N-CSRS 1 d411625dncsrs.htm AB VARIABLE PRODUCTS SERIES FUND, INC. AB Variable Products Series Fund, Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-05398

 

 

AB VARIABLE PRODUCTS SERIES FUND, INC.

(Exact name of registrant as specified in charter)

 

 

1345 Avenue of the Americas, New York, New York 10105

(Address of principal executive offices) (Zip code)

 

 

Joseph J. Mantineo

Alliance Bernstein L.P.

1345 Avenue of the Americas

New York, New York 10105

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: (800) 221-5672

Date of fiscal year end: December 31, 2017

Date of reporting period: June 30, 2017

 

 

 


ITEM 1. REPORTS TO STOCKHOLDERS.


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

BALANCED WEALTH STRATEGY PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
BALANCED WEALTH STRATEGY PORTFOLIO
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,082.50      $   3.72        0.72

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,021.22      $ 3.61        0.72
           

Class B

           

Actual

   $ 1,000      $ 1,081.60      $ 5.01        0.97

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.98      $ 4.86        0.97

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


BALANCED WEALTH STRATEGY PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

SECURITY    U.S. $ VALUE        PERCENT OF NET ASSETS  

U.S. Treasury Bonds & Notes

   $ 19,381,148          6.5

Federal National Mortgage Association

     18,560,481          6.2  

Inflation-Linked Securities

     6,020,034          2.0  

Alphabet, Inc.—Class A & Class C

     4,398,452          1.5  

Facebook, Inc.—Class A

     3,920,951          1.3  

Government National Mortgage Association

     3,654,319          1.2  

Visa, Inc.—Class A

     2,992,520          1.0  

Bank of America Corp.

     2,795,368          0.9  

Comcast Corp.

     2,516,641          0.8  

UnitedHealth Group, Inc.

     2,455,146          0.8  
    

 

 

      

 

 

 
     $   66,695,060          22.2

SECURITY TYPE BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECURITY TYPE    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Common Stocks

   $ 190,287,795          60.4

Mortgage Pass-Throughs

     23,451,363          7.4  

Corporates—Investment Grade

     23,408,811          7.4  

Governments—Treasuries

     19,381,148          6.2  

Asset-Backed Securities

     10,536,057          3.3  

Commercial Mortgage-Backed Securities

     7,632,384          2.4  

Inflation-Linked Securities

     6,020,034          1.9  

Collateralized Mortgage Obligations

     5,400,994          1.7  

Corporates—Non-Investment Grade

     3,414,928          1.1  

Emerging Markets—Treasuries

     1,124,584          0.4  

Quasi-Sovereigns

     597,612          0.2  

Local Governments—US Municipal Bonds

     527,074          0.2  

Emerging Markets—Corporate Bonds

     399,719          0.1  

Governments—Sovereign Bonds

     273,000          0.1  

Short-Term Investments

     22,551,782          7.2  
    

 

 

      

 

 

 

Total Investments

   $   315,007,285          100.0

 

 

 

(1)   Long-term investments.

 

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

 

2


BALANCED WEALTH STRATEGY PORTFOLIO
COUNTRY BREAKDOWN(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COUNTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

United States

   $ 213,872,150          67.9

Japan

     15,309,729          4.9  

United Kingdom

     12,282,026          3.9  

France

     9,043,197          2.9  

Hong Kong

     4,198,623          1.3  

Canada

     4,145,314          1.3  

Germany

     3,933,249          1.2  

Netherlands

     3,930,540          1.2  

Switzerland

     3,741,986          1.2  

Australia

     3,633,107          1.2  

Brazil

     2,134,927          0.7  

Israel

     1,707,184          0.5  

Spain

     1,685,778          0.5  

Other

     12,837,693          4.1  

Short-Term Investments

     22,551,782          7.2  
    

 

 

      

 

 

 

Total Investments

   $   315,007,285          100.0

 

 

 

 

(1)   All data are as of June 30, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 0.5% or less in the following countries: Argentina, Austria, Bermuda, Chile, China, Colombia, Denmark, Finland, India, Italy, Mexico, Namibia, New Zealand, Norway, Peru, Portugal, Qatar, Russia, Singapore, South Africa, South Korea, Sweden and Taiwan.

 

3


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

COMMON STOCKS–63.2%

     

INFORMATION TECHNOLOGY–12.1%

     

COMMUNICATIONS EQUIPMENT–0.8%

     

Arista Networks, Inc.(a)

      2,180     $ 326,542  

Cisco Systems, Inc.

      16,249       508,594  

Nokia Oyj

      68,670       421,065  

Nokia Oyj (Sponsored ADR)–Class A

      122,979       757,551  

Palo Alto Networks, Inc.(a)

      2,519       337,067  
     

 

 

 
        2,350,819  
     

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS &
COMPONENTS–0.5%

     

Amphenol Corp.–Class A

      4,744       350,202  

Corning, Inc.

      5,906       177,475  

Keyence Corp.

      2,000       880,455  

Largan Precision Co., Ltd.

      1,000       159,215  
     

 

 

 
        1,567,347  
     

 

 

 

INTERNET SOFTWARE & SERVICES–3.3%

     

Alibaba Group Holding Ltd. (Sponsored ADR)(a)

      2,730       384,657  

Alphabet, Inc.–Class A(a)

      530       492,730  

Alphabet, Inc.–Class C(a)

      4,298       3,905,722  

Criteo SA (Sponsored ADR)(a)(b)

      4,740       232,497  

eBay, Inc.(a)

      4,940       172,505  

Facebook, Inc.–Class A(a)

      25,970       3,920,951  

NetEase, Inc. (ADR)

      450       135,284  

Tencent Holdings Ltd.

      8,200       294,174  

Yahoo Japan Corp.

      107,600       467,761  
     

 

 

 
        10,006,281  
     

 

 

 

IT SERVICES–2.0%

     

Automatic Data Processing, Inc.

      4,010       410,864  

Booz Allen Hamilton Holding Corp.

      15,509       504,663  

Cognizant Technology Solutions Corp.–Class A

      6,975       463,140  

Fiserv, Inc.(a)

      8,910       1,090,049  

Fujitsu Ltd.

      21,000       155,322  

Vantiv, Inc.–Class A(a)

      5,670       359,138  

Visa, Inc.–Class A

      31,910       2,992,520  
     

 

 

 
        5,975,696  
     

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT–2.0%

     

Applied Materials, Inc.

      1,594       65,848  

ASM International NV

      3,950       229,707  

ASML Holding NV

      2,601       339,047  

Infineon Technologies AG

      8,360       177,571  

Intel Corp.

      38,891       1,312,182  

NVIDIA Corp.

      3,409       492,805  

SCREEN Holdings Co., Ltd.

      2,700       180,610  
     

Siltronic AG(a)

      2,900     $ 246,398  

SK Hynix, Inc.

      1,720       101,273  

Sumco Corp.

      18,700       271,804  

Taiwan Semiconductor Manufacturing Co., Ltd.

      21,000       143,477  

Texas Instruments, Inc.

      7,060       543,126  

Tokyo Electron Ltd.

      1,300       175,751  

Xilinx, Inc.

      25,729       1,654,889  
     

 

 

 
        5,934,488  
     

 

 

 

SOFTWARE–2.0%

     

Adobe Systems, Inc.(a)

      11,340       1,603,930  

Constellation Software, Inc./Canada

      1,679       878,355  

Dassault Systemes SE

      3,130       280,732  

Electronic Arts, Inc.(a)

      9,140       966,281  

Nintendo Co., Ltd.

      900       301,312  

Oracle Corp.

      34,046       1,707,066  

ServiceNow, Inc.(a)

      3,245       343,970  
     

 

 

 
        6,081,646  
     

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.5%

     

Apple, Inc.

      16,020       2,307,200  

Hewlett Packard Enterprise Co.

      28,408       471,289  

HP, Inc.

      42,002       734,195  

NCR Corp.(a)

      3,432       140,163  

Samsung Electronics Co., Ltd.

      130       270,767  

Samsung Electronics Co., Ltd. (Preference Shares)

      130       211,965  

Xerox Corp.

      16,907       485,738  
     

 

 

 
        4,621,317  
     

 

 

 
        36,537,594  
     

 

 

 

REAL ESTATE–9.9%

     

DIVERSIFIED REAL ESTATE ACTIVITIES–1.0%

     

City Developments Ltd.

      38,600       300,679  

LendLease Group

      36,670       469,324  

Leopalace21 Corp.

      22,900       142,454  

Mitsubishi Estate Co., Ltd.

      9,600       179,451  

Mitsui Fudosan Co., Ltd.

      31,800       761,880  

Sumitomo Realty & Development Co., Ltd.

      12,000       371,619  

Wharf Holdings Ltd. (The)

      69,000       570,954  

Wheelock & Co., Ltd.

      15,000       113,139  
     

 

 

 
        2,909,500  
     

 

 

 

DIVERSIFIED REITs–1.2%

     

Armada Hoffler Properties, Inc.

      20,820       269,619  

Empire State Realty Trust, Inc.–Class A

      18,390       381,960  

GPT Group (The)

      78,470       288,615  

Gramercy Property Trust

      12,827       381,090  

H&R Real Estate Investment Trust

      11,960       203,084  

 

4


    AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

Heiwa Real Estate REIT, Inc.

      119     $ 92,529  

Hispania Activos Inmobiliarios SOCIMI SA

      12,070       199,549  

Hulic Reit, Inc.

      92       143,552  

ICADE

      4,890       410,227  

Liberty Property Trust

      8,290       337,486  

Merlin Properties Socimi SA

      26,344       333,268  

Mirvac Group

      130,480       213,366  

Premier Investment Corp.

      65       63,453  

Washington Real Estate Investment Trust

      11,260       359,194  
     

 

 

 
        3,676,992  
     

 

 

 

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–0.4%

     

Mid-America Apartment Communities, Inc.

      11,361       1,197,222  
     

 

 

 

HEALTH CARE REITs–0.5%

     

Healthcare Realty Trust, Inc.

      9,200       314,180  

Medical Properties Trust, Inc.

      22,270       286,615  

Sabra Health Care REIT, Inc.(b)

      9,300       224,130  

Welltower, Inc.

      10,820       809,877  
     

 

 

 
        1,634,802  
     

 

 

 

HOTEL & RESORT REITs–0.2%

     

Park Hotels & Resorts, Inc.

      10,270       276,879  

Summit Hotel Properties, Inc.

      15,550       290,008  
     

 

 

 
        566,887  
     

 

 

 

INDUSTRIAL REITs–0.7%

     

Goodman Group

      27,870       168,440  

LaSalle Logiport REIT

      151       152,136  

Mapletree Logistics Trust

      247,900       215,148  

Monmouth Real Estate Investment Corp.–Class A

      15,160       228,158  

Pure Industrial Real Estate Trust

      28,880       153,219  

Rexford Industrial Realty, Inc.

      14,460       396,782  

Segro PLC

      43,320       276,111  

STAG Industrial, Inc.

      15,310       422,556  
     

 

 

 
        2,012,550  
     

 

 

 

OFFICE REITs–1.4%

     

Alexandria Real Estate Equities, Inc.

      4,520       544,524  

Allied Properties Real Estate Investment Trust

      7,776       233,376  

Axiare Patrimonio SOCIMI SA

      9,740       166,423  

Boston Properties, Inc.

      4,844       595,909  

Brandywine Realty Trust

      12,110       212,288  

Columbia Property Trust, Inc.

      18,100       405,078  

Corporate Office Properties Trust

      8,930       312,818  
     

Daiwa Office Investment Corp.

      35     $ 176,579  

Derwent London PLC

      8,490       293,454  

Hudson Pacific Properties, Inc.

      11,790       403,100  

Investa Office Fund

      53,120       179,108  

Japan Real Estate Investment Corp.

      33       164,010  

MCUBS MidCity Investment Corp.

      50       149,651  

Parkway, Inc.

      7,220       165,266  

Workspace Group PLC

      22,686       263,119  
     

 

 

 
        4,264,703  
     

 

 

 

REAL ESTATE DEVELOPMENT–0.3%

     

Cheung Kong Property Holdings Ltd.

      82,000       641,673  

TAG Immobilien AG

      9,834       154,893  
     

 

 

 
        796,566  
     

 

 

 

REAL ESTATE MANAGEMENT & DEVELOPMENT–0.4%

     

Daito Trust Construction Co., Ltd.

      3,200       498,546  

Global Logistic Properties Ltd.

      43,200       89,746  

Vonovia SE

      16,542       658,143  
     

 

 

 
        1,246,435  
     

 

 

 

REAL ESTATE OPERATING COMPANIES–0.6%

     

BUWOG AG(a)

      7,126       204,736  

CA Immobilien Anlagen AG

      10,540       257,137  

Deutsche Wohnen AG

      7,770       297,726  

Entra ASA(c)

      19,448       242,263  

Fabege AB

      14,310       275,478  

Hongkong Land Holdings Ltd.

      42,100       309,823  

Inmobiliaria Colonial SA

      20,777       181,270  

Parque Arauco SA

      35,310       88,937  
     

 

 

 
        1,857,370  
     

 

 

 

RESIDENTIAL REITs–1.0%

     

AvalonBay Communities, Inc.

      3,650       701,421  

Camden Property Trust

      2,870       245,414  

Education Realty Trust, Inc.

      5,640       218,550  

Essex Property Trust, Inc.

      1,920       493,958  

Independence Realty Trust, Inc.

      30,540       301,430  

Japan Rental Housing Investments, Inc.

      236       174,154  

Killam Apartment Real Estate Investment Trust

      17,580       172,709  

Sun Communities, Inc.

      4,731       414,861  

UNITE Group PLC (The)

      31,460       265,922  
     

 

 

 
        2,988,419  
     

 

 

 

 

5


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

RETAIL REITs–1.6%

     

Brixmor Property Group, Inc.

      19,140     $ 342,223  

Eurocommercial Properties NV

      5,300       211,778  

Frontier Real Estate Investment Corp.

      39       160,716  

Fukuoka REIT Corp.

      116       178,319  

GGP, Inc.

      24,740       582,874  

Kenedix Retail REIT Corp.

      70       147,777  

Klepierre

      8,873       363,667  

Link REIT

      91,768       698,083  

National Retail Properties, Inc.

      7,050       275,655  

Realty Income Corp.

      10,330       570,009  

Retail Opportunity Investments Corp.

      12,600       241,794  

Simon Property Group, Inc.

      4,166       673,892  

Urban Edge Properties

      12,980       308,015  
     

 

 

 
        4,754,802  
     

 

 

 

SPECIALIZED REITs–0.6%

     

Digital Realty Trust, Inc.

      5,180       585,081  

EPR Properties

      5,370       385,942  

Equinix, Inc.

      700       300,412  

National Storage Affiliates Trust

      15,010       346,881  

Public Storage

      1,360       283,601  
     

 

 

 
        1,901,917  
     

 

 

 
        29,808,165  
     

 

 

 

FINANCIALS–9.4%

     

BANKS–4.5%

     

ABN AMRO Group NV (GDR)(c)

      6,620       175,376  

Australia & New Zealand Banking Group Ltd.

      17,970       396,628  

Banco Santander SA

      23,410       155,439  

Bank of America Corp.

      89,314       2,166,758  

Bank of Queensland Ltd.

      24,758       217,826  

Barclays PLC

      100,790       266,567  

BNP Paribas SA

      12,600       907,108  

BOC Hong Kong Holdings Ltd.

      61,500       294,321  

Citigroup, Inc.

      14,051       939,731  

Citizens Financial Group, Inc.

      1,635       58,337  

Comerica, Inc.

      7,529       551,424  

Danske Bank A/S

      8,225       316,441  

DNB ASA

      17,040       290,102  

Erste Group Bank AG(a)

      8,740       334,783  

Fifth Third Bancorp

      5,234       135,875  

HSBC Holdings PLC

      30,730       285,235  

ING Groep NV

      25,450       439,337  

Intesa Sanpaolo SpA

      54,080       172,018  

Itau Unibanco Holding SA (Preference Shares)

      8,250       91,517  

JPMorgan Chase & Co.

      18,724       1,711,374  

KB Financial Group, Inc.

      2,170       109,564  
     

Mitsubishi UFJ Financial Group, Inc.

      58,700     $ 395,934  

PNC Financial Services Group, Inc. (The)

      2,996       374,111  

Royal Bank of Canada

      1,710       124,162  

Sberbank of Russia PJSC (Sponsored ADR)(b)

      15,598       162,063  

SunTrust Banks, Inc.

      2,924       165,849  

US Bancorp

      9,085       471,693  

Wells Fargo & Co.

      34,306       1,900,895  
     

 

 

 
        13,610,468  
     

 

 

 

CAPITAL MARKETS–1.3%

     

Amundi SA(c)

      1,900       137,668  

Credit Suisse Group AG (REG)(a)

      30,438       442,903  

Franklin Resources, Inc.

      1,564       70,052  

Goldman Sachs Group, Inc. (The)

      2,677       594,026  

MarketAxess Holdings, Inc.

      1,447       290,992  

Morgan Stanley

      8,180       364,501  

Partners Group Holding AG

      980       608,492  

S&P Global, Inc.

      4,720       689,073  

Thomson Reuters Corp.

      2,453       113,549  

UBS Group AG(a)

      41,202       700,676  
     

 

 

 
        4,011,932  
     

 

 

 

CONSUMER FINANCE–0.7%

     

Capital One Financial Corp.

      7,473       617,419  

Discover Financial Services

      1,591       98,945  

Hitachi Capital Corp.

      8,000       192,905  

OneMain Holdings, Inc.(a)

      13,414       329,850  

Synchrony Financial

      29,534       880,704  
     

 

 

 
        2,119,823  
     

 

 

 

DIVERSIFIED FINANCIAL SERVICES–0.4%

     

Berkshire Hathaway, Inc.–Class B(a)

      4,127       698,990  

GRENKE AG

      1,382       307,637  

ORIX Corp.

      11,600       180,494  
     

 

 

 
        1,187,121  
     

 

 

 

INSURANCE–2.2%

     

Admiral Group PLC

      14,769       385,395  

AIA Group Ltd.

      129,800       949,664  

Allstate Corp. (The)

      8,598       760,407  

American International Group, Inc.

      18,683       1,168,061  

Aviva PLC

      21,130       144,938  

First American Financial Corp.

      11,689       522,381  

FNF Group

      16,512       740,233  

Hartford Financial Services Group, Inc. (The)

      2,784       146,355  

Lincoln National Corp.

      5,204       351,686  

Loews Corp.

      1,598       74,802  

PICC Property & Casualty Co., Ltd.–Class H

      74,000       123,588  

 

6


    AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

Principal Financial Group, Inc.

      1,371     $ 87,840  

Prudential Financial, Inc.

      2,641       285,598  

Prudential PLC

      33,890       777,903  

Suncorp Group Ltd.

      13,980       159,232  
     

 

 

 
        6,678,083  
     

 

 

 

THRIFTS & MORTGAGE FINANCE–0.3%

     

Essent Group Ltd.(a)

      5,754       213,704  

Housing Development Finance Corp., Ltd.

      20,140       502,026  
     

 

 

 
        715,730  
     

 

 

 
        28,323,157  
     

 

 

 

HEALTH CARE–7.9%

     

BIOTECHNOLOGY–0.7%

     

Biogen, Inc.(a)

      4,582       1,243,372  

China Biologic Products, Inc.(a)(b)

      1,190       134,589  

Gilead Sciences, Inc.

      8,239       583,156  

Grifols SA (ADR)

      9,540       201,580  
     

 

 

 
        2,162,697  
     

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES–2.2%

     

Align Technology, Inc.(a)

      2,725       409,077  

Baxter International, Inc.

      2,268       137,305  

Danaher Corp.

      11,219       946,771  

Edwards Lifesciences Corp.(a)

      18,245       2,157,289  

Essilor International SA

      6,500       826,882  

Intuitive Surgical, Inc.(a)

      2,124       1,986,726  

Sartorius AG (Preference Shares)

      1,296       125,318  
     

 

 

 
        6,589,368  
     

 

 

 

HEALTH CARE PROVIDERS & SERVICES–1.8%

     

Aetna, Inc.

      4,027       611,419  

Cigna Corp.

      4,461       746,727  

Express Scripts Holding Co.(a)

      2,730       174,283  

McKesson Corp.

      3,979       654,705  

Quest Diagnostics, Inc.

      3,584       398,398  

UnitedHealth Group, Inc.

      13,241       2,455,146  

VCA, Inc.(a)

      3,160       291,700  
     

 

 

 
        5,332,378  
     

 

 

 

HEALTH CARE TECHNOLOGY–0.3%

     

Cerner Corp.(a)

      12,740       846,828  
     

 

 

 

LIFE SCIENCES TOOLS & SERVICES–0.5%

     

Eurofins Scientific SE

      1,706       962,533  

Mettler-Toledo International, Inc.(a)

      739       434,931  
     

Thermo Fisher Scientific, Inc.

      1,098     $ 191,568  
     

 

 

 
        1,589,032  
     

 

 

 

PHARMACEUTICALS–2.4%

     

Johnson & Johnson

      11,556       1,528,743  

Mallinckrodt PLC(a)

      14,062       630,118  

Merck & Co., Inc.

      6,294       403,382  

Novartis AG (REG)

      2,630       219,675  

Novo Nordisk A/S–Class B

      5,860       251,788  

Pfizer, Inc.

      7,360       247,222  

Roche Holding AG

      2,950       753,769  

Sanofi

      5,500       527,010  

Shire PLC

      10,300       567,931  

Teva Pharmaceutical Industries Ltd.

      1,680       55,391  

Teva Pharmaceutical Industries Ltd. (Sponsored ADR)

      28,989       963,015  

Zoetis, Inc.

      19,210       1,198,320  
     

 

 

 
        7,346,364  
     

 

 

 
        23,866,667  
     

 

 

 

CONSUMER DISCRETIONARY–6.8%

     

AUTO COMPONENTS–0.8%

     

Bridgestone Corp.

      2,800       121,048  

Cie Generale des Etablissements Michelin–Class B

      1,010       134,425  

Faurecia

      5,420       274,854  

Hankook Tire Co., Ltd.

      1,660       92,274  

Lear Corp.

      3,221       457,640  

Magna International, Inc.–Class A

      18,910       876,100  

Sumitomo Electric Industries Ltd.

      11,500       177,910  

Valeo SA

      4,130       277,862  
     

 

 

 
        2,412,113  
     

 

 

 

AUTOMOBILES–0.5%

     

General Motors Co.

      9,402       328,412  

Honda Motor Co., Ltd.

      14,500       397,272  

Peugeot SA

      16,800       334,818  

Toyota Motor Corp.

      10,000       525,634  
     

 

 

 
        1,586,136  
     

 

 

 

DIVERSIFIED CONSUMER SERVICES–0.0%

     

Tarena International, Inc. (ADR)

      4,100       73,431  
     

 

 

 

HOTELS, RESTAURANTS & LEISURE–0.6%

     

Carnival Corp.

      2,091       137,107  

Merlin Entertainments PLC(c)

      20,239       126,693  

Royal Caribbean Cruises Ltd.

      863       94,265  

Sodexo SA

      2,771       358,131  

Starbucks Corp.

      18,150       1,058,327  
     

 

 

 
        1,774,523  
     

 

 

 

 

7


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

HOUSEHOLD DURABLES–0.1%

     

Panasonic Corp.

      21,900     $ 298,393  
     

 

 

 

INTERNET & DIRECT MARKETING RETAIL–0.2%

     

Priceline Group, Inc. (The)(a)

      280       523,746  
     

 

 

 

MEDIA–1.5%

     

Comcast Corp.–Class A

      52,104       2,027,888  

CTS Eventim AG & Co. KGaA

      13,588       601,672  

Regal Entertainment Group–Class A(b)

      14,456       295,770  

Scripps Networks Interactive, Inc.–Class A

      6,562       448,250  

Walt Disney Co. (The)

      10,348       1,099,475  
     

 

 

 
        4,473,055  
     

 

 

 

MULTILINE RETAIL–0.3%

     

Dollar Tree, Inc.(a)

      11,881       830,720  

Target Corp.

      3,136       163,981  
     

 

 

 
        994,701  
     

 

 

 

SPECIALTY RETAIL–1.8%

     

ABC-Mart, Inc.

      7,400       436,098  

Best Buy Co., Inc.

