predetermined schedule. Stated interest rate in effect at October 31, 2016.

 

(g)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.22% of net assets as of October 31, 2016, are considered illiquid and restricted. Additional information regarding such securities follows:

 

144A/Restricted & Illiquid
Securities
   Acquisition
Date
     Cost     

Market

Value

     Percentage of
Net Assets
 

City of Chicago IL
(Goldblatts Supportive Living Project)
Series 2015
6.00%, 12/01/30

     5/27/15       $     2,320,000       $     2,325,243         0.16

Texas Pellets, Inc./German Pellets Texas LLC
8.00%, 12/31/16

     6/15/16         865,000         865,000         0.06

 

(h)   Defaulted.

 

(i)   An auction rate security whose interest rate resets at each auction date. Auctions are typically held every week or month. The rate shown is as of October 31, 2016 and the aggregate market value of these securities amounted to $17,565,831 or 1.21% of net assets.

 

 

46     AB MUNICIPAL INCOME SHARES

Portfolio of Investments


 

 

(j)   Indicates a security that has a zero coupon that remains in effect until a predetermined date at which time the stated coupon rate becomes effective until final maturity.

 

(k)   Non-income producing security.

 

(l)   Variable Rate Demand Notes are instruments whose interest rates change on a specific date (such as coupon date or interest payment date) or whose interest rates vary with changes in a designated base rate (such as the prime interest rate). This instrument is payable on demand and is secured by letters of credit or other credit support agreements from major banks.

 

(m)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(n)   To obtain a copy of the fund’s financial statements, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

As of October 31, 2016, the Fund’s percentages of investments in municipal bonds that are insured and in insured municipal bonds that have been pre-refunded or escrowed to maturity are 2.4% and 0.0%, respectively.

Glossary:

AGC – Assured Guaranty Corporation

AGM – Assured Guaranty Municipal

AMBAC – Ambac Assurance Corporation

BAM – Build American Mutual

COP – Certificate of Participation

ETM – Escrowed to Maturity

GO – General Obligation

NATL – National Interstate Corporation

XLCA – XL Capital Assurance Inc.

 

See notes to financial statements.

 

AB MUNICIPAL INCOME SHARES       47   

Portfolio of Investments


STATEMENT OF ASSETS & LIABILITIES

October 31, 2016 (unaudited)

 

Assets   

Investments in securities, at value

  

Unaffiliated issuers (cost $1,438,090,545)

   $     1,488,477,023   

Affiliated issuers (cost $24,871,901)

     24,871,901   

Receivable for shares of beneficial interest sold

     23,134,409   

Interest receivable

     17,767,269   

Unrealized appreciation on interest rate swaps

     1,222,228   

Unrealized appreciation on inflation swaps

     497,202   

Receivable due from Adviser

     50,698   

Receivable for investment securities sold

     15,000   

Affiliated dividends receivable

     8,041   
  

 

 

 

Total assets

     1,556,043,771   
  

 

 

 
Liabilities   

Payable for investment securities purchased

     91,460,396   

Payable for floating rate notes issued*

     5,265,000   

Dividends payable

     4,189,054   

Payable for shares of beneficial interest redeemed

     446,633   

Cash collateral due to broker

     260,000   

Other liabilities

     22,564   
  

 

 

 

Total liabilities

     101,643,647   
  

 

 

 

Net Assets

   $ 1,454,400,124   
  

 

 

 
Composition of Net Assets   

Shares of beneficial interest, at par

   $ 1,253   

Additional paid-in capital

     1,403,402,649   

Undistributed net investment income

     64,208   

Accumulated net realized loss on investment transactions

     (1,173,894

Net unrealized appreciation on investments

     52,105,908   
  

 

 

 
   $ 1,454,400,124   
  

 

 

 

Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value (based on 125,308,865 common shares outstanding)

   $ 11.61   
  

 

 

 

 

*   Represents short-term floating rate certificates issued by tender option bond trusts (see Note G).

See notes to financial statements.

 

48     AB MUNICIPAL INCOME SHARES

Statement of Assets & Liabilities


STATEMENT OF OPERATIONS

Six Months Ended October 31, 2016 (unaudited)

 

Investment Income      

Interest

   $     24,391,337      

Dividends—Affiliated issuers

     116,875      

Other income(a)

     72,018       $ 24,580,230   
  

 

 

    
Expenses      

Interest expense

     34,656      
  

 

 

    

Total expenses

        34,656   
     

 

 

 

Net investment income

        24,545,574   
     

 

 

 
Realized and Unrealized Gain (Loss) on Investment Transactions      

Net realized gain on:

     

Investment transactions

        4,931,971   

Swaps

        578,707   

Net change in unrealized appreciation/depreciation of:

     

Investments

        (9,513,174

Swaps

        725,658   
     

 

 

 

Net loss on investment transactions

        (3,276,838
     

 

 

 

Net Increase in Net Assets from Operations

      $     21,268,736   
     

 

 

 

 

 

(a)   Other income includes a waiver for investment in affiliated issuer (see Note B).

See notes to financial statements.

 

AB MUNICIPAL INCOME SHARES       49   

Statement of Operations


STATEMENT OF CHANGES IN NET ASSETS

 

     Six Months Ended
October 31, 2016
(unaudited)
    Year Ended
April 30,
2016
 
Increase (Decrease) in Net Assets
from Operations
    

Net investment income

   $ 24,545,574      $ 34,161,167   

Net realized gain on investment transactions

     5,510,678        3,259,732   

Net change in unrealized appreciation/depreciation of investments

     (8,787,516     35,309,236   
  

 

 

   

 

 

 

Net increase in net assets from operations

     21,268,736        72,730,135   
Dividends to Shareholders from     

Net investment income

     (24,623,784     (35,076,507
Transactions in Shares of Beneficial Interest     

Net increase

     345,214,960        440,219,988   
  

 

 

   

 

 

 

Total increase

     341,859,912        477,873,616   
Net Assets     

Beginning of period

     1,112,540,212        634,666,596   
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $64,208 and $142,418, respectively)

   $     1,454,400,124      $     1,112,540,212   
  

 

 

   

 

 

 

 

See notes to financial statements.

 

50     AB MUNICIPAL INCOME SHARES

Statement of Changes in Net Assets


STATEMENT OF CASH FLOWS

For the Six Months Ended October 31, 2016 (unaudited)

 

Net increase in net assets from operations

     $ 21,268,736   
Reconciliation of net increase in net assets from operations to net decrease in cash from operating activities:     

Purchases of long-term investments

   $     (523,527,289  

Purchases of short-term investments

     (352,889,780  

Proceeds from disposition of long-term investments

     127,298,422     

Proceeds from disposition of short-term investments

     366,509,187     

Net realized gain on investment transactions

     (5,510,678  

Net change in unrealized appreciation/depreciation on investment transactions

     8,787,516     

Net accretion of bond discount and amortization of bond premium

     3,438,678     

Increase in receivable for investments sold

     (10,000  

Increase in interest receivable

     (3,529,803  

Increase in affiliated dividends receivable

     (6,267  

Increase in receivable due from Adviser

     (50,698  

Decrease in cash collateral due from broker

     1,516,183     

Increase in payable for investments purchased

     51,690,915     

Decrease in other liabilities

     (2,407  

Payments on swaps, net

     (69,466  

Payments for exchange-traded derivatives settlements

     (324,202  
  

 

 

   

Total adjustments

       (326,679,689
    

 

 

 

Net decrease in cash from operating activities

     $     (305,410,953
    

 

 

 
Cash flows from financing activities     

Redemptions in shares of beneficial interest, net

     329,401,085     

Repayment of due to custodian

     (14  

Cash dividends paid (net of dividend reinvestments)*

     (23,990,118  

Net increase in cash from financing activities

       305,410,953   
    

 

 

 

Net increase in cash

         

Net change in cash

    

Cash at beginning of period

         
    

 

 

 

Cash at end of period

     $   
    

 

 

 

* Reinvestment of dividends

   $ 295     

Supplemental disclosure of cash flow information:

    

Interest expense paid during the period

   $ 34,656     

In accordance with U.S. GAAP, the Fund has included a Statement of Cash Flows as a result of its significant investments in Level 3 securities throughout the period.

See notes to financial statements.

 

AB MUNICIPAL INCOME SHARES       51   

Statement of Cash Flows


NOTES TO FINANCIAL STATEMENTS

October 31, 2016 (unaudited)

 

NOTE A

Significant Accounting Policies

AB Corporate Shares (the “Trust”) was organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated January 26, 2004. The Trust is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust operates as a “series” company currently offering three separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares and AB Taxable Multi-Sector Income Shares. Each Fund is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Municipal Income Shares the (“Fund”).

Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. 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 Trust is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.

1. Security Valuation

Fund 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 Trust’s Board of Trustees (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

 

52     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

 

AB MUNICIPAL INCOME SHARES       53   

Notes to Financial Statements


 

 

2. Fair Value Measurements

In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.

 

   

Level 1—quoted prices in active markets for identical investments

   

Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

   

Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments are classified as Level 3.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a

 

54     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2016:

 

Investments in
Securities:

  Level 1     Level 2     Level 3     Total  

Assets:

       

Long-Term Municipal Bonds:

  

     

Alabama

  $ – 0  –    $ 41,355,017      $ 5,182,415      $ 46,537,432   

Alaska

    – 0  –      10,540,965        119,158        10,660,123   

Arizona

    – 0  –      37,725,660        5,236,772        42,962,432   

California

    – 0  –      89,299,134        17,123,542        106,422,676   

Colorado

    – 0  –      14,755,069        4,748,725        19,503,794   

Florida

    – 0  –      101,921,712        19,451,860        121,373,572   

Idaho

    – 0  –      231,908        2,275,110        2,507,018   

Illinois

    – 0  –      146,296,402        22,665,001        168,961,403   

Kansas

    – 0  –      – 0  –      571,615        571,615   

Kentucky

    – 0  –      32,949,641        8,030,024        40,979,665   

Louisiana

    – 0  –      5,777,835        4,557,945        10,335,780   

Maryland

    – 0  –      3,742,004        1,145,633        4,887,637   

Michigan

    – 0  –      119,557,838        9,801,809        129,359,647   

Missouri

    – 0  –      9,779,405        13,089,484        22,868,889   

New York

    – 0  –      86,886,786        5,589,927        92,476,713   

North Carolina

    – 0  –      11,680,797        10,814,856        22,495,653   

Ohio

    – 0  –      34,889,059        5,880,199        40,769,258   

Oklahoma

    – 0  –      7,235,116        1,262,464        8,497,580   

Oregon

    – 0  –      237,756        435,116        672,872   

Pennsylvania

    – 0  –      107,068,905        12,826,031        119,894,936   

Rhode Island

    – 0  –      – 0  –      3,667,923        3,667,923   

South Carolina

    – 0  –      402,828        2,066,720        2,469,548   

Tennessee

    – 0  –      8,160,922        1,874,672        10,035,594   

Texas

    – 0  –      114,017,199        18,432,728        132,449,927   

Utah

    – 0  –      110,722        323,072        433,794   

Vermont

    – 0  –      6,861,614        219,894        7,081,508   

Virginia

    – 0  –      12,393,204        4,185,687        16,578,891   

Washington

    – 0  –      13,968,899        12,274,884        26,243,783   

Wisconsin

    – 0  –      9,931,422        10,007,083        19,938,505   

Other

    – 0  –      220,605,855        – 0  –      220,605,855   

Short-Term Municipal Notes

    – 0  –      35,368,000        – 0  –      35,368,000   

Corporates - Investment Grade

    – 0  –      – 0  –      865,000        865,000   

Short-Term Investments

    24,871,901        – 0  –      – 0  –      24,871,901   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

    24,871,901        1,283,751,674        204,725,349        1,513,348,924   

 

AB MUNICIPAL INCOME SHARES       55   

Notes to Financial Statements


 

 

Investments in
Securities:

  Level 1     Level 2     Level 3     Total  

Other Financial Instruments(a):

       

Assets:

       

Inflation (CPI) Swaps

  $ – 0  –    $ 497,202      $ – 0  –    $ 497,202   

Interest Rate Swaps

    – 0  –      1,222,228        – 0  –      1,222,228   

Liabilities

    – 0  –      – 0  –      – 0  –      – 0  – 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total(b)

  $   24,871,901      $   1,285,471,104      $   204,725,349      $   1,515,068,354   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)   

Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/depreciation on the instrument.

 

(b)   

There were no transfers between Level 1 and Level 2 during the reporting period.

The Fund 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.

 

     Long-Term
Municipal
Bonds
    Corporates -
Investment
Grade
    Total  

Balance as of 4/30/16

  $ 201,986,684      $ – 0  –    $ 201,986,684   

Accrued discounts/(premiums)

    149,147        – 0  –      149,147   

Realized gain (loss)

    523,122        – 0  –      523,122   

Change in unrealized appreciation/depreciation

    2,201,019        – 0  –      2,201,019   

Purchases

    19,758,961        865,000        20,623,961   

Sales

    (11,567,057     – 0  –      (11,567,057

Transfers in to Level 3

    – 0  –      – 0  –      – 0  – 

Transfers out of Level 3

    (9,191,527     – 0  –      (9,191,527
 

 

 

   

 

 

   

 

 

 

Balance as of 10/31/16

  $   203,860,349      $   865,000      $   204,725,349 (a) 
 

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation from investments held as of 10/31/16(b)

  $ 2,427,722      $ – 0  –    $ 2,427,722   
 

 

 

   

 

 

   

 

 

 

 

(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.

As of October 31, 2016, 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 Fund. 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

 

56     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

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 a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.

In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).

3. Taxes

It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.

In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.

 

AB MUNICIPAL INCOME SHARES       57   

Notes to Financial Statements


 

 

4. Investment Income and Investment Transactions

Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income.

5. Dividends and Distributions

Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.

NOTE B

Advisory Fee and Other Transactions with Affiliates

Under the terms of the Advisory Agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee paid by their investment adviser to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The Advisory Agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.

The Fund has entered into a Distribution Agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.

AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and

 

58     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.

The AB Fixed-Income Shares, Inc.—Government STIF Portfolio (the “Government STIF Portfolio”), prior to June 1, 2016, was offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and was not available for direct purchase by members of the public. Prior to June 1, 2016, the Government STIF Portfolio paid no advisory fees but did bear its own expenses. As of June 1, 2016, the Government STIF Portfolio, which was renamed “AB Government Money Market Portfolio” (the “Government Money Market Portfolio”), has a contractual advisory fee rate of .20% and continues to bear its own expenses. In connection with the investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive an amount equal to the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended October 31, 2016, such waiver amounted to $72,018. A summary of the Fund’s transactions in shares of the Government Money Market Portfolio for the six months ended October 31, 2016 is as follows:

 

Market Value

April 30, 2016

(000)

  Purchases
at Cost
(000)
    Sales
Proceeds
(000)
    Market Value
October 31, 2016
(000)
    Dividend
Income
(000)
 
$    74,724   $     316,657      $     366,509      $     24,872      $     117   

NOTE C

Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2016 were as follows:

 

     Purchases     Sales  

Investment securities (excluding U.S. government securities)

   $     523,527,289      $     115,953,982   

U.S. government securities

     – 0  –      – 0  – 

The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:

 

Gross unrealized appreciation

   $ 62,652,844   

Gross unrealized depreciation

     (12,266,366
  

 

 

 

Net unrealized appreciation

   $     50,386,478   
  

 

 

 

1. Derivative Financial Instruments

The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain

 

AB MUNICIPAL INCOME SHARES       59   

Notes to Financial Statements


 

 

exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.

The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:

 

   

Swaps

The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.

Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received 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

 

60     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

unrealized appreciation/depreciation of swaps on the statement of operations.

Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.

At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Interest Rate Swaps:

The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.

In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an

 

AB MUNICIPAL INCOME SHARES       61   

Notes to Financial Statements


 

 

increase in the price of securities the Fund anticipates purchasing at a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).

During the six months ended October 31, 2016, the Fund held interest rate swaps for hedging and non-hedging purposes.

Inflation (CPI) Swaps:

Inflation swaps 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 Fund 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 unexpected inflation increases.

During the six months ended October 31, 2016, the Fund held inflation (CPI) swaps for hedging purposes.

Credit Default Swaps:

The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

 

 

62     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same reference obligation with the same counterparty. As of October 31, 2016, the Fund did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sale Contracts outstanding.

Credit default swaps may involve greater risks than if a Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.

Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.

During the six months ended October 31, 2016, the Fund held credit default swaps for non-hedging purposes.

The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or

 

AB MUNICIPAL INCOME SHARES       63   

Notes to Financial Statements


 

 

termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain derivative financial instrument’s 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.

Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.

The Fund’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.

During the six months ended October 31, 2016, the Fund had entered into the following derivatives:

 

    

Asset Derivatives

    Liability Derivatives  

Derivative Type

 

Statement of
Assets and
Liabilities
Location

  Fair Value     Statement of
Assets and
Liabilities
Location
    Fair Value  

Interest rate contracts

  Unrealized appreciation on interest rate swaps   $ 1,222,228       

Interest rate contracts

  Unrealized appreciation on inflation swaps     497,202       
   

 

 

     

Total

    $     1,719,430       
   

 

 

     

 

64     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

 

Derivative Type

  

Location of Gain

or (Loss) on

Derivatives Within
Statement of
Operations

   Realized Gain
or (Loss)  on
Derivatives
    Change in
Unrealized
Appreciation or
(Depreciation)
 

Interest rate contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps    $ (266,126   $   1,679,050   

Credit contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      844,833        (953,392
     

 

 

   

 

 

 

Total

      $   578,707      $ 725,658   
     

 

 

   

 

 

 

The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2016:

 

Interest Rate Swaps:

  

Average notional amount

   $ 49,083,333 (a) 

Inflation Swaps:

  

Average notional amount

   $ 24,490,714   

Centrally Cleared Interest Rate Swaps:

  

Average notional amount

   $ 24,500,000 (b) 

Centrally Cleared Credit Default Swaps:

  

Average notional amount of buy contracts

   $ 11,760,000 (c) 

Average notional amount of sale contracts

   $ 19,680,000 (d) 

 

(a)  

Positions were open for five months during the period.

 

(b)  

Positions were open for four months during the period.

 

(c)  

Positions were open for less than one month during the period.

 

(d)  

Positions were open for two months during the period.

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.

 

AB MUNICIPAL INCOME SHARES       65   

Notes to Financial Statements


 

 

All derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2016:

 

Counterparty

  Derivative
Assets
Subject
to a MA
    Derivative
Available
for Offset
    Cash
Collateral
Received
    Security
Collateral
Received*
    Net Amount of
Derivatives
Assets
 

OTC Derivatives:

         

Bank of America, NA

  $ 35,042      $ – 0  –    $ – 0  –    $ – 0  –    $ 35,042   

Citibank, NA

    1,347,255        – 0  –      – 0  –      (1,347,255     – 0  – 

Deutsche Bank AG

    337,133        – 0  –      (260,000     – 0  –      77,133   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $     1,719,430      $     – 0  –    $     (260,000   $     (1,347,255   $     112,175 ^ 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*   The actual collateral received/pledged is 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.

NOTE D

Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

 

             
     Shares           Amount        
     Six Months Ended
October 31, 2016
(unaudited)
    

Year Ended

April 30,

2016

          Six Months Ended
October 31, 2016
(unaudited)
   

Year Ended

April 30,

2016

       
  

 

 

   
Class A              

Shares sold

     36,587,721         50,672,634        $ 430,973,567      $ 570,253,491     

 

   

Shares issued in reinvestment of dividends and distributions

     25         – 0  –        295        – 0  –   

 

   

Shares redeemed

     (7,278,089      (11,631,177       (85,758,902     (130,033,503  

 

   

Net increase

     29,309,657         39,041,457        $ 345,214,960      $ 440,219,988     

 

   

NOTE E

Risks Involved in Investing in the Fund

Municipal Market Risk and Concentration of Credit Risk—This is the risk that special factors may adversely affect the value of municipal securities and have a significant effect on the yield or value of the Fund’s investments in municipal securities. These factors include economic conditions, political or legislative changes, uncertainties related to the tax status of municipal securities, or the rights of investors in these securities. An

 

66     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security. To the extent that the Fund invests more of its assets in a particular state’s municipal securities, the Fund may be vulnerable to events adversely affecting that state, including economic, political and regulatory occurrences, court decisions, terrorism and catastrophic natural disasters, such as hurricanes or earthquakes. The Fund’s investments in certain municipal securities with principal and interest payments that are made from the revenues of a specific project or facility, and not general tax revenues, may have increased risks. Factors affecting the project or facility, such as local business or economic conditions, could have a significant effect on the project’s ability to make payments of principal and interest on these securities.

The Fund may invest in the municipal securities of Puerto Rico and other U.S. territories and their governmental agencies and municipalities, which are exempt from federal, state, and, where applicable, local income taxes. These municipal securities may have more risks than those of other U.S. issuers of municipal securities. Like many U.S. states and municipalities, Puerto Rico experienced a significant downturn during the recession. Puerto Rico’s downturn was particularly severe, and Puerto Rico continues to face a very challenging economic and fiscal environment. Municipal securities issued by Puerto Rico issuers have extremely low ratings by the credit rating organizations. More recently Puerto Rico has defaulted on its debt payments, and if the general economic situation in Puerto Rico persists, the volatility and credit quality of Puerto Rican municipal securities will continue to be adversely affected, and the market for such securities may experience continued volatility. In addition, Puerto Rico’s difficulties have resulted in increased volatility in portions of the broader municipal securities market from time to time, and this may recur in the future.

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 Fund may be subject to a heightened risk of rising interest rates due to the current period of historically low interest rates and the potential effect of government fiscal and central bank monetary policy initiatives, including Federal Reserve actions, and market reactions to such actions. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.

 

AB MUNICIPAL INCOME SHARES       67   

Notes to Financial Statements


 

 

Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.

Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.

Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.

Financing and Related Transactions; Leverage and Other Risks—The Fund may utilize financial leverage, including tender option bond transactions, to seek to enhance the yield and net asset value. These objectives may not be achieved in all interest rate environments. Leverage creates certain risks for shareholders, including the likelihood of greater volatility of the net asset value. If income from the securities purchased from the funds made available by leverage is not sufficient to cover the cost of leverage, the Fund’s return will be less than if leverage had not been used. As a result, the amounts available for distribution as dividends and other distributions will be reduced. During periods of rising short-term interest rates, the interest paid on the floaters in tender option bond transactions would increase, which may adversely affect the Fund’s income and distribution to shareholders. A decline in distributions would adversely affect the Fund’s yield. If rising short-term rates coincide with a period of rising long-term rates, the value of the long-term municipal bonds purchased with the proceeds of leverage would decline, adversely affecting the net asset value.

In a tender option bond transaction, the Fund may transfer a highly rated fixed-rate municipal security to a broker, which, in turn, deposits the bond into a special purpose vehicle (typically, a trust) usually sponsored by the broker. The Fund receives cash and a residual interest security (sometimes referred to as an “inverse floater”) issued by the trust in

 

68     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

return. The trust simultaneously issues securities, which pay an interest rate that is reset each week based on an index of high-grade short-term seven-day demand notes. These securities, sometimes referred to as “floaters”, are bought by third parties, including tax-exempt money market funds, and can be tendered by these holders to a liquidity provider at par, unless certain events occur. The Fund continues to earn all the interest from the transferred bond less the amount of interest paid on the floaters and the expenses of the trust, which include payments to the trustee and the liquidity provider and organizational costs. The Fund also uses the cash received from the transaction for investment purposes or to retire other forms of leverage. Under certain circumstances, the trust may be terminated and collapsed, either by the Fund or upon the occurrence of certain events, such as a downgrade in the credit quality of the underlying bond, or in the event holders of the floaters tender their securities to the liquidity provider. See Note G to the Financial Statements “Floating Rate Notes in Connection with Securities Held” for more information about tender option bond transactions.

The Fund may also purchase inverse floaters from a tender option bond trust in a secondary market transaction without first owning the underlying bond. The income received from an inverse floater varies inversely with the short-term interest rate paid on the floaters issued by the trust. The prices of inverse floaters are subject to greater volatility than the prices of fixed-income securities that are not inverse floaters. Investments in inverse floaters may amplify the risks of leverage. If short-term interest rates rise, the interest payable on the floaters would increase and income from the inverse floaters decrease.

Liquidity Risk—Liquidity risk exists when particular investments, such as lower-rated securities, are difficult to purchase or sell, possibly preventing the Fund from selling out of these illiquid securities at an advantageous price. The Fund is subject to liquidity risk because the market for municipal securities is generally smaller than many other markets. Derivatives and securities involving substantial market and credit risk tend to involve greater liquidity risk.

Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.

 

AB MUNICIPAL INCOME SHARES       69   

Notes to Financial Statements


 

 

NOTE F

Distributions to Shareholders

The tax character of distributions to be paid for the year ending April 30, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended April 30, 2016 and April 30, 2015 were as follows:

 

     2016      2015  

Distributions paid from:

     

Ordinary income

   $ 2,224,599       $ 754,583   
  

 

 

    

 

 

 

Total taxable distributions

     2,224,599         754,583   

Tax-exempt income

     32,851,908         22,413,077   
  

 

 

    

 

 

 

Total distributions paid

   $     35,076,507       $     23,167,660   
  

 

 

    

 

 

 

As of April 30, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed tax-exempt income

   $ 4,783,027   

Accumulated capital and other losses

     (6,592,654 )(a) 

Unrealized appreciation/(depreciation)

     59,869,726 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $     58,060,099 (c) 
  

 

 

 

 

(a)  

As of April 30, 2016, the Fund had a net capital loss carryforward of $6,592,654. During the fiscal year, the Fund utilized $2,240,092 of capital loss carryforwards to offset current year net realized gains.

 

(b)  

The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax treatment of swaps, the tax deferral of losses on wash sales and the tax treatment of tender option bonds.

 

(c)  

The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable and the tax treatment of defaulted securities.

For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30, 2016, the Fund had a net short-term capital loss carryforward of $5,649,434 and a net long-term capital loss carryforward of $943,220 which may be carried forward for an indefinite period.

NOTE G

Floating Rate Notes Issued in Connection with Securities Held

The Fund may engage in tender option bond transactions in which the Fund transfers a fixed rate bond (“Fixed Rate Bond”) to a broker for cash. The broker deposits the Fixed Rate Bond into a Special Purpose Vehicle (the “SPV”, which is generally organized as a trust), organized

 

70     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


 

 

by the broker. The Fund buys a residual interest in the assets and cash flows of the SPV, often referred to as an inverse floating rate obligation (“Inverse Floater”). The SPV also issues floating rate notes (“Floating Rate Notes”) which are sold to third parties. The Floating Rate Notes pay interest at rates that generally reset weekly and their holders have the option to tender their notes to a liquidity provider for redemption at par. The Inverse Floater held by the Fund gives the Fund the right (1) to cause the holders of the Floating Rate Notes to tender their notes at par, and (2) to have the trustee transfer the Fixed Rate Bond held by the SPV to the Fund, thereby collapsing the SPV. The SPV may also be collapsed in certain other circumstances. In accordance with U.S. GAAP requirements regarding accounting for transfers and servicing of financial assets and extinguishments of liabilities, the Fund accounts for the transaction described above as a secured borrowing by including the Fixed Rate Bond in its portfolio of investments and the Floating Rate Notes as a liability under the caption “Payable for floating rate notes issued” in its statement of assets and liabilities. Interest expense related to the Fund’s liability with respect to Floating Rate Notes is recorded as incurred. The interest expense is also included in the Fund’s expense ratio. At October 31, 2016, the amount of the Fund’s Floating Rate Notes outstanding was $5,265,000 and the related interest rate was 0.66%. For the six months ended October 31, 2016, the average amount of Floating Rate Notes outstanding and the daily weighted average interest rate were $5,265,000 and 1.29%, respectively.

The Fund may also purchase Inverse Floaters in the secondary market without first owning the underlying bond. Such an Inverse Floater is included in the Fund’s portfolio of investments but is not required to be treated as a secured borrowing and reflected in the Fund’s financial statements as a secured borrowing.

NOTE H

New Accounting Pronouncements

In May 2015, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2015-07 (the “ASU”) which removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share practical expedient but do not utilize that practical expedient.

The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.

 

AB MUNICIPAL INCOME SHARES       71   

Notes to Financial Statements


 

 

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.

NOTE I

Subsequent Events

Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.

 

72     AB MUNICIPAL INCOME SHARES

Notes to Financial Statements


FINANCIAL HIGHLIGHTS

Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period

 

   

Six Months
Ended
October 31,
2016

(unaudited)

   


Year Ended April 30,
 
      2016     2015     2014     2013     2012  
 

 

 

 

Net asset value, beginning of period

    $  11.59        $  11.14        $  10.64        $  11.22        $  10.50        $  9.24   
 

 

 

 

Income From Investment Operations

           

Net investment income(a)

    .22        .48        .51        .52        .47        .59   

Net realized and unrealized gain (loss) on investment transactions

    .06        .46        .51        (.59     .77       1.27   
 

 

 

 

Net increase (decrease) in net asset value from operations

    .28        .94        1.02        (.07     1.24        1.86   
 

 

 

 

Less: Dividends and Distributions

           

Dividends from net investment income

    (.26     (.49     (.52     (.51     (.52     (.60

Distributions from net realized gain on investment transactions

    – 0  –      – 0  –      – 0  –      (.00 )(b)      – 0  –      – 0  – 
 

 

 

 

Total dividends and distributions

    (.26     (.49     (.52     (.51     (.52     (.60
 

 

 

 

Net asset value, end of period

    $  11.61        $  11.59        $  11.14        $  10.64        $  11.22        $  10.50   
 

 

 

 

Total Return

           

Total investment return based on net asset value(c)

    2.09  %      8.69  %      9.73  %      (.28 )%      11.98  %      20.74  % 

Ratios/Supplemental Data

           

Net assets, end of period (000’s omitted)

    $1,454,400        $1,112,540        $634,667        $381,668        $205,258        $17,606   

Ratio to average net assets of:

           

Expenses(d)

    .01  %^      .01  %      .01  %      .01  %      .03  %      .05  % 

Net investment income

    3.75  %^      4.25  %      4.62  %      5.03  %      4.41  %      6.06  % 

Portfolio turnover rate

    9  %      8  %      10  %      29  %      7  %      17  % 

 

(a)   Based on average shares outstanding.

 

(b)   Amount is less than $.005.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized.