      1,420       81,409  

Burlington Stores, Inc.(a)

      3,662       336,867  

Home Depot, Inc. (The)

      15,021       2,304,221  

Michaels Cos., Inc. (The)(a)

      24,025       444,943  

O’Reilly Automotive, Inc.(a)

      1,010       220,927  

TJX Cos., Inc. (The)

      15,868       1,145,194  

Ulta Salon Cosmetics & Fragrance, Inc.(a)

      1,900       545,946  
     

 

 

 
        5,515,605  
     

 

 

 

TEXTILES, APPAREL & LUXURY GOODS–1.0%

     

HUGO BOSS AG

      2,740       192,080  

Kering

      490       166,851  

NIKE, Inc.–Class B

      34,312       2,024,408  

Samsonite International SA

      103,800       433,655  
     

 

 

 
        2,816,994  
     

 

 

 
        20,468,697  
     

 

 

 

CONSUMER STAPLES–4.8%

     

BEVERAGES–1.1%

     

Asahi Group Holdings Ltd.

      2,500       94,151  

Constellation Brands, Inc.–Class A

      4,630       896,970  

Monster Beverage Corp.(a)

      28,131       1,397,548  

PepsiCo, Inc.

      6,097       704,142  

Pernod Ricard SA

      1,700       227,642  
     

 

 

 
        3,320,453  
     

 

 

 

FOOD & STAPLES RETAILING–0.7%

     

Costco Wholesale Corp.

      8,690       1,389,791  

Sugi Holdings Co., Ltd.

      2,800       150,040  

Wal-Mart Stores, Inc.

      7,088       536,420  
     

 

 

 
        2,076,251  
     

 

 

 
     

FOOD PRODUCTS–0.3%

     

Archer-Daniels-Midland Co.

      4,072     $ 168,499  

BRF SA

      6,100       72,178  

Orkla ASA

      22,760       231,333  

Tyson Foods, Inc.–Class A

      5,154       322,795  

WH Group Ltd.(c)

      185,500       187,313  
     

 

 

 
        982,118  
     

 

 

 

HOUSEHOLD PRODUCTS–0.7%

     

Colgate-Palmolive Co.

      3,537       262,198  

Henkel AG & Co. KGaA (Preference Shares)

      2,200       303,366  

Procter & Gamble Co. (The)

      11,786       1,027,150  

Reckitt Benckiser Group PLC

      4,120       417,657  
     

 

 

 
        2,010,371  
     

 

 

 

PERSONAL PRODUCTS–0.3%

     

Unilever PLC

      17,668       956,155  
     

 

 

 

TOBACCO–1.7%

     

Altria Group, Inc.

      8,170       608,420  

British American Tobacco PLC

      24,129       1,644,219  

Imperial Brands PLC

      4,360       195,926  

Japan Tobacco, Inc.

      31,600       1,110,679  

Philip Morris International, Inc.

      11,740       1,378,863  
     

 

 

 
        4,938,107  
     

 

 

 
        14,283,455  
     

 

 

 

INDUSTRIALS–4.1%

     

AEROSPACE & DEFENSE–0.8%

     

Airbus SE

      4,730       390,346  

BAE Systems PLC

      34,190       282,248  

Hexcel Corp.

      4,241       223,882  

L3 Technologies, Inc.

      383       63,992  

Raytheon Co.

      4,571       738,125  

Saab AB–Class B

      3,900       192,747  

United Technologies Corp.

      4,091       499,552  
     

 

 

 
        2,390,892  
     

 

 

 

AIRLINES–0.6%

     

International Consolidated Airlines Group SA

      39,730       315,845  

Japan Airlines Co., Ltd.

      11,200       346,927  

JetBlue Airways Corp.(a)

      22,157       505,844  

Qantas Airways Ltd.

      92,454       406,386  

United Continental Holdings, Inc.(a)

      2,002       150,651  
     

 

 

 
        1,725,653  
     

 

 

 

BUILDING PRODUCTS–0.4%

     

Allegion PLC

      7,360       597,043  

AO Smith Corp.

      9,630       542,458  
     

 

 

 
        1,139,501  
     

 

 

 

 

8


    AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

COMMERCIAL SERVICES & SUPPLIES–0.1%

     

Babcock International Group PLC

      10,755     $ 123,333  

IWG PLC

      40,670       171,460  
     

 

 

 
        294,793  
     

 

 

 

CONSTRUCTION & ENGINEERING–0.1%

     

Quanta Services, Inc.(a)

      5,685       187,150  
     

 

 

 

ELECTRICAL EQUIPMENT–0.3%

     

Eaton Corp. PLC

      10,095       785,694  

Philips Lighting NV(c)

      2,500       92,343  

TKH Group NV

      2,610       144,880  
     

 

 

 
        1,022,917  
     

 

 

 

INDUSTRIAL CONGLOMERATES–0.4%

     

General Electric Co.

      8,832       238,552  

Roper Technologies, Inc.

      4,465       1,033,782  
     

 

 

 
        1,272,334  
     

 

 

 

MACHINERY–0.8%

     

Cummins, Inc.

      2,636       427,612  

FANUC Corp.

      1,600       309,673  

IDEX Corp.

      3,120       352,591  

IHI Corp.(a)

      82,000       280,225  

Ingersoll-Rand PLC

      4,317       394,531  

Oshkosh Corp.

      6,805       468,728  

WABCO Holdings, Inc.(a)

      1,960       249,920  
     

 

 

 
        2,483,280  
     

 

 

 

PROFESSIONAL SERVICES–0.1%

     

Teleperformance

      2,899       371,715  
     

 

 

 

ROAD & RAIL–0.2%

     

Union Pacific Corp.

      4,830       526,035  
     

 

 

 

TRADING COMPANIES & DISTRIBUTORS–0.3%

     

BOC Aviation Ltd.(c)

      37,400       197,737  

Brenntag AG

      8,430       488,890  

United Rentals, Inc.(a)

      3,291       370,929  
     

 

 

 
        1,057,556  
     

 

 

 
        12,471,826  
     

 

 

 

ENERGY–3.1%

     

ENERGY EQUIPMENT & SERVICES–0.1%

     

RPC, Inc.(b)

      21,831       441,204  
     

 

 

 

OIL, GAS & CONSUMABLE FUELS–3.0%

     

Canadian Natural Resources Ltd.

      19,975       576,079  

Canadian Natural Resources Ltd. (Toronto)

      5,860       169,094  

Chevron Corp.

      6,492       677,310  

Devon Energy Corp.

      15,035       480,669  
     

EOG Resources, Inc.

      11,256     $ 1,018,893  

Exxon Mobil Corp.

      14,684       1,185,439  

Hess Corp.

      10,872       476,955  

JXTG Holdings, Inc.

      77,300       338,227  

LUKOIL PJSC (Sponsored ADR)

      1,180       57,538  

Marathon Oil Corp.

      4,332       51,334  

Marathon Petroleum Corp.

      14,575       762,710  

Novatek PJSC (Sponsored GDR)(c)

      1,040       115,992  

QEP Resources, Inc.(a)

      26,098       263,590  

Royal Dutch Shell PLC–Class A

      68,405       1,818,881  

TOTAL SA

      12,950       642,928  

Valero Energy Corp.

      2,806       189,293  

YPF SA (Sponsored ADR)

      5,353       117,231  
     

 

 

 
        8,942,163  
     

 

 

 
        9,383,367  
     

 

 

 

MATERIALS–2.0%

     

CHEMICALS–1.0%

     

Air Water, Inc.

      9,800       180,866  

Arkema SA

      2,756       294,318  

CF Industries Holdings, Inc.(b)

      18,961       530,150  

Eastman Chemical Co.

      4,166       349,902  

Ecolab, Inc.

      4,230       561,532  

Incitec Pivot Ltd.

      71,140       186,598  

Johnson Matthey PLC

      4,396       164,527  

Koninklijke DSM NV

      1,978       143,865  

LyondellBasell Industries NV–Class A

      3,895       328,699  

Mosaic Co. (The)

      1,842       42,053  

Nippon Shokubai Co., Ltd.

      3,700       238,995  
     

 

 

 
        3,021,505  
     

 

 

 

CONSTRUCTION MATERIALS–0.3%

     

Anhui Conch Cement Co., Ltd.–Class H

      52,000       180,718  

Buzzi Unicem SpA

      5,570       138,888  

Fletcher Building Ltd.

      25,910       151,726  

Grupo Cementos de Chihuahua SAB de CV(a)

      39,050       198,082  

HeidelbergCement AG

      1,720       166,735  
     

 

 

 
        836,149  
     

 

 

 

CONTAINERS & PACKAGING–0.0%

     

WestRock Co.

      1,282       72,638  
     

 

 

 

METALS & MINING–0.6%

     

BHP Billiton PLC

      25,850       396,040  

BlueScope Steel Ltd.

      10,560       106,910  

Boliden AB

      6,450       176,310  

Gerdau SA (Preference Shares)

      40,300       125,052  

Glencore PLC(a)

      183,960       689,339  

MMC Norilsk Nickel PJSC (ADR) (London)

      7,526       103,683  

 

9


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company

        Shares     U.S. $ Value  
     

Newmont Mining Corp.

      3,210     $ 103,972  

Sumitomo Metal Mining Co., Ltd.

      11,000       147,027  
     

 

 

 
        1,848,333  
     

 

 

 

PAPER & FOREST PRODUCTS–0.1%

     

Mondi PLC

      7,454       195,457  
     

 

 

 
        5,974,082  
     

 

 

 

TELECOMMUNICATION SERVICES–1.5%

     

DIVERSIFIED TELECOMMUNICATION SERVICES–0.8%

     

AT&T, Inc.

      20,559       775,691  

BT Group PLC

      153,050       588,514  

China Unicom Hong Kong Ltd.(a)

      130,000       192,968  

Nippon Telegraph & Telephone Corp.

      15,000       708,061  

TDC A/S

      32,900       191,327  
     

 

 

 
        2,456,561  
     

 

 

 

WIRELESS TELECOMMUNICATION SERVICES–0.7%

     

SoftBank Group Corp.

      11,500       934,836  

T-Mobile US, Inc.(a)

      9,989       605,533  

Vodafone Group PLC

      165,413       469,765  
     

 

 

 
        2,010,134  
     

 

 

 
        4,466,695  
     

 

 

 

UTILITIES–1.3%

     

ELECTRIC UTILITIES–0.9%

     

American Electric Power Co., Inc.

      10,829       752,291  

Edison International

      7,026       549,363  

EDP–Energias de Portugal SA

      47,160       154,271  

Enel SpA

      35,141       188,478  

Eversource Energy

      1,154       70,059  

PG&E Corp.

      6,743       447,533  

Portland General Electric Co.

      11,183       510,951  
     

 

 

 
        2,672,946  
     

 

 

 

MULTI-UTILITIES–0.4%

     

Ameren Corp.

      1,182       64,620  

CMS Energy Corp.

      1,661       76,821  

DTE Energy Co.

      1,111       117,533  

NiSource, Inc.

      22,229       563,727  

Public Service Enterprise Group, Inc.

      3,500       150,535  

WEC Energy Group, Inc.

      1,887       115,824  
     

 

 

 
        1,089,060  
     

 

 

 

WATER UTILITIES–0.0%

     

Pennon Group PLC

      10,440       112,198  
     

 

 

 
        3,874,204  
     

 

 

 
     

TRANSPORTATION–0.2%

 

   

AIRPORT SERVICES–0.0%

     

Sydney Airport

      29,160     $ 158,843  
     

 

 

 

HIGHWAYS & RAILTRACKS–0.1%

     

Transurban Group

      31,380       285,790  
     

 

 

 

RAILROADS–0.1%

     

East Japan Railway Co.

      1,800       172,433  
     

 

 

 
        617,066  
     

 

 

 

BANKS–0.1%

     

THRIFTS & MORTGAGE FINANCE–0.1%

     

Aareal Bank AG

      5,360       212,820  
     

 

 

 

Total Common Stocks
(cost $149,770,512)

        190,287,795  
     

 

 

 
    Principal
Amount
(000)
       

MORTGAGE PASS-THROUGHS–7.8%

 

   

AGENCY FIXED RATE 30-YEAR–7.0%

     

Federal Home Loan Mortgage Corp. Gold
4.00%, 2/01/46

    U.S.$       526       556,504  

Series 2005
5.50%, 1/01/35

      195       217,401  

Series 2007
5.50%, 7/01/35

      20       22,166  

Series 2017
4.00%, 7/01/44

      417       440,492  

Federal National Mortgage Association
3.00%, 5/01/45

      1,257       1,258,855  

3.50%, 7/01/47, TBA

      4,395       4,513,116  

4.00%,
12/01/40–10/01/43

      1,329       1,407,476  

4.00%, 7/01/47, TBA

      3,180       3,342,230  

4.50%, 7/25/47, TBA

      4,643       4,979,617  

5.00%, 12/01/39

      112       122,525  

Series 2004
5.50%, 2/01/34–11/01/34

      73       81,219  

Series 2007
5.50%, 1/01/37–8/01/37

      273       303,147  

Series 2008
5.50%, 8/01/37

      129       143,669  

 

10


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Government National Mortgage Association
3.00%, 12/20/46

    U.S.$       500     $ 506,019  

3.50%, 7/01/47, TBA

      3,040       3,148,300  
     

 

 

 
        21,042,736  
     

 

 

 

AGENCY FIXED RATE 15-YEAR–0.8%

 

   

Federal National Mortgage Association
2.50%, 12/01/31–1/01/32

      1,605       1,614,962  

Series 2016
2.50%, 11/01/31

      789       793,665  
     

 

 

 
        2,408,627  
     

 

 

 

Total Mortgage Pass-Throughs
(cost $23,423,996)

        23,451,363  
     

 

 

 

CORPORATES–INVESTMENT GRADE–7.8%

 

   

INDUSTRIAL–4.3%

     

BASIC–0.4%

     

Dow Chemical Co. (The)
4.125%, 11/15/21

      165       175,420  

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

      84       86,400  

Glencore Funding LLC
4.125%, 5/30/23(c)

      126       129,296  

Minsur SA
6.25%, 2/07/24(c)

      168       180,390  

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

      96       97,981  

Sociedad Quimica y Minera de Chile SA
3.625%, 4/03/23(c)

      237       236,574  

Vale Overseas Ltd.
6.875%, 11/21/36

      145       155,513  

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

      142       143,379  
     

 

 

 
        1,204,953  
     

 

 

 

CAPITAL GOODS–0.1%

 

   

Embraer Netherlands Finance BV
5.40%, 2/01/27

      160       166,364  

General Electric Co.
Series D
5.00%, 1/21/21(d)

      68       72,111  
     

 

 

 
        238,475  
     

 

 

 

COMMUNICATIONS–MEDIA–0.4%

 

   

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

      165       178,251  
     

Comcast Corp.
5.15%, 3/01/20

    U.S.$       451     $ 488,753  

Cox Communications, Inc.
2.95%, 6/30/23(c)

      91       88,673  

Discovery Communications LLC
3.45%, 3/15/25

      104       100,796  

Time Warner Cable LLC
4.125%, 2/15/21

      165       172,923  

4.50%, 9/15/42

      85       81,126  

Viacom, Inc.
4.375%, 3/15/43

      23       20,445  
     

 

 

 
        1,130,967  
     

 

 

 

COMMUNICATIONS–TELECOMMUNICATIONS–0.8%

 

   

AT&T, Inc.
3.40%, 5/15/25

      575       564,322  

3.80%, 3/15/22

      75       77,704  

4.125%, 2/17/26

      345       353,556  

Rogers Communications, Inc.
4.00%, 6/06/22

    CAD       46       38,128  

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

    U.S.$       225       226,980  

Verizon Communications, Inc.
2.625%, 8/15/26

      295       272,226  

3.50%, 11/01/24

      1,048       1,057,788  
     

 

 

 
        2,590,704  
     

 

 

 

CONSUMER CYCLICAL–AUTOMOTIVE–0.4%

 

   

Ford Motor Credit Co. LLC
5.875%, 8/02/21

      915       1,017,983  

General Motors Co.
3.50%, 10/02/18

      130       132,240  

General Motors Financial Co., Inc.
4.00%, 1/15/25

      41       41,235  

4.30%, 7/13/25

      50       51,070  
     

 

 

 
        1,242,528  
     

 

 

 

CONSUMER
NON-CYCLICAL–0.6%

 

   

Becton Dickinson and Co.
3.734%, 12/15/24

      66       67,109  

Biogen, Inc.
4.05%, 9/15/25

      251       265,390  

Bunge Ltd. Finance Corp.
8.50%, 6/15/19

      155       173,135  

Grupo Bimbo SAB de CV
3.875%, 6/27/24(c)

      339       349,295  

Laboratory Corp. of America Holdings
3.60%, 2/01/25

      100       101,359  

 

11


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Mylan NV
3.95%, 6/15/26

    U.S.$       68     $ 68,968  

Sigma Alimentos SA de CV
4.125%, 5/02/26(c)

      200       202,250  

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

      211       205,461  

3.15%, 10/01/26

      146       138,517  

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

      64       64,806  

3.95%, 8/15/24

      206       215,956  
     

 

 

 
        1,852,246  
     

 

 

 

ENERGY–1.0%

     

Cenovus Energy, Inc.
3.00%, 8/15/22

      17       16,296  

5.70%, 10/15/19

      59       62,267  

Ecopetrol SA
5.875%, 5/28/45

      94       86,292  

Encana Corp.
3.90%, 11/15/21

      140       142,878  

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

      278       282,887  

5.20%, 9/01/20

      185       200,788  

Hess Corp.
4.30%, 4/01/27

      199       194,879  

Kinder Morgan Energy Partners LP
2.65%, 2/01/19

      302       304,201  

Kinder Morgan, Inc./DE
5.00%, 2/15/21(c)

      250       267,815  

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

      163       176,389  

Nabors Industries, Inc.
5.50%, 1/15/23(c)

      212       200,775  

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

      170       174,128  

8.25%, 3/01/19

      374       409,616  

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

      232       226,212  

Sabine Pass Liquefaction LLC
5.00%, 3/15/27

      146       155,395  

TransCanada PipeLines Ltd.
3.392% (LIBOR 3 Month + 2.21%), 5/15/67(e)

      120       114,128  

Williams Partners LP
4.125%, 11/15/20

      155       161,784  
     

 

 

 
        3,176,730  
     

 

 

 
     

SERVICES–0.1%

     

S&P Global, Inc.
4.40%, 2/15/26

    U.S.$       226     $ 242,720  

Total System Services, Inc.
3.75%, 6/01/23

      45       46,689  
     

 

 

 
        289,409  
     

 

 

 

TECHNOLOGY–0.4%

 

   

Agilent Technologies, Inc.
5.00%, 7/15/20

      71       76,253  

Broadcom Corp./Broadcom Cayman Finance Ltd.
3.625%, 1/15/24(c)

      53       54,350  

3.875%, 1/15/27(c)

      117       120,132  

Dell International LLC/EMC Corp.
6.02%, 6/15/26(c)

      50       55,189  

Fidelity National Information Services, Inc.
5.00%, 10/15/25

      3       3,324  

HP, Inc.
4.65%, 12/09/21

      114       123,015  

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

      225       242,816  

Lam Research Corp.
2.80%, 6/15/21

      71       72,005  

Motorola Solutions, Inc.
7.50%, 5/15/25

      33       39,340  

Seagate HDD Cayman
4.75%, 1/01/25

      127       127,933  

Western Digital Corp.
7.375%, 4/01/23(c)

      156       171,210  
     

 

 

 
        1,085,567  
     

 

 

 

TRANSPORTATION–SERVICES–0.1%

 

   

Adani Ports & Special Economic Zone Ltd.
3.95%, 1/19/22(c)

      200       204,329  
     

 

 

 
        13,015,908  
     

 

 

 

FINANCIAL INSTITUTIONS–3.3%

 

   

BANKING–2.8%

     

Banco Santander SA
3.50%, 4/11/22

      200       204,582  

Bank of America Corp.
2.881%, 4/24/23

      265       265,723  

3.824%, 1/20/28

      270       274,892  

Barclays Bank PLC
Series E
6.625%, 3/30/22(c)

    EUR       84       119,028  

Barclays PLC
3.65%, 3/16/25

    U.S.$       270       268,961  

 

12


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

BNP Paribas SA
3.80%, 1/10/24(c)

    U.S.$       215     $ 223,447  

Citigroup, Inc.
3.875%, 3/26/25

      235       236,582  

Compass Bank
2.875%, 6/29/22

      265       263,876  

5.50%, 4/01/20

      314       333,920  

Cooperatieve Rabobank UA
4.375%, 8/04/25

      320       335,325  

Credit Agricole SA/London
4.125%, 1/10/27(c)

      250       261,235  

Credit Suisse Group Funding Guernsey Ltd.
3.80%, 6/09/23

      385       396,419  

Goldman Sachs Group, Inc. (The)
2.35%, 11/15/21

      208       205,223  

3.75%, 5/22/25

      186       190,085  

5.75%, 1/24/22

      335       377,120  

Series D
6.00%, 6/15/20

      217       239,453  

JPMorgan Chase & Co.
3.22%, 3/01/25

      265       265,739  

Lloyds Banking Group PLC
4.65%, 3/24/26

      200       208,368  

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

      272       284,088  

Morgan Stanley
5.625%, 9/23/19

      168       180,457  

Series G
5.50%, 7/24/20

      189       206,250  

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

      290       287,071  

6.25%, 2/25/20(c)

      465       512,398  

PNC Bank NA
3.80%, 7/25/23

      685       720,647  

Santander Issuances SAU
3.25%, 4/04/26(c)

    EUR       200       243,666  

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

    U.S.$       226       226,294  

Santander UK PLC
5.00%, 11/07/23(c)

      200       214,304  

Sumitomo Mitsui Banking Corp.
1.966%, 1/11/19

      265       264,881  

UBS Group Funding Switzerland AG
4.125%, 9/24/25(c)

      305       319,295  

US Bancorp
Series J
5.30%, 4/15/27(d)

      116       123,454  

Wells Fargo & Co.
3.069%, 1/24/23

      212       214,616  
     

 

 

 
        8,467,399  
     

 

 

 
     

INSURANCE–0.2%

     

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

    U.S.$       38     $ 41,178  

Lincoln National Corp.
8.75%, 7/01/19

      31       34,876  

MetLife, Inc.
10.75%, 8/01/39

      70       116,551  

XLIT Ltd.
3.25%, 6/29/47

    EUR       165       186,431  

6.375%, 11/15/24

    U.S.$       157       183,880  
     

 

 

 
        562,916  
     

 

 

 

REITS–0.3%

     

American Tower Corp.
5.05%, 9/01/20

      380       408,975  

Host Hotels & Resorts LP
Series D
3.75%, 10/15/23

      10       10,188  

Trust F/1401
5.25%, 1/30/26(c)

      200       207,491  

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

      238       246,430  
     

 

 

 
        873,084  
     

 

 

 
        9,903,399  
     

 

 

 

UTILITY–0.2%

     

ELECTRIC–0.2%

     

Exelon Corp.
5.15%, 12/01/20

      89       95,670  

Israel Electric Corp., Ltd.
Series 6
5.00%, 11/12/24(c)

      320       344,800  

Pacific Gas & Electric Co.
6.05%, 3/01/34

      38       49,034  
     

 

 

 
        489,504  
     

 

 

 

Total Corporates–Investment Grade
(cost $22,661,093)

        23,408,811  
     

 

 

 

GOVERNMENTS–TREASURIES–6.4%

 

   

UNITED STATES–6.4%

     

U.S. Treasury Bonds
2.75%, 8/15/42

      280       276,981  

2.875%, 11/15/46

      215       216,176  

3.00%, 5/15/45–5/15/47

      738       761,004  

3.125%, 2/15/43–8/15/44

      575       607,584  

3.375%, 5/15/44

      234       258,533  

4.375%, 2/15/38

      1,027       1,308,972  

4.75%, 2/15/37

      110       146,541  

6.25%, 5/15/30

      149       212,110  

U.S. Treasury Notes 0.625%, 9/30/17

      3,590       3,586,073  

1.125%, 2/28/19

      6,390       6,366,037  

 

13


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

1.25%, 4/30/19–5/31/19

    U.S.$       2,560     $ 2,554,000  

1.75%, 11/30/21

      1,335       1,331,454  

2.00%, 11/15/26

      360       351,056  

2.25%, 11/15/24

      305       306,668  

2.375%, 8/15/24

      1,081       1,097,959  
     

 

 

 

Total Governments–Treasuries
(cost $19,349,200)

        19,381,148  
     

 

 

 

ASSET-BACKED SECURITIES–3.5%

 

   

AUTOS–FIXED RATE–2.0%

 

   

Ally Master Owner Trust
Series 2015-3, Class A
1.63%, 5/15/20

      454       454,055  

Americredit Automobile Receivables Trust
Series 2016-4, Class A2A
1.34%, 4/08/20

      185       184,706  

California Republic Auto Receivables Trust
Series 2014-2, Class A4
1.57%, 12/16/19