 

(d)   The expense ratios, excluding interest expense are .00% .00%, .00%, .00%, .00% and .00%, respectively.

 

  Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Fund’s change in net realized and unrealized gain (loss) on investment transactions for the period.

 

^   Annualized.

 

AB MUNICIPAL INCOME SHARES       73   

Financial Highlights


BOARD OF TRUSTEES

 

Marshall C. Turner, Jr.(1), Chairman

John H. Dobkin(1)

Michael J. Downey(1)

William H. Foulk, Jr.(1)

D. James Guzy(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

Philip L. Kirstein,

Senior Vice President and Independent Compliance Officer

Robert “Guy” B. Davidson III(2), Vice President

Terrance T. Hults(2), Vice President

Matthew J. Norton(2), Vice President

  

Emilie D. Wrapp, Secretary

Joseph J. Mantineo, Treasurer and Chief Financial Officer

Phyllis J. Clarke, Controller

Vincent S. Noto, Chief Compliance Officer

 

Custodian and Accounting Agent

State Street Bank and Trust Company
State Street Corporation CCB/5
1 Iron Street
Boston, MA 02210

 

Principal Underwriter

AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105

 

Transfer Agent

AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
Toll-Free (800) 221-5672

  

Legal Counsel

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

 

Independent Registered Public Accounting Firm

Ernst & Young LLP

5 Times Square

New York, NY 10036

 

(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 Trust’s Portfolio are made by the Municipal Bond Investment Team. Messrs. Robert “Guy” B. Davidson III, Terrance T. Hults and Matthew J. Norton are the investment professionals primarily responsible for the day-to-day management of the Trust’s Portfolio.

 

74     AB MUNICIPAL INCOME SHARES

Board of Trustees


 

 

Information Regarding the Review and Approval of the Fund’s Advisory Agreement

The disinterested trustees (the “trustees”) of AB Corporate Shares (the “Fund”) unanimously approved the continuance of the Fund’s Advisory Agreement with the Adviser in respect of AB Municipal Income Shares (the “Portfolio”) at a meeting held on November 3-5, 2015.

Prior to approval of the continuance of the Advisory Agreement in respect of the Portfolio, the trustees 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 trustees also reviewed an independent evaluation prepared by the Fund’s Senior Officer (who is also the Fund’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee (zero) for the Portfolio was reasonable. The trustees also discussed the proposed continuance in private sessions with counsel and the Fund’s Senior Officer.

The trustees noted that the Portfolio is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The trustees also noted that no advisory fee is payable by the Portfolio, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Portfolio’s ordinary expenses. The trustees noted that the Fund acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The trustees further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Portfolio as an investment vehicle for their clients.

The trustees considered their knowledge of the nature and quality of the services provided by the Adviser to the Portfolio gained from their experience as trustees or directors 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 trustees and its responsiveness, frankness and attention to concerns raised by the trustees 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 trustees noted that they have four regular meetings each

 

AB MUNICIPAL INCOME SHARES       75   


 

 

year, at each of which they receive presentations from the Adviser on the investment results of the Portfolio and review extensive materials and information presented by the Adviser.

The trustees also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the trustees did not identify any particular information that was all-important or controlling, and different trustees may have attributed different weights to the various factors. The trustees determined that the selection of the Adviser to manage the Portfolio, and the overall arrangements between the Portfolio 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 trustees considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the trustees’ determination included the following:

Nature, Extent and Quality of Services Provided

The trustees 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 Portfolio. They also noted the professional experience and qualifications of the Portfolio’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Portfolio’s other service providers, also was considered. The trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement.

Costs of Services Provided and Profitability

The trustees reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2013 and 2014 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s Senior Officer. The trustees considered that while the Adviser does not receive any advisory fee or expense reimbursement from the Portfolio, it does receive fees paid by the Sponsors. They also noted that the Adviser bears certain costs in providing services to the Portfolio and in paying its ordinary expenses. The trustees 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 trustees noted that the profitability information reflected all revenues and expenses of the

 

76     AB MUNICIPAL INCOME SHARES


 

 

Adviser’s relationship with the Portfolio. The trustees 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, including, in the case of the Portfolio, the fact that it does not pay an advisory fee. The trustees focused on the profitability of the Adviser’s relationship with the Portfolio before taxes. The trustees noted that the Adviser’s relationship with the Portfolio was not profitable to it in 2013 or 2014.

Fall-Out Benefits

The trustees considered the other benefits to the Adviser and its affiliates from their relationships with the Portfolio. The trustees noted that the Adviser is compensated by the Sponsors. The trustees understood that the Adviser might also derive reputational and other benefits from its association with the Portfolio.

Investment Results

In addition to the information reviewed by the trustees in connection with the meeting, the trustees receive detailed performance information for the Portfolio at each regular Board meeting during the year. At the November 2015 meeting, the trustees reviewed information prepared by Broadridge showing the performance of the Portfolio as compared with that of funds selected by Broadridge (the “Performance Universe”), and information prepared by the Adviser showing the Portfolio’s performance as compared with the Barclays Municipal Bond Index (the “Index”), in each case for the 1- and 3-year periods ended July 31, 2015, and (in the case of comparisons with the Index) the period since inception (September 2010 inception). The trustees noted that, on a gross return basis, the Portfolio was in the 3rd quintile of the Performance Universe for the 1-year period and in the 1st quintile of the Performance Universe for the 3-year period. The Portfolio outperformed the Index in all periods. The trustees were cognizant that the Portfolio was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Portfolio. The trustees had asked the Adviser to provide information showing the weighting of the Portfolio in representative SMAs and the overall performance of those SMAs versus their stated benchmarks. The materials provided to the trustees in respect of the Portfolio included its weighting in the AllianceBernstein Tax-Aware Fixed Income SMA and the AllianceBernstein Municipal Income SMA and the performance of each of those SMAs relative to the Barclays Municipal Bond Unhedged Index. The trustees noted that the Tax-Aware Fixed Income SMA showed generally favorable performance

 

AB MUNICIPAL INCOME SHARES       77   


 

 

relative to its benchmark, and that the Municipal Income SMA had lagged its benchmark in each period. Based on their review, the trustees concluded that the Portfolio’s performance was satisfactory.

Advisory Fees

The trustees considered the advisory fee rate paid by the Portfolio to the Adviser (zero) and information provided by Broadridge showing the fees paid by other fund families used in wrap fee programs similar to that of the Portfolio. The trustees 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 trustees noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Portfolio. The trustees reviewed the fee arrangements between the Adviser and each of the current Sponsors and noted that such fees were negotiated on an arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the trustees acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Portfolio paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Portfolio (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to portfolio management at the Portfolio level is the same for all Sponsors. The trustees also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser.

The Adviser informed the trustees that there were no institutional products managed by it that have a substantially similar investment style.

Since the Portfolio does not bear ordinary expenses, the trustees did not consider comparative expense information.

Economies of Scale

Since the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Portfolio and the Portfolio’s expense ratio is zero, the trustees did not consider the extent to which fee levels in the Advisory Agreement reflect economies of scale. They did note, however, that the fee payable to the Adviser by the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.

 

78     AB MUNICIPAL INCOME SHARES


THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS

AB FAMILY OF FUNDS

 

US EQUITY

 

US Core

Core Opportunities Fund

Select US Equity Portfolio

US Growth

Concentrated Growth Fund

Discovery Growth Fund

Growth Fund

Large Cap Growth Fund

Small Cap Growth Portfolio

US Value

Discovery Value Fund

Equity Income Fund

Growth & Income Fund

Small Cap Value Portfolio

Value Fund

INTERNATIONAL/ GLOBAL EQUITY

 

International/Global Core

Global Core Equity Portfolio

Global Equity & Covered Call Strategy Fund

International Portfolio

International Strategic Core Portfolio

Sustainable Global Thematic Fund*

Tax-Managed International Portfolio

International/Global Growth

International Growth Fund

International/Global Value

Asia ex-Japan Equity Portfolio

International Value Fund

FIXED INCOME

 

Municipal

High Income Municipal Portfolio

Intermediate California Municipal Portfolio

Intermediate Diversified Municipal Portfolio

Intermediate New York Municipal Portfolio

FIXED INCOME (continued)

 

Municipal Bond Inflation Strategy

Tax-Aware Fixed Income Portfolio

National Portfolio

Arizona Portfolio

California Portfolio

Massachusetts Portfolio

Michigan Portfolio

Minnesota Portfolio

New Jersey Portfolio

New York Portfolio

Ohio Portfolio

Pennsylvania Portfolio

Virginia Portfolio

Taxable

Bond Inflation Strategy

Global Bond Fund

High Income Fund

High Yield Portfolio

Income Fund

Intermediate Bond Portfolio

Limited Duration High Income Portfolio

Short Duration Portfolio

ALTERNATIVES

 

All Market Real Return Portfolio

Credit Long/Short Portfolio

Global Real Estate Investment Fund

Long/Short Multi-Manager Fund

Multi-Manager Alternative Strategies Fund

Select US Long/Short Portfolio

Unconstrained Bond Fund

MULTI-ASSET

 

All Market Income Portfolio

Emerging Markets Multi-Asset Portfolio

Global Risk Allocation Fund

MULTI-ASSET (continued)

 

Target-Date

Multi-Manager Select Retirement Allocation Fund

Multi-Manager Select 2010 Fund

Multi-Manager Select 2015 Fund

Multi-Manager Select 2020 Fund

Multi-Manager Select 2025 Fund

Multi-Manager Select 2030 Fund

Multi-Manager Select 2035 Fund

Multi-Manager Select 2040 Fund

Multi-Manager Select 2045 Fund

Multi-Manager Select 2050 Fund

Multi-Manager Select 2055 Fund

Wealth Strategies

Balanced Wealth Strategy

Conservative Wealth Strategy

Wealth Appreciation Strategy

Tax-Managed Balanced Wealth Strategy

Tax-Managed Wealth Appreciation Strategy

CLOSED-END FUNDS

 

AB Multi-Manager Alternative Fund

Alliance California Municipal Income Fund

AllianceBernstein Global High Income Fund

AllianceBernstein National Municipal Income Fund

 

We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

* Prior to November 1, 2016, the Fund was named Global Thematic Growth Fund.

 

AB MUNICIPAL INCOME SHARES       79   

AB Family of Funds


NOTES

 

 

80     AB MUNICIPAL INCOME SHARES


NOTES

 

 

AB MUNICIPAL INCOME SHARES       81   


NOTES

 

 

82     AB MUNICIPAL INCOME SHARES


NOTES

 

 

AB MUNICIPAL INCOME SHARES       83   


NOTES

 

 

84     AB MUNICIPAL INCOME SHARES


LOGO

AB MUNICIPAL INCOME SHARES

1345 Avenue of the Americas

New York, NY 10105

800.221.5672

 

MIS-0152-1016                 LOGO


OCT    10.31.16

LOGO

 

SEMI-ANNUAL REPORT

AB TAXABLE MULTI-SECTOR INCOME SHARES

 


Investment Products Offered

 

•Are Not FDIC Insured

•May Lose Value

•Are Not Bank Guaranteed

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

This shareholder report must be preceded or accompanied by the Fund’s prospectus for individuals who are not current shareholders of the Fund.

You may obtain a description of the Fund’s proxy voting policies and procedures, and information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30, without charge. Simply visit AB’s website at www.abfunds.com, or go to the Securities and Exchange Commission’s (the “Commission”) website at www.sec.gov, or call AB at (800) 227-4618.

The Fund files its complete schedule of portfolio holdings with the Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the Commission’s website at www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling (800) SEC-0330. AB publishes full portfolio holdings for the Fund monthly at www.abfunds.com.

AllianceBernstein Investments, Inc. (ABI) is the distributor of the AB family of mutual funds. ABI is a member of FINRA and is an affiliate of AllianceBernstein L.P., the Adviser of the funds.

The [A/B] logo is a registered service mark of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P.


December 13, 2016

 

Semi-Annual Report

This report provides management’s discussion of fund performance for AB Taxable Multi-Sector Income Shares (the “Fund”) for the semi-annual reporting period ended October 31, 2016. Please note, shares of this Fund are available only to separately managed accounts or participants in “wrap fee” programs or other investment programs approved by AllianceBernstein L.P. (the “Adviser”).

Investment Objectives and Policies

The Fund’s investment objective is to generate income and price appreciation. The Fund invests, under normal circumstances, at least 80% of its net assets in fixed-income securities. The Fund may invest in a broad range of securities in both developed and emerging markets. The Fund may invest across all fixed-income sectors, including corporate and US and non-US government securities. The Fund may invest up to 50% of its assets in below investment-grade bonds (“junk bonds”). The Fund expects to invest in readily marketable fixed-income securities with a range of maturities from short- to long-term.

The Fund may invest without limit in US dollar-denominated foreign fixed-income securities and may invest up to 50% of its assets in non-US dollar-denominated foreign fixed-income securities. These investments may include, in each case, developed and emerging-market debt securities.

The Adviser selects securities for purchase or sale based on its assessment of the securities’ risk and return characteristics as well as the securities’ impact on the overall risk and return characteristics of the Fund. In making this assessment, the Adviser takes into account various factors including the credit quality and sensitivity to interest rates of the securities under consideration and of the Fund’s other holdings.

The Fund may also 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 Fund may use leverage for investment purposes. The Fund intends, among other things, to enter into transactions such as reverse repurchase agreements, forward contracts and dollar rolls. The Fund may invest, without limit, in derivatives, such as options, futures contracts, forwards or swap agreements.

Currencies can have a dramatic effect on returns of non-US dollar-denominated fixed-income securities, significantly adding to returns in some years and greatly diminishing them in others. The Adviser evaluates currency and fixed-income positions separately and may seek to hedge the currency exposure resulting from the Fund’s fixed-income securities positions when it finds the currency exposure unattractive. To

 

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       1   


hedge a portion of its currency risk, the Fund 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.

Investment Results

The table on page 7 shows the Fund’s performance compared to its benchmark, the Bloomberg Barclays US Aggregate ex-Government Bond Index, for the six- and 12-month periods ended October 31, 2016.

The Fund underperformed its benchmark for both periods. Yield-curve positioning detracted from relative performance in each period, primarily due to the Fund’s underweight positioning along the five-, 10- and 20-year parts of the curve. Security selection also detracted in both periods; selection within the energy and financials sectors detracted in the six-month period, while selection in the consumer non-cyclical sector detracted in the 12-month period. Although sector allocation did not have a meaningful impact on overall performance in the six-month period, it was a detractor in the 12-month period. In the six-month period, the positive impact from the Fund’s avoidance of mortgage-backed security agencies was offset by losses from an exposure to treasuries and several other modest

detractors. In the 12-month period, gains from a lack of exposure to mortgage-backed security agencies were outweighed by negative returns from an allocation to treasuries and an underweight in the energy sector (which did well as oil prices ended the 12-month period higher).

The Fund utilized derivatives in the form of interest rate swaps and inflation swaps for hedging purposes, and credit default swaps for investment purposes, which had an immaterial impact on absolute returns during both periods.

Market Review and Investment Strategy

Bond markets generally increased in absolute terms over the 12-month period ended October 31, 2016, as global growth trends and central bank action in the world’s largest economies continued to diverge. After declining through the end of 2015 and beginning of 2016, oil prices rebounded through much of the period on the back of decreased global supply—which contributed to a rally in emerging-market debt sectors—though prices moved downward in October on the market’s rising skepticism that OPEC would reach a deal to limit crude production. Emerging-market sentiment was further boosted on positive political developments in Argentina and Brazil toward the end of the period.