      115       115,360  

Series 2015-2, Class A3
1.31%, 8/15/19

      75       74,661  

Capital Auto Receivables Asset Trust
Series 2014-1, Class B
2.22%, 1/22/19

      60       59,962  

Chrysler Capital Auto Receivables Trust
Series 2015-BA, Class A3
1.91%, 3/16/20(c)

      152       151,834  

CPS Auto Receivables Trust
Series 2013-B, Class A
1.82%, 9/15/20(c)

      48       47,494  

CPS Auto Trust
Series 2017-A, Class A
1.68%, 8/17/20(c)

      105       104,481  

Drive Auto Receivables Trust
Series 2016-CA, Class A3
1.67%, 11/15/19(c)

      161       160,999  

Series 2017-AA, Class A3
1.77%, 1/15/20(c)

      235       234,772  

Series 2017-BA, Class A1
1.20%, 4/16/18(c)

      142       141,817  
     

Series 2017-BA, Class A3
1.74%, 6/17/19(c)

    U.S.$       215     $ 215,045  

Enterprise Fleet Financing LLC
Series 2014-2, Class A2
1.05%, 3/20/20(c)

      23       23,284  

Series 2015-1, Class A2
1.30%, 9/20/20(c)

      125       124,792  

Exeter Automobile Receivables Trust
Series 2016-1A, Class D
8.20%, 2/15/23(c)

      140       149,264  

Series 2016-3A, Class A
1.84%, 11/16/20(c)

      71       70,619  

Series 2017-2A, Class A
2.11%, 6/15/21(c)

      167       167,360  

Fifth Third Auto Trust
Series 2014-3, Class A4
1.47%, 5/17/21

      268       267,901  

First Investors Auto Owner Trust
Series 2016-2A, Class A1
1.53%, 11/16/20(c)

      122       121,283  

Flagship Credit Auto Trust
Series 2016-3, Class A1
1.61%, 12/15/19(c)

      154       153,338  

Series 2016-4, Class A2
1.96%, 2/16/21(c)

      110       109,727  

Series 2016-4, Class D
3.89%, 11/15/22(c)

      100       100,712  

Series 2017-2, Class A
1.85%, 7/15/21(c)

      215       215,042  

Ford Credit Floorplan Master Owner Trust
Series 2015-2, Class A1
1.98%, 1/15/22

      322       321,115  

GM Financial Automobile Leasing Trust
Series 2015-2, Class A3
1.68%, 12/20/18

      365       365,344  

GMF Floorplan Owner Revolving Trust
Series 2015-1, Class A1
1.65%, 5/15/20(c)

      221       221,279  

 

14


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Series 2016-1, Class A1
1.96%, 5/17/21(c)

    U.S.$       280     $ 280,584  

Harley-Davidson Motorcycle Trust
Series 2015-1, Class A3
1.41%, 6/15/20

      99       98,593  

Hertz Vehicle Financing II LP
Series 2015-1A, Class A
2.73%, 3/25/21(c)

      215       213,781  

Series 2015-2A, Class A
2.02%, 9/25/19(c)

      180       179,186  

Series 2015-3A, Class A
2.67%, 9/25/21(c)

      265       263,546  

Hertz Vehicle Financing LLC
Series 2013-1A, Class B2
2.48%, 8/25/19(c)

      192       190,406  

Series 2016-1A, Class A
2.32%, 3/25/20(c)

      145       144,497  

Hyundai Auto Lease Securitization Trust
Series 2015-B, Class A3
1.40%, 11/15/18(c)

      137       137,395  

Mercedes Benz Auto Lease Trust
Series 2015-B, Class A3
1.34%, 7/16/18

      177       176,739  

Nissan Auto Lease Trust
Series 2015-A, Class A3
1.40%, 6/15/18

      60       60,241  

Westlake Automobile Receivables Trust
Series 2015-3A, Class A2A
1.42%, 5/17/21(c)

      9       9,277  

Series 2016-2A, Class A2
1.57%, 6/17/19(c)

      93       92,691  
     

 

 

 
        6,203,182  
     

 

 

 

OTHER ABS–FIXED RATE–0.5%

 

   

Ascentium Equipment Receivables Trust
Series 2016-1A, Class A2
1.75%, 11/13/18(c)

      41       40,874  
     

CNH Equipment Trust
Series 2014-B, Class A4
1.61%, 5/17/21

    U.S.$       210     $ 210,246  

Series 2015-A, Class A4
1.85%, 4/15/21

      227       227,136  

Dell Equipment Finance Trust
Series 2015-1, Class A3
1.30%, 3/23/20(c)

      8       8,249  

Marlette Funding Trust
Series 2016-1A, Class A
3.06%, 1/17/23(c)

      49       49,313  

Series 2017-1A, Class A
2.827%, 3/15/24(c)

      120       120,496  

Series 2017-2A, Class A
2.39%, 7/15/24(c)

      150       150,000  

SBA Tower Trust
3.156%, 10/15/20(c)

      251       255,904  

SoFi Consumer Loan Program LLC
Series 2016-2, Class A
3.09%, 10/27/25(c)

      88       88,817  

Series 2016-3, Class A
3.05%, 12/26/25(c)

      124       124,769  

Series 2017-2, Class A
3.28%, 2/25/26(c)

      148       150,216  

Series 2017-3, Class A
2.77%, 5/25/26(c)

      155       156,027  
     

 

 

 
        1,582,047  
     

 

 

 

AUTOS–FLOATING RATE–0.5%

 

   

BMW Floorplan Master Owner Trust
Series 2015-1A, Class A
1.659% (LIBOR 1 Month + 0.50%), 7/15/20(c)(e)

      378       379,236  

NCF Dealer Floorplan Master Trust
Series 2014-1A, Class A
2.712% (LIBOR 1 Month + 1.50%),
10/20/20(c)(e)

      320       320,000  

Volkswagen Credit Auto Master Trust
Series 2014-1A, Class A1
1.562% (LIBOR 1 Month + 0.35%), 7/22/19(c)(e)

      120       120,007  

 

15


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Wells Fargo Dealer Floorplan Master Note Trust
Series 2014-1, Class A
1.592% (LIBOR
1 Month + 0.38%), 7/20/19(e)

    U.S.$       203     $ 203,023  

Series 2015-1, Class A
1.712% (LIBOR
1 Month + 0.50%), 1/20/20(e)

      384       384,700  
     

 

 

 
        1,406,966  
     

 

 

 

CREDIT CARDS–FIXED RATE–0.3%

 

   

Barclays Dryrock Issuance Trust
Series 2014-3, Class A
2.41%, 7/15/22

      326       330,087  

Series 2015-2, Class A
1.56%, 3/15/21

      214       214,065  

World Financial Network Credit Card Master Trust
Series 2013-A, Class A
1.61%, 12/15/21

      246       246,021  
     

 

 

 
        790,173  
     

 

 

 

CREDIT CARDS–FLOATING RATE–0.2%

 

   

Discover Card Execution Note Trust
Series 2015-A1, Class A1
1.509% (LIBOR
1 Month + 0.35%), 8/17/20(e)

      240       240,456  

World Financial Network Credit Card Master Trust
Series 2015-A, Class A
1.639% (LIBOR
1 Month + 0.48%), 2/15/22(e)

      256       256,649  
     

 

 

 
        497,105  
     

 

 

 

HOME EQUITY LOANS–FIXED RATE–0.0%

 

   

Credit-Based Asset Servicing & Securitization LLC
Series 2003-CB1, Class AF
3.95%, 1/25/33

      56       56,584  
     

 

 

 

Total Asset-Backed Securities
(cost $10,498,886)

        10,536,057  
     

 

 

 
     

COMMERCIAL MORTGAGE-BACKED
SECURITIES–2.5%

 

   

NON-AGENCY FIXED RATE CMBS–2.1%

 

   

Banc of America Commercial Mortgage Trust
Series 2007-5, Class AM
5.772%, 2/10/51

    U.S.$       150     $ 151,311  

Bear Stearns Commercial Mortgage Securities Trust
Series 2006-PW13, Class AJ
5.611%, 9/11/41

      2       1,912  

BHMS Commercial Mortgage Trust
Series 2014-ATLS, Class AFX
3.601%, 7/05/33(c)

      335       339,191  

CGRBS Commercial Mortgage Trust
Series 2013-VN05, Class A
3.369%, 3/13/35(c)

      495       512,010  

Citigroup Commercial Mortgage Trust
Series 2012-GC8, Class D
5.014%, 9/10/45(c)

      169       155,693  

Series 2015-GC27, Class A5
3.137%, 2/10/48

      246       247,263  

Commercial Mortgage Loan Trust
Series 2008-LS1, Class A1A
6.335%, 12/10/49

      746       749,696  

Commercial Mortgage Trust
Series 2013-SFS, Class A1
1.873%, 4/12/35(c)

      156       153,985  

CSAIL Commercial Mortgage Trust
Series 2015-C3, Class A4
3.718%, 8/15/48

      214       222,382  

Series 2015-C4, Class A4
3.808%, 11/15/48

      260       271,728  

GS Mortgage Securities Corp. II
Series 2013-KING, Class A
2.706%, 12/10/27(c)

      443       448,395  

 

16


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

GS Mortgage Securities Trust
Series 2013-G1, Class A2
3.557%, 4/10/31(c)

    U.S.$       276     $ 275,316  

JP Morgan Chase Commercial Mortgage Securities Trust
Series 2004-LN2, Class A1A
4.838%, 7/15/41(c)

      107       106,642  

Series 2006-LDP9, Class AM
5.372%, 5/15/47

      81       81,207  

Series 2007-CB19, Class AM
5.977%, 2/12/49

      25       25,467  

Series 2007-LD12, Class AM
6.264%, 2/15/51

      251       254,626  

Series 2012-C6, Class E
5.299%, 5/15/45(c)

      119       107,102  

JPMBB Commercial Mortgage Securities Trust
Series 2015-C31,
Class A3
3.801%, 8/15/48

      235       246,267  

Series 2015-C32, Class C
4.818%, 11/15/48

      195       187,549  

LB-UBS Commercial Mortgage Trust
Series 2006-C6, Class AJ
5.452%, 9/15/39

      75       65,182  

LSTAR Commercial Mortgage Trust

     

Series 2014-2, Class A2
2.767%, 1/20/41(c)

      110       110,217  

Series 2015-3, Class A2
2.729%, 4/20/48(c)

      236       237,128  

Series 2016-4, Class A2
2.579%, 3/10/49(c)

      161       156,806  

Morgan Stanley Capital I Trust
Series 2005-IQ9, Class D
5.00%, 7/15/56

      112       111,999  

UBS-Barclays Commercial Mortgage Trust
Series 2012-C4, Class A5
2.85%, 12/10/45

      168       169,309  
     

Wachovia Bank Commercial Mortgage Trust
Series 2006-C26, Class A1A
6.009%, 6/15/45

    U.S.$       7     $ 7,170  

Wells Fargo Commercial Mortgage Trust

     

Series 2015-SG1, Class C
4.619%, 9/15/48

      197       189,918  

Series 2016-NXS6, Class C
4.453%, 11/15/49

      180       179,174  

WF-RBS Commercial Mortgage Trust

     

Series 2013-C14, Class A5
3.337%, 6/15/46

      260       268,358  

Series 2014-C20, Class A2
3.036%, 5/15/47

      206       210,142  
     

 

 

 
        6,243,145  
     

 

 

 

NON-AGENCY FLOATING RATE CMBS–0.4%

     

CGBAM Commercial Mortgage Trust

     

Series 2016-IMC, Class A 3.072% (LIBOR
1 Month + 1.90%),
11/15/21(c)(e)

      112       112,470  

Series 2016-IMC, Class C 5.122% (LIBOR
1 Month + 3.95%),
11/15/21(c)(e)

      113       113,457  

CSMC Mortgage-Backed Trust
Series 2016-MFF, Class D
5.367% (LIBOR
1 Month + 4.60%),
11/15/33(c)(e)

      110       110,619  

H/2 Asset Funding NRE
Series 2015-1A
2.866% (LIBOR
1 Month + 0.92%), 6/24/49(e)(f)

      133       132,991  

JP Morgan Chase Commercial Mortgage Securities Trust
Series 2015-SGP, Class A
2.859% (LIBOR
1 Month + 1.70%), 7/15/36(c)(e)

      304       304,762  

Morgan Stanley Capital I Trust

     

Series 2015-XLF2, Class AFSA
2.997% (LIBOR
1 Month + 1.87%), 8/15/26(c)(e)

      105       105,179  

 

17


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Series 2015-XLF2, Class SNMA
3.077% (LIBOR 1 Month + 1.95%),
11/15/26(c)(e)

    U.S.$       119     $ 118,075  

Resource Capital Corp., Ltd.
Series 2014-CRE2, Class A
2.222% (LIBOR
1 Month + 1.05%), 4/15/32(c)(e)

      18       17,619  

Starwood Retail Property Trust
Series 2014-STAR, Class A
2.347% (LIBOR
1 Month + 1.22%),
11/15/27(c)(e)

      378       374,067  
     

 

 

 
        1,389,239  
     

 

 

 

Total Commercial Mortgage-Backed Securities
(cost $7,772,107)

        7,632,384  
     

 

 

 

UNITED STATES–1.7%

 

   

U.S. Treasury Inflation Index
0.125%, 4/15/19–4/15/20 (TIPS)

      2,248       2,248,710  

0.25%, 1/15/25 (TIPS)

      1,152       1,131,466  

0.375%, 7/15/25 (TIPS)

      1,619       1,606,764  
     

 

 

 
        4,986,940  
     

 

 

 

JAPAN–0.3%

     

Japanese Government CPI Linked Bond
Series 2022
0.10%, 3/10/27

    JPY       110,743       1,033,094  
     

 

 

 

Total Inflation-Linked Securities
(cost $6,110,980)

        6,020,034  
     

 

 

 

COLLATERALIZED MORTGAGE OBLIGATIONS–1.8%

 

   

RISK SHARE FLOATING RATE–1.3%

 

   

Bellemeade Re II Ltd.
Series 2016-1A, Class M2B
7.716% (LIBOR 1 Month + 6.50%), 4/25/26(e)(f)

    U.S.$       170       177,125  
     

Federal Home Loan Mortgage Corp. Structured
Agency Credit Risk Debt Notes
Series 2014-DN3, Class M3
5.216% (LIBOR 1 Month + 4.00%), 8/25/24(e)

    U.S.$       330     $ 358,537  

Series 2014-DN4, Class M3
5.766% (LIBOR 1 Month + 4.55%), 10/25/24(e)

      248       272,949  

Series 2014-HQ3, Class M3
5.966% (LIBOR 1 Month + 4.75%), 10/25/24(e)

      250       277,120  

Series 2016-DNA1, Class M3
6.766% (LIBOR 1 Month + 5.55%), 7/25/28(e)

      250       293,934  

Federal National Mortgage Association Connecticut Avenue Securities
Series 2014-C03, Class 1M1 2.416% (LIBOR 1 Month + 1.20%), 7/25/24(e)

      17       16,916  

Series 2014-C04, Class 1M2
6.116% (LIBOR 1 Month + 4.90%), 11/25/24(e)

      180       205,228  

Series 2014-C04, Class 2M2
6.216% (LIBOR 1 Month + 5.00%), 11/25/24(e)

      67       75,692  

Series 2015-C01, Class 1M2
5.516% (LIBOR 1 Month + 4.30%), 2/25/25(e)

      134       144,795  

Series 2015-C01, Class 2M2
5.766% (LIBOR 1 Month + 4.55%), 2/25/25(e)

      133       143,180  

Series 2015-C02, Class 1M2
5.216% (LIBOR 1 Month + 4.00%), 5/25/25(e)

      177       191,389  

 

18


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Series 2015-C02, Class 2M2
5.216% (LIBOR 1 Month + 4.00%), 5/25/25(e)

  U.S.$       173     $ 183,884  

Series 2015-C03, Class 1M2
6.216% (LIBOR 1 Month + 5.00%), 7/25/25(e)

      87       96,598  

Series 2015-C03, Class 2M2
6.216% (LIBOR 1 Month + 5.00%), 7/25/25(e)

      244       270,620  

Series 2015-C04, Class 1M2
6.916% (LIBOR 1 Month + 5.70%), 4/25/28(e)

      74       84,392  

Series 2015-C04, Class 2M2
6.766% (LIBOR 1 Month + 5.55%), 4/25/28(e)

      117       131,715  

Series 2016-C01, Class 1M2
7.966% (LIBOR 1 Month + 6.75%), 8/25/28(e)

      204       247,389  

Series 2016-C01, Class 2M2
8.166% (LIBOR 1 Month + 6.95%), 8/25/28(e)

      159       190,656  

Series 2016-C03, Class 2M2
7.116% (LIBOR 1 Month + 5.90%), 10/25/28(e)

      145       168,861  

JP Morgan Madison Avenue Securities Trust
Series 2014-CH1, Class M2
5.466% (LIBOR 1 Month + 4.25%),
11/25/24(e)(f)

      35       38,636  

Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 1M2
6.466% (LIBOR 1 Month + 5.25%),
11/25/25(e)(f)

      144       156,533  
     

Series 2015-WF1, Class 2M2
6.716% (LIBOR 1 Month + 5.50%),
11/25/25(e)(f)

  U.S.$       41     $ 46,286  
     

 

 

 
        3,772,435  
     

 

 

 

NON-AGENCY FIXED
RATE–0.4%

 

   

Alternative Loan Trust
Series 2005-20CB, Class 3A6
5.50%, 7/25/35

      34       32,699  

Series 2005-57CB, Class 4A3
5.50%, 12/25/35

      77       71,076  

Series 2006-23CB, Class 1A7
6.00%, 8/25/36

      57       55,218  

Series 2006-24CB, Class A16
5.75%, 6/25/36

      142       117,432  

Series 2006-28CB, Class A14
6.25%, 10/25/36

      99       86,835  

Series 2006-J1, Class 1A13
5.50%, 2/25/36

      82       74,152  

Chase Mortgage Finance Trust
Series 2007-S5, Class 1A17
6.00%, 7/25/37

      46       41,840  

Citigroup Mortgage Loan Trust, Inc.
Series 2005-2, Class 1A4
3.234%, 5/25/35

      17       16,510  

Countrywide Home Loan Mortgage Pass-Through Trust
Series 2006-10, Class 1A8
6.00%, 5/25/36

      71       59,741  

Series 2006-13, Class 1A19
6.25%, 9/25/36

      40       34,507  

Credit Suisse Mortgage Trust
Series 2010-6R, Class 3A2
5.875%, 1/26/38(c)

      147       120,618  

First Horizon Alternative Mortgage Securities Trust
Series 2006-FA3, Class A9
6.00%, 7/25/36

      143       118,297  

 

19


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

JP Morgan Mortgage Trust
Series 2007-S3, Class 1A8
6.00%, 8/25/37

  U.S.$       63     $ 55,056  

RBSSP Resecuritization Trust
Series 2009-7, Class 10A3
6.00%, 8/26/37(c)

      203       176,424  

Series 2010-9, Class 7A6
6.00%, 5/26/37(c)(g)

      183       144,702  

Wells Fargo Mortgage Backed Securities Trust
Series 2007-8, Class 2A5
5.75%, 7/25/37

      41       40,714  
     

 

 

 
        1,245,821  
     

 

 

 

NON-AGENCY FLOATING
RATE–0.1%

 

   

Deutsche Alt-A Securities Mortgage Loan Trust
Series 2006-AR4, Class A2
1.406% (LIBOR 1 Month + 0.19%), 12/25/36(e)

      319       193,057  

HomeBanc Mortgage Trust
Series 2005-1, Class A1
1.466% (LIBOR 1 Month + 0.25%), 3/25/35(e)

      120       105,252  
     

 

 

 
        298,309  
     

 

 

 

AGENCY FLOATING
RATE–0.0%

 

   

Federal National Mortgage Association REMICs
Series 2011-131, Class ST
5.324% (6.54% –LIBOR 1 Month),
12/25/41(e)(h)

      386       84,429  
     

 

 

 

Total Collateralized Mortgage Obligations
(cost $5,109,587)

        5,400,994  
     

 

 

 

CORPORATES–
NON-INVESTMENT
GRADE–1.1%

 

   

INDUSTRIAL–0.7%

     

BASIC–0.2%

     

Anglo American Capital PLC
3.75%, 4/10/22(c)

      200       201,518  
     

NOVA Chemicals Corp.
5.25%, 8/01/23(c)

  U.S.$       125     $ 128,510  

SPCM SA
4.875%, 9/15/25(c)

      200       203,998  
     

 

 

 
        534,026  
     

 

 

 

COMMUNICATIONS–
MEDIA–0.1%

     

CSC Holdings LLC
6.75%, 11/15/21

      45       49,816  

SFR Group SA
5.375%, 5/15/22(c)

  EUR       195       232,303  
     

 

 

 
        282,119  
     

 

 

 

COMMUNICATIONS–
TELECOMMUNICATIONS–0.1%

 

   

CenturyLink, Inc.
Series Y
7.50%, 4/01/24

  U.S.$       75       82,247  

Sprint Capital Corp.
6.90%, 5/01/19

      370       395,042  
     

 

 

 
        477,289  
     

 

 

 

CONSUMER CYCLICAL–AUTOMOTIVE–0.1%

 

   

Allison Transmission, Inc.
5.00%, 10/01/24(c)

      170       174,558  
     

 

 

 

CONSUMER CYCLICAL–
OTHER–0.1%

 

   

International Game Technology PLC
6.25%, 2/15/22(c)

      200       218,618  

KB Home
4.75%, 5/15/19

      107       110,283  
     

 

 

 
        328,901  
     

 

 

 

CONSUMER CYCLICAL–RETAILERS–0.0%

 

   

Hanesbrands, Inc.
4.625%, 5/15/24(c)

      70       71,154  
     

 

 

 

CONSUMER NON-
CYCLICAL–0.1%

     

Lamb Weston Holdings, Inc.
4.625%, 11/01/24(c)

      29       29,809  

4.875%, 11/01/26(c)

      29       30,030  

Valeant Pharmaceuticals International, Inc.
6.125%, 4/15/25(c)

      135       114,457  
     

 

 

 
        174,296  
     

 

 

 

ENERGY–0.0%

     

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

      111       72,064  

SM Energy Co.
6.50%, 1/01/23

      14       13,367  
     

 

 

 
        85,431  
     

 

 

 

 

20


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

TECHNOLOGY–0.0%

     

Dell International LLC/EMC Corp.
7.125%, 6/15/24(c)

  U.S.$       61     $ 67,075  
     

 

 

 

TRANSPORTATION–
SERVICES–0.0%

 

   

Avis Budget Car Rental LLC/Avis Budget Finance, Inc.
5.25%, 3/15/25(c)

      94       88,897  
     

 

 

 
        2,283,746  
     

 

 

 

FINANCIAL INSTITUTIONS–0.4%

 

   

BANKING–0.3%

     

Bank of America Corp.
Series Z
6.50%, 10/23/24(d)

      79       87,995  

Barclays Bank PLC
6.86%, 6/15/32(c)(d)

      44       51,301  

Intesa Sanpaolo SpA
Series E
3.928%, 9/15/26(c)

  EUR       190       229,448  

Royal Bank of Scotland Group PLC
8.625%, 8/15/21(d)

  U.S.$       200       217,924  

Series U
7.64%, 9/30/17(d)

      200       191,774  

Standard Chartered PLC
2.68% (LIBOR 3 Month + 1.51%),
1/30/27(c)(d)(e)

      200       170,092  
     

 

 

 
        948,534  
     

 

 

 

FINANCE–0.1%

     

Navient Corp.
6.625%, 7/26/21

      170       182,648  
     

 

 

 
        1,131,182  
     

 

 

 

Total Corporates–Non-Investment Grade
(cost $3,428,488)

        3,414,928  
     

 

 

 

EMERGING MARKETS–TREASURIES–0.4%

 

   

BRAZIL–0.4%

     

Brazil Notas do Tesouro Nacional
Series F
10.00%, 1/01/21–1/01/27
(cost $1,013,149)

  BRL       3,765       1,124,584  
     

 

 

 

Total Emerging Markets–Treasuries
(cost $1,013,149)

        1,124,584  
     

 

 

 

QUASI-SOVEREIGNS–0.2%

 

   

QUASI-SOVEREIGN
BONDS–0.2%

 

   

CHILE–0.1%

     

Empresa de Transporte de Pasajeros Metro SA
4.75%, 2/04/24(c)

  U.S.$       340       368,900  
     

 

 

 
     

MEXICO–0.1%

     