In December 2015, the US Federal Reserve (the “Fed”) hiked rates for

 

 

2     AB TAXABLE MULTI-SECTOR INCOME SHARES


the first time in over nine years—a move that had been well-telegraphed and widely anticipated, and was generally accepted smoothly by bond investors. After some slower-than-expected US economic data through the first half of 2016, the Fed’s tone turned more hawkish in September (despite rates remaining unchanged) on the back of continued strengthening in the US labor market and growth in economic activity. In October, third quarter US GDP posted its best quarterly gain in two years (largely because of a surge in agricultural exports).

Central banks around the globe cut rates during the annual period, with some, including the Bank of Japan and the European Central Bank, dipping into negative rate territory. Volatility in Europe (and globally) spiked sharply in June after the UK voted to leave the European Union, a decision that was largely a surprise to investors. While investors initially responded by selling risk-sensitive assets, markets outside Europe quickly recovered. European markets began to stabilize as well, helped by the Bank of England’s first rate cut in seven years—to an historic low—and an aggressive asset-purchase program. Elsewhere, central banks in Australia and New Zealand also moved rates to record lows, while fiscal and monetary policy developments in Japan disappointed in

vestors, who were expecting rate cuts or additional quantitative easing.

Yields in most developed markets fell in the 12-month period, with UK yields reaching historic lows in the months following the Brexit referendum in June. At the end of the period, trillions of dollars’ worth of government debt around the world lingered in negative territory. Developed-market treasuries generally outperformed emerging-market local-currency government bonds and investment-grade credit securities, but lagged the rally in global high yield. Energy and basics were among the top performing sectors in each period, largely due to positive oil price action, while consumer-related sectors lagged the rising market.

On November 8, 2016, Donald Trump was elected as the 45th president of the United States, and the Congressional election outcome resulted in the Republican Party maintaining control of both the House of Representatives and the Senate. The Adviser believes that it will take time before the world has a clearer picture of the short- and long-term impact of the elections on the US economy and markets in general. The Adviser continues to monitor the markets, including for potential market volatility.

 

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       3   


DISCLOSURES AND RISKS

 

Benchmark Disclosure

The Bloomberg Barclays US Aggregate ex-Government Bond Index is unmanaged and does not reflect fees and expenses associated with the active management of a fund. The Bloomberg Barclays US Aggregate ex-Government Bond Index represents the performance of securities within the US investment-grade fixed-rate bond market, with index components for 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 Fund.

A Word About Risk

Market Risk: The value of the Fund’s assets will fluctuate as the stock or bond market fluctuates. The value of the Fund’s investments may decline, sometimes rapidly and unpredictably, simply because of economic changes or other events that affect large portions of the market.

Credit Risk: An issuer or guarantor of a fixed-income security, or the counterparty to a derivatives or other contract, may be unable or unwilling to make timely payments of interest or principal, or to otherwise honor its obligations. The issuer or guarantor may default, causing a loss of the full principal amount of a security. The degree of risk for a particular security may be reflected in its credit rating. There is the possibility that the credit rating of a fixed-income security may be downgraded after purchase, which may adversely affect the value of the security.

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 Fund may be subject to heightened interest rate risk due to rising interest rates as the current period of historically low interest rates ends. Interest rate risk is generally greater for fixed-income securities with longer maturities or durations.

Below Investment Grade Securities Risk: Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.

Inflation Risk: This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as

 

(Disclosures, Risks and Note about Historical Performance continued on next page)

 

4     AB TAXABLE MULTI-SECTOR INCOME SHARES

Disclosures and Risks


DISCLOSURES AND RISKS

(continued from previous page)

 

can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.

Foreign (Non-US) Risk: Investments in securities of non-US issuers may involve more risk than those of US issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.

Emerging Market Risk: Investments in emerging-market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.

Currency Risk: Fluctuations in currency exchange risk may negatively affect the value of the Fund’s investments or reduce its returns.

Prepayment Risk: The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected.

Derivatives Risk: Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and may be subject to counterparty risk to a greater degree than more traditional investments.

Leverage Risk: To the extent the Fund uses leveraging techniques, its net asset value (“NAV”) may be more volatile because leverage tends to exaggerate the effect of changes in interest rates and any increase or decrease in the value of the Fund’s investments.

Management Risk: The Fund is subject to management risk because it is an actively managed investment fund. The Adviser will apply its investment techniques and risk analyses in making investment decisions, but there is no guarantee that its techniques will produce the intended results.

These risks are fully discussed in the Fund’s prospectus. As with all investments, you may lose money by investing in the Fund.

 

(Disclosures, Risks and Note about Historical Performance continued on next page)

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       5   

Disclosures and Risks


DISCLOSURES AND RISKS

(continued from previous page)

 

An Important Note About Historical Performance

The performance shown on the following pages represents past performance and does not guarantee future results. Current performance may be lower or higher than the performance information shown. You may obtain performance information current to the most recent month-end by calling (800) 227-4618. The investment return and principal value of an investment in the Fund will fluctuate, so that your shares, when redeemed, may be worth more or less than their original cost. Performance assumes reinvestment of distributions and does not account for taxes.

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus and/or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AllianceBernstein Investments representative. Please read the prospectus and/or summary prospectus carefully before investing.

 

6     AB TAXABLE MULTI-SECTOR INCOME SHARES

Disclosures and Risks


HISTORICAL PERFORMANCE

 

        
THE FUND VS. ITS BENCHMARK
PERIODS ENDED OCTOBER 31, 2016 (unaudited)
  NAV Returns        
  6 Months        12 Months         
AB Taxable Multi-Sector Income Shares     0.83%           1.91%     

 

 
Bloomberg Barclays US Aggregate ex-Government Bond Index     1.96%           5.09%     

 

 
        

See Disclosures, Risks and Note about Historical Performance on pages 4-6.

(Historical Performance continued on next page)

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       7   

Historical Performance


HISTORICAL PERFORMANCE

(continued from previous page)

 

 

AVERAGE ANNUAL RETURNS AS OF OCTOBER 31, 2016 (unaudited)  
     NAV Returns  
  

1 Year

     1.91

5 Years

     2.03

Since Inception*

     2.33
  
AVERAGE ANNUAL RETURNS AS OF THE MOST RECENT CALENDAR
QUARTER-END SEPTEMBER 30, 2016 (unaudited)
 
     NAV Returns  
  

1 Year

     2.09

5 Years

     2.25

Since Inception*

     2.37

The prospectus fee table shows the fees and the total Fund operating expenses of the Fund as 0.00% because the Adviser does not charge any fees or expenses and reimburses Fund operating expenses, except certain extraordinary expenses, taxes, brokerage costs and the interest on borrowings or certain leveraged transactions. Participants in a wrap fee program or other investment program eligible to invest in the Fund pay fees to the program sponsor and should review the program brochure or other literature provided by the sponsor for a discussion of fees and expenses charged.

 

*   Inception date: 9/15/2010.

See Disclosures, Risks and Note about Historical Performance on pages 4-6.

 

8     AB TAXABLE MULTI-SECTOR INCOME SHARES

Historical Performance


EXPENSE EXAMPLE

(unaudited)

 

As a shareholder of the Fund, you may incur various ongoing non-operating and extraordinary costs. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period as indicated below.

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), or contingent deferred sales charges on redemptions. Therefore, the hypothetical example is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

     Beginning
Account Value
May 1, 2016
     Ending
Account Value
October 31, 2016
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Actual

   $     1,000       $     1,008.30       $     – 0 –         0.00

Hypothetical**

   $ 1,000       $ 1,025.21       $ – 0 –         0.00
*   Expenses equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). The Fund’s operating expenses are borne by the Adviser or its affiliates.

 

**   Assumes 5% annual return before expenses.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       9   

Expense Example


PORTFOLIO SUMMARY

October 31, 2016 (unaudited)

 

PORTFOLIO STATISTICS

Net Assets ($mil): $110.4

 

 

LOGO

 

 

 

*   All data are as of October 31, 2016. The Fund’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Fund also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details).

 

10     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio Summary


PORTFOLIO OF INVESTMENTS

October 31, 2016 (unaudited)

 

     Principal
Amount
(000)
    U.S. $ Value  

 

 

CORPORATES – INVESTMENT
GRADE – 56.7%

    

Industrial – 33.5%

    

Basic – 0.8%

    

Dow Chemical Co. (The)
8.55%, 5/15/19

   $ 700      $ 815,632   

PPG Industries, Inc.
6.65%, 3/15/18

     59        62,906   
    

 

 

 
       878,538   
    

 

 

 

Capital Goods – 4.4%

    

Boeing Co. (The)
1.65%, 10/30/20

     500        502,911   

Caterpillar Financial Services Corp.
1.80%, 11/13/18

     560        564,144   

Emerson Electric Co.
5.00%, 4/15/19

     759        821,791   

General Electric Co.
Series G
6.00%, 8/07/19

     770        864,595   

John Deere Capital Corp.
1.25%, 10/09/19

     615        609,910   

1.95%, 1/08/19

     125        126,463   

Lockheed Martin Corp.
1.85%, 11/23/18

     560        565,350   

United Technologies Corp.
1.50%, 11/01/19

     830        830,508   
    

 

 

 
       4,885,672   
    

 

 

 

Communications - Media – 1.5%

    

Comcast Corp.
5.70%, 7/01/19

     737        818,281   

Time Warner Cable LLC
6.75%, 7/01/18

     765        826,513   
    

 

 

 
       1,644,794   
    

 

 

 

Communications - Telecommunications – 2.0%

  

 

American Tower Corp.
2.80%, 6/01/20

     440        448,649   

Deutsche Telekom International Finance BV
1.50%, 9/19/19(a)

     900        896,994   

Verizon Communications, Inc.
1.375%, 8/15/19

     900        892,689   
    

 

 

 
       2,238,332   
    

 

 

 

Consumer Cyclical - Automotive – 4.6%

  

 

American Honda Finance Corp.
1.20%, 7/12/19

     845        839,069   

BMW US Capital LLC
1.45%, 9/13/19(a)

     350        348,879   

1.50%, 4/11/19(a)

     490        490,240   

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       11   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Ford Motor Credit Co. LLC
2.551%, 10/05/18

   $ 500      $ 506,009   

3.336%, 3/18/21

     525        539,831   

General Motors Financial Co., Inc.

    

2.40%, 5/09/19

     465        465,431   

3.10%, 1/15/19

     360        366,329   

Harley-Davidson Financial Services, Inc.
2.15%, 2/26/20(a)

     435        437,312   

2.25%, 1/15/19(a)

     155        157,110   

Nissan Motor Acceptance Corp.
1.55%, 9/13/19(a)

     900        896,327   
    

 

 

 
       5,046,537   
    

 

 

 

Consumer Cyclical - Other – 0.7%

    

Starwood Hotels & Resorts Worldwide LLC
6.75%, 5/15/18

     760        818,404   
    

 

 

 

Consumer Cyclical - Restaurants – 0.3%

    

McDonald’s Corp.
2.10%, 12/07/18

     285        288,517   
    

 

 

 

Consumer Non-Cyclical – 9.1%

    

AbbVie, Inc.
2.00%, 11/06/18

     545        549,098   

Allergan, Inc./United States
1.35%, 3/15/18

     401        398,974   

Amgen, Inc.
5.70%, 2/01/19

     685        747,059   

Anheuser-Busch InBev Finance, Inc.
2.65%, 2/01/21

     579        592,151   

Baxalta, Inc.
2.00%, 6/22/18

     448        450,188   

Becton Dickinson and Co.
2.675%, 12/15/19

     425        437,988   

Bottling Group LLC
5.125%, 1/15/19

     475        513,698   

Coca-Cola Co. (The)
1.375%, 5/30/19

     835        838,790   

Kroger Co. (The)
2.00%, 1/15/19

     580        586,025   

Laboratory Corp. of America Holdings
2.625%, 2/01/20

     430        437,125   

Molson Coors Brewing Co.
1.45%, 7/15/19

     826        821,011   

Mylan NV
2.50%, 6/07/19(a)

     825        833,926   

Newell Brands, Inc.
2.60%, 3/29/19

     553        564,144   

Stryker Corp.
2.00%, 3/08/19

     830        837,636   

 

12     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Teva Pharmaceutical Finance Netherlands III BV
1.40%, 7/20/18

   $ 840      $ 836,391   

Thermo Fisher Scientific, Inc.
2.15%, 12/14/18

     575        582,490   
    

 

 

 
       10,026,694   
    

 

 

 

Energy – 5.6%

    

BP Capital Markets PLC
1.676%, 5/03/19

     835        836,208   

Chevron Corp.
1.561%, 5/16/19

     835        838,535   

ConocoPhillips Co.
1.50%, 5/15/18

     431        431,333   

Energy Transfer Partners LP
2.50%, 6/15/18

     450        453,172   

Enterprise Products Operating LLC
2.85%, 4/15/21

     810        832,908   

Exxon Mobil Corp.
1.708%, 3/01/19

     830        836,284   

Kinder Morgan, Inc./DE
3.05%, 12/01/19

     435        445,714   

Schlumberger Holdings Corp.
2.35%, 12/21/18(a)

     575        583,856   

Shell International Finance BV
1.375%, 9/12/19

     900        892,483   
    

 

 

 
       6,150,493   
    

 

 

 

Technology – 3.6%

    

Apple, Inc.
1.70%, 2/22/19

     655        660,821   

Cisco Systems, Inc.
1.60%, 2/28/19

     450        452,967   

Hewlett Packard Enterprise Co.
3.10%, 10/05/18(a)

     610        623,679   

International Business Machines Corp.
1.80%, 5/17/19

     100        101,128   

1.95%, 2/12/19

     725        735,196   

Lam Research Corp.
2.80%, 6/15/21

     545        554,934   

Oracle Corp.
2.25%, 10/08/19

     865        884,271   
    

 

 

 
       4,012,996   
    

 

 

 

Transportation - Services – 0.9%

    

Ryder System, Inc.
3.45%, 11/15/21

     1,000        1,052,022   
    

 

 

 
       37,042,999   
    

 

 

 

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       13   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Financial Institutions – 20.0%

    

Banking – 15.3%

    

ABN AMRO Bank NV
1.80%, 9/20/19(a)

   $ 895      $ 891,545   

American Express Credit Corp.
1.875%, 11/05/18

     105        105,763   

Bank of America Corp.
6.875%, 11/15/18

     551        606,731   

Series L
2.60%, 1/15/19

     315        320,232   

Bank of America NA
2.05%, 12/07/18

     250        252,631   

Capital One Financial Corp.
2.45%, 4/24/19

     430        437,274   

Capital One NA/Mclean VA
1.85%, 9/13/19

     425        424,824   

Citigroup, Inc.
1.75%, 5/01/18

     450        450,463   

2.05%, 12/07/18

     100        100,555   

2.50%, 9/26/18

     640        648,755   

Discover Bank/Greenwood DE
2.00%, 2/21/18

     620        621,999   

Fifth Third Bank/Cincinnati OH
2.30%, 3/15/19

     825        836,339   

Goldman Sachs Group, Inc. (The)
2.625%, 1/31/19

     580        590,999   

2.90%, 7/19/18

     235        239,766   

Series G
7.50%, 2/15/19

     250        281,071   

Huntington National Bank (The)
2.20%, 11/06/18

     555        560,249   

JPMorgan Chase & Co.
6.30%, 4/23/19

     535        593,039   

KeyBank NA/Cleveland OH
1.60%, 8/22/19

     370        368,971   

1.70%, 6/01/18

     215        215,691   

2.35%, 3/08/19

     250        254,320   

Lloyds Banking Group PLC
3.10%, 7/06/21

     585        601,884   

Mitsubishi UFJ Financial Group, Inc.
2.95%, 3/01/21

     815        836,405   

Mizuho Financial Group, Inc.
2.632%, 4/12/21(a)

     820        828,010   

Morgan Stanley
Series G
2.45%, 2/01/19

     1,100        1,116,940   

PNC Bank NA
1.95%, 3/04/19

     830        837,409   

Regions Bank/Birmingham AL
2.25%, 9/14/18

     475        478,920   

 

14     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Santander Holdings USA, Inc.
2.70%, 5/24/19

   $ 825      $ 833,031   

Synchrony Financial
2.60%, 1/15/19

     575        581,859   

US Bank NA/Cincinnati OH
1.40%, 4/26/19

     835        833,488   

Wells Fargo Bank NA
1.75%, 5/24/19

     1,100        1,104,283   
    

 

 

 
       16,853,446   
    

 

 

 

Insurance – 3.4%

    

Berkshire Hathaway Finance Corp.
1.70%, 3/15/19

     835        841,633   

Humana, Inc.
7.20%, 6/15/18

     300        327,086   

Metropolitan Life Global Funding I
1.55%, 9/13/19(a)

     335        333,707   

1.95%, 12/03/18(a)

     550        555,616   

Pricoa Global Funding I
1.45%, 9/13/19(a)

     900        896,871   

UnitedHealth Group, Inc.
1.70%, 2/15/19

     835        837,980   
    

 

 

 
       3,792,893   
    

 

 

 

Other Finance – 0.8%

    

Shire Acquisitions Investments Ireland DAC
1.90%, 9/23/19

     830        828,444   
    

 

 

 

REITS – 0.5%

    

Simon Property Group LP
2.50%, 9/01/20

     560        574,013   
    

 

 

 
       22,048,796   
    

 

 

 

Utility – 3.2%

    

Electric – 3.2%

    

Dominion Resources, Inc./VA
Series B
1.60%, 8/15/19

     895        893,537   

Exelon Corp.
2.45%, 4/15/21

     818        826,492   

Exelon Generation Co. LLC
2.95%, 1/15/20

     130        133,391   

National Rural Utilities Cooperative Finance Corp.
1.65%, 2/08/19

     825        830,569   

Southern Co. (The)
1.85%, 7/01/19

     830        834,801   
    

 

 

 
       3,518,790   
    

 

 

 

Total Corporates – Investment Grade
(cost $62,146,952)

       62,610,585   
    

 

 

 

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       15   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

ASSET-BACKED SECURITIES – 23.6%

    

Autos - Fixed Rate – 15.4%

    

Ally Auto Receivables Trust
Series 2015-2, Class A3
1.49%, 11/15/19

   $ 95      $ 95,233   

Series 2016-2, Class A4
1.60%, 1/15/21

     1,000        998,496   

Ally Master Owner Trust
Series 2015-3, Class A
1.63%, 5/15/20

     166        166,487   

ARI Fleet Lease Trust
Series 2014-A, Class A2
0.81%, 11/15/22(a)

     13        13,061   

California Republic Auto Receivables Trust
Series 2015-2, Class A3
1.31%, 8/15/19

     74        73,984   

Chrysler Capital Auto Receivables Trust
Series 2015-BA, Class A3
1.91%, 3/16/20(a)

     118        118,497   

Drive Auto Receivables Trust
Series 2016-BA, Class A2
1.38%, 8/15/18(a)

     714        714,016   

Enterprise Fleet Financing LLC
Series 2014-2, Class A2
1.05%, 3/20/20(a)

     117        116,416   

Series 2015-1, Class A2
1.30%, 9/20/20(a)

     115        114,976   

Fifth Third Auto Trust
Series 2014-3, Class A4
1.47%, 5/17/21

     980        982,704   

Ford Credit Auto Lease Trust
Series 2016-A, Class A2A
1.42%, 11/15/18

     2,222        2,224,459   

Ford Credit Auto Owner Trust
Series 2013-A, Class D
1.86%, 8/15/19

     118        118,398   

Series 2014-2, Class A
2.31%, 4/15/26(a)

     128        130,548   

Series 2016-B, Class A4
1.52%, 8/15/21

     2,500        2,504,462   

Ford Credit Floorplan Master Owner Trust
Series 2016-1, Class A1
1.76%, 2/15/21

     1,000        1,006,650   

GM Financial Automobile Leasing Trust
Series 2015-2, Class A3
1.68%, 12/20/18

     153        153,695   

Series 2015-3, Class A3
1.69%, 3/20/19

     650        653,033   

 

16     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

GMF Floorplan Owner Revolving Trust
Series 2015-1, Class A1
1.65%, 5/15/20(a)

   $ 629      $ 630,598   

Harley-Davidson Motorcycle Trust
Series 2014-1, Class A3
1.10%, 9/15/19

     264        264,041   

Series 2015-1, Class A3
1.41%, 6/15/20

     912        913,289   

Hertz Vehicle Financing LLC
Series 2016-1A, Class A
2.32%, 3/25/20(a)

     1,000        1,002,782   

Honda Auto Receivables Owner Trust
Series 2015-3, Class A2
0.92%, 11/20/17

     363        362,779   

Series 2015-4, Class A3
1.23%, 9/23/19

     854        853,551   

Hyundai Auto Lease Securitization Trust
Series 2015-A, Class A2
1.00%, 10/16/17(a)

     71        70,997   

Series 2015-B, Class A3
1.40%, 11/15/18(a)

     166        166,419   

Mercedes-Benz Auto Lease Trust
Series 2015-B, Class A3
1.34%, 7/16/18

     88        88,165   

Series 2016-A, Class A3
1.52%, 3/15/19

     1,480        1,484,582   

Nissan Auto Lease Trust
Series 2015-A, Class A3
1.40%, 6/15/18

     126        126,219   

Santander Drive Auto Receivables Trust
Series 2015-3, Class A2A
1.02%, 9/17/18

     1        1,092   

Series 2015-4,Class A2A
1.20%, 12/17/18

     109        109,227   

Toyota Auto Receivables Owner Trust
Series 2015-C, Class A2A
0.92%, 2/15/18

     408        408,347   

Volkswagen Auto Loan Enhanced Trust
Series 2014-1, Class A3
0.91%, 10/22/18

     123        123,178   

Volkswagen Credit Auto Master Trust
Series 2014-1A, Class A2
1.40%, 7/22/19(a)

     72        71,942   

Westlake Automobile Receivables Trust
Series 2015-3A, Class A2A
1.42%, 5/17/21(a)

     111        110,854   
    

 

 

 
       16,973,177   
    

 

 

 

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       17   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Credit Cards - Fixed Rate – 3.9%

    

Barclays Dryrock Issuance Trust
Series 2015-4, Class A
1.72%, 8/16/21

   $ 1,100      $ 1,104,993   

Synchrony Credit Card Master Note Trust
Series 2015-3, Class A
1.74%, 9/15/21

     1,119        1,124,546   

Series 2016-1, Class A
2.04%, 3/15/22

     1,984        2,007,406   
    

 

 

 
       4,236,945   
    

 

 

 

Autos - Floating Rate – 2.2%

    

BMW Floorplan Master Owner Trust
Series 2015-1A, Class A
1.035% (LIBOR 1 Month + 0.50%), 7/15/20(a)(b)

     142        142,250   

Ford Credit Floorplan Master Owner Trust
Series 2015-2, Class A2
1.105% (LIBOR 1 Month + 0.57%), 1/15/22(b)

     1,038        1,038,825   

Hertz Fleet Lease Funding LP
Series 2013-3, Class A
1.079% (LIBOR 1 Month + 0.55%), 12/10/27(a)(b)

     24        23,745   

NCF Dealer Floorplan Master Trust
Series 2014-1A, Class A
2.026% (LIBOR 1 Month + 1.50%), 10/20/20(a)(b)

     169        169,000   

Volkswagen Credit Auto Master Trust
Series 2014-1A, Class A1
0.876% (LIBOR 1 Month + 0.35%), 7/22/19(a)(b)

     50        49,903   

Wells Fargo Dealer Floorplan Master Note Trust
Series 2015-1, Class A
1.026% (LIBOR 1 Month + 0.50%), 1/20/20(b)

     1,041        1,038,670   
    

 

 

 
       2,462,393   
    

 

 

 

Credit Cards - Floating Rate – 1.4%

    

American Express Issuance Trust II
Series 2013-1, Class A
0.815% (LIBOR 1 Month + 0.28%), 2/15/19(b)

     1,200        1,201,684   

Cabela’s Credit Card Master Note Trust
Series 2014-1, Class A
0.885% (LIBOR 1 Month + 0.35%), 3/16/20(b)

     235        235,000   

World Financial Network Credit Card Master Trust
Series 2015-A, Class A
1.015% (LIBOR 1 Month + 0.48%), 2/15/22(b)

     93        93,196   
    

 

 

 
       1,529,880   
    

 

 

 

 

18     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Other ABS - Fixed Rate – 0.7%

    

CNH Equipment Trust
Series 2015-A, Class A4
1.85%, 4/15/21

   $ 553      $ 558,485   

Sofi Consumer Loan Program LLC
Series 2016-3, Class A
3.05%, 12/26/25(a)

     250        249,995   
    

 

 

 
       808,480   
    

 

 

 

Total Asset-Backed Securities
(cost $25,929,737)

       26,010,875   
    

 

 

 
    

COLLATERALIZED MORTGAGE OBLIGATIONS – 10.8%

    

Risk Share Floating Rate – 10.0%

    

Bellemeade Re II Ltd.
Series 2016-1A, Class M2A
5.034% (LIBOR 1 Month + 4.50%), 4/25/26(b)(c)

     222        223,767   

Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes

    

Series 2016-DNA2, Class M1
1.784% (LIBOR 1 Month + 1.25%), 10/25/28(b)

     261        261,630   

Series 2016-HQA1, Class M1
2.284% (LIBOR 1 Month + 1.75%), 9/25/28(b)

     1,234        1,237,625   

Series 2016-HQA2, Class M1
1.734% (LIBOR 1 Month + 1.20%), 11/25/28(b)

     876        877,516   

Federal National Mortgage Association Connecticut Avenue Securities

    

Series 2014-C01, Class M1
2.134% (LIBOR 1 Month + 1.60%), 1/25/24(b)

     1,292        1,299,343   

Series 2014-C02, Class 1M1
1.484% (LIBOR 1 Month + 0.95%), 5/25/24(b)

     1,483        1,482,063   

Series 2014-C02, Class 2M1
1.484% (LIBOR 1 Month + 0.95%), 5/25/24(b)

     1,445        1,444,852   

Series 2015-C03, Class 1M1
2.034% (LIBOR 1 Month + 1.50%), 7/25/25(b)

     383        383,552   

Series 2016-C02, Class 1M1
2.684% (LIBOR 1 Month + 2.15%), 9/25/28(b)

     1,659        1,676,855   

Series 2016-C03, Class 1M1
2.534% (LIBOR 1 Month + 2.00%), 10/25/28(b)

     687        695,216   

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       19   

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Series 2016-C03, Class 2M1
2.734% (LIBOR 1 Month + 2.20%), 10/25/28(b)

   $ 1,449      $ 1,465,192   
    

 

 

 
       11,047,611   
    

 

 

 

Agency Fixed Rate – 0.8%

    

Federal Home Loan Mortgage Corp. REMICs

    

Series 4029, Class LD
1.75%, 1/15/27

     578        577,967   

Series 4459, Class CA
5.00%, 12/15/34

     309        328,435   
    

 

 

 
       906,402   
    

 

 

 

Total Collateralized Mortgage Obligations
(cost $11,871,753)

       11,954,013   
    

 

 

 
    

COMMERCIAL MORTGAGE-BACKED SECURITIES – 7.0%

    

Non-Agency Fixed Rate CMBS – 4.7%

    

Citigroup Commercial Mortgage Trust

    

Series 2013-GC17, Class A2
2.962%, 11/10/46

     435        444,954   

Series 2015-GC29, Class A2
2.674%, 4/10/48

     1,000        1,025,182   

Commercial Mortgage Trust

    

Series 2013-CR6, Class A1
0.719%, 3/10/46

     144        143,474   

Series 2014-LC15, Class A2
2.84%, 4/10/47

     440        451,231   

GS Mortgage Securities Trust

    

Series 2007-GG10, Class A4
5.794%, 8/10/45

     70        70,360   

Series 2013-G1, Class A1
2.059%, 4/10/31(a)

     671        658,333   

Series 2014-GC20, Class A2
3.002%, 4/10/47

     1,000        1,025,383   

JP Morgan Chase Commercial Mortgage Securities Trust

    

Series 2007-LDPX, Class A1A
5.439%, 1/15/49

     105        106,059   

Series 2013-C13, Class A2
2.665%, 1/15/46

     440        448,818   

Series 2013-C16, Class A2
3.07%, 12/15/46

     316        324,044   

Wachovia Bank Commercial Mortgage Trust
Series 2006-C26, Class A1A
6.009%, 6/15/45

     6        6,200   

WF-RBS Commercial Mortgage Trust
Series 2013-C16, Class A2
3.223%, 9/15/46

     430        443,333   
    

 

 

 
       5,147,371   
    

 

 

 

 

20     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio of Investments


     Principal
Amount
(000)
    U.S. $ Value  

 

 

Non-Agency Floating Rate CMBS – 2.3%

    

JP Morgan Chase Commercial Mortgage Securities Trust

    

Series 2014-INN, Class A
1.455% (LIBOR 1 Month + 0.92%), 6/15/29(a)(b)

   $ 1,000      $ 997,825   

Series 2015-SGP, Class A
2.235% (LIBOR 1 Month + 1.70%), 7/15/36(a)(b)

     400        401,241   

Resource Capital Corp., Ltd.
Series 2014-CRE2, Class A
1.585% (LIBOR 1 Month + 1.05%),
4/15/32(a)(b)

     214        212,100   

Starwood Retail Property Trust
Series 2014-STAR, Class A
1.744% (LIBOR 1 Month + 1.22%), 11/15/27(a)(b)

     1,000        989,993   
    

 

 

 
       2,601,159   
    

 

 

 

Total Commercial Mortgage-Backed Securities
(cost $7,781,639)

       7,748,530   
    

 

 

 
     Shares        

SHORT-TERM INVESTMENTS – 2.3%

    

Investment Companies – 2.3%

    

AB Fixed Income Shares, Inc. – Government Money Market Portfolio – Class AB,
0.26%(d)(e)
(cost $2,510,010)

     2,510,010        2,510,010   
    

 

 

 

Total Investments – 100.4%
(cost $110,240,091)

       110,834,013   

Other assets less liabilities – (0.4)%

       (459,767
    

 

 

 

Net Assets – 100.0%

     $ 110,374,246   
    

 

 

 

CENTRALLY CLEARED INTEREST RATE SWAPS (see Note C)

 

                Rate Type      

Clearing Broker/

(Exchange)

  Notional
Amount
(000)
    Termination
Date
    Payments
made by the
Fund
 

Payments
received

by the

Fund

  Unrealized
Appreciation/
(Depreciation)
 

Citigroup Global Markets, Inc./(CME Group)

  $     7,300        7/23/17      3 Month LIBOR   0.943%   $ 16,641   

Citigroup Global Markets, Inc./(CME Group)

    6,300        2/26/18      3 Month LIBOR   0.801%     (19,681

Citigroup Global Markets, Inc./(CME Group)

    3,000        7/23/20      1.800%   3 Month LIBOR     (75,763

Citigroup Global Markets, Inc./(CME Group)

    1,850        2/26/21      1.141%   3 Month LIBOR     11,143   
         

 

 

 
          $     (67,660
         

 

 

 

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       21   

Portfolio of Investments


 

 

 

(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 October 31, 2016, the aggregate market value of these securities amounted to $15,929,563 or 14.4% of net assets.