Petroleos Mexicanos
4.625%, 9/21/23

  U.S.$       226     $ 228,712  
     

 

 

 

Total Quasi-Sovereigns
(cost $564,178)

        597,612  
     

 

 

 

LOCAL GOVERNMENTS–US MUNICIPAL BONDS–0.2%

 

   

CALIFORNIA–0.2%

     

State of California
Series 2010
7.625%, 3/01/40
(cost $350,352)

      345       527,074  
     

 

 

 

EMERGING MARKETS–CORPORATE BONDS–0.1%

 

   

INDUSTRIAL–0.1%

     

CAPITAL GOODS–0.0%

     

Odebrecht Finance Ltd.
5.25%, 6/27/29(c)

      217       78,120  
     

 

 

 

CONSUMER NON-CYCLICAL–0.1%

 

   

Minerva Luxembourg SA
6.50%, 9/20/26(c)

      200       194,750  
     

 

 

 

ENERGY–0.0%

     

Petrobras Global Finance BV
6.125%, 1/17/22

      123       126,849  
     

 

 

 

Total Emerging Markets–Corporate Bonds
(cost $538,296)

        399,719  
     

 

 

 

GOVERNMENTS–SOVEREIGN BONDS–0.1%

 

   

QATAR–0.1%

     

Qatar Government International Bond
2.375%, 6/02/21(c)
(cost $277,608)

      280       273,000  
     

 

 

 

SHORT-TERM
INVESTMENTS–7.5%

 

   

AGENCY DISCOUNT NOTE–3.1%

     

Federal Home Loan Bank Discount Notes
Zero Coupon 7/05/17–11/10/17
(cost $9,232,281)

      9,250       9,232,281  
     

 

 

 

GOVERNMENTS–
TREASURIES–2.3%

 

   

JAPAN–2.3%

     

Japan Treasury Discount Bill
Series 673
Zero Coupon, 7/03/17

  JPY       400,000       3,556,346  

Series 687
Zero Coupon, 12/11/17

      396,000       3,522,783  
     

 

 

 

Total Governments–
Treasuries
(cost $7,214,118)

        7,079,129  
     

 

 

 

 

21


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

TIME DEPOSIT–2.1%

     

State Street Time Deposit
0.09%, 7/03/17
(cost $6,240,372)

    U.S.$       6,240     $ 6,240,372  
     

 

 

 

Total Short-Term Investments
(cost $22,686,771)

        22,551,782  
     

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–104.6%
(cost $273,555,203)

        315,007,285  
     

 

 

 
     

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.6%

 

   

INVESTMENT COMPANIES–0.6%

 

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(i)(j)
(cost $1,855,579)

      1,855,579     $ 1,855,579  
     

 

 

 

TOTAL INVESTMENTS–105.2%
(cost $275,410,782)

        316,862,864  

Other assets less
liabilities–(5.2)%

        (15,783,261
     

 

 

 

NET ASSETS–100.0%

      $ 301,079,603  
     

 

 

 

FUTURES (see Note D)

 

Type    Number of
Contracts
     Expiration
Month
     Original
Value
     Value at
June 30,
2017
     Unrealized
Appreciation/
(Depreciation)
 

Purchased Contracts

              

U.S. T-Note 2 Yr (CBT) Futures

     35        September 2017      $ 7,572,948      $ 7,563,828      $ (9,120

U.S. T-Note 5 Yr (CBT) Futures

     72        September 2017        8,506,462        8,484,188        (22,274

U.S. T-Note 10 Yr (CBT) Futures

     75        September 2017        9,433,233        9,414,844        (18,389

U.S. Ultra Bond (CBT) Futures

     48        September 2017        7,804,885        7,962,000        157,115  

Sold Contracts

              

10 Yr Mini Japan Government Bond Futures

     8        September 2017        1,069,735        1,068,540        1,195  

Euro-BOBL Futures

     70        September 2017          10,630,831          10,529,478        101,353  
              

 

 

 
               $   209,880  
              

 

 

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
   Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

   JPY      465,000      USD      4,191      7/14/17    $ 55,039  

Bank of America, NA

   RUB      9,206      USD      152      9/13/17      (1,891

Bank of America, NA

   USD      82      RUB      4,815      9/13/17      (1,771

Barclays Bank PLC

   CNY      7,502      USD      1,078      8/16/17        (25,868

Barclays Bank PLC

   INR      16,739      USD      257      8/16/17      (502

Barclays Bank PLC

   TWD      1,783      USD      59      8/16/17      555  

Barclays Bank PLC

   USD      79      KRW      90,320      8/16/17      (273

BNP Paribas SA

   CNY      390      USD      56      8/16/17      (1,463

BNP Paribas SA

   KRW      283,929      USD      254      8/16/17      5,593  

Brown Brothers Harriman & Co.

   USD      138      SEK      1,212      8/16/17      5,880  

 

22


    AB Variable Products Series Fund

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Citibank, NA

   BRL      4,442      USD      1,343        7/05/17      $ 1,905  

Citibank, NA

   USD      1,334      BRL      4,442        7/05/17        6,885  

Citibank, NA

   BRL      4,442      USD      1,326        8/02/17        (6,901

Citibank, NA

   GBP      1,421      USD      1,840        8/16/17        (13,138

Citibank, NA

   KRW      675,451      USD      595        8/16/17        4,627  

Citibank, NA

   TWD      2,456      USD      81        8/16/17        608  

Citibank, NA

   USD      663      GBP      512        8/16/17        4,734  

Citibank, NA

   USD      656      SEK      5,790        8/16/17        32,738  

Citibank, NA

   CLP      49,836      USD      75        9/15/17        (76

Credit Suisse International

   USD      256      INR      16,739        8/16/17        1,586  

Deutsche Bank AG

   BRL      3,936      USD      1,189        7/05/17        610  

Deutsche Bank AG

   USD      1,190      BRL      3,936        7/05/17        (1,688

Goldman Sachs Bank USA

   BRL      506      USD      153        7/05/17        643  

Goldman Sachs Bank USA

   USD      153      BRL      506        7/05/17        (217

Goldman Sachs Bank USA

   CAD      1,170      USD      854        8/16/17        (48,821

Goldman Sachs Bank USA

   USD      1,775      AUD      2,421        8/16/17        85,167  

JPMorgan Chase Bank, NA

   USD      65      KRW      73,232        8/16/17        (1,373

Morgan Stanley & Co., Inc.

   JPY      460,000      USD      4,212        7/14/17        120,382  

Morgan Stanley & Co., Inc.

   USD      1,082      JPY      123,023        8/16/17        13,524  

Royal Bank of Scotland PLC

   EUR      733      USD      781        7/13/17        (57,421

State Street Bank & Trust Co.

   EUR      208      USD      238        7/13/17        441  

State Street Bank & Trust Co.

   EUR      163      USD      185        7/13/17        (1,695

State Street Bank & Trust Co.

   USD      159      EUR      143        7/13/17        4,684  

State Street Bank & Trust Co.

   AUD      876      USD      652        8/16/17        (21,213

State Street Bank & Trust Co.

   CAD      622      USD      457        8/16/17          (22,669)  

State Street Bank & Trust Co.

   CHF      506      USD      508        8/16/17        (21,548

State Street Bank & Trust Co.

   EUR      662      USD      721        8/16/17        (36,396

State Street Bank & Trust Co.

   GBP      254      USD      322        8/16/17        (9,449

State Street Bank & Trust Co.

   HKD      7,773      USD      1,000        8/16/17        3,383  

State Street Bank & Trust Co.

   ILS      736      USD      206        8/16/17        (5,051

State Street Bank & Trust Co.

   JPY      66,088      USD      599        8/16/17        10,611  

State Street Bank & Trust Co.

   JPY      20,577      USD      183        8/16/17        (86

State Street Bank & Trust Co.

   NOK      4,555      USD      529        8/16/17        (17,527

State Street Bank & Trust Co.

   TRY      271      USD      75        8/16/17        (738

State Street Bank & Trust Co.

   USD      428      AUD      565        8/16/17        6,067  

State Street Bank & Trust Co.

   USD      1,224      CHF      1,212        8/16/17        43,123  

State Street Bank & Trust Co.

   USD      1,524      EUR      1,363        8/16/17        36,234  

State Street Bank & Trust Co.

   USD      477      GBP      369        8/16/17        4,375  

State Street Bank & Trust Co.

   USD      315      HKD      2,457        8/16/17        (375

State Street Bank & Trust Co.

   USD      229      JPY      24,841        8/16/17        (7,298

State Street Bank & Trust Co.

   USD      322      NOK      2,752        8/16/17        8,151  

State Street Bank & Trust Co.

   USD      184      SEK      1,616        8/16/17        8,262  

State Street Bank & Trust Co.

   USD      186      TRY      680        8/16/17        5,313  

State Street Bank & Trust Co.

   USD      64      ZAR      858        8/16/17        1,128  

State Street Bank & Trust Co.

   CAD      102      USD      76        9/15/17        (2,789

State Street Bank & Trust Co.

   EUR      573      USD      634        9/15/17        (22,564

State Street Bank & Trust Co.

   GBP      73      USD      93        9/15/17        (2,078

State Street Bank & Trust Co.

   MXN      1,309      USD      72        9/15/17        706  

State Street Bank & Trust Co.

   MXN      921      USD      50        9/15/17        (504

State Street Bank & Trust Co.

   NOK      1,975      USD      233        9/15/17        (3,458

 

23


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS
(continued)   AB Variable Products Series Fund

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

State Street Bank & Trust Co.

     NZD        120        USD        86        9/15/17      $ (1,684

State Street Bank & Trust Co.

     USD        148        AUD        195        9/15/17        2,138  

State Street Bank & Trust Co.

     USD        150        CAD        199        9/15/17        3,342  

State Street Bank & Trust Co.

     USD        281        CHF        270        9/15/17        1,947  

State Street Bank & Trust Co.

     USD        459        GBP        354        9/15/17        3,193  

State Street Bank & Trust Co.

     USD        130        SEK        1,129        9/15/17        4,450  

State Street Bank & Trust Co.

     USD        61        SGD        84        9/15/17        377  
                 

 

 

 
                  $   149,876  
                 

 

 

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)

 

Clearing Broker/(Exchange)
& Referenced Obligation
   Fixed
Rate
(Pay)
Receive
     Implied
Credit
Spread at
June 30,
2017
     Notional
Amount
(000)
     Market
Value
     Unrealized
Appreciation/
(Depreciation)
 

Buy Contracts

              

Morgan Stanley & Co., LLC/(INTRCONX)

              

CDX-NAHY Series 28, 5 Year Index, 6/20/22*

     (5.00 )%       3.39    $   160      $   (11,316    $   (1,668

 

*   Termination date

CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)

 

               

Rate Type

     

Clearing Broker/(Exchange)

  Notional
Amount
(000)
    Termination
Date
    Payments
made
by the
Fund
  Payments
received
by the
Fund
  Unrealized
Appreciation/
(Depreciation)
 

Morgan Stanley & Co., LLC/(CME Group)

  MXN 4,254       6/22/20     4 Week TIIE   6.770%   $ 160  

Morgan Stanley & Co., LLC/(CME Group)

  $ 825       8/31/21     1.256%   3 Month LIBOR     17,695  

Morgan Stanley & Co., LLC/(CME Group)

  JPY 522,170       3/31/22     0.099%   6 Month LIBOR     11  

Morgan Stanley & Co., LLC/(CME Group)

  SEK 9,070       3/31/22     3 Month STIBOR   0.341%     (1,137

Morgan Stanley & Co., LLC/(CME Group)

  NZD 3,670       3/31/22     3 Month BKBM   2.936%     31,429  

Morgan Stanley & Co., LLC/(CME Group)

  $ 430       6/09/25     2.488%   3 Month LIBOR       (10,308

Morgan Stanley & Co., LLC/(CME Group)

    1,560       11/10/25     2.256%   3 Month LIBOR     (9,243

Morgan Stanley & Co., LLC/(CME Group)

    142       6/28/26     1.460%   3 Month LIBOR     9,158  

Morgan Stanley & Co., LLC/(CME Group)

    370       12/21/26     3 Month LIBOR   2.497%     7,599  

Morgan Stanley & Co., LLC/(CME Group)

    1,200       4/26/27     2.287%   3 Month LIBOR     (3,023

Morgan Stanley & Co., LLC/(CME Group)

  MXN 1,550       6/14/27     7.090%   4 Week TIIE     446  

 

24


    AB Variable Products Series Fund

 

               

Rate Type

       

Clearing Broker/(Exchange)

  Notional
Amount
(000)
    Termination
Date
    Payments
made
by the
Fund
  Payments
received
by the
Fund
    Unrealized
Appreciation/
(Depreciation)
 

Morgan Stanley & Co., LLC/(LCH Group)

  $   295       11/08/26     1.657%     3 Month LIBOR     $ 14,467  

Morgan Stanley & Co., LLC/(LCH Group)

    370       11/09/26     1.672%     3 Month LIBOR       17,682  
         

 

 

 
          $   74,936  
         

 

 

 

CREDIT DEFAULT SWAPS (see Note D)

 

Swap Counterparty &
Referenced Obligation
  Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
June 30,
2017
    Notional
Amount
(000)
    Market
Value
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation/
(Depreciation)
 

Buy Contracts

           

Citibank, NA

           

Sprint Communications, Inc.,
8.375%, 8/15/17, 6/20/19*

    (5.00 )%      0.72   $   172     $   (14,663   $   (4,152   $   (10,511

Sprint Communications, Inc.,
8.375%, 8/15/17, 6/20/19*

    (5.00     0.72       198       (16,879     (4,956     (11,923

Credit Suisse International

           

CDX-CMBX.NA.AAA Series 9, 9/17/58*

    (0.50     0.69       620       8,434       7,974       460  

Goldman Sachs International

           

CDX-CMBX.NA.AAA Series 9, 9/17/58*

    (0.50     0.69       226       3,081       3,108       (27

Sale Contracts

           

Citigroup Global Markets, Inc.

           

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       55       (6,405     (7,893     1,488  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       60       (6,968     (8,411     1,443  

Credit Suisse International

           

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       48       (5,574     (3,508       (2,066

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       165         (19,162       (11,283     (7,879

Deutsche Bank AG

           

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       48       (5,583     (6,394     811  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       53       (6,155     (6,408     253  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       52       (6,039     (6,285     246  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       8       (929     (991     62  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       79       (9,174     (8,996     (178

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       9       (1,045     (546     (499

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       156       (18,116     (13,563     (4,553

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74         232       (26,943     (17,187       (9,756

Goldman Sachs International

           

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       172         (20,046       (24,104     4,058  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       78       (9,058     (11,221     2,163  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       15       (1,742     (1,712     (30

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       4       (465     (379     (86

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       8       (929     (835     (94

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       8       (929     (772     (157

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       53       (6,155     (5,969     (186

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       47       (5,458     (4,293     (1,165

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       64       (7,433     (4,485     (2,948

 

25


BALANCED WEALTH STRATEGY PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Swap Counterparty &
Referenced Obligation
  Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
June 30,
2017
    Notional
Amount
(000)
    Market
Value
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation/
(Depreciation)
 

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00     5.74   $   170     $   (19,742)     $   (13,737)     $   (6,005)  

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       230       (26,711     (19,355     (7,356

CDX-CMBX.NA.BBB Series 6, 5/11/63*

    3.00       5.74       272       (31,588     (14,061     (17,527
       

 

 

   

 

 

   

 

 

 
        $   (262,376   $   (190,414   $   (71,962
       

 

 

   

 

 

   

 

 

 

 

*   Termination date

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2017, the aggregate market value of these securities amounted to $19,710,806 or 6.5% of net assets.

 

(d)   Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date.

 

(e)   Floating Rate Security. Stated interest/floor rate was in effect at June 30, 2017.

 

(f)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.18% of net assets as of June 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows:

 

144A/Restricted & Illiquid Securities

   Acquisition
Date
     Cost      Market
Value
     Percentage
of Net Assets
 

Bellemeade Re II Ltd. Series 2016-1A, Class M2B
7.716%, 4/25/26

     4/29/16      $   170,300      $   177,125        0.06

H/2 Asset Funding NRE Series 2015-1A
2.866%, 6/24/49

     6/19/15        132,991        132,991        0.04

JP Morgan Madison Avenue Securities Trust
Series 2014-CH1, Class M2
5.466%, 11/25/24

     11/06/15        34,997        38,636        0.01

Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 1M2
6.466%, 11/25/25

     9/28/15          143,919          156,533        0.05

Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 2M2
6.716%, 11/25/25

     9/28/15        40,583        46,286        0.02

 

(g)   Variable rate coupon, rate shown as of June 30, 2017.

 

(h)   Inverse interest only security.

 

(i)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

 

(j)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

Currency Abbreviations:

AUD—Australian Dollar

BRL—Brazilian Real

CAD—Canadian Dollar

CHF—Swiss Franc

CLP—Chilean Peso

CNY—Chinese Yuan Renminbi

EUR—Euro

GBP—Great British Pound

HKD—Hong Kong Dollar

 

26


    AB Variable Products Series Fund

 

ILS—Israeli Shekel

INR—Indian Rupee

JPY—Japanese Yen

KRW—South Korean Won

MXN—Mexican Peso

NOK—Norwegian Krone

NZD—New Zealand Dollar

RUB—Russian Ruble

SEK—Swedish Krona

SGD—Singapore Dollar

TRY—Turkish Lira

TWD—New Taiwan Dollar

USD—United States Dollar

ZAR—South African Rand

Glossary:

ABS—Asset-Backed Securities

ADR—American Depositary Receipt

BA—Banker’s Acceptance

BKBM—Bank Bill Benchmark (New Zealand)

BOBL—Bundesobligationen

CBT—Chicago Board of Trade

CDX-CMBX.NA—North American CommercialMortgage-Backed Index

CDX-NAHY—North American High Yield Credit Default Swap Index

CMBS—Commercial Mortgage-Backed Securities

CME—Chicago Mercantile Exchange

CPI—Consumer Price Index

GDR—Global Depositary Receipt

INTRCONX—Inter-Continental Exchange

LCH—London Clearing House

LIBOR—London Interbank Offered Rates

PJSC—Public Joint Stock Company

REG—Registered Shares

REIT—Real Estate Investment Trust

REMICs—Real Estate Mortgage Investment Conduits

STIBOR—Stockholm Interbank Offered Rate

TBA—To Be Announced

TIIE—Banco de México Equilibrium Interbank Interest Rate

TIPS—Treasury Inflation Protected Security

See notes to financial statements.

 

27


BALANCED WEALTH STRATEGY PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $273,555,203)

   $ 315,007,285 (a) 

Affiliated issuers (cost $1,855,579—investment of cash collateral for securities loaned)

     1,855,579  

Cash collateral due from broker

     612,145  

Foreign currencies, at value (cost $409,500)

     412,183  

Receivable for investment securities sold and foreign currency transactions

     2,061,573  

Interest and dividends receivable

     954,948  

Unrealized appreciation on forward currency exchange contracts

     488,401  

Upfront premiums paid on credit default swaps

     11,082  

Unrealized appreciation on credit default swaps

     10,984  

Receivable for capital stock sold

     60  
  

 

 

 

Total assets

     321,414,240  
  

 

 

 

LIABILITIES

 

Payable for investment securities purchased and foreign currency transactions

     17,135,866  

Payable for collateral received on securities loaned

     1,855,579  

Unrealized depreciation on forward currency exchange contracts

     338,525  

Upfront premiums received on credit default swaps

     201,496  

Payable for capital stock redeemed

     181,965  

Advisory fee payable

     146,824  

Unrealized depreciation on credit default swaps

     82,946  

Payable for variation margin on exchange-traded derivatives

     64,320  

Distribution fee payable

     60,172  

Administrative fee payable

     12,658  

Payable for newly entered credit default swaps

     3,092  

Transfer Agent fee payable

     81  

Accrued expenses

     251,113  
  

 

 

 

Total liabilities

     20,334,637  
  

 

 

 

NET ASSETS

   $ 301,079,603  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 26,687  

Additional paid-in capital

     241,869,474  

Undistributed net investment income

     7,838,092  

Accumulated net realized gain on investment and foreign currency transactions

     9,530,638  

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     41,814,712  
  

 

 

 
   $ 301,079,603  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $ 29,757,745          2,608,503        $ 11.41  
B      $   271,321,858          24,078,040        $   11.27  

 

 

 

(a)   Includes securities on loan with a value of $1,834,493 (see Note E).

See notes to financial statements.

 

28


BALANCED WEALTH STRATEGY PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $134,306)

   $ 2,355,977  

Affiliated issuers

     1,742  

Interest

     1,633,271  

Other income

     1,123  
  

 

 

 
     3,992,113  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     840,660  

Distribution fee—Class B

     344,161  

Transfer agency—Class A

     320  

Transfer agency—Class B

     2,902  

Custodian

     128,781  

Audit and tax

     42,137  

Administrative

     25,090  

Printing

     22,297  

Legal

     19,610  

Directors’ fees

     13,281  

Miscellaneous

     8,103  
  

 

 

 

Total expenses

     1,447,342  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (457
  

 

 

 

Net expenses

     1,446,885  
  

 

 

 

Net investment income

     2,545,228  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain (loss) on:

  

Investment transactions

     9,121,697  

Futures

     308,200  

Swaptions written

     17,827  

Swaps

     (150,627

Foreign currency transactions

     (608,766

Net change in unrealized appreciation/depreciation of:

  

Investments

     11,923,909  

Futures

     336,621  

Swaptions written

     (9,703

Swaps

     33,083  

Foreign currency denominated assets and liabilities

     293,624  
  

 

 

 

Net gain on investment and foreign currency transactions

     21,265,865  
  

 

 

 

Contributions from Affiliates (see Note B)

     521  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 23,811,614  
  

 

 

 

 

 

See notes to financial statements.

 

29


 
BALANCED WEALTH STRATEGY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

 

Net investment income

   $ 2,545,228     $ 4,823,445  

Net realized gain on investment and foreign currency transactions

     8,688,331       3,164,927  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     12,577,534       5,683,604  

Contributions from Affiliates (see Note B)

     521       30  
  

 

 

   

 

 

 

Net increase in net assets from operations

     23,811,614       13,672,006  

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM

 

Net investment income

 

Class A

     –0 –      (652,050

Class B

     –0 –      (5,122,504

Net realized gain on investment transactions

 

Class A

     –0 –      (2,087,516

Class B

     –0 –      (18,962,700

CAPITAL STOCK TRANSACTIONS

 

Net decrease

     (25,597,192     (15,624,524
  

 

 

   

 

 

 

Total decrease

     (1,785,578     (28,777,288

NET ASSETS

 

Beginning of period

     302,865,181       331,642,469  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $7,838,092 and $5,292,864, respectively)

   $ 301,079,603     $ 302,865,181  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

30


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Balanced Wealth Strategy Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to maximize total return consistent with the determination of AllianceBernstein L.P. (the “Adviser”) of reasonable risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S.

 

31


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.

Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are

 

32


    AB Variable Products Series Fund

 

value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

     Level 1     Level 2     Level 3     Total  

Investments in Securities:

        

Assets:

        

Common Stocks:

        

Information Technology

   $ 31,229,188     $ 5,308,406     $ –0 –    $ 36,537,594  

Real Estate

     19,303,833       10,504,332       –0 –      29,808,165  

Financials

     17,952,957       10,370,200       –0 –      28,323,157  

Health Care

     19,576,370       4,290,297       –0 –      23,866,667  

Consumer Discretionary

     15,519,027       4,949,670       –0 –      20,468,697  

Consumer Staples

     8,764,974       5,518,481       –0 –      14,283,455  

Industrials

     8,357,071       4,114,755       –0 –      12,471,826  

Energy

     6,432,830       2,950,537       –0 –      9,383,367  

Materials

     2,332,799       3,641,283       –0 –      5,974,082  

Telecommunication Services

     1,381,224       3,085,471       –0 –      4,466,695  

Utilities

     3,419,257       454,947       –0 –      3,874,204  

Transportation

     –0 –      617,066       –0 –      617,066  

Banks

     –0 –      212,820       –0 –      212,820  

Mortgage Pass-Throughs

     –0 –      23,451,363       –0 –      23,451,363  

Corporates—Investment Grade

     –0 –      23,408,811       –0 –      23,408,811  

Governments—Treasuries

     –0 –      19,381,148       –0 –      19,381,148  

Asset-Backed Securities

     –0 –      9,383,931       1,152,126       10,536,057  

Commercial Mortgage-Backed Securities

     –0 –      5,014,481       2,617,903       7,632,384  

Inflation-Linked Securities

     –0 –      6,020,034       –0 –      6,020,034  

Collateralized Mortgage Obligations

     –0 –      5,400,994       –0 –      5,400,994  

Corporates—Non-Investment Grade

     –0 –      3,414,928       –0 –      3,414,928  

Emerging Markets—Treasuries

     –0 –      1,124,584       –0 –      1,124,584  

Quasi-Sovereigns

     –0 –      597,612       –0 –      597,612  

Local Governments—US Municipal Bonds

     –0 –      527,074       –0 –      527,074  

Emerging Markets—Corporate Bonds

     –0 –      399,719       –0 –      399,719  

Governments—Sovereign Bonds

     –0 –      273,000       –0 –      273,000  

Short-Term Investments:

        

Agency Discount Notes

     –0 –      9,232,281       –0 –      9,232,281  

Governments—Treasuries

     –0 –      7,079,129       –0 –      7,079,129  

Time Deposits

     –0 –      6,240,372       –0 –      6,240,372  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

     1,855,579       –0 –      –0 –      1,855,579  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

     136,125,109       176,967,726       3,770,029       316,862,864  

 

33


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

     Level 1     Level 2     Level 3     Total  

Other Financial Instruments(a):

        

Assets:

        

Futures

   $ 259,663     $ –0 –    $ –0 –    $ 259,663 (b) 

Forward Currency Exchange Contracts

     –0 –      488,401       –0 –      488,401  

Centrally Cleared Interest Rate Swaps

     –0 –      98,647       –0 –      98,647 (b) 

Credit Default Swaps

     –0 –      10,984       –0 –      10,984  

Liabilities:

        

Futures

     (49,783     –0 –      –0 –      (49,783 )(b) 

Forward Currency Exchange Contracts

     –0 –      (338,525     –0 –      (338,525

Centrally Cleared Credit Default Swaps

     –0 –      (1,668     –0 –      (1,668 )(b) 

Centrally Cleared Interest Rate Swaps

     –0 –      (23,711     –0 –      (23,711 )(b) 

Credit Default Swaps

     –0 –      (82,946     –0 –      (82,946
  

 

 

   

 

 

   

 

 

   

 

 

 

Total(c)

   $ 136,334,989     $ 177,118,908     $ 3,770,029     $ 317,223,926  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(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 de minimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period.

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.

 

     Common
Stocks
    Commercial
Mortgage-
Backed
Securities
    Asset-
Backed
Securities
 

Balance as of 12/31/16

   $ 9,230     $ 4,024,522     $ 828,021  

Accrued discounts/(premiums)

     –0 –      (2,191     267  

Realized gain (loss)

     (36,058     (92,599     4,726  

Change in unrealized appreciation/depreciation

     150,967       72,341       8,243  

Purchases

     –0 –      –0 –      619,715  

Sales

     (124,139     (1,384,170     (308,846

Transfers in to Level 3

     –0 –      –0 –      –0 – 

Transfers out of Level 3

     –0 –      –0 –      –0 – 
  

 

 

   

 

 

   

 

 

 

Balance as of 6/30/17

   $ –0 –    $ 2,617,903     $ 1,152,126  
  

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation
from investments held as of 6/30/17(a)

   $ –0 –    $ 28,028     $ 8,803  
  

 

 

   

 

 

   

 

 

 
     Total              

Balance as of 12/31/16

   $ 4,861,773      

Accrued discounts/(premiums)

     (1,924    

Realized gain (loss)

     (123,931    

Change in unrealized appreciation/depreciation

     231,551      

Purchases

     619,715      

Sales

     (1,817,155    

Transfers in to Level 3

     –0 –     

Transfers out of Level 3

     –0 –     
  

 

 

     

Balance as of 6/30/17

   $ 3,770,029      
  

 

 

     

Net change in unrealized appreciation/depreciation
from investments held as of 6/30/17(a)

   $ 36,831      
  

 

 

     

 

(a)   The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation on investments and other financial instruments in the accompanying statement of operations.

 

34


    AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

35


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

8. Repurchase Agreements

It is the Portfolio’s policy that its custodian or designated subcustodian take control of securities as collateral under repurchase agreements and to determine on a daily basis that the value of such securities are sufficient to cover the value of the repurchase agreements. If the seller defaults and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of collateral by the Portfolio may be delayed or limited.

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .75% and 1.00% of daily average net assets for Class A and Class B shares, respectively. For the six months ended June 30, 2017, there were no expenses waived by the Adviser.

During the six months ended June 30, 2017 and the year ended December 31, 2016, the Adviser reimbursed the Portfolio $521 and $30, respectively, for trading losses incurred due to a trade entry error.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,090.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $53,411, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

 

36


    AB Variable Products Series Fund

 

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases      Sales  

Investment securities (excluding U.S. government securities)

   $ 60,088,672      $ 88,217,347  

U.S. government securities

     98,219,774        92,336,445  

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 (excluding futures, swaps and foreign currency transactions) are as follows:

 

Gross unrealized appreciation

   $ 45,377,197  

Gross unrealized depreciation

     (3,925,115
  

 

 

 

Net unrealized appreciation

   $ 41,452,082  
  

 

 

 

1. Derivative Financial Instruments

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

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

 

   

Futures

The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.

At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.

During the six months ended June 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale

 

37


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.

 

   

Option Transactions

For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.

The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.

When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.

The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.

During the six months ended June 30, 2017, the Portfolio held purchased options for hedging and non-hedging purposes.

During the six months ended June 30, 2017, the Portfolio held written swaptions for hedging and non-hedging purposes.

 

38


    AB Variable Products Series Fund

 

For the six months ended June 30, 2017, the Portfolio had the following transactions in written options:

 

     Notional
Amount
     Premiums
Received
 

Swaptions written outstanding as of 12/31/16

   $ 5,320,000      $ 20,392  

Swaptions written

     8,270,000        8,264  

Swaptions assigned

     –0 –       –0 – 

Swaptions expired

     –0 –       –0 – 

Swaptions bought back

     (13,590,000      (28,656

Swaptions exercised

     –0 –       –0 – 
  

 

 

    

 

 

 

Swaptions written outstanding as of 6/30/17

   $ –0 –     $ –0 – 
  

 

 

    

 

 

 

 

   

Swaps

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

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

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

At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential 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

 

39


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Interest Rate Swaps:

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

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

During the six months ended June 30, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.

Credit Default Swaps:

The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same reference obligation with the same counterparty. As of June 30, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.

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

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

 

40


    AB Variable Products Series Fund

 

credit soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.

During the six months ended June 30, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of
Assets and Liabilities

Location

  Fair Value    

Statement of
Assets and Liabilities

Location

  Fair Value  

Interest rate contracts

  Receivable/Payable for variation margin on exchange-traded derivatives   $ 358,310   Receivable/Payable for variation margin on exchange-traded derivatives   $ 73,494

Credit contracts

      Receivable/Payable for variation margin on exchange-traded derivatives     1,668

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts     488,401     Unrealized depreciation on forward currency exchange contracts     338,525  

Credit contracts

  Unrealized appreciation on credit default swaps     10,984     Unrealized depreciation on credit default swaps     82,946  
   

 

 

     

 

 

 

Total

    $ 857,695       $ 496,633  
   

 

 

     

 

 

 

 

*   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.

 

41


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

 

Derivative Type

  

Location of Gain or (Loss) on Derivatives

Within Statement of Operations

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

Interest rate contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures    $ 308,200     $ 336,621  

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities      (287,017     192,839  

Interest rate contracts

   Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments      (9,796     (1,305

Interest rate contracts

   Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written      17,827       (9,703

Interest rate contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      (71,429     27,287  

Credit contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      (79,198     5,796  
     

 

 

   

 

 

 

Total

      $ (121,413   $ 551,535  
     

 

 

   

 

 

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Futures:

  

Average original value of buy contracts

   $ 35,501,984  

Average original value of sale contracts

   $ 7,103,010  

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 15,458,996  

Average principal amount of sale contracts

   $ 26,911,423  

Purchased Options:

  

Average monthly cost

   $ 9,771 (a) 

Interest Rate Swaps:

  

Average notional amount

   $ 2,822,152  

Centrally Cleared Interest Rate Swaps:

  

Average notional amount

   $ 31,348,313  

Credit Default Swaps:

  

Average notional amount of buy contracts

   $ 384,857  

Average notional amount of sale contracts

   $ 2,344,857  

Centrally Cleared Credit Default Swaps:

  

Average notional amount of buy contracts

   $ 2,240,941  

 

(a)   Positions were open for two months during the period.

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

 

42


    AB Variable Products Series Fund

 

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

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

  $ 55,039     $ (3,662   $ –0 –    $ –0 –    $ 51,377  

Barclays Bank PLC

    555       (555     –0 –      –0 –      –0 – 

BNP Paribas SA

    5,593       (1,463     –0 –      –0 –      4,130  

Brown Brothers Harriman & Co.

    5,880       –0 –      –0 –      –0 –      5,880  

Citibank, NA

    51,497       (51,497     –0 –      –0 –      –0 – 

Credit Suisse International

    10,020       (10,020     –0 –      –0 –      –0 – 

Deutsche Bank AG

    610       (610     –0 –      –0 –      –0 – 

Goldman Sachs Bank USA/Goldman Sachs International

    88,891       (52,119     –0 –      –0 –      36,772  

Morgan Stanley & Co., Inc.

    133,906       –0 –      –0 –      –0 –      133,906  

State Street Bank & Trust Co.

    147,925       (147,925     –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 499,916     $ (267,851   $             –0 –    $             –0 –    $ 232,065
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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:

         

Goldman Sachs & Co.**

  $ 63,652     $ –0 –    $ (63,652   $ –0 –    $ –0 – 

Morgan Stanley & Co., LLC**

    668       –0 –      (668     –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 64,320     $ –0 –    $ (64,320   $ –0 –    $ –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

         

Bank of America, NA

  $ 3,662     $ (3,662   $ –0 –    $ –0 –    $ –0 – 

Barclays Bank PLC

    26,643       (555     –0 –      –0 –      26,088  

BNP Paribas SA

    1,463       (1,463     –0 –      –0 –      –0 – 

Citibank, NA

    51,657       (51,497     –0 –      –0 –      160  

Citigroup Global Markets, Inc.

    13,373       –0 –      –0 –      –0 –      13,373  

Credit Suisse International

    24,736       (10,020     –0 –      –0 –      14,716  

Deutsche Bank AG

    75,672       (610     –0 –      –0 –      75,062  

Goldman Sachs Bank USA/Goldman Sachs International

    179,294       (52,119     –0 –      –0 –      127,175  

JPMorgan Chase Bank, NA

    1,373       –0 –      –0 –      –0 –      1,373  

Royal Bank of Scotland PLC

    57,421       –0 –      –0 –      –0 –      57,421  

State Street Bank & Trust Co.

    177,122       (147,925     –0 –      –0 –      29,197  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

  $ 612,416     $ (267,851   $ –0 –    $             –0 –    $ 344,565
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*   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 June 30, 2017.

 

^   Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive

 

43


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

3. TBA and Dollar Rolls

The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.

The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the six months ended June 30, 2017, the Portfolio earned drop income of $85,720 which is included in interest income in the accompanying statement of operations.

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $1,834,493 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,855,579. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $1,742 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $457. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 655     $ 9,783     $ 8,582     $ 1,856  

 

44


    AB Variable Products Series Fund

 

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    8,000       129,847       $ 88,962     $ 1,429,054  

Shares issued in reinvestment of dividends and distributions

    –0 –      256,995         –0 –      2,739,565  

Shares redeemed

    (258,497     (568,590       (2,867,567     (6,140,574
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (250,497     (181,748     $ (2,778,605   $ (1,971,955
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    410,622       2,276,658       $ 4,484,017     $ 24,482,089  

Shares issued in reinvestment of dividends and distributions

    –0 –      2,282,958         –0 –      24,085,204  

Shares redeemed

    (2,497,300     (5,822,726       (27,302,604     (62,219,862
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (2,086,678     (1,263,110     $ (22,818,587   $ (13,652,569
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 62% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.

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

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

Allocation Risk—The allocation of investments among the different investment styles, such as growth or value, equity or debt securities, or U.S. or non-U.S. securities may have a more significant effect on the Portfolio’s net asset value, or NAV, when one of these investment strategies is performing more poorly than others.

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

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

 

45


BALANCED WEALTH STRATEGY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

Real Estate Risk—The Portfolio’s investments in the real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

     2016      2015  

Distributions paid from:

     

Ordinary income

   $ 5,774,554      $ 9,440,355  

Net long-term capital gains

     21,050,216        29,672,461  
  

 

 

    

 

 

 

Total taxable distributions

   $ 26,824,770      $ 39,112,816  
  

 

 

    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 5,610,925  

Undistributed capital gains

     2,462,051  

Accumulated capital and other losses

     (250 )(a) 

Unrealized appreciation/(depreciation)

     27,299,624 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 35,372,350  
  

 

 

 

 

(a)   As of December 31, 2016, the Portfolio had cumulative deferred losses on straddles of $250.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, partnerships, passive foreign investment companies, the recognition for tax purposes of unrealized gains/losses on certain derivative instruments, and the tax treatment of corporate restructurings.

For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

 

46


    AB Variable Products Series Fund

 

NOTE K: Recent Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.

NOTE L: Subsequent Events

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

 

47


BALANCED WEALTH STRATEGY PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.54       $10.99       $12.16       $13.77       $12.12       $10.90  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .10 (b)      .19 (b)‡      .20       .26       .23       .22  

Net realized and unrealized gain on investment and foreign currency transactions

    .77       .34       .02 †      .71       1.74       1.25  

Contributions from Affiliates

    .00 (c)      .00 (c)      –0 –      .00 (c)      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    .87       .53       .22       .97       1.97       1.47  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.24     (.27     (.39     (.32     (.25

Distributions from net realized gain on investment transactions

    –0 –      (.74     (1.12     (2.19     –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.98     (1.39     (2.58     (.32     (.25
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $11.41       $10.54       $10.99       $12.16       $13.77       $12.12  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    8.25 %*      4.69 %‡      1.65 %*      7.37 %*      16.49     13.63
           

Ratios/Supplemental Data

           

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

    $29,758       $30,132       $33,409       $36,882       $41,222       $41,801  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    .72 %^      .73     .70     .71     .65     .65

Expenses, before waivers/reimbursements

    .72 %^      .73     .70     .71     .65     .65

Net investment income

    1.89 %(b)^      1.74 %(b)‡      1.71     1.96     1.76     1.91

Portfolio turnover rate **

    54     106     132     114     117     90

 

 

See footnote summary on page 49.

 

48


    AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.42       $10.87       $12.05       $13.65       $12.01       $10.80  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .09 (b)      .16 (b)‡      .17       .22       .19       .19  

Net realized and unrealized gain on investment and foreign currency transactions

    .76       .33       .01 †      .71       1.74       1.24  

Contributions from Affiliates

    .00 (c)      .00 (c)      –0 –      .00 (c)      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    .85       .49       .18       .93       1.93       1.43  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.20     (.24     (.34     (.29     (.22

Distributions from net realized gain on investment and foreign currency transactions

    –0 –      (.74     (1.12     (2.19     –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.94     (1.36     (2.53     (.29     (.22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $11.27       $10.42       $10.87       $12.05       $13.65       $12.01  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Return

           

Total investment return based on net asset value (d)

    8.16 %*      4.44 %‡      1.29 %*      7.11 %*      16.27     13.38
           

Ratios/Supplemental Data

           

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

    $271,322       $272,733       $298,233       $328,363       $351,355       $508,141  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    .97 %^      .98     .95     .96     .90     .90

Expenses, before waivers/reimbursements

    .97 %^      .98     .95     .96     .90     .90

Net investment income

    1.64 %(b)^      1.49 %(b)‡      1.46     1.71     1.49     1.67

Portfolio turnover rate**

    54     106     132     114     117     90

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Amount is less than $.005.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  Due to timing of sales and repurchase of capital shares, the net realized and unrealized gain (loss) per share is not in accord with the Portfolio’s change in net realized and unrealized gain (loss) on investment transactions for the period.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per  Share
  Net Investment
Income  Ratio
  Total Return
$.001   .01%   .01%

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2015 and December 31, 2014 by 0.02%, 0.03% and 0.01%, respectively.

 

^   Annualized.

 

**   The Portfolio accounts for dollar roll transactions as purchases and sales.

See notes to financial statements.

 

49


BALANCED WEALTH STRATEGY PORTFOLIO
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Balanced Wealth Strategy Portfolio (the “Fund”) at a meeting held on August 2-3, 2016 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.

The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

 

50


BALANCED WEALTH STRATEGY PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended May 31, 2016 and (in the case of comparisons with the broad-based securities market index) the period since inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors considered the Fund’s contractual effective advisory fee rate against a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The Adviser informed the directors that there were no institutional products managed by it that have a substantially similar investment style. The directors noted that the Adviser advises another AB Fund with a similar investment style for the same fee schedule as the Fund.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted the effects of any fee waivers and/or reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. After reviewing and discussing the Adviser’s explanations of the reasons that the Fund’s expense ratio was above the medians, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

51


 

 

 

 

VPS-BW-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS SERIES FUND, INC.

 

+  

DYNAMIC ASSET ALLOCATION PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
DYNAMIC ASSET ALLOCATION PORTFOLIO
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
    Total
Expenses Paid
During Period+
     Total
Annualized
Expense Ratio+
 

Class A

                

Actual

   $   1,000      $   1,076.50      $   4.12        0.80   $   4.32        0.84

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,020.83      $ 4.01        0.80   $ 4.21        0.84
                

Class B

                

Actual

   $ 1,000      $ 1,074.40      $ 5.40        1.05   $ 5.61        1.09

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.59      $ 5.26        1.05   $ 5.46        1.09

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

+   In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses of the affiliated underlying portfolios. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


DYNAMIC ASSET ALLOCATION PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

SECURITY    U.S. $ VALUE        PERCENT OF NET ASSETS  

U.S. Treasury Bonds & Notes

   $ 171,876,961          29.6

iShares Core MSCI Emerging Markets ETF

     33,597,006          5.8  

SPDR S&P MidCap 400 ETF Trust

     12,917,605          2.2  

Vanguard REIT ETF

     12,833,816          2.2  

Vanguard Global ex-U.S. Real Estate ETF

     8,488,294          1.5  

iShares International Developed Real Estate ETF

     8,355,263          1.4  

Vanguard Small-Cap ETF

     7,027,885          1.2  

Apple, Inc.

     5,370,362          0.9  

Alphabet, Inc.—Class A & Class C

     3,844,983          0.7  

Microsoft Corp.

     3,751,171          0.6  
    

 

 

      

 

 

 
     $   268,063,346          46.1

PORTFOLIO BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

ASSET CLASSES      CURRENT ALLOCATION  

Equities

      

U.S. Large Cap

       20.9

International Large Cap

       26.7  

U.S. Mid-Cap

       2.7  

U.S. Small-Cap

       2.7  

Emerging Market Equities

       5.8  

Real Estate Equities

       5.1  
      

 

 

 

Sub-total

       63.9  
      

 

 

 

Fixed Income

      

U.S. Bonds

       35.1  

International Bonds

       1.0  
      

 

 

 

Sub-total

       36.1  
      

 

 

 

Total

       100.0

 

 

 

(1)   Long-term investments.

 

(2)   All data are as of June 30, 2017. The Portfolio breakdown is expressed as an approximate percentage of the Portfolio’s total investments inclusive of derivative exposure, based on the Adviser’s internal classification guidelines.

 

2


DYNAMIC ASSET ALLOCATION PORTFOLIO
SECURITY TYPE BREAKDOWN(3)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

SECURITY TYPE    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Common Stocks

   $ 293,938,903          50.9

Governments—Treasuries

     171,876,961          29.8  

Investment Companies

     85,859,767          14.9  

Rights

     2,031          0.0  

Short-Term Investments

     25,600,289          4.4  
    

 

 

      

 

 

 

Total Investments

   $   577,277,951          100.0

 

 

 

(3)   The Portfolio’s security type breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details).

 

3


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

COMMON STOCKS–50.6%

   

FINANCIALS–9.1%

   

BANKS–4.9%

   

Aozora Bank Ltd.

    20,000     $ 76,358  

Australia & New Zealand Banking Group Ltd.

    31,095       686,319  

Banco Bilbao Vizcaya Argentaria SA

    70,114       584,046  

Banco de Sabadell SA

    50,635       103,020  

Banco Espirito Santo SA (REG)(a)(b)(c)

    10,016       –0 – 

Banco Santander SA

    155,611       1,033,237  

Bank Hapoalim BM

    14,749       99,455  

Bank Leumi Le-Israel BM

    12,645       61,436  

Bank of America Corp.

    71,245       1,728,404  

Bank of East Asia Ltd. (The)

    21,000       90,257  

Bank of Ireland(a)

    348,125       91,452  

Bank of Kyoto Ltd. (The)

    2,000       18,952  

Bank of Queensland Ltd.

    7,933       69,796  

Bankia SA

    10,963       53,025  

Bankinter SA

    7,353       67,831  

Barclays PLC

    180,209       476,612  

BB&T Corp.

    5,650       256,566  

Bendigo & Adelaide Bank Ltd.

    8,603       73,234  

BNP Paribas SA

    13,908       1,001,274  

BOC Hong Kong Holdings Ltd.

    39,500       189,036  

CaixaBank SA

    42,465       202,999  

Chiba Bank Ltd. (The)

    11,000       80,052  

Citigroup, Inc.

    20,279       1,356,259  

Citizens Financial Group, Inc.

    3,619       129,126  

Comerica, Inc.

    1,200       87,888  

Commerzbank AG(a)

    15,814       188,834  

Commonwealth Bank of Australia

    18,280       1,162,905  

Concordia Financial Group Ltd.

    11,221       56,872  

Credit Agricole SA

    10,706       172,456  

Danske Bank A/S

    7,940       305,476  

DBS Group Holdings Ltd.

    17,000       255,863  

DNB ASA

    9,303       158,381  

Erste Group Bank AG(a)

    3,207       122,843  

Fifth Third Bancorp

    5,340       138,626  

Fukuoka Financial Group, Inc.

    9,000       42,941  

Hachijuni Bank Ltd. (The)

    4,000       25,486  

Hang Seng Bank Ltd.

    8,100       169,453  

Hiroshima Bank Ltd. (The)

    5,000       22,257  

HSBC Holdings PLC

    213,771       1,984,215  

Huntington Bancshares, Inc./OH

    7,565       102,279  

ING Groep NV

    36,740       634,234  

Intesa Sanpaolo SpA

    120,775       384,162  

Japan Post Bank Co., Ltd.

    3,855       49,487  

JPMorgan Chase & Co.

    25,215       2,304,651  

KBC Group NV

    3,064       232,309  

KeyCorp

    7,525       141,018  

Kyushu Financial Group, Inc.

    3,564       22,583  

Lloyds Banking Group PLC

    769,079       662,774  

M&T Bank Corp.

    1,115       180,574  

Mebuki Financial Group, Inc.

    16,800       62,727  

Mediobanca SpA

    12,965       128,263  
   

Mitsubishi UFJ Financial Group, Inc.

    135,900     $ 916,651  

Mizrahi Tefahot Bank Ltd.

    1,057       19,219  

Mizuho Financial Group, Inc.

    253,500       464,786  

National Australia Bank Ltd.

    28,193       641,347  

Natixis SA

    21,759       146,062  

Nordea Bank AB

    28,914       368,261  

Oversea-Chinese Banking Corp., Ltd.

    29,000       227,167  

People’s United Financial, Inc.

    2,165       38,234  

PNC Financial Services Group, Inc. (The)

    3,430       428,304  

Raiffeisen Bank International AG(a)

    1,307       32,991  

Regions Financial Corp.

    8,725       127,734  

Resona Holdings, Inc.

    21,000       116,000  

Royal Bank of Scotland Group PLC(a)

    47,824       154,313  

Seven Bank Ltd.

    16,218       58,149  

Shinsei Bank Ltd.

    37,000       64,815  

Shizuoka Bank Ltd. (The)

    4,000       36,277  

Skandinaviska Enskilda Banken AB–Class A

    16,190       196,006  

Societe Generale SA

    9,446       509,382  

Standard Chartered PLC(a)

    34,982       354,305  

Sumitomo Mitsui Financial Group, Inc.

    14,300       558,336  

Sumitomo Mitsui Trust Holdings, Inc.

    3,200       114,942  

SunTrust Banks, Inc.

    3,490       197,953  

Suruga Bank Ltd.

    1,000       24,320  

Svenska Handelsbanken AB–Class A

    14,254       204,148  

Swedbank AB–Class A

    8,621       210,403  

UniCredit SpA(a)

    17,373       325,418  

United Overseas Bank Ltd.

    12,000       201,464  

US Bancorp

    11,215       582,283  

Wells Fargo & Co.

    31,675       1,755,112  

Westpac Banking Corp.

    35,553       832,436  

Zions Bancorporation

    1,430       62,791  
   

 

 

 
      28,297,912  
   

 

 

 

CAPITAL MARKETS–1.3%

   

3i Group PLC

    9,721       114,295  

Aberdeen Asset Management PLC

    7,603       29,934  

Affiliated Managers Group, Inc.

    407       67,505  

Ameriprise Financial, Inc.

    1,145       145,747  

ASX Ltd.

    1,453       59,865  

Bank of New York Mellon Corp. (The)

    7,415       378,313  

BlackRock, Inc.–Class A

    877       370,454  

CBOE Holdings, Inc.

    646       59,044  

Charles Schwab Corp. (The)

    8,390       360,434  

CME Group, Inc.–Class A

    2,350       294,314  

Credit Suisse Group AG (REG)(a)

    25,000       363,775  

Daiwa Securities Group, Inc.

    16,000       95,275  

 

4


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Deutsche Bank AG (REG)

    19,693     $ 350,137  

Deutsche Boerse AG

    2,077       219,394  

E*TRADE Financial Corp.(a)

    1,870       71,116  

Franklin Resources, Inc.

    2,420       108,392  

Goldman Sachs Group, Inc. (The)

    2,638       585,372  

Hargreaves Lansdown PLC

    2,483       42,105  

Hong Kong Exchanges & Clearing Ltd.

    10,900       281,595  

Intercontinental Exchange, Inc.

    4,330       285,434  

Invesco Ltd.

    2,830       99,588  

Investec PLC

    5,877       43,913  

Japan Exchange Group, Inc.

    4,965       90,278  

Julius Baer Group Ltd.(a)

    2,130       112,541  

London Stock Exchange Group PLC

    3,987       189,651  

Macquarie Group Ltd.

    2,915       198,231  

Moody’s Corp.

    1,145       139,324  

Morgan Stanley

    10,270       457,631  

Nasdaq, Inc.

    760       54,332  

Nomura Holdings, Inc.

    38,855       234,313  

Northern Trust Corp.

    1,460       141,927  

Partners Group Holding AG

    158       98,104  

Raymond James Financial, Inc.

    909       72,920  

S&P Global, Inc.

    1,860       271,541  

Schroders PLC

    1,291       52,203  

Singapore Exchange Ltd.

    21,000       111,919  

State Street Corp.

    2,535       227,466  

T. Rowe Price Group, Inc.

    1,725       128,012  

UBS Group AG(a)

    38,983       662,940  
   

 

 

 
      7,669,334  
   

 

 

 

CONSUMER FINANCE–0.2%

   

Acom Co., Ltd.(a)

    6,200       28,379  

American Express Co.

    5,410       455,738  

Capital One Financial Corp.

    3,513       290,244  

Credit Saison Co., Ltd.

    3,500       68,533  

Discover Financial Services

    2,810       174,754  

Navient Corp.

    2,200       36,630  

Provident Financial PLC

    1,401       44,435  

Synchrony Financial

    5,518       164,547  
   

 

 

 
      1,263,260  
   

 

 

 

DIVERSIFIED FINANCIAL SERVICES–0.7%

   

AMP Ltd.

    28,155       112,345  

Berkshire Hathaway, Inc.–Class B(a)

    13,294       2,251,605  

Challenger Ltd./Australia

    12,809       131,362  

Eurazeo SA

    1,370       102,788  

EXOR NV

    3,679       199,633  

First Pacific Co., Ltd./Hong Kong

    86,660       63,909  

Groupe Bruxelles Lambert SA

    768       73,922  

IHS Markit Ltd.(a)

    2,261       99,574  

Industrivarden AB–Class C

    4,979       119,445  

Investor AB–Class B

    4,336       209,197  

Kinnevik AB

    4,676       143,353  

Leucadia National Corp.

    2,255       58,991  
   

Mitsubishi UFJ Lease & Finance Co., Ltd.

    10,370     $ 56,895  

ORIX Corp.

    14,110       219,549  

Pargesa Holding SA

    346       26,364  

Wendel SA

    844       124,836  
   

 

 

 
      3,993,768  
   

 

 

 

INSURANCE–2.0%

   

Admiral Group PLC

    2,010       52,451  

Aegon NV

    11,109       56,855  

Aflac, Inc.

    2,855       221,776  

Ageas

    1,646       66,286  

AIA Group Ltd.

    128,423       939,589  

Allianz SE (REG)

    4,871       961,253  

Allstate Corp. (The)

    2,600       229,944  

American International Group, Inc.

    7,093       443,454  

Aon PLC

    1,865       247,952  

Arthur J Gallagher & Co.

    1,202       68,815  

Assicurazioni Generali SpA

    11,115       183,466  

Assurant, Inc.

    410       42,513  

Aviva PLC

    43,251       296,674  

Baloise Holding AG (REG)

    926       143,437  

Chubb Ltd.

    3,232       469,868  

Cincinnati Financial Corp.

    1,060       76,797  

CNP Assurances

    4,544       101,995  

Dai-ichi Life Holdings, Inc.

    10,264       186,306  

Direct Line Insurance Group PLC

    13,089       60,609  

Everest Re Group Ltd.

    294       74,849  

Gjensidige Forsikring ASA

    3,690       62,988  

Hannover Rueck SE (REG)

    795       95,490  

Hartford Financial Services Group, Inc. (The)

    2,675       140,625  

Insurance Australia Group Ltd.

    23,145       120,624  

Japan Post Holdings Co., Ltd.

    3,000       37,318  

Legal & General Group PLC

    63,405       213,358  

Lincoln National Corp.

    1,590       107,452  

Loews Corp.

    1,890       88,471  

Mapfre SA

    16,735       58,576  

Marsh & McLennan Cos., Inc.

    3,590       279,876  

Medibank Pvt Ltd.

    39,307       84,633  

MetLife, Inc.

    7,670       421,390  

MS&AD Insurance Group Holdings, Inc.

    4,800       161,898  

Muenchener Rueckversicherungs-Gesellschaft AG in Muenchen (REG)

    1,588       321,336  

NN Group NV

    7,137       253,242  

Old Mutual PLC

    61,153       154,281  

Principal Financial Group, Inc.

    1,840       117,889  

Progressive Corp. (The)

    4,045       178,344  

Prudential Financial, Inc.

    3,065       331,449  

Prudential PLC

    27,421       629,415  

QBE Insurance Group Ltd.

    13,053       118,475  

RSA Insurance Group PLC

    10,859       87,109  

Sampo Oyj–Class A

    4,765       244,471  

SCOR SE

    3,333       132,413  

 

5


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Sompo Holdings, Inc.

    4,000     $ 155,259  

Sony Financial Holdings, Inc.

    4,130       70,631  

St James’s Place PLC

    4,994       76,975  

Standard Life PLC

    22,799       118,555  

Suncorp Group Ltd.

    12,247       139,493  

Swiss Life Holding AG(a)

    342       115,689  

Swiss Re AG

    3,176       291,057  

T&D Holdings, Inc.

    5,500       84,107  

Tokio Marine Holdings, Inc.

    7,300       303,777  

Torchmark Corp.

    752       57,528  

Travelers Cos., Inc. (The)

    2,030       256,856  

Tryg A/S

    2,469       53,995  

UnipolSai Assicurazioni SpA

    4,035       8,852  

Unum Group

    1,620       75,541  

Willis Towers Watson PLC

    887       129,023  

XL Group Ltd.

    1,910       83,658  

Zurich Insurance Group AG

    1,604       468,126  
   

 

 

 
      11,855,134  
   

 

 

 
      53,079,408  
   

 

 

 

INFORMATION TECHNOLOGY–7.1%

   

COMMUNICATIONS EQUIPMENT–0.4%

   

Cisco Systems, Inc.

    35,090       1,098,317  

F5 Networks, Inc.(a)

    480       60,989  

Harris Corp.

    845       92,173  

Juniper Networks, Inc.

    2,640       73,603  

Motorola Solutions, Inc.

    1,145       99,317  

Nokia Oyj

    62,192       381,344  

Telefonaktiebolaget LM Ericsson–Class B

    28,969       208,291  
   

 

 

 
      2,014,034  
   

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.5%

   

Alps Electric Co., Ltd.

    2,053       59,636  

Amphenol Corp.–Class A

    2,150       158,713  

Corning, Inc.

    7,205       216,510  

FLIR Systems, Inc.

    910       31,541  

Hamamatsu Photonics KK

    1,600       49,307  

Hexagon AB–Class B

    4,263       202,534  

Hirose Electric Co., Ltd.

    300       42,931  

Hitachi High-Technologies Corp.

    1,881       73,252  

Hitachi Ltd.

    52,000       320,616  

Ingenico Group SA

    930       84,339  

Keyence Corp.

    1,000       440,228  

Kyocera Corp.

    3,100       180,174  

Murata Manufacturing Co., Ltd.

    2,000       305,332  

Nippon Electric Glass Co., Ltd.

    930       33,917  

Omron Corp.

    1,800       78,353  

Shimadzu Corp.

    2,000       38,110  

TDK Corp.

    1,200       79,322  

TE Connectivity Ltd.

    2,460       193,553  

Yaskawa Electric Corp.

    2,000       42,584  

Yokogawa Electric Corp.

    4,500       72,420  
   

 

 

 
      2,703,372  
   

 

 

 
   

INTERNET SOFTWARE & SERVICES–1.2%

   

Akamai Technologies, Inc.(a)

    1,205     $ 60,021  

Alphabet, Inc.–Class A(a)

    2,089       1,942,102  

Alphabet, Inc.–Class C(a)

    2,094       1,902,881  

eBay, Inc.(a)

    7,285       254,392  

Facebook, Inc.–Class A(a)

    16,237       2,451,462  

Kakaku.com, Inc.

    3,799       54,610  

Mixi, Inc.

    827       46,022  

United Internet AG

    2,321       127,734  

VeriSign, Inc.(a)(d)

    625       58,100  

Yahoo Japan Corp.

    13,553       58,918  
   

 

 

 
      6,956,242  
   

 

 

 

IT SERVICES–1.1%

   

Accenture PLC–Class A

    4,335       536,153  

Alliance Data Systems Corp.

    430       110,377  

Amadeus IT Group SA–Class A

    4,677       279,571  

Atos SE

    677       94,990  

Automatic Data Processing, Inc.

    3,170       324,798  

Capgemini SE

    1,557       160,842  

Cognizant Technology Solutions Corp.–Class A

    4,230       280,872  

Computershare Ltd.

    3,663       39,809  

CSRA, Inc.

    990       31,433  

DXC Technology Co.

    2,018       154,821  

Fidelity National Information Services, Inc.

    2,270       193,858  

Fiserv, Inc.(a)

    1,550       189,627  

Fujitsu Ltd.

    18,000       133,133  

Gartner, Inc.(a)

    640       79,046  

Global Payments, Inc.

    1,059       95,649  

International Business Machines Corp.

    6,076       934,671  

Mastercard, Inc.–Class A

    6,710       814,930  

Nomura Research Institute Ltd.

    1,300       51,358  

NTT Data Corp.

    6,010       67,051  

Obic Co., Ltd.

    730       44,950  

Otsuka Corp.

    600       37,322  

Paychex, Inc.

    2,245       127,830  

PayPal Holdings, Inc.(a)

    7,835       420,504  

Total System Services, Inc.

    1,110       64,658  

Visa, Inc.–Class A

    13,150       1,233,207  

Western Union Co. (The)–Class W

    3,380       64,389  

Worldpay Group PLC(e)

    19,184       78,662  
   

 

 

 
      6,644,511  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–1.1%

   

Advanced Micro Devices, Inc.(a)(d)

    5,483       68,428  

Analog Devices, Inc.

    2,510       195,278  

Applied Materials, Inc.

    7,535       311,271  

ASM Pacific Technology Ltd.

    900       12,143  

ASML Holding NV

    3,784       493,254  

Broadcom Ltd.

    2,775       646,714  

Disco Corp.

    309       49,561  

 

6


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Infineon Technologies AG

    10,766     $ 228,676  

Intel Corp.

    33,040       1,114,769  

KLA-Tencor Corp.

    1,060       97,001  

Lam Research Corp.

    1,129       159,674  

Microchip Technology, Inc.

    1,495       115,384  

Micron Technology, Inc.(a)

    7,220       215,589  

NVIDIA Corp.

    3,735       539,932  

NXP Semiconductors NV(a)

    3,724       407,592  

Qorvo, Inc.(a)

    868       54,962  

QUALCOMM, Inc.

    10,270       567,109  

Rohm Co., Ltd.

    1,300       100,232  

Skyworks Solutions, Inc.

    1,324       127,038  

STMicroelectronics NV

    12,251       176,163  

Texas Instruments, Inc.

    6,975       536,587  

Tokyo Electron Ltd.

    1,689       228,341  

Xilinx, Inc.

    1,735       111,595  
   

 

 

 
      6,557,293  
   

 

 

 

SOFTWARE–1.6%

   

Activision Blizzard, Inc.

    4,755       273,745  

Adobe Systems, Inc.(a)

    3,460       489,383  

ANSYS, Inc.(a)

    612       74,468  

Autodesk, Inc.(a)

    1,375       138,628  

CA, Inc.

    2,185       75,317  

Check Point Software Technologies Ltd.(a)

    1,404       153,148  

Citrix Systems, Inc.(a)

    1,080       85,946  

Dassault Systemes SE

    924       82,874  

Electronic Arts, Inc.(a)

    2,085       220,426  

Gemalto NV

    323       19,373  

Intuit, Inc.

    1,700       225,777  

Konami Holdings Corp.

    1,300       72,365  

LINE Corp.(a)

    873       30,307  

Microsoft Corp.

    54,420       3,751,171  

Mobileye NV(a)

    2,148       134,894  

Nexon Co., Ltd.(a)

    2,595       51,474  

Nice Ltd.

    596       46,957  

Nintendo Co., Ltd.

    1,200       401,750  

Oracle Corp.

    21,000       1,052,940  

Oracle Corp. Japan

    500       32,524  

Red Hat, Inc.(a)

    1,240       118,730  

Sage Group PLC (The)

    12,240       109,682  

salesforce.com, Inc.(a)

    4,484       388,314  

SAP SE

    10,475       1,096,432  

Symantec Corp.

    4,255       120,204  

Synopsys, Inc.(a)

    1,072       78,181  

Trend Micro, Inc./Japan

    1,600       82,693  
   

 

 

 
      9,407,703  
   

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.2%

   

Apple, Inc.

    37,289       5,370,362  

Brother Industries Ltd.

    2,200       50,959  

Canon, Inc.

    11,400       387,775  

FUJIFILM Holdings Corp.

    4,200       151,441  

Hewlett Packard Enterprise Co.

    11,560       191,780  

HP, Inc.

    11,910       208,187  

Konica Minolta, Inc.

    6,000       50,057  
   

NEC Corp.

    25,000     $ 66,460  

NetApp, Inc.

    1,940       77,697  

Ricoh Co., Ltd.

    6,000       53,152  

Seagate Technology PLC(d)

    2,050       79,437  

Seiko Epson Corp.

    2,700       60,243  

Western Digital Corp.

    1,963       173,922  

Xerox Corp.

    1,486       42,693  
   

 

 

 
      6,964,165  
   

 

 

 
      41,247,320  
   

 

 

 

HEALTH CARE–6.4%

   

BIOTECHNOLOGY–0.9%

   

AbbVie, Inc.

    11,366       824,149  

Alexion Pharmaceuticals, Inc.(a)

    1,580       192,239  

Amgen, Inc.

    5,253       904,724  

Biogen, Inc.(a)

    1,565       424,678  

Celgene Corp.(a)

    5,430       705,194  

CSL Ltd.

    4,876       517,488  

Genmab A/S(a)

    540       115,139  

Gilead Sciences, Inc.

    9,215       652,238  

Grifols SA

    2,839       79,154  

Incyte Corp.(a)

    1,240       156,128  

Regeneron Pharmaceuticals, Inc.(a)

    540       265,216  

Vertex Pharmaceuticals, Inc.(a)

    1,707       219,981  
   

 

 

 
      5,056,328  
   

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES–1.0%

   

Abbott Laboratories

    11,976       582,153  

Align Technology, Inc.(a)

    540       81,065  

Baxter International, Inc.

    3,380       204,625  

Becton Dickinson and Co.

    1,487       290,129  

Boston Scientific Corp.(a)

    9,460       262,231  

Cochlear Ltd.

    405       48,372  

Coloplast A/S–Class B

    1,154       96,457  

ConvaTec Group PLC(a)(e)

    12,601       52,388  

Cooper Cos., Inc. (The)

    361       86,431  

CR Bard, Inc.

    515       162,797  

CYBERDYNE, Inc.(a)

    3,189       42,495  

Danaher Corp.

    4,240       357,814  

DENTSPLY SIRONA, Inc.

    1,596       103,485  

Edwards Lifesciences Corp.(a)

    1,490       176,178  

Essilor International SA

    2,369       301,367  

Getinge AB–Class B

    2,013       39,427  

Hologic, Inc.(a)

    1,920       87,130  

Hoya Corp.

    3,900       203,039  

IDEXX Laboratories, Inc.(a)

    633       102,179  

Intuitive Surgical, Inc.(a)

    305       285,288  

Medtronic PLC

    9,659       857,236  

Olympus Corp.

    2,800       102,587  

Smith & Nephew PLC

    9,779       168,868  

Sonova Holding AG (REG)

    666       108,340  

Straumann Holding AG

    132       75,170  

Stryker Corp.

    2,175       301,846  

Sysmex Corp.

    1,500       89,780  

Terumo Corp.

    3,300       130,215  

Varian Medical Systems, Inc.(a)

    645       66,558  

 

7


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

William Demant Holding A/S(a)

    2,050     $ 53,042  

Zimmer Biomet Holdings, Inc.

    1,385       177,834  
   

 

 

 
      5,696,526  
   

 

 

 

HEALTH CARE PROVIDERS & SERVICES–0.9%

   

Aetna, Inc.

    2,467       374,565  

Alfresa Holdings Corp.

    2,700       52,199  

AmerisourceBergen Corp.–Class A

    1,235       116,745  

Anthem, Inc.

    1,850       348,040  

Cardinal Health, Inc.

    2,195       171,034  

Centene Corp.(a)

    1,187       94,818  

Cigna Corp.

    1,815       303,813  

DaVita, Inc.(a)

    1,150       74,474  

Envision Healthcare Corp.(a)

    823       51,577  

Express Scripts Holding Co.(a)

    4,389       280,194  

Fresenius Medical Care AG & Co. KGaA

    2,085       201,195  

Fresenius SE & Co. KGaA

    4,696       403,165  

HCA Healthcare, Inc.(a)

    2,050       178,760  

Healthscope Ltd.

    34,249       58,206  

Henry Schein, Inc.(a)

    570       104,321  

Humana, Inc.

    1,065       256,260  

Laboratory Corp. of America Holdings(a)

    725       111,752  

McKesson Corp.

    1,565       257,505  

Mediclinic International PLC

    3,929       38,005  

Medipal Holdings Corp.

    3,900       72,314  

Miraca Holdings, Inc.

    1,000       45,039  

Patterson Cos., Inc.

    560       26,292  

Quest Diagnostics, Inc.

    950       105,602  

Ramsay Health Care Ltd.

    1,156       65,409  

Ryman Healthcare Ltd.

    3,027       18,389  

Sonic Healthcare Ltd.

    5,598       104,228  

Suzuken Co., Ltd./Aichi Japan

    1,200       39,946  

UnitedHealth Group, Inc.

    6,635       1,230,262  

Universal Health Services, Inc.–Class B

    650       79,352  
   

 

 

 
      5,263,461  
   

 

 

 

HEALTH CARE TECHNOLOGY–0.0%

   

Cerner Corp.(a)

    2,080       138,257  

M3, Inc.

    2,070       57,104  
   

 

 

 
      195,361  
   

 

 

 

LIFE SCIENCES TOOLS & SERVICES–0.2%

   

Agilent Technologies, Inc.

    2,245       133,151  

Illumina, Inc.(a)

    1,011       175,429  

Lonza Group AG (REG)(a)

    779       168,744  

Mettler-Toledo International, Inc.(a)

    220       129,479  

PerkinElmer, Inc.

    755       51,445  

QIAGEN NV(a)

    2,703       89,939  

Thermo Fisher Scientific, Inc.

    2,785       485,899  

Waters Corp.(a)

    545       100,193  
   

 

 

 
      1,334,279  
   

 

 

 
   

PHARMACEUTICALS–3.4%

   

Allergan PLC

    2,400     $ 583,416  

Astellas Pharma, Inc.

    22,500       275,776  

AstraZeneca PLC

    13,478       902,804  

Bayer AG (REG)

    8,814       1,142,383  

Bristol-Myers Squibb Co.

    11,665       649,974  

Chugai Pharmaceutical Co., Ltd.

    2,100       78,678  

Daiichi Sankyo Co., Ltd.

    5,700       134,537  

Eisai Co., Ltd.

    2,400       132,786  

Eli Lilly & Co.

    6,765       556,760  

GlaxoSmithKline PLC

    52,848       1,124,989  

Hikma Pharmaceuticals PLC

    1,367       26,180  

Hisamitsu Pharmaceutical Co., Inc.

    1,000       47,944  

Ipsen SA

    880       120,417  

Johnson & Johnson

    19,105       2,527,400  

Kyowa Hakko Kirin Co., Ltd.

    2,000       37,198  

Mallinckrodt PLC(a)

    724       32,442  

Merck & Co., Inc.

    19,305       1,237,257  

Merck KGaA

    1,230       148,828  

Mitsubishi Tanabe Pharma Corp.

    3,000       69,396  

Mylan NV(a)

    2,555       99,185  

Novartis AG (REG)

    23,800       1,987,933  

Novo Nordisk A/S–Class B

    20,377       875,544  

Ono Pharmaceutical Co., Ltd.

    3,900       85,064  

Orion Oyj–Class B

    974       62,220  

Otsuka Holdings Co., Ltd.

    3,717       158,698  

Perrigo Co. PLC

    1,022       77,181  

Pfizer, Inc.

    42,336       1,422,066  

Recordati SpA

    2,055       83,370  

Roche Holding AG

    7,488       1,913,295  

Sanofi

    12,344       1,182,801  

Santen Pharmaceutical Co., Ltd.

    2,500       33,958  

Shionogi & Co., Ltd.

    2,800       156,122  

Shire PLC

    9,881       544,828  

Sumitomo Dainippon Pharma Co., Ltd.

    2,900       39,585  

Taisho Pharmaceutical Holdings Co., Ltd.

    567       43,202  

Takeda Pharmaceutical Co., Ltd.

    7,600       385,844  

Taro Pharmaceutical Industries Ltd.(a)

    133       14,904  

Teva Pharmaceutical Industries Ltd. (Sponsored ADR)

    9,825       326,387  

UCB SA

    1,203       82,738  

Vifor Pharma AG

    210       23,196  

Zoetis, Inc.

    3,446       214,962  
   

 

 

 
      19,642,248  
   

 

 

 
      37,188,203  
   

 

 

 

INDUSTRIALS–6.3%

   

AEROSPACE & DEFENSE–0.9%

   

Airbus SE

    5,607       462,720  

Arconic, Inc.

    2,756       62,423  

BAE Systems PLC

    33,818       279,177  

Boeing Co. (The)

    4,060       802,865  

 

8


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Cobham PLC

    16,316     $ 27,541  

Dassault Aviation SA

    41       57,298  

Elbit Systems Ltd.

    250       30,839  

General Dynamics Corp.

    2,010       398,181  

L3 Technologies, Inc.

    525       87,717  

Leonardo SpA

    5,271       87,761  

Lockheed Martin Corp.

    1,800       499,698  

Meggitt PLC

    10,854       67,444  

Northrop Grumman Corp.

    1,240       318,320  

Raytheon Co.

    2,050       331,034  

Rockwell Collins, Inc.

    900       94,572  

Rolls-Royce Holdings PLC(a)

    19,591       227,229  

Safran SA

    2,977       273,009  

Singapore Technologies Engineering Ltd.

    43,000       114,877  

Textron, Inc.

    1,855       87,370  

Thales SA

    694       74,691  

TransDigm Group, Inc.

    363       97,600  

United Technologies Corp.

    5,425       662,447  

Zodiac Aerospace

    4,945       134,348  
   

 

 

 
      5,279,161  
   

 

 

 

AIR FREIGHT & LOGISTICS–0.3%

   

Bollore SA

    25,929       117,894  

CH Robinson Worldwide, Inc.