 

(b)   Floating Rate Security. Stated interest rate was in effect at October 31, 2016.

 

(c)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. This security, which represents 0.20% of net assets as of October 31, 2016, is considered illiquid and restricted. Additional information regarding such securities follows:

 

144A/Restricted & Illiquid
Securities
   Acquisition
Date
     Cost      Market
Value
     Percentage of
Net Assets
 

Bellemeade Re II Ltd.
Series 2016-1A, Class M2A
5.034%, 4/25/26

     4/29/16       $     221,689       $     223,767         0.20

 

(d)   To obtain a copy of the fund’s financial statements, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

 

(e)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

Glossary:

ABS – Asset-Backed Securities

CMBS – Commercial Mortgage-Backed Securities

CME – Chicago Mercantile Exchange

LIBOR – London Interbank Offered Rates

REIT – Real Estate Investment Trust

REMICs – Real Estate Mortgage Investment Conduits

 

 

See notes to financial statements.

 

22     AB TAXABLE MULTI-SECTOR INCOME SHARES

Portfolio of Investments


STATEMENT OF ASSETS & LIABILITIES

October 31, 2016 (unaudited)

 

Assets   

Investments in securities, at value

  

Unaffiliated issuers (cost $107,730,081)

   $ 108,324,003   

Affiliated issuers (cost $2,510,010)

     2,510,010   

Cash collateral due from broker

     45,999   

Interest receivable

     462,920   

Receivable for shares of beneficial interest sold

     47,053   

Receivable due from Adviser

     19,283   

Affiliated dividends receivable

     292   
  

 

 

 

Total assets

     111,409,560   
  

 

 

 
Liabilities   

Payable for investment securities purchased

     829,153   

Dividends payable

     170,314   

Payable for shares of beneficial interest redeemed

     34,825   

Payable for variation margin on exchange-traded derivatives

     1,022   
  

 

 

 

Total liabilities

     1,035,314   
  

 

 

 

Net Assets

   $     110,374,246   
  

 

 

 
Composition of Net Assets   

Shares of beneficial interest, at par

   $ 111   

Additional paid-in capital

     110,139,779   

Distributions in excess of net investment income

     (268,884

Accumulated net realized loss on investment transactions

     (23,022

Net unrealized appreciation on investments

     526,262   
  

 

 

 
   $ 110,374,246   
  

 

 

 

Net Asset Value Per Share—unlimited shares of beneficial interest authorized, $.00001 par value
(based on 11,132,263 common shares outstanding)

   $ 9.91   
  

 

 

 

 

See notes to financial statements.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       23   

Statement of Assets & Liabilities


STATEMENT OF OPERATIONS

Six Months Ended October 31, 2016 (unaudited)

 

Investment Income      

Interest

   $     1,888,128      

Dividends—Affiliated issuers

     6,316      

Other income(a)

     2,770      
  

 

 

    

Total investment income

      $ 1,897,214   
     

 

 

 
Realized and Unrealized Gain (Loss) on Investment Transactions      

Net realized gain on:

     

Investment transactions

        647,272   

Swaps

        460,989   

Net change in unrealized appreciation/depreciation of:

     

Investments

        (378,833

Swaps

        (415,638
     

 

 

 

Net gain on investment transactions

        313,790   
     

 

 

 

Net Increase in Net Assets from Operations

      $     2,211,004   
     

 

 

 

 

 

 

(a)   Other income includes a waiver for investment in affiliated issuer (see Note B).

See notes to financial statements.

 

24     AB TAXABLE MULTI-SECTOR INCOME SHARES

Statement of Operations


STATEMENT OF CHANGES IN NET ASSETS

 

 

     Six Months Ended
October 31, 2016
(unaudited)
    Year Ended
April 30,
2016
 
Increase (Decrease) in Net Assets from Operations     

Net investment income

   $ 1,897,214      $ 1,624,224   

Net realized gain (loss) on investment transactions

     1,108,261        (63,046

Net change in unrealized appreciation/depreciation of investments

     (794,471     1,045,842   
  

 

 

   

 

 

 

Net increase in net assets from operations

     2,211,004        2,607,020   
Dividends to Shareholders from     

Net investment income

     (1,974,148     (1,951,877
Transactions in Shares of Beneficial Interest     

Net increase (decrease)

         (197,095,920     188,990,290   
  

 

 

   

 

 

 

Total increase (decrease)

     (196,859,064     189,645,433   
Net Assets     

Beginning of period

     307,233,310        117,587,877   
  

 

 

   

 

 

 

End of period (including distributions in excess of net investment income of ($268,884) and ($191,950), respectively)

   $ 110,374,246      $     307,233,310   
  

 

 

   

 

 

 

 

 

See notes to financial statements.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       25   

Statement of Changes in Net Assets


NOTES TO FINANCIAL STATEMENTS

October 31, 2016 (unaudited)

 

NOTE A

Significant Accounting Policies

AB Corporate Shares (the “Trust”) was organized as a Massachusetts business trust under the laws of The Commonwealth of Massachusetts by an Agreement and Declaration of Trust dated January 26, 2004. The Trust is registered under the Investment Company Act of 1940, as an open-end, diversified management investment company. The Trust operates as a “series” company currently offering three separate portfolios: AB Corporate Income Shares, AB Municipal Income Shares and AB Taxable Multi-Sector Income Shares. Each Fund is considered to be a separate entity for financial reporting and tax purposes. This report relates only to AB Taxable Multi-Sector Income Shares the (“Fund”).

Shares of the Fund are offered exclusively to holders of accounts established under wrap-fee programs sponsored and maintained by certain registered investment advisers approved by AllianceBernstein L.P. (the “Adviser”). The Fund’s shares may be purchased at the relevant net asset value without a sales charge or other fee. The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Fund is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Fund.

1. Security Valuation

Fund 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 Trust’s Board of Trustees (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

 

26     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, the Adviser will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or more of the major broker-dealers. In cases where broker-dealer quotes are obtained, the Adviser may establish procedures whereby changes in market yields or spreads are used to adjust, on a daily basis, a recently obtained quoted price on a security. Swaps and other derivatives are valued daily, primarily using independent pricing services, independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Fund may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       27   

Notes to Financial Statements


 

 

2. Fair Value Measurements

In accordance with U.S. GAAP regarding fair value measurements, fair value is defined as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. U.S. GAAP establishes a framework for measuring fair value, and a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability (including those valued based on their market values as described in Note A.1 above). Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Fund. Unobservable inputs reflect the Fund’s own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. Each investment is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-tier hierarchy of inputs is summarized below.

 

   

Level 1—quoted prices in active markets for identical investments

   

Level 2—other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)

   

Level 3—significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The fair value of debt instruments, such as bonds, and over-the-counter derivatives is generally based on market price quotations, recently executed market transactions (where observable) or industry recognized modeling techniques and are generally classified as Level 2. Pricing vendor inputs to Level 2 valuations may include quoted prices for similar investments in active markets, interest rate curves, coupon rates, currency rates, yield curves, option adjusted spreads, default rates, credit spreads and other unique security features in order to estimate the relevant cash flows which are then discounted to calculate fair values. If these inputs are unobservable and significant to the fair value, these investments will be classified as Level 3. In addition, non-agency rated investments 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

 

28     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Fund’s investments by the above fair value hierarchy levels as of October 31, 2016:

 

Investments in
Securities:

  Level 1     Level 2     Level 3     Total  

Assets:

       

Corporates – Investment Grade

  $ – 0  –    $ 62,610,585      $ – 0  –    $ 62,610,585   

Asset-Backed Securities

    – 0  –      25,760,880        249,995        26,010,875   

Collateralized Mortgage Obligations

    – 0  –      11,730,246        223,767        11,954,013   

Commercial Mortgage-Backed Securities

    – 0  –      7,678,170        70,360        7,748,530   

Short-Term Investments

    2,510,010        – 0  –      – 0  –      2,510,010   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

    2,510,010        107,779,881        544,122        110,834,013   
 

 

 

   

 

 

   

 

 

   

 

 

 

Other Financial Instruments(a):

       

Assets:

       

Centrally Cleared Interest Rate Swaps

    – 0  –      27,784        – 0  –      27,784 (b) 

Liabilities:

       

Centrally Cleared Interest Rate Swaps

    – 0  –      (95,444     – 0  –      (95,444 )(b) 
 

 

 

   

 

 

   

 

 

   

 

 

 

Total(c)

  $   2,510,010      $   107,712,221      $   544,122      $   110,766,353   
 

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)   

Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/depreciation on the instrument.

 

(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.

 

(c)   

There were no transfers between Level 1 and Level 2 during the reporting period.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       29   

Notes to Financial Statements


 

 

The Fund recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.

 

     Asset-Backed
Securities
    Collateralized
Mortgage
Obligations
    Commercial
Mortgage-Backed
Securities
 

Balance as of 4/30/16

  $ – 0  –    $ – 0  –    $ 1,076,733   

Accrued discounts/(premiums)

    – 0  –      – 0  –      (274

Realized gain (loss)

    – 0  –      – 0  –      (39,531

Change in unrealized appreciation/depreciation

    – 0  –      2,078        34,671   

Purchases/Payups

    249,995        – 0  –      – 0  – 

Sales/Paydowns

    – 0  –      – 0  –        (1,001,239

Transfers in to Level 3

    – 0  –      221,689        – 0  – 

Transfers out of Level 3

    – 0  –      – 0  –      – 0  – 
 

 

 

   

 

 

   

 

 

 

Balance as of 10/31/16

  $ 249,995      $   223,767      $ 70,360   
 

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation from investments held as of 10/31/16(b)

  $ – 0  –    $ 2,078      $ (1,088
 

 

 

   

 

 

   

 

 

 
     Total              

Balance as of 4/30/16

  $ 1,076,733       

Accrued discounts/(premiums)

    (274    

Realized gain (loss)

    (39,531    

Change in unrealized appreciation/depreciation

    36,749       

Purchases/Payups

    249,995       

Sales/Paydowns

      (1,001,239    

Transfers in to Level 3

    221,689       

Transfers out of Level 3

    – 0  –     
 

 

 

     

Balance as of 10/31/16

  $ 544,122 (a)     
 

 

 

     

Net change in unrealized appreciation/depreciation from investments held as of 10/31/16(b)

  $ 990       
 

 

 

     

 

(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 Fund. 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

 

30     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

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 a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.

In addition, several processes outside of the pricing process are used to monitor valuation issues including: 1) performance and performance attribution reports are monitored for anomalous impacts based upon benchmark performance, and 2) portfolio managers review all portfolios for performance and analytics (which are generated using the Adviser’s prices).

3. Taxes

It is the Fund’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required.

In accordance with U.S. GAAP requirements regarding accounting for uncertainties in income taxes, management has analyzed the Fund’s tax positions taken or expected to be taken on federal and state income tax returns for all open tax years (the current and the prior three tax years) and has concluded that no provision for income tax is required in the Fund’s financial statements.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       31   

Notes to Financial Statements


 

 

4. Investment Income and Investment Transactions

Dividend income is recorded on the ex-dividend date or as soon as the Fund is informed of the dividend. Interest income is accrued daily. Investment transactions are accounted for on the date the securities are purchased or sold. Investment gains or losses are determined on the identified cost basis. The Fund amortizes premiums and accretes discounts as adjustments to interest income.

5. Dividends and Distributions

Dividends and distributions to shareholders, if any, are recorded on the ex-dividend date. Income dividends and capital gains distributions are determined in accordance with federal tax regulations and may differ from those determined in accordance with U.S. GAAP. To the extent these differences are permanent, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require such reclassification.

NOTE B

Advisory Fee and Other Transactions with Affiliates

Under the terms of the Advisory Agreement, the Fund pays no advisory fee to the Adviser and the Adviser reimburses or pays for the Fund’s operating expenses. The Fund is an integral part of separately managed accounts in wrap-fee programs and other investment programs. Typically, participants in these programs pay a fee to their investment adviser for all costs and expenses of the separately managed account, including costs and expenses associated with the Fund, and a fee is paid by their investment adviser to the Adviser. The Adviser serves as investment manager and adviser of the Fund and continuously furnishes an investment program for the Fund and manages, supervises and conducts the affairs of the Fund, subject to the supervisions of the Fund’s Board. The Advisory Agreement provides that the Adviser or an affiliate will furnish, or pay the expenses of the Fund for, office space, facilities and equipment, services of executive and other personnel of the Fund and certain administrative services.

The Fund has entered into a Distribution Agreement with AllianceBernstein Investments, Inc., the Fund’s principal underwriter (the “Underwriter”), to permit the Underwriter to distribute the Fund’s shares, which are sold at their net asset value without any sales charge. The Fund does not pay a fee for this service. The Underwriter is a wholly owned subsidiary of the Adviser.

AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, acts as the Fund’s registrar, transfer agent and dividend-disbursing agent. ABIS registers the transfer, issuance and redemption of Fund shares and disburses dividends and other distributions to Fund shareholders. The Fund does not pay a fee for this service.

 

32     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

The AB Fixed-Income Shares, Inc. – Government STIF Portfolio (the “Government STIF Portfolio”), prior to June 1, 2016, was offered as a cash management option to mutual funds and other institutional accounts of the Adviser, and was not available for direct purchase by members of the public. Prior to June 1, 2016, the Government STIF Portfolio paid no advisory fees but did bear its own expenses. As of June 1, 2016, the Government STIF Portfolio, which was renamed “AB Government Money Market Portfolio” (the “Government Money Market Portfolio”), has a contractual advisory fee rate of .20% and continues to bear its own expenses. In connection with the investment by the Fund in the Government Money Market Portfolio, the Adviser has agreed to waive an amount equal to the Fund’s share of the advisory fees of Government Money Market Portfolio, as borne indirectly by the Fund as an acquired fund fee and expense. For the year ended October 31, 2016, such waiver amounted to $2,770. A summary of the Fund’s transactions in shares of the Government Money Market Portfolio for the six months ended October 31, 2016 is as follows:

 

Market Value

04/30/16

(000)

  Purchases
at Cost
(000)
    Sales
Proceeds
(000)
    Market Value
10/31/16
(000)
    Dividend
Income
(000)
 
$    3,416   $     125,648      $     126,554      $     2,510      $     6   

NOTE C

Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended October 31, 2016 were as follows:

 

     Purchases      Sales  

Investment securities (excluding
U.S. government securities)

   $     71,851,962       $     124,354,577   

U.S. government securities

     33,009,492         160,842,512   

The cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes. Accordingly, gross unrealized appreciation and unrealized depreciation are as follows:

 

Gross unrealized appreciation

   $ 710,757   

Gross unrealized depreciation

     (116,835
  

 

 

 

Net unrealized appreciation

   $     593,922   
  

 

 

 

1. Derivative Financial Instruments

The Fund may use derivatives in an effort to earn income and enhance returns, to replace more traditional direct investments, to obtain exposure to otherwise inaccessible markets (collectively, “investment purposes”), or to hedge or adjust the risk profile of its portfolio.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       33   

Notes to Financial Statements


 

 

The principal types of derivatives utilized by the Fund, as well as the methods in which they may be used are:

 

   

Swaps

The Fund may enter into swaps to hedge its exposure to interest rates, credit risk, or currencies. The Fund may also enter into swaps for non-hedging purposes as a means of gaining market exposures, including by making direct investments in foreign currencies, as described below under “Currency Transactions”. A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset. The payment flows are usually netted against each other, with the difference being paid by one party to the other. In addition, collateral may be pledged or received by the Fund in accordance with the terms of the respective swaps to provide value and recourse to the Fund or its counterparties in the event of default, bankruptcy or insolvency by one of the parties to the swap.

Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Fund, and/or the termination value at the end of the contract. Therefore, the Fund considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. Additionally, risks may arise from unanticipated movements in interest rates or in the value of the underlying securities. The Fund accrues for the interim payments on swaps on a daily basis, with the net amount recorded within unrealized appreciation/depreciation of swaps on the statement of assets and liabilities, where applicable. Once the interim payments are settled in cash, the net amount is recorded as realized gain/(loss) on swaps on the statement of operations, in addition to any realized gain/(loss) recorded upon the termination of swaps. Upfront premiums paid or received 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.

 

34     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

Certain standardized swaps, including certain interest rate swaps and credit default swaps, are (or soon will be) subject to mandatory central clearing. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses, with the clearinghouse serving as central counterparty, similar to transactions in futures contracts. Centralized clearing will be required for additional categories of swaps on a phased-in basis based on requirements published by the Securities and Exchange Commission and Commodity Futures Trading Commission.

At the time the Fund enters into a centrally cleared swap, the Fund deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Fund agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Fund as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Interest Rate Swaps:

The Fund is subject to interest rate risk exposure in the normal course of pursuing its investment objectives. Because the Fund holds fixed rate bonds, the value of these bonds may decrease if interest rates rise. To help hedge against this risk and to maintain its ability to generate income at prevailing market rates, the Fund may enter into interest rate swaps. Interest rate swaps are agreements between two parties to exchange cash flows based on a notional amount. The Fund may elect to pay a fixed rate and receive a floating rate, or, receive a fixed rate and pay a floating rate on a notional amount.

In addition, the Fund may also enter into interest rate swap transactions to preserve a return or spread on a particular investment or portion of its portfolio, or protecting against an increase in the price of securities the Fund anticipates purchasing at

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       35   

Notes to Financial Statements


 

 

a later date. Interest rate swaps involve the exchange by a Fund with another party of their respective commitments to pay or receive interest (e.g., an exchange of floating rate payments for fixed rate payments) computed based on a contractually-based principal (or “notional”) amount. Interest rate swaps are entered into on a net basis (i.e., the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments).

During the six months ended October 31, 2016, the Fund held interest rate swaps for hedging purposes.

Credit Default Swaps:

The Fund may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Fund, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Fund may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Fund receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Fund is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Fund will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Fund for the same reference obligation with the same counterparty. As of October 31, 2016, the Fund did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sale Contracts outstanding.

Credit default swaps may involve greater risks than if a Fund had invested in the referenced obligation directly. Credit default swaps are subject to general market risk, liquidity risk, counterparty risk and credit risk. If the Fund is a buyer of protection and no credit

 

36     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

event occurs, it will lose the payments it made to its counterparty. If the Fund is a seller of protection and a credit event occurs, the value of the referenced obligation received by the Fund coupled with the periodic payments previously received, may be less than the Maximum Payout Amount it pays to the buyer, resulting in a net loss to the Fund.

Implied credit spreads over U.S. Treasuries of comparable maturity utilized in determining the market value of credit default swaps on issuers as of period end are disclosed in the portfolio of investments. The implied spreads serve as an indicator of the current status of the payment/performance risk and typically reflect the likelihood of default by the issuer of the referenced obligation. The implied credit spread of a particular reference obligation also reflects the cost of buying/selling protection and may reflect upfront payments required to be made to enter into the agreement. Widening credit spreads typically represent a deterioration of the referenced obligation’s credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.

During the six months ended October 31, 2016, the Fund held credit default swaps for non-hedging purposes.

The Fund typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) or similar master agreements (collectively, “Master Agreements”) with its derivative contract counterparties in order to, among other things, reduce its credit risk to counterparties. ISDA Master Agreements include provisions for general obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Fund typically may offset with the counterparty certain derivative financial instrument’s 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.

Various Master Agreements govern the terms of certain transactions with counterparties, including transactions such as derivative transactions, repurchase and reverse repurchase agreements. These Master Agreements typically attempt to reduce the counterparty risk associated with such transactions by specifying credit protection mechanisms and providing standardization that improves legal certainty. Cross-termination provisions under Master Agreements typically provide that a default in connection with one transaction between the Fund and a counterparty gives

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       37   

Notes to Financial Statements


 

 

the non-defaulting party the right to terminate any other transactions in place with the defaulting party to create one single net payment due to/due from the defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Fund’s net liability, held by the defaulting party, may be delayed or denied.

The Fund’s Master Agreements may contain provisions for early termination of OTC derivative transactions in the event the net assets of the Fund decline below specific levels (“net asset contingent features”). If these levels are triggered, the Fund’s counterparty has the right to terminate such transaction and require the Fund to pay or receive a settlement amount in connection with the terminated transaction. For additional details, please refer to netting arrangements by counterparty tables below.

During the six months ended October 31, 2016, the Fund had entered into the following derivatives:

 

    

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of
Assets and
Liabilities
Location

  Fair Value    

Statement of
Assets and
Liabilities
Location

  Fair Value  

Interest rate
contracts

      
Receivable/Payable for variation margin on exchange-traded derivatives
      
$
 
27,784
 
      
Receivable/Payable for variation margin on exchange-traded derivatives
      
$
 
95,444
 
   

 

 

     

 

 

 

Total

    $   27,784        $   95,444   
   

 

 

     

 

 

 

 

*   Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities. This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments.

 

Derivative Type

 

Location of Gain
or (Loss) on
Derivatives Within
Statement of
Operations

 

Realized Gain
or (Loss) on
Derivatives

  Change in
Unrealized
Appreciation or
(Depreciation)
 

Interest rate contracts

  Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps   $    (8,339)   $ (1,587

Credit contracts

  Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps   469,328     (414,051
   

 

 

 

 

 

Total

    $  460,989   $   (415,638
   

 

 

 

 

 

 

38     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

The following table represents the average monthly volume of the Fund’s derivative transactions during the six months ended October 31, 2016:

 

Centrally Cleared Interest Rate Swaps:

  

Average notional amount

   $ 18,450,000   

Centrally Cleared Credit Default Swaps:

  

Average notional amount of sale contracts

   $ 27,033,333 (a) 

 

(a)   

Positions were open for two months during the period.

For financial reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the statement of assets and liabilities.

All derivatives held at period end were subject to netting arrangements. The following table presents the Fund’s derivative assets and liabilities by counterparty net of amounts available for offset under Master Agreements (“MA”) and net of the related collateral received/pledged by the Fund as of October 31, 2016:

 

Counterparty

   Derivative
Liabilities
Subject
to a MA
     Derivative
Available for
Offset
    Cash
Collateral
Pledged*
    Security
Collateral
Pledged
    Net
Amount of
Derivatives
Liabilities
 

Exchange-Traded Derivatives:

           

Citigroup Global Markets, Inc.**

   $     1,022       $     – 0  –    $     (1,022   $ – 0  –    $ – 0  – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,022       $ – 0  –    $ (1,022   $     – 0  –    $     – 0  – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

*   The actual collateral received/pledged is more than the amount reported due to over-collateralization.

 

**   Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at October 31, 2016.

2. Currency Transactions

The Fund may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Fund may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Fund may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Fund and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Fund may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       39   

Notes to Financial Statements


 

 

NOTE D

Shares of Beneficial Interest

Transactions in shares of beneficial interest were as follows:

 

            
     Shares           Amount        
     Six Months Ended
October 31, 2016
(unaudited)
    Year Ended
April 30,
2016
          Six Months Ended
October 31, 2016
(unaudited)
    Year Ended
April 30,
2016
       
  

 

 

   
Class A             

Shares sold

     12,619,369        32,935,056        $ 125,226,521      $ 325,171,658     

 

   

Shares issued in reinvestment of dividends and distributions

     2        – 0  –        24        – 0  –   

 

   

Shares redeemed

     (32,484,242     (13,733,956       (322,322,465     (136,181,368  

 

   

Net increase (decrease)

     (19,864,871     19,201,100        $ (197,095,920   $ 188,990,290     

 

   

NOTE E

Risks Involved in Investing in the Fund

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Fund’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Fund’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.

Inflation Risk—This is the risk that the value of assets or income from investments will be less in the future as inflation decreases the value of money. As inflation increases, the value of the Fund’s assets can decline as can the value of the Fund’s distributions. This risk is significantly greater for fixed-income securities with longer maturities.

 

40     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

Foreign (Non-U.S.) Risk—Investments in securities of non-U.S. issuers may involve more risk than those of U.S. issuers. These securities may fluctuate more widely in price and may be less liquid due to adverse market, economic, political, regulatory or other factors.

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Fund’s investments or reduce its returns.

Prepayment Risk—The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Fund to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Fund may not be able to realize the rate of return it expected.

Derivatives Risk—The Fund may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for the Fund, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.

Leverage Risk—When the Fund borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Fund’s investments. The Fund may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of derivative instruments by the Fund, such as forwards, futures, options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Fund than if the Fund were not leveraged, but may also adversely affect returns, particularly if the market is declining.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       41   

Notes to Financial Statements


 

 

Indemnification Risk—In the ordinary course of business, the Fund enters into contracts that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these indemnification provisions and expects the risk of loss thereunder to be remote. Therefore, the Fund has not accrued any liability in connection with these indemnification provisions.

NOTE F

Distributions to Shareholders

The tax character of distributions to be paid for the year ending April 30, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended April 30, 2016 and April 30, 2015 were as follows:

 

     2016      2015  

Distributions paid from:

     

Ordinary income

   $ 1,951,877       $ 1,603,900   
  

 

 

    

 

 

 

Total taxable distributions paid

   $     1,951,877       $     1,603,900   
  

 

 

    

 

 

 

As of April 30, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 574,920   

Accumulated capital and other losses

         (1,121,247 )(a) 

Unrealized appreciation/(depreciation)

     892,955 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 346,628 (c) 
  

 

 

 

 

(a)   

As of April 30, 2016, the Fund had a net capital loss carryforward of $1,121,247.

 

(b)   

The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the tax treatment of swaps.

 

(c)   

The difference between book-basis and tax-basis components of accumulated earnings/(deficit) is attributable primarily to dividends payable.

For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of April 30, 2016, the Fund had a net short-term capital loss carryforward of $1,006,257 and a net long-term capital loss carryforward of $114,990 which may be carried forward for an indefinite period.

NOTE G

New Accounting Pronouncements

In May 2015, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2015-07 (the “ASU”) which

 

42     AB TAXABLE MULTI-SECTOR INCOME SHARES

Notes to Financial Statements


 

 

removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The ASU also removes the requirement to make certain disclosures for investments that are eligible to be measured at fair value using the net asset value per share practical expedient but do not utilize that practical expedient. The ASU is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. At this time, management is evaluating the implications of these changes on the financial statements.

NOTE H

Other

In October 2016, the U.S. Securities and Exchange Commission adopted new rules and amended existing rules (together, “final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in investment company financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017. Management is currently evaluating the impact that the adoption of the amendments to Regulation S-X will have on the financial statements and related disclosures.

NOTE I

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 other material events that would require disclosure in the Fund’s financial statements through this date.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       43   

Notes to Financial Statements


FINANCIAL HIGHLIGHTS

Selected Data For A Share Of Beneficial Interest Outstanding Throughout Each Period

 

   

Six Months
Ended
October 31,
2016

(unaudited)

    Year Ended April 30,  
      2016     2015     2014     2013     2012  
 

 

 

 

Net asset value, beginning of period

    $  9.91        $  9.97        $  9.97        $  9.97        $  10.17        $  10.09   
 

 

 

 

Income From Investment Operations

           

Net investment income(a)

    .08        .14        .09        .10        .10        .32   

Net realized and unrealized gain (loss) on investment transactions

    .01        (.02 )      .03        .02       .15       .08   
 

 

 

 

Net increase in net asset value from operations

    .09        .12        .12        .12        .25        .40   
 

 

 

 

Less: Dividends and Distributions

           

Dividends from net investment income

    (.09     (.18     (.12     (.12     (.14     (.32

Distributions from net realized gain on investment transactions

    – 0  –      – 0  –      – 0  –      – 0  –      (.31     – 0  – 
 

 

 

 

Total dividends and distributions

    (.09     (.18     (.12     (.12     (.45     (.32
 

 

 

 

Net asset value, end of period

    $  9.91        $  9.91        $  9.97        $  9.97        $  9.97        $  10.17   
 

 

 

 

Total Return

           

Total investment return based on net asset value(b)

    .83  %      1.26  %      1.16  %      1.22  %      2.47  %      4.05  % 

Ratios/Supplemental Data

           

Net assets, end of period (000’s omitted)

    $110,374        $307,233        $117,588        $105,158        $67,791        $10,174   

Ratio to average net assets of:

           

Net investment income

    1.53  %^      1.44  %      .89  %      1.04  %      1.05  %      3.17  % 

Portfolio turnover rate

    45  %      109  %      109  %      150  %      66  %      156  % 

See footnote summary on page 45.

 

44     AB TAXABLE MULTI-SECTOR INCOME SHARES

Financial Highlights


(a)   Based on average shares outstanding.

 

(b)   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 the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares. Total investment return calculated for a period of less than one year is not annualized.

 

  Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Fund’s change in net realized and unrealized gain (loss) on investment transactions for the period.

 

^   Annualized.