    965       66,276  

Deutsche Post AG (REG)

    9,235       346,666  

Expeditors International of Washington, Inc.

    1,220       68,906  

FedEx Corp.

    1,715       372,721  

Kuehne & Nagel International AG (REG)

    477       79,746  

Royal Mail PLC

    8,567       46,996  

United Parcel Service, Inc.–Class B

    4,855       536,914  

Yamato Holdings Co., Ltd.

    3,400       69,073  
   

 

 

 
      1,705,192  
   

 

 

 

AIRLINES–0.2%

   

Alaska Air Group, Inc.

    843       75,668  

American Airlines Group, Inc.

    3,682       185,278  

ANA Holdings, Inc.

    10,075       35,081  

Delta Air Lines, Inc.

    5,202       279,555  

Deutsche Lufthansa AG (REG)

    3,330       75,889  

easyJet PLC

    2,320       41,099  

International Consolidated Airlines Group SA

    10,420       82,790  

Japan Airlines Co., Ltd.

    900       27,878  

Qantas Airways Ltd.

    24,972       109,766  

Singapore Airlines Ltd.

    14,000       102,889  

Southwest Airlines Co.

    4,305       267,513  

United Continental Holdings, Inc.(a)

    2,022       152,156  
   

 

 

 
      1,435,562  
   

 

 

 

BUILDING PRODUCTS–0.3%

   

Allegion PLC

    635       51,511  

Asahi Glass Co., Ltd.

    2,000       84,466  

Assa Abloy AB–Class B

    9,541       210,297  
   

Cie de Saint-Gobain

    4,539     $ 242,405  

Daikin Industries Ltd.

    2,500       256,480  

Fortune Brands Home & Security, Inc.

    1,071       69,872  

Geberit AG (REG)

    360       168,106  

Johnson Controls International PLC

    5,892       255,477  

LIXIL Group Corp.

    2,500       62,663  

Masco Corp.

    2,305       88,074  

TOTO Ltd.

    1,000       38,315  
   

 

 

 
      1,527,666  
   

 

 

 

COMMERCIAL SERVICES & SUPPLIES–0.2%

   

Babcock International Group PLC

    2,400       27,522  

Brambles Ltd.

    15,030       112,388  

Cintas Corp.

    585       73,733  

Dai Nippon Printing Co., Ltd.

    5,000       55,700  

Edenred

    818       21,338  

G4S PLC

    17,154       72,955  

ISS A/S

    1,785       70,117  

Park24 Co., Ltd.

    1,300       33,080  

Republic Services, Inc.–Class A

    1,600       101,968  

Secom Co., Ltd.

    2,000       152,170  

Societe BIC SA

    891       105,798  

Sohgo Security Services Co., Ltd.

    1,000       45,140  

Stericycle, Inc.(a)

    610       46,555  

Toppan Printing Co., Ltd.

    5,000       54,980  

Waste Management, Inc.

    2,845       208,681  
   

 

 

 
      1,182,125  
   

 

 

 

CONSTRUCTION & ENGINEERING–0.3%

   

ACS Actividades de Construccion y Servicios SA

    2,540       98,206  

Bouygues SA

    1,739       73,264  

CIMIC Group Ltd.

    2,988       89,156  

Eiffage SA

    1,102       100,107  

Ferrovial SA

    4,609       102,381  

Fluor Corp.

    965       44,178  

HOCHTIEF AG

    422       77,470  

Jacobs Engineering Group, Inc.

    815       44,328  

JGC Corp.

    4,000       65,157  

Kajima Corp.

    7,000       59,161  

Obayashi Corp.

    6,000       70,693  

Quanta Services, Inc.(a)

    1,015       33,414  

Shimizu Corp.

    4,000       42,503  

Skanska AB–Class B

    8,587       203,906  

Taisei Corp.

    10,000       91,465  

Vinci SA

    4,768       406,717  
   

 

 

 
      1,602,106  
   

 

 

 

ELECTRICAL EQUIPMENT–0.5%

   

ABB Ltd. (REG)

    20,970       520,499  

Acuity Brands, Inc.

    323       65,659  

AMETEK, Inc.

    1,599       96,851  

 

9


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Eaton Corp. PLC

    3,144     $ 244,698  

Emerson Electric Co.

    4,450       265,309  

Fuji Electric Co., Ltd.

    14,000       74,050  

Gamesa Corp Technologica SA

    2,566       54,901  

Legrand SA

    2,541       177,569  

Mabuchi Motor Co., Ltd.

    800       39,986  

Mitsubishi Electric Corp.

    21,000       303,715  

Nidec Corp.

    2,567       263,733  

OSRAM Licht AG

    678       54,119  

Prysmian SpA

    1,074       31,676  

Rockwell Automation, Inc.

    930       150,623  

Schneider Electric SE (Paris)(a)

    5,314       408,378  

Vestas Wind Systems A/S

    2,133       197,019  
   

 

 

 
      2,948,785  
   

 

 

 

INDUSTRIAL CONGLOMERATES–1.0%

   

3M Co.

    4,255       885,848  

CK Hutchison Holdings Ltd.

    25,840       324,280  

DCC PLC

    843       76,771  

General Electric Co.

    62,559       1,689,719  

Honeywell International, Inc.

    5,305       707,103  

Jardine Matheson Holdings Ltd.

    2,300       147,651  

Jardine Strategic Holdings Ltd.

    2,005       83,583  

Keihan Holdings Co., Ltd.

    5,000       31,818  

Keppel Corp., Ltd.

    13,000       59,367  

Koninklijke Philips NV

    7,299       259,835  

NWS Holdings Ltd.

    37,000       72,767  

Roper Technologies, Inc.

    725       167,859  

Seibu Holdings, Inc.

    3,142       58,217  

Siemens AG (REG)

    8,153       1,121,477  

Smiths Group PLC

    3,761       78,198  

Toshiba Corp.(a)

    38,000       92,052  
   

 

 

 
      5,856,545  
   

 

 

 

MACHINERY–1.1%

   

Alfa Laval AB

    3,611       73,908  

Alstom SA(a)

    3,502       122,309  

Amada Holdings Co., Ltd.

    3,000       34,799  

ANDRITZ AG

    693       41,811  

Atlas Copco AB–Class A

    6,392       245,784  

Atlas Copco AB–Class B

    3,579       123,707  

Caterpillar, Inc.

    4,085       438,974  

CNH Industrial NV

    22,634       256,686  

Cummins, Inc.

    1,100       178,442  

Deere & Co.

    2,035       251,506  

Dover Corp.

    1,085       87,039  

FANUC Corp.

    2,100       406,446  

Flowserve Corp.

    910       42,251  

Fortive Corp.

    2,070       131,135  

GEA Group AG

    1,741       71,487  

Hino Motors Ltd.

    6,000       66,993  

Hitachi Construction Machinery Co., Ltd.

    3,000       75,468  

Hoshizaki Corp.

    400       36,292  

IHI Corp.(a)

    26,000       88,852  

Illinois Tool Works, Inc.

    2,225       318,731  

IMI PLC

    4,517       70,353  

Ingersoll-Rand PLC

    1,805       164,959  
   

JTEKT Corp.

    4,300     $ 63,276  

Kawasaki Heavy Industries Ltd.

    9,000       26,790  

Komatsu Ltd.

    9,800       251,541  

Kone Oyj–Class B

    3,593       182,794  

Kubota Corp.

    10,000       169,028  

Kurita Water Industries Ltd.

    1,200       32,825  

Makita Corp.

    2,200       81,475  

MAN SE

    1,273       136,522  

Metso Oyj

    1,073       37,231  

MINEBEA MITSUMI, Inc.

    7,000       113,204  

Mitsubishi Heavy Industries Ltd.

    31,000       127,632  

Nabtesco Corp.

    1,000       29,164  

NGK Insulators Ltd.

    2,000       40,096  

NSK Ltd.

    4,719       59,383  

PACCAR, Inc.

    2,410       159,156  

Parker-Hannifin Corp.

    945       151,030  

Pentair PLC

    1,160       77,186  

Sandvik AB

    12,165       191,529  

Schindler Holding AG

    413       87,561  

Schindler Holding AG (REG)

    575       119,519  

SKF AB–Class B

    4,700       95,440  

SMC Corp./Japan

    600       183,415  

Snap-on, Inc.

    420       66,360  

Stanley Black & Decker, Inc.

    1,065       149,878  

Sumitomo Heavy Industries Ltd.

    6,000       39,814  

THK Co., Ltd.

    3,100       88,348  

Volvo AB–Class B

    14,676       250,279  

Wartsila Oyj Abp

    1,408       83,265  

Weir Group PLC (The)

    2,037       45,975  

Xylem, Inc./NY

    1,235       68,456  
   

 

 

 
      6,536,104  
   

 

 

 

MARINE–0.1%

   

AP Moller–Maersk A/S–Class A

    70       133,566  

AP Moller–Maersk A/S–Class B

    68       136,919  

Mitsui OSK Lines Ltd.

    12,000       35,435  

Nippon Yusen KK(a)

    31,000       57,954  
   

 

 

 
      363,874  
   

 

 

 

PROFESSIONAL SERVICES–0.4%

   

Adecco Group AG (REG)

    1,673       127,453  

Bureau Veritas SA

    3,094       68,487  

Capita PLC

    6,326       57,007  

Equifax, Inc.

    855       117,494  

Experian PLC

    10,230       209,948  

Intertek Group PLC

    1,536       84,380  

Nielsen Holdings PLC

    2,316       89,536  

Randstad Holding NV

    1,613       94,040  

Recruit Holdings Co., Ltd.

    11,748       202,182  

RELX NV

    15,125       311,829  

RELX PLC

    11,663       252,119  

Robert Half International, Inc.

    885       42,418  

SGS SA (REG)

    52       126,084  

Verisk Analytics, Inc.–Class A(a)

    1,100       92,807  

Wolters Kluwer NV

    5,568       235,487  
   

 

 

 
      2,111,271  
   

 

 

 

 

10


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

ROAD & RAIL–0.5%

   

Aurizon Holdings Ltd.

    22,082     $ 90,954  

Central Japan Railway Co.

    1,537       251,018  

CSX Corp.

    6,560       357,914  

DSV A/S

    1,630       100,121  

East Japan Railway Co.

    3,600       344,866  

Hankyu Hanshin Holdings, Inc.

    2,200       79,256  

JB Hunt Transport Services, Inc.

    603       55,102  

Kansas City Southern

    770       80,580  

Keikyu Corp.

    4,000       48,241  

Keio Corp.

    6,000       50,293  

Keisei Electric Railway Co., Ltd.

    1,000       26,763  

Kintetsu Group Holdings Co., Ltd.

    17,000       65,587  

Kyushu Railway Co.

    1,722       55,852  

MTR Corp., Ltd.

    15,500       87,224  

Nagoya Railroad Co., Ltd.

    9,000       41,995  

Nippon Express Co., Ltd.

    12,000       75,302  

Norfolk Southern Corp.

    2,040       248,268  

Odakyu Electric Railway Co., Ltd.

    3,000       60,632  

Tobu Railway Co., Ltd.

    6,000       32,781  

Tokyu Corp.

    10,000       76,416  

Union Pacific Corp.

    5,800       631,678  

West Japan Railway Co.

    1,568       110,945  
   

 

 

 
      2,971,788  
   

 

 

 

TRADING COMPANIES & DISTRIBUTORS–0.3%

   

AerCap Holdings NV(a)

    1,608       74,660  

Ashtead Group PLC

    4,791       99,138  

Brenntag AG

    1,471       85,309  

Bunzl PLC

    3,191       95,131  

Fastenal Co.

    1,980       86,190  

ITOCHU Corp.

    16,000       238,223  

Marubeni Corp.

    16,000       103,659  

MISUMI Group, Inc.

    2,900       66,467  

Mitsubishi Corp.

    16,100       338,438  

Mitsui & Co., Ltd.

    18,200       260,548  

Sumitomo Corp.

    11,300       147,354  

Toyota Tsusho Corp.

    2,300       69,151  

Travis Perkins PLC

    2,972       56,340  

United Rentals, Inc.(a)

    600       67,626  

Wolseley PLC

    3,100       190,271  

WW Grainger, Inc.

    380       68,601  
   

 

 

 
      2,047,106  
   

 

 

 

TRANSPORTATION INFRASTRUCTURE–0.2%

   

Abertis Infraestructuras SA

    6,861       127,179  

Aena SA(e)

    643       125,561  

Aeroports de Paris

    1,000       161,193  

Atlantia SpA

    176       4,951  

Auckland International Airport Ltd.

    10,521       54,974  

Groupe Eurotunnel SE (REG)

    6,892       73,534  

Hutchison Port Holdings Trust–Class U

    43,553       18,712  
   

Japan Airport Terminal Co., Ltd.

    1,200     $ 46,068  

Kamigumi Co., Ltd.

    3,000       31,536  

Sydney Airport

    15,829       86,225  

Transurban Group

    19,376       176,465  
   

 

 

 
      906,398  
   

 

 

 
      36,473,683  
   

 

 

 

CONSUMER DISCRETIONARY–6.2%

   

AUTO COMPONENTS–0.4%

   

Aisin Seiki Co., Ltd.

    1,800       92,532  

BorgWarner, Inc.

    1,380       58,457  

Bridgestone Corp.

    6,900       298,298  

Cie Generale des Etablissements Michelin–Class B

    1,732       230,519  

Continental AG

    1,047       226,497  

Delphi Automotive PLC

    1,891       165,746  

Denso Corp.

    5,200       220,678  

GKN PLC

    16,316       69,303  

Goodyear Tire & Rubber Co. (The)

    1,810       63,278  

Koito Manufacturing Co., Ltd.

    1,000       51,710  

NGK Spark Plug Co., Ltd.

    3,000       64,261  

NOK Corp.

    2,800       59,443  

Nokian Renkaat Oyj

    1,090       45,119  

Stanley Electric Co., Ltd.

    1,600       48,488  

Sumitomo Electric Industries Ltd.

    7,200       111,387  

Sumitomo Rubber Industries Ltd.

    4,100       69,436  

Toyota Industries Corp.

    1,600       84,624  

Valeo SA

    2,277       153,194  

Yokohama Rubber Co., Ltd. (The)

    1,000       20,159  
   

 

 

 
      2,133,129  
   

 

 

 

AUTOMOBILES–1.0%

   

Bayerische Motoren Werke AG

    3,152       293,159  

Daimler AG (REG)

    10,262       744,289  

Ferrari NV

    1,527       131,400  

Fiat Chrysler Automobiles NV(a)

    14,140       149,383  

Ford Motor Co.

    27,220       304,592  

General Motors Co.

    9,916       346,366  

Harley-Davidson, Inc.

    1,250       67,525  

Honda Motor Co., Ltd.

    18,521       507,439  

Isuzu Motors Ltd.

    5,500       68,296  

Mazda Motor Corp.

    5,200       73,054  

Mitsubishi Motors Corp.

    11,400       75,390  

Nissan Motor Co., Ltd.

    26,300       262,604  

Peugeot SA

    7,475       148,974  

Porsche Automobil Holding SE (Preference Shares)

    1,458       82,043  

Renault SA

    1,830       165,570  

Subaru Corp.

    6,000       203,448  

Suzuki Motor Corp.

    3,500       166,733  

Toyota Motor Corp.

    28,500       1,498,059  

Volkswagen AG

    630       97,849  

 

11


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Volkswagen AG (Preference Shares)

    1,767     $ 269,919  

Yamaha Motor Co., Ltd.

    2,700       70,063  
   

 

 

 
      5,726,155  
   

 

 

 

DISTRIBUTORS–0.0%

   

Genuine Parts Co.

    1,060       98,326  

Jardine Cycle & Carriage Ltd.

    2,000       64,393  

LKQ Corp.(a)

    2,114       69,656  
   

 

 

 
      232,375  
   

 

 

 

DIVERSIFIED CONSUMER SERVICES–0.0%

   

Benesse Holdings, Inc.

    300       11,341  

H&R Block, Inc.

    1,520       46,983  
   

 

 

 
      58,324  
   

 

 

 

HOTELS, RESTAURANTS & LEISURE–0.9%

   

Accor SA

    2,705       126,889  

Aristocrat Leisure Ltd.

    4,876       84,535  

Carnival Corp.

    2,985       195,726  

Carnival PLC

    2,273       150,299  

Chipotle Mexican Grill, Inc.–Class A(a)(d)

    244       101,528  

Compass Group PLC

    16,837       355,378  

Crown Resorts Ltd.

    9,430       89,000  

Darden Restaurants, Inc.

    870       78,683  

Domino’s Pizza Enterprises Ltd.

    823       32,933  

Galaxy Entertainment Group Ltd.

    20,155       122,327  

Genting Singapore PLC

    92,000       72,484  

Hilton Worldwide Holdings, Inc.

    1,466       90,672  

InterContinental Hotels Group PLC

    2,053       114,010  

Marriott International, Inc./MD–Class A

    2,231       223,792  

McDonald’s Corp.

    5,980       915,897  

McDonald’s Holdings Co. Japan Ltd.

    2,200       84,395  

Melco Resorts & Entertainment Ltd. (ADR)

    2,651       59,515  

Merlin Entertainments PLC(e)

    6,755       42,285  

Oriental Land Co., Ltd./Japan

    2,100       142,328  

Paddy Power Betfair PLC

    1,060       113,162  

Royal Caribbean Cruises Ltd.

    1,177       128,564  

Sands China Ltd.

    39,744       181,930  

Sodexo SA

    1,005       129,889  

Starbucks Corp.

    10,220       595,928  

Tatts Group Ltd.

    15,121       48,575  

TUI AG

    6,938       101,141  

Whitbread PLC

    1,737       89,767  

Wyndham Worldwide Corp.

    750       75,307  

Wynn Macau Ltd.

    77,455       180,863  

Wynn Resorts Ltd.

    560       75,107  

Yum! Brands, Inc.

    2,545       187,719  
   

 

 

 
      4,990,628  
   

 

 

 
   

HOUSEHOLD DURABLES–0.4%

   

Auto Trader Group PLC(e)

    9,529     $ 47,181  

Barratt Developments PLC

    9,541       70,072  

Berkeley Group Holdings PLC

    1,236       51,973  

Casio Computer Co., Ltd.

    2,100       32,366  

DR Horton, Inc.

    2,355       81,412  

Electrolux AB–Class B

    2,430       79,683  

Garmin Ltd.

    770       39,293  

Husqvarna AB–Class B

    8,194       81,450  

Iida Group Holdings Co., Ltd.

    1,346       22,467  

Leggett & Platt, Inc.

    925       48,590  

Lennar Corp.–Class A

    1,300       69,316  

Mohawk Industries, Inc.(a)

    450       108,760  

Newell Brands, Inc.

    3,355       179,895  

Nikon Corp.

    3,200       51,293  

Panasonic Corp.

    23,500       320,194  

Persimmon PLC

    2,928       85,517  

PulteGroup, Inc.

    2,135       52,372  

Rinnai Corp.

    700       65,398  

SEB SA

    241       43,257  

Sekisui Chemical Co., Ltd.

    4,000       71,774  

Sekisui House Ltd.

    6,000       106,042  

Sharp Corp./Japan(a)

    15,000       55,601  

Sony Corp.

    13,500       514,940  

Taylor Wimpey PLC

    31,025       71,247  

Whirlpool Corp.

    550       105,391  
   

 

 

 
      2,455,484  
   

 

 

 

INTERNET & DIRECT MARKETING RETAIL–0.7%

   

Amazon.com, Inc.(a)

    2,762       2,673,616  

Expedia, Inc.

    832       123,926  

Netflix, Inc.(a)

    2,982       445,541  

Priceline Group, Inc. (The)(a)

    347       649,071  

Rakuten, Inc.

    8,852       104,462  

Start Today Co., Ltd.

    2,592       63,879  

TripAdvisor, Inc.(a)(d)

    762       29,108  

Zalando SE(a)(e)

    2,021       92,414  
   

 

 

 
      4,182,017  
   

 

 

 

LEISURE PRODUCTS–0.1%

   

Bandai Namco Holdings, Inc.

    1,900       64,918  

Hasbro, Inc.

    800       89,208  

Mattel, Inc.

    2,335       50,273  

Sankyo Co., Ltd.

    300       10,191  

Sega Sammy Holdings, Inc.

    2,500       33,705  

Shimano, Inc.

    700       111,145  

Yamaha Corp.

    1,600       55,390  
   

 

 

 
      414,830  
   

 

 

 

MEDIA–1.1%

   

Altice NV–Class A(a)

    3,528       81,283  

Altice NV–Class B(a)

    1,176       27,125  

Axel Springer SE

    2,191       131,791  

CBS Corp.–Class B

    2,840       181,135  

Charter Communications, Inc.–Class A(a)

    1,523       513,023  

 

12


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Comcast Corp.–Class A

    33,502     $ 1,303,898  

Dentsu, Inc.

    2,100       100,743  

Discovery Communications, Inc.–Class A(a)

    1,045       26,992  

Discovery Communications, Inc.–Class C(a)

    1,545       38,949  

DISH Network Corp.–Class A(a)

    1,475       92,571  

Eutelsat Communications SA

    3,140       80,117  

Hakuhodo DY Holdings, Inc.

    2,490       33,161  

Interpublic Group of Cos., Inc. (The)

    2,795       68,757  

ITV PLC

    34,542       81,763  

JCDecaux SA

    189       6,197  

Lagardere SCA

    2,184       68,914  

News Corp.–Class A

    2,658       36,415  

News Corp.–Class B

    817       11,561  

Omnicom Group, Inc.

    1,660       137,614  

Pearson PLC

    7,821       70,420  

ProSiebenSat.1 Media SE

    1,328       55,709  

Publicis Groupe SA

    1,801       134,234  

REA Group Ltd.

    1,002       51,123  

RTL Group SA (London)(a)

    1,166       88,161  

Schibsted ASA–Class B

    2,252       49,813  

Scripps Networks Interactive, Inc.–Class A

    670       45,768  

SES SA

    4,651       108,958  

Singapore Press Holdings Ltd.

    6,000       14,078  

Sky PLC

    13,314       172,431  

Telenet Group Holding NV(a)

    459       28,915  

Time Warner, Inc.

    5,445       546,732  

Toho Co., Ltd./Tokyo

    1,000       30,840  

Twenty-First Century Fox, Inc.–Class A

    7,421       210,311  

Twenty-First Century Fox, Inc.–Class B

    3,367       93,838  

Viacom, Inc.–Class B

    2,410       80,904  

Vivendi SA

    11,072       246,545  

Walt Disney Co. (The)

    10,314       1,095,862  

WPP PLC

    13,761       289,761  
   

 

 

 
      6,436,412  
   

 

 

 

MULTILINE RETAIL–0.2%

   

Dollar General Corp.

    1,820       131,204  

Dollar Tree, Inc.(a)

    1,638       114,529  

Don Quijote Holdings Co., Ltd.

    1,000       37,995  

Isetan Mitsukoshi Holdings Ltd.

    2,200       22,133  

J Front Retailing Co., Ltd.

    3,500       53,937  

Kohl’s Corp.

    1,230       47,564  

Macy’s, Inc.

    2,105       48,920  

Marks & Spencer Group PLC

    15,442       67,020  

Marui Group Co., Ltd.

    3,300       48,760  

Next PLC

    1,363       68,455  

Nordstrom, Inc.(d)

    770       36,829  

Ryohin Keikaku Co., Ltd.

    257       64,322  

Target Corp.

    4,025       210,467  
   

 

 

 
      952,135  
   

 

 

 
   

SPECIALTY RETAIL–0.8%

   

ABC-Mart, Inc.

    500     $ 29,466  

Advance Auto Parts, Inc.

    531       61,909  

AutoNation, Inc.(a)(d)

    435       18,340  

AutoZone, Inc.(a)

    225       128,353  

Bed Bath & Beyond, Inc.

    1,045       31,768  

Best Buy Co., Inc.

    1,900       108,927  

CarMax, Inc.(a)

    1,320       83,239  

Dixons Carphone PLC

    16,194       59,864  

Fast Retailing Co., Ltd.

    500       167,212  

Foot Locker, Inc.

    942       46,422  

Gap, Inc. (The)

    1,505       33,095  

Hennes & Mauritz AB–Class B

    9,038       225,336  

Hikari Tsushin, Inc.

    500       52,678  

Home Depot, Inc. (The)

    8,630       1,323,842  

Industria de Diseno Textil SA

    11,626       446,496  

Kingfisher PLC

    29,522       115,635  

L Brands, Inc.

    1,685       90,805  

Lowe’s Cos., Inc.

    6,090       472,158  

Nitori Holdings Co., Ltd.

    750       100,397  

O’Reilly Automotive, Inc.(a)

    690       150,931  

Ross Stores, Inc.

    2,750       158,757  

Shimamura Co., Ltd.

    200       24,518  

Signet Jewelers Ltd.

    508       32,126  

Staples, Inc.

    4,515       45,466  

Tiffany & Co.

    755       70,872  

TJX Cos., Inc. (The)

    4,570       329,817  

Tractor Supply Co.

    915       49,602  

Ulta Salon Cosmetics & Fragrance, Inc.(a)

    402       115,511  

USS Co., Ltd.

    4,120       82,116  

Yamada Denki Co., Ltd.

    10,990       54,643  
   

 

 

 
      4,710,301  
   

 

 

 

TEXTILES, APPAREL & LUXURY GOODS–0.6%

   

adidas AG

    1,792       343,614  

Burberry Group PLC

    4,236       91,662  

Christian Dior SE

    581       166,129  

Cie Financiere Richemont SA (REG)

    5,585       462,152  

Coach, Inc.

    1,930       91,366  

Hanesbrands, Inc.(d)

    2,627       60,841  

Hermes International

    281       138,807  

HUGO BOSS AG

    1,317       92,325  

Kering

    721       245,509  

Li & Fung Ltd.

    48,000       17,458  

Luxottica Group SpA

    1,559       90,746  

LVMH Moet Hennessy Louis Vuitton SE

    2,973       743,414  

Michael Kors Holdings Ltd.(a)

    1,159       42,014  

NIKE, Inc.–Class B

    9,420       555,780  

Pandora A/S

    1,106       103,217  

PVH Corp.

    545       62,402  

Ralph Lauren Corp.

    390       28,782  

Swatch Group AG (The)

    294       108,740  

Swatch Group AG (The) (REG)

    1,834       133,978  

 

13


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Under Armour, Inc.–
Class A(a)(d)

    1,247     $ 27,135  

Under Armour, Inc.–
Class C(a)(d)

    1,254       25,281  

VF Corp.

    2,310       133,056  
   

 

 

 
      3,764,408  
   

 

 

 
      36,056,198  
   

 

 

 

CONSUMER STAPLES–5.2%

   

BEVERAGES–1.1%

   

Anheuser-Busch InBev SA/NV

    8,118       896,621  

Asahi Group Holdings Ltd.

    3,700       139,343  

Brown-Forman Corp.–Class B

    1,254       60,944  

Carlsberg A/S–Class B

    1,051       112,315  

Coca-Cola Amatil Ltd.

    8,031       56,989  

Coca-Cola Bottlers Japan, Inc.

    1,300       37,642  

Coca-Cola Co. (The)

    27,130       1,216,781  

Coca-Cola European Partners PLC

    2,055       83,263  

Coca-Cola HBC AG(a)

    1,928       56,701  

Constellation Brands, Inc.–Class A

    1,270       246,037  

Diageo PLC

    26,828       792,814  

Dr Pepper Snapple Group, Inc.

    1,270       115,710  

Heineken Holding NV

    1,000       91,660  

Heineken NV

    4,780       464,781  

Kirin Holdings Co., Ltd.

    9,345       190,625  

Molson Coors Brewing Co.–Class B

    1,300       112,242  

Monster Beverage Corp.(a)

    2,880       143,078  

PepsiCo, Inc.

    10,075       1,163,562  

Pernod Ricard SA

    2,021       270,626  

Remy Cointreau SA

    195       22,730  

Suntory Beverage & Food Ltd.

    1,324       61,541  

Treasury Wine Estates Ltd.

    6,024       60,914  
   

 

 

 
      6,396,919  
   

 

 

 

FOOD & STAPLES RETAILING–0.9%

   

Aeon Co., Ltd.

    6,200       94,300  

Carrefour SA

    5,903       149,239  

Casino Guichard Perrachon SA

    1,228       72,727  

Colruyt SA

    862       45,400  

Costco Wholesale Corp.

    3,065       490,185  

CVS Health Corp.

    7,430       597,818  

Distribuidora Internacional de Alimentacion SA

    8,219       51,290  

FamilyMart UNY Holdings Co., Ltd.

    800       45,813  

ICA Gruppen AB

    2,462       91,714  

J Sainsbury PLC

    18,022       59,113  

Jeronimo Martins SGPS SA

    2,405       46,955  

Koninklijke Ahold Delhaize NV

    9,852       188,047  

Kroger Co. (The)

    6,580       153,446  

Lawson, Inc.

    600       41,990  

METRO AG

    3,266       110,332  

Seven & i Holdings Co., Ltd.

    8,000       330,116  

Sundrug Co., Ltd.

    1,000       37,302  
   

Sysco Corp.

    3,555     $ 178,923  

Tesco PLC(a)

    87,120       191,806  

Tsuruha Holdings, Inc.

    600       63,758  

Wal-Mart Stores, Inc.

    10,563       799,408  

Walgreens Boots Alliance, Inc.

    5,945       465,553  

Wesfarmers Ltd.

    12,002       370,082  

Whole Foods Market, Inc.

    2,220       93,484  

Wm Morrison Supermarkets PLC

    29,345       92,168  

Woolworths Ltd.

    14,003       274,865  
   

 

 

 
      5,135,834  
   

 

 

 

FOOD PRODUCTS–1.2%

 

Ajinomoto Co., Inc.

    5,000       108,121  

Archer-Daniels-Midland Co.

    4,015       166,141  

Associated British Foods PLC

    3,965       151,730  

Barry Callebaut AG (REG)(a)

    91       125,263  

Calbee, Inc.

    1,315       51,723  

Campbell Soup Co.

    1,325       69,099  

Chocoladefabriken Lindt & Spruengli AG (REG)

    1       69,729  

Conagra Brands, Inc.

    2,885       103,168  

Danone SA

    6,291       472,187  

General Mills, Inc.

    4,135       229,079  

Hershey Co. (The)

    1,000       107,370  

Hormel Foods Corp.

    1,850       63,103  

JM Smucker Co. (The)

    795       94,072  

Kellogg Co.

    1,765       122,597  

Kerry Group PLC–Class A

    1,906       163,989  

Kikkoman Corp.

    1,000       31,988  

Kraft Heinz Co. (The)

    4,178       357,804  

Marine Harvest ASA(a)

    4,327       74,031  

McCormick & Co., Inc./MD

    825       80,446  

MEIJI Holdings Co., Ltd.

    1,100       89,198  

Mondelez International, Inc.–Class A

    10,835       467,964  

Nestle SA (REG)

    33,982       2,963,830  

NH Foods Ltd.

    1,866       56,764  

Nisshin Seifun Group, Inc.

    4,000       65,758  

Nissin Foods Holdings Co., Ltd.

    1,200       75,035  

Orkla ASA

    10,095       102,606  

Tate & Lyle PLC

    4,440       38,266  

Toyo Suisan Kaisha Ltd.

    1,000       38,366  

Tyson Foods, Inc.–Class A

    2,075       129,957  

WH Group Ltd.(e)

    67,807       68,469  

Wilmar International Ltd.

    26,000       63,241  

Yakult Honsha Co., Ltd.

    800       54,530  

Yamazaki Baking Co., Ltd.

    2,000       39,874  
   

 

 

 
      6,895,498  
   

 

 

 

HOUSEHOLD PRODUCTS–0.7%

   

Church & Dwight Co., Inc.

    1,776       92,139  

Clorox Co. (The)

    920       122,581  

Colgate-Palmolive Co.

    6,200       459,606  

Essity AB(a)

    4,979       136,225  

Henkel AG & Co. KGaA

    989       119,802  

Henkel AG & Co. KGaA (Preference Shares)

    1,696       233,868  

 

14


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Kimberly-Clark Corp.

    2,515     $ 324,712  

Lion Corp.

    2,000       41,484  

Procter & Gamble Co. (The)

    18,170       1,583,515  

Reckitt Benckiser Group PLC

    7,158       725,628  

Unicharm Corp.

    3,800       95,669  
   

 

 

 
      3,935,229  
   

 

 

 

PERSONAL PRODUCTS–0.5%

   

Beiersdorf AG

    1,051       110,546  

Coty, Inc.–Class A

    3,262       61,195  

Estee Lauder Cos., Inc. (The)–Class A

    1,540       147,809  

Kao Corp.

    5,400       321,075  

Kose Corp.

    500       54,835  

L’Oreal SA

    2,700       562,989  

Pola Orbis Holdings, Inc.

    1,800       47,622  

Shiseido Co., Ltd.

    3,600       128,331  

Unilever NV

    15,507       856,014  

Unilever PLC

    13,679       740,278  
   

 

 

 
      3,030,694  
   

 

 

 

TOBACCO–0.8%

 

Altria Group, Inc.

    13,660       1,017,260  

British American Tobacco PLC

    20,151       1,373,147  

Imperial Brands PLC

    10,218       459,167  

Japan Tobacco, Inc.

    11,724       412,076  

Philip Morris International, Inc.

    10,850       1,274,333  

Reynolds American, Inc.

    5,748       373,850  

Swedish Match AB

    2,884       101,606  
   

 

 

 
      5,011,439  
   

 

 

 
      30,405,613  
   

 

 

 

ENERGY–2.7%

 

ENERGY EQUIPMENT & SERVICES–0.3%

   

Baker Hughes, Inc.

    2,960       161,350  

Halliburton Co.

    5,990       255,833  

Helmerich & Payne, Inc.

    735       39,940  

National Oilwell Varco, Inc.

    2,605       85,809  

Petrofac Ltd.

    8,198       47,138  

Saipem SpA(a)

    18,421       68,216  

Schlumberger Ltd.

    9,700       638,648  

TechnipFMC PLC(a)

    3,318       90,250  

Tenaris SA

    4,501       70,277  

Transocean Ltd.(a)

    2,350       19,340  
   

 

 

 
      1,476,801  
   

 

 

 

OIL, GAS & CONSUMABLE FUELS–2.4%

   

Anadarko Petroleum Corp.

    3,795       172,065  

Apache Corp.

    2,645       126,775  

BP PLC

    210,515       1,215,129  

Cabot Oil & Gas Corp.

    3,240       81,259  

Caltex Australia Ltd.

    3,100       75,278  

Chesapeake Energy Corp.(a)(d)

    5,195       25,819  

Chevron Corp.

    13,180       1,375,069  

Cimarex Energy Co.

    677       63,645  

Concho Resources, Inc.(a)

    1,007       122,381  

ConocoPhillips

    8,620       378,935  
   

Devon Energy Corp.

    3,620     $ 115,731  

Enagas SA

    2,159       60,591  

Eni SpA

    24,216       363,915  

EOG Resources, Inc.

    3,860       349,407  

EQT Corp.

    1,190       69,722  

Exxon Mobil Corp.

    30,310       2,446,926  

Galp Energia SGPS SA

    5,341       80,936  

Hess Corp.

    1,840       80,721  

Idemitsu Kosan Co., Ltd.

    1,200       34,138  

Inpex Corp.

    9,048       87,363  

JXTG Holdings, Inc.

    32,750       143,298  

Kinder Morgan, Inc./DE

    13,389       256,533  

Koninklijke Vopak NV

    502       23,262  

Lundin Petroleum AB(a)

    856       16,499  

Marathon Oil Corp.

    5,905       69,974  

Marathon Petroleum Corp.

    3,674       192,261  

Murphy Oil Corp.

    1,105       28,321  

Neste Oyj

    1,220       48,142  

Newfield Exploration Co.(a)

    1,370       38,990  

Noble Energy, Inc.

    3,000       84,900  

Occidental Petroleum Corp.

    5,350       320,305  

Oil Search Ltd.

    18,278       95,714  

OMV AG

    1,402       72,824  

ONEOK, Inc.

    2,718       141,771  

Origin Energy Ltd.(a)

    16,658       87,833  

Phillips 66

    3,110       257,166  

Pioneer Natural Resources Co.

    1,215       193,890  

Range Resources Corp.

    1,300       30,121  

Repsol SA

    13,383       205,176  

Royal Dutch Shell PLC–Class A

    47,104       1,251,492  

Royal Dutch Shell PLC–Class B

    39,919       1,071,681  

Santos Ltd.(a)

    18,468       42,954  

Showa Shell Sekiyu KK

    1,900       17,648  

Snam SpA

    26,833       117,103  

Statoil ASA

    12,989       215,385  

Tesoro Corp.

    825       77,220  

TOTAL SA

    25,086       1,245,444  

Valero Energy Corp.

    3,225       217,559  

Williams Cos., Inc. (The)

    4,755       143,981  

Woodside Petroleum Ltd.

    7,059       161,927  
   

 

 

 
      14,195,179  
   

 

 

 
      15,671,980  
   

 

 

 

MATERIALS–2.7%

 

CHEMICALS–1.5%

 

Air Liquide SA

    4,143       512,058  

Air Products & Chemicals, Inc.

    1,520       217,451  

Akzo Nobel NV

    3,630       315,696  

Albemarle Corp.

    761       80,316  

Arkema SA

    1,159       123,772  

Asahi Kasei Corp.

    12,000       129,460  

BASF SE

    9,789       908,507  

CF Industries Holdings, Inc.(d)

    1,600       44,736  

Chr Hansen Holding A/S

    1,460       106,181  

Covestro AG(e)

    1,766       128,024  

Croda International PLC

    1,689       85,535  

Daicel Corp.

    3,000       37,496  

Dow Chemical Co. (The)

    7,825       493,523  

 

15


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Eastman Chemical Co.

    1,030     $ 86,510  

Ecolab, Inc.

    1,840       244,260  

EI du Pont de Nemours & Co.

    6,095       491,927  

EMS-Chemie Holding AG (REG)

    203       149,897  

Evonik Industries AG

    2,574       82,383  

FMC Corp.

    930       67,936  

Frutarom Industries Ltd.

    300       20,944  

Givaudan SA (REG)

    88       176,334  

Hitachi Chemical Co., Ltd.

    3,000       89,942  

Incitec Pivot Ltd.

    32,013       83,969  

International Flavors & Fragrances, Inc.

    550       74,250  

Israel Chemicals Ltd.

    4,414       20,822  

Johnson Matthey PLC

    1,842       68,940  

JSR Corp.

    800       13,849  

Kansai Paint Co., Ltd.

    3,000       69,259  

Kuraray Co., Ltd.

    3,000       54,627  

LANXESS AG

    1,767       134,010  

Linde AG

    1,768       336,544  

LyondellBasell Industries NV–Class A

    2,399       202,452  

Mitsubishi Chemical Holdings Corp.

    13,000       108,313  

Mitsubishi Gas Chemical Co., Inc.

    2,500       53,098  

Mitsui Chemicals, Inc.

    8,000       42,603  

Monsanto Co.

    3,040       359,814  

Mosaic Co. (The)

    2,430       55,477  

Nippon Paint Holdings Co., Ltd.

    2,000       76,089  

Nissan Chemical Industries Ltd.

    1,000       33,137  

Nitto Denko Corp.

    1,600       132,130  

Novozymes A/S–Class B

    2,458       107,535  

Orica Ltd.

    7,662       121,757  

PPG Industries, Inc.

    1,850       203,426  

Praxair, Inc.

    1,990       263,774  

Sherwin-Williams Co. (The)

    565       198,292  

Shin-Etsu Chemical Co., Ltd.

    4,100       373,153  

Sika AG

    20       128,403  

Solvay SA

    927       124,414  

Sumitomo Chemical Co., Ltd.

    15,000       86,697  

Symrise AG

    1,178       83,579  

Taiyo Nippon Sanso Corp.

    7,000       78,955  

Teijin Ltd.

    3,000       57,891  

Toray Industries, Inc.

    14,000       117,455  

Tosoh Corp.

    6,298       64,909  

Umicore SA

    1,001       69,631  

Yara International ASA

    1,297       48,770  
   

 

 

 
      8,640,912  
   

 

 

 

CONSTRUCTION MATERIALS–0.2%

 

Boral Ltd.

    17,642       94,194  

CRH PLC

    8,841       313,354  

Fletcher Building Ltd.

    7,055       41,313  

HeidelbergCement AG

    1,342       130,092  

Imerys SA

    448       38,996  

James Hardie Industries PLC

    3,449       54,356  

LafargeHolcim Ltd. (REG)(a)

    4,333       249,031  

Martin Marietta Materials, Inc.

    477       106,171  
   

Taiheiyo Cement Corp.

    5,000     $ 18,285  

Vulcan Materials Co.

    915       115,912  
   

 

 

 
      1,161,704  
   

 

 

 

CONTAINERS & PACKAGING–0.1%

   

Amcor Ltd./Australia

    11,024       137,334  

Avery Dennison Corp.

    585       51,697  

Ball Corp.

    2,420       102,148  

International Paper Co.

    2,865       162,188  

Sealed Air Corp.

    1,340       59,978  

Toyo Seikan Group Holdings Ltd.

    1,700       28,779  

WestRock Co.

    1,747       98,985  
   

 

 

 
      641,109  
   

 

 

 

METALS & MINING–0.8%

   

Anglo American PLC(a)

    14,945       199,661  

Antofagasta PLC

    6,389       66,656  

ArcelorMittal(a)

    12,535       284,333  

BHP Billiton Ltd.

    34,230       610,112  

BHP Billiton PLC

    22,510       344,869  

BlueScope Steel Ltd.

    6,941       70,271  

Boliden AB

    4,189       114,506  

Fortescue Metals Group Ltd.

    18,067       72,324  

Freeport-McMoRan, Inc.(a)

    8,525       102,385  

Fresnillo PLC

    2,356       45,670  

Glencore PLC(a)

    130,406       488,661  

Hitachi Metals Ltd.

    5,000       69,762  

JFE Holdings, Inc.

    5,000       87,058  

Kobe Steel Ltd.(a)

    1,199       12,363  

Mitsubishi Materials Corp.

    2,700       81,935  

Newcrest Mining Ltd.

    7,017       108,902  

Newmont Mining Corp.

    3,695       119,681  

Nippon Steel & Sumitomo Metal Corp.

    8,643       195,857  

Norsk Hydro ASA

    16,444       91,001  

Nucor Corp.

    2,210       127,893  

Randgold Resources Ltd.

    890       78,975  

Rio Tinto Ltd.

    4,038       196,241  

Rio Tinto PLC

    13,185       558,409  

South32 Ltd.

    56,741       116,858  

Sumitomo Metal Mining Co., Ltd.

    5,000       66,830  

thyssenkrupp AG

    3,919       111,691  

voestalpine AG

    1,082       50,432  
   

 

 

 
      4,473,336  
   

 

 

 

PAPER & FOREST PRODUCTS–0.1%

   

Mondi PLC

    3,496       91,672  

Oji Holdings Corp.

    14,000       72,485  

Stora Enso Oyj–Class R

    5,244       67,763  

UPM-Kymmene Oyj

    5,689       162,220  
   

 

 

 
      394,140  
   

 

 

 
      15,311,201  
   

 

 

 

 

16


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

REAL ESTATE–1.7%

   

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–1.1%

   

Alexandria Real Estate Equities, Inc.

    632     $ 76,137  

American Tower Corp.

    2,965       392,329  

Apartment Investment & Management Co.–Class A

    1,075       46,193  

AvalonBay Communities, Inc.

    945       181,601  

Boston Properties, Inc.

    1,100       135,322  

British Land Co. PLC (The)

    9,308       73,482  

CapitaLand Mall Trust

    14,000       20,078  

Crown Castle International Corp.

    2,370       237,427  

Daiwa House REIT Investment Corp.

    13       30,857  

Dexus

    13,420       97,705  

Digital Realty Trust, Inc.

    1,030       116,338  

Equinix, Inc.

    520       223,163  

Equity Residential

    2,540       167,208  

Essex Property Trust, Inc.

    478       122,975  

Extra Space Storage, Inc.

    883       68,874  

Federal Realty Investment Trust

    522       65,976  

GGP, Inc.

    4,044       95,277  

Goodman Group

    16,928       102,309  

GPT Group (The)

    17,105       62,913  

Hammerson PLC

    7,467       55,867  

HCP, Inc.

    2,880       92,045  

Host Hotels & Resorts, Inc.

    5,150       94,090  

ICADE

    1,592       133,555  

Intu Properties PLC

    9,588       33,624  

Iron Mountain, Inc.

    1,708       58,687  

Japan Prime Realty Investment Corp.

    7       24,241  

Japan Real Estate Investment Corp.

    12       59,640  

Japan Retail Fund Investment Corp.

    24       44,289  

Kimco Realty Corp.

    2,930       53,766  

Klepierre

    2,231       91,439  

Land Securities Group PLC

    10,386       137,123  

Link REIT

    21,500       163,551  

Macerich Co. (The)

    810       47,029  

Mid-America Apartment Communities, Inc.

    796       83,882  

Mirvac Group

    40,488       66,208  

Nippon Building Fund, Inc.

    13       66,344  

Nippon Prologis REIT, Inc.

    14       29,799  

Nomura Real Estate Master Fund, Inc.

    34       46,462  

Prologis, Inc.

    3,670       215,209  

Public Storage

    1,030       214,786  

Realty Income Corp.

    1,808       99,765  

Regency Centers Corp.

    1,033       64,707  

Scentre Group

    50,683       157,578  

Segro PLC

    8,541       54,438  

Simon Property Group, Inc.

    2,216       358,460  
   

SL Green Realty Corp.

    676     $ 71,521  

Stockland

    23,010       77,380  

UDR, Inc.

    1,828       71,237  

Unibail-Rodamco SE

    1,361       342,940  

United Urban Investment Corp.

    26       37,093  

Ventas, Inc.

    2,441       169,601  

Vicinity Centres

    20,397       40,248  

Vornado Realty Trust

    1,185       111,271  

Welltower, Inc.

    2,475       185,254  

Westfield Corp.

    18,793       115,910  

Weyerhaeuser Co.

    5,198       174,133  
   

 

 

 
      6,259,336  
   

 

 

 

REAL ESTATE MANAGEMENT & DEVELOPMENT–0.6%

   

Aeon Mall Co., Ltd.

    1,700       33,587  

Azrieli Group Ltd.

    811       45,050  

CapitaLand Ltd.

    35,000       88,936  

CBRE Group, Inc.–Class A(a)

    2,065       75,166  

Cheung Kong Property Holdings Ltd.

    25,719       201,258  

City Developments Ltd.

    11,000       85,686  

Daito Trust Construction Co., Ltd.

    700       109,057  

Daiwa House Industry Co., Ltd.

    6,000       205,354  

Deutsche Wohnen AG

    3,212       123,075  

Global Logistic Properties Ltd.

    80,329       166,880  

Hang Lung Properties Ltd.

    14,000       34,988  

Henderson Land Development Co., Ltd.

    25,141       140,184  

Hongkong Land Holdings Ltd.

    14,000       103,029  

Hulic Co., Ltd.

    6,591       67,497  

Kerry Properties Ltd.

    8,500       28,861  

LendLease Group

    10,380       132,849  

Mitsubishi Estate Co., Ltd.

    13,000       243,006  

Mitsui Fudosan Co., Ltd.

    10,000       239,585  

New World Development Co., Ltd.

    82,122       104,097  

Nomura Real Estate Holdings, Inc.

    3,600       70,847  

Sino Land Co., Ltd.

    16,000       26,214  

Sumitomo Realty & Development Co., Ltd.

    3,843       119,011  

Sun Hung Kai Properties Ltd.

    15,000       220,353  

Swire Pacific Ltd.–Class A

    7,000       68,332  

Swire Properties Ltd.

    25,389       83,693  

Swiss Prime Site AG (REG)(a)

    976       88,738  

Tokyu Fudosan Holdings Corp.

    7,989       47,379  

Vonovia SE

    5,710       227,179  

Wharf Holdings Ltd. (The)

    13,000       107,571  

Wheelock & Co., Ltd.

    17,000       128,224  
   

 

 

 
      3,415,686  
   

 

 

 
      9,675,022  
   

 

 

 

UTILITIES–1.6%

   

ELECTRIC UTILITIES–0.9%

   

Alliant Energy Corp.

    1,588       63,790  

American Electric Power Co., Inc.

    3,425       237,935  

 

17


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

AusNet Services

    37,398     $ 49,864  

Chubu Electric Power Co., Inc.

    6,100       81,122  

Chugoku Electric Power Co., Inc. (The)

    4,000       44,166  

CK Infrastructure Holdings Ltd.

    15,000       126,004  

CLP Holdings Ltd.

    12,500       132,179  

Contact Energy Ltd.

    4,696       17,928  

DONG Energy A/S(e)

    923       41,661  

Duke Energy Corp.

    4,782       399,727  

Edison International

    2,265       177,100  

EDP–Energias de Portugal SA

    25,431       83,190  

Electricite