 

 

 

 

See notes to financial statements.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       45   

Financial Highlights


BOARD OF TRUSTEES

 

Marshall C. Turner, Jr.(1) , Chairman

John H. Dobkin(1)

Michael J. Downey(1)

William H. Foulk, Jr.(1)

D. James Guzy(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

Philip L. Kirstein,
Senior Vice President and Independent Compliance Officer

Douglas J. Peebles(2),
Senior Vice President

Paul J. DeNoon(2), Vice President

Scott A. DiMaggio(2), Vice President

Shawn E. Keegan(2), Vice President

  

Greg J. Wilensky(2), Vice President

Emilie D. Wrapp, Secretary

Joseph J. Mantineo, Treasurer and Chief Financial Officer

Phyllis J. Clarke, Controller

Vincent S. Noto, Chief Compliance Officer

 

Custodian and Accounting Agent

State Street Bank and Trust Company
State Street Corporation CCB/5
1 Iron Street
Boston, MA 02210

 

Principal Underwriter

AllianceBernstein Investments, Inc.
1345 Avenue of the Americas
New York, NY 10105

 

Transfer Agent

AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
Toll-Free (800) 221-5672

  

Legal Counsel

Seward & Kissel LLP

One Battery Park Plaza

New York, NY 10004

 

Independent Registered Public Accounting Firm

Ernst & Young LLP

5 Times Square

New York, NY 10036

 

(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 Trust’s portfolio are made by the Adviser’s Core Fixed-Income Team. Messrs. Paul J. DeNoon, Scott A. DiMaggio, Shawn E. Keegan, Douglas J. Peebles and Greg J. Wilensky are the investment professionals primarily responsible for the day-to-day management of the Trust’s portfolio.

 

46     AB TAXABLE MULTI-SECTOR INCOME SHARES

Board of Trustees


 

 

Information Regarding the Review and Approval of the Fund’s Advisory Agreement

The disinterested trustees (the “trustees”) of AB Corporate Shares (the “Fund”) unanimously approved the continuance of the Fund’s Advisory Agreement with the Adviser in respect of AB Taxable Multi-Sector Income Shares (the “Portfolio”) at a meeting held on November 3-5, 2015.

Prior to approval of the continuance of the Advisory Agreement in respect of the Portfolio, the trustees 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 trustees also reviewed an independent evaluation prepared by the Fund’s Senior Officer (who is also the Fund’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee (zero) for the Portfolio was reasonable. The trustees also discussed the proposed continuance in private sessions with counsel and the Fund’s Senior Officer.

The trustees noted that the Portfolio is designed as a vehicle for the wrap fee account market (where investors pay fees to a wrap fee sponsor which pays investment fees and expenses from such fee). The trustees also noted that no advisory fee is payable by the Portfolio, that the Advisory Agreement does not include the reimbursement provision for certain administrative expenses included in the advisory agreements of most of the open-end AB Funds, and that the Adviser is responsible for payment of the Portfolio’s ordinary expenses. The trustees noted that the Fund acknowledges in the Advisory Agreement that the Adviser and its affiliates expect to receive compensation from third parties in connection with services provided under the Advisory Agreement. The trustees further noted that the Adviser receives payments from the wrap fee program sponsors (the “Sponsors”) that use the Portfolio as an investment vehicle for their clients.

The trustees considered their knowledge of the nature and quality of the services to be provided by the Adviser to the Portfolio gained from their experience as trustees or directors 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 trustees and its responsiveness, frankness and attention to concerns raised by the trustees 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 TAXABLE MULTI-SECTOR INCOME SHARES       47   


 

 

AB Funds. The trustees noted that they have four regular meetings each year, at each of which they receive presentations from the Adviser on the investment results of the Portfolio and review extensive materials and information presented by the Adviser.

The trustees also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the trustees did not identify any particular information that was all-important or controlling, and different trustees may have attributed different weights to the various factors. The trustees determined that the selection of the Adviser to manage the Portfolio, and the overall arrangements between the Portfolio 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 trustees considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the trustees’ determination included the following:

Nature, Extent and Quality of Services Provided

The trustees 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 Portfolio. They also noted the professional experience and qualifications of the Portfolio’s portfolio management team and other senior personnel of the Adviser. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Portfolio’s other service providers, also was considered. The trustees concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Portfolio under the Advisory Agreement.

Costs of Services Provided and Profitability

The trustees reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Portfolio to the Adviser for calendar years 2013 and 2014 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Fund’s Senior Officer. The trustees considered that while the Adviser does not receive any advisory fee or expense reimbursement from the Portfolio, it does receive fees paid by the Sponsors. They also noted that the Adviser bears certain costs in providing services to the Portfolio and in paying its ordinary expenses. The trustees 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 trustees noted that the profitability

 

48     AB TAXABLE MULTI-SECTOR INCOME SHARES


 

 

information reflected all revenues and expenses of the Adviser’s relationship with the Portfolio. The trustees 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, including, in the case of the Portfolio, the fact that it does not pay an advisory fee. The trustees focused on the profitability of the Adviser’s relationship with the Portfolio before taxes. The trustees noted that the Adviser’s relationship with the Portfolio was not profitable to it in 2013 or 2014.

Fall-Out Benefits

The trustees considered the other benefits to the Adviser and its affiliates from their relationships with the Portfolio. The trustees noted that the Adviser is compensated by the Sponsors. The trustees understood that the Adviser might also derive reputational and other benefits from its association with the Portfolio.

Investment Results

In addition to the information reviewed by the trustees in connection with the meeting, the trustees receive detailed performance information for the Portfolio at each regular Board meeting during the year. At the November 2015 meeting, the trustees reviewed information prepared by Broadridge showing the performance of the Portfolio as compared with that of funds selected by Broadridge (the “Performance Universe”), and information prepared by the Adviser showing the Portfolio’s performance as compared with the Barclays U.S. Aggregate ex-Government Bond Index (the “Index”), in each case for the 1- and 3-year periods ended July 31, 2015, and (in the case of comparisons with the Index) the period since inception (September 2010 inception). The trustees noted that, on a gross return basis, the Portfolio was in the 4th quintile of the Performance Universe for the 1-year period, and in the 5th quintile of the Performance Universe for the 3-year period. The Portfolio lagged the Index in all periods. The trustees were cognizant that the Portfolio was neither designed nor offered as a standalone investment and was intended to serve solely as a component of certain separately managed accounts (“SMAs”). The Adviser had explained that this attribute made it difficult to select an appropriate benchmark for the Portfolio. At the trustees’ request, the Adviser provided information showing the weighting of the Portfolio in a current SMA and the overall performance of the SMA versus its stated benchmark. Based on their review, the trustees concluded that the Portfolio’s performance was acceptable.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       49   


 

 

Advisory Fees

The trustees considered the advisory fee rate paid by the Portfolio to the Adviser (zero) and information provided by Broadridge showing the fees paid by other fund families used in wrap fee programs similar to that of the Portfolio. The trustees 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 trustees noted the unusual arrangements in the Advisory Agreement providing for no advisory fee but were cognizant that the Adviser is indirectly compensated by the Sponsors for its services to the Portfolio. The trustees reviewed the fee arrangements between the Adviser and each of the current Sponsors and noted that such fees were negotiated on an arm’s length basis and were within the range of fees paid by wrap fee sponsors to other advisers of similar funds. While the Adviser’s fee arrangements with the Sponsors vary, the trustees acknowledged the Adviser’s view that a portion of such fees (less the expenses of the Portfolio paid by the Adviser) may reasonably be viewed as compensating the Adviser for advisory services it provides to the Portfolio (the “implied fee”) and that the Adviser believes that while the Sponsors pay the Adviser different fee rates, the rate of fee attributable to portfolio management at the Portfolio level is the same for all Sponsors. The trustees also considered the fee rate schedules used by other registered investment companies that invest in fixed income securities that are advised by the Adviser. Based on their review, the trustees concluded that the advisory arrangements for the Portfolio, including the zero fee aspect of the Advisory Agreement with the Adviser, were satisfactory.

The trustees also considered the Adviser’s fee schedule for non-fund clients pursuing a similar investment style. For this purpose, the trustees reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Fund’s Senior Officer. The trustees recognized that such information was of limited utility in light of the Portfolio’s unusual fee arrangement. The trustees noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those in the schedules reviewed by the trustees and that they had previously discussed with the Adviser its policies in respect of such arrangements.

The Adviser reviewed with the trustees the significantly greater scope of the services it provides to the Portfolio relative to institutional clients. The Adviser noted that because mutual funds are constantly issuing and redeeming shares, they are more difficult to manage than an institutional account, where the assets tend to be relatively stable. In light of the substantial differences in services rendered by the Adviser to institutional

 

50     AB TAXABLE MULTI-SECTOR INCOME SHARES


 

 

clients as compared to funds such as the Portfolio, and the unusual fee structure for the other portfolios of the Fund and the Portfolio, the trustees considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

Since the Portfolio does not bear ordinary expenses, the trustees did not consider comparative expense information.

Economies of Scale

Since the Advisory Agreement does not provide for any compensation to be paid to the Adviser by the Portfolio and the Portfolio’s expense ratio is zero, the trustees did not consider the extent to which fee levels in the Advisory Agreement reflect economies of scale. They did note, however, that the fee payable to the Adviser by each of the current Sponsors declines at a breakpoint based on either individual account sizes or on total assets managed by the Adviser for the Sponsor.

 

AB TAXABLE MULTI-SECTOR INCOME SHARES       51   


THIS PAGE IS NOT PART OF THE SHAREHOLDER REPORT OR THE FINANCIAL STATEMENTS

AB FAMILY OF FUNDS

 

US EQUITY

 

US Core

Core Opportunities Fund

Select US Equity Portfolio

US Growth

Concentrated Growth Fund

Discovery Growth Fund

Growth Fund

Large Cap Growth Fund

Small Cap Growth Portfolio

US Value

Discovery Value Fund

Equity Income Fund

Growth & Income Fund

Small Cap Value Portfolio

Value Fund

INTERNATIONAL/ GLOBAL EQUITY

 

International/Global Core

Global Core Equity Portfolio

Global Equity & Covered Call Strategy Fund

International Portfolio

International Strategic Core Portfolio

Sustainable Global Thematic Fund*

Tax-Managed International Portfolio

International/Global Growth

International Growth Fund

International/Global Value

Asia ex-Japan Equity Portfolio

International Value Fund

FIXED INCOME

 

Municipal

High Income Municipal Portfolio

Intermediate California Municipal Portfolio

Intermediate Diversified Municipal Portfolio

Intermediate New York Municipal Portfolio

FIXED INCOME (continued)

 

Municipal Bond Inflation Strategy

Tax-Aware Fixed Income Portfolio

National Portfolio

Arizona Portfolio

California Portfolio

Massachusetts Portfolio

Michigan Portfolio

Minnesota Portfolio

New Jersey Portfolio

New York Portfolio

Ohio Portfolio

Pennsylvania Portfolio

Virginia Portfolio

Taxable

Bond Inflation Strategy

Global Bond Fund

High Income Fund

High Yield Portfolio

Income Fund

Intermediate Bond Portfolio

Limited Duration High Income Portfolio

Short Duration Portfolio

ALTERNATIVES

 

All Market Real Return Portfolio

Credit Long/Short Portfolio

Global Real Estate Investment Fund

Long/Short Multi-Manager Fund

Multi-Manager Alternative Strategies Fund

Select US Long/Short Portfolio

Unconstrained Bond Fund

MULTI-ASSET

 

All Market Income Portfolio

Emerging Markets Multi-Asset Portfolio

Global Risk Allocation Fund

MULTI-ASSET (continued)

 

Target-Date

Multi-Manager Select Retirement Allocation Fund

Multi-Manager Select 2010 Fund

Multi-Manager Select 2015 Fund

Multi-Manager Select 2020 Fund

Multi-Manager Select 2025 Fund

Multi-Manager Select 2030 Fund

Multi-Manager Select 2035 Fund

Multi-Manager Select 2040 Fund

Multi-Manager Select 2045 Fund

Multi-Manager Select 2050 Fund

Multi-Manager Select 2055 Fund

Wealth Strategies

Balanced Wealth Strategy

Conservative Wealth Strategy

Wealth Appreciation Strategy

Tax-Managed Balanced Wealth Strategy

Tax-Managed Wealth Appreciation Strategy

CLOSED-END FUNDS

 

AB Multi-Manager Alternative Fund

Alliance California Municipal Income Fund

AllianceBernstein Global High Income Fund

AllianceBernstein National Municipal Income Fund

 

We also offer Government Exchange Reserves, which serves as the money market fund exchange vehicle for the AB mutual funds. An investment in Government Exchange Reserves is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund.

Investors should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For copies of our prospectus or summary prospectus, which contain this and other information, visit us online at www.abfunds.com or contact your AB representative. Please read the prospectus and/or summary prospectus carefully before investing.

* Prior to November 1, 2016, the Fund was named Global Thematic Growth Fund.

 

52     AB TAXABLE MULTI-SECTOR INCOME SHARES

AB Family of Funds


LOGO

AB TAXABLE MULTI-SECTOR INCOME SHARES

1345 Avenue of the Americas

New York, NY 10105

800.221.5672

 

TMSIS-0152-1016                 LOGO


ITEM 2. CODE OF ETHICS.

Not applicable when filing a semi-annual report to shareholders.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Not applicable when filing a semi-annual report to shareholders.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Not applicable when filing a semi-annual report to shareholders.

 

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

Not applicable to the registrant.

 

ITEM 6. SCHEDULE OF INVESTMENTS.

Please see Schedule of Investments contained in the Report to Shareholders included under Item 1 of this Form N-CSR.

ITEM 7.     DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable to the registrant.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

Not applicable to the registrant.

ITEM 9.     PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

Not applicable to the registrant.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There have been no material changes to the procedures by which shareholders may recommend nominees to the Fund’s Board of Directors since the Fund last provided disclosure in response to this item.


ITEM 11. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-2(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There were no changes in the registrant’s internal controls over financial reporting that occurred during the second fiscal quarter of the period that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

ITEM 12. EXHIBITS.

The following exhibits are attached to this Form N-CSR:

 

EXHIBIT NO.

 

DESCRIPTION OF EXHIBIT

12 (b) (1)   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12 (b) (2)   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12 (c)   Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

(Registrant): AB Corporate Shares
By:   /s/ Robert M. Keith
  Robert M. Keith
  President

Date: December 27, 2016

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: December 27, 2016

By:   /s/ Joseph J. Mantineo
  Joseph J. Mantineo
  Treasurer and Chief Financial Officer

 

Date: December 27, 2016

 

EX-99.CERT 2 d219135dex99cert.htm CERTIFICATIONS PURSUANT TO SECTION 302 Certifications Pursuant to Section 302

Exhibit 12(b)(1)

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Robert M. Keith, President of AB Corporate Shares, certify that:

1. I have reviewed this report on Form N-CSR of AB Corporate Shares;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5. The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 27, 2016

 

/s/ Robert M. Keith

Robert M. Keith

President


Exhibit 12(b)(2)

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Joseph J. Mantineo, Treasurer and Chief Financial Officer of AB Corporate Shares, certify that:

1. I have reviewed this report on Form N-CSR of AB Corporate Shares;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:

 

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5. The registrant’s other certifying officers and I have disclosed to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information ; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: December 27, 2016

 

/s/ Joseph J. Mantineo

Joseph J. Mantineo

Treasurer and Chief Financial Officer

 

EX-99.906 CERT 3 d219135dex99906cert.htm CERTIFICATIONS PURSUANT TO SECTION 906 Certifications Pursuant to Section 906

EXHIBIT 12(c)

CERTIFICATION PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT

Pursuant to 18 U.S.C. 1350, each of the undersigned, being the Principal Executive Officer and Principal Financial Officer of AB Corporate Shares (the “Registrant”), hereby certifies that the Registrant’s report on Form N-CSR for the period ended October 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

Date: December 27, 2016

 

By:   /s/ Robert M. Keith
 

Robert M. Keith

 

President

By:   /s/ Joseph J. Mantineo
 

Joseph J. Mantineo

  Treasurer and Chief Financial Officer

This certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of the Report or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

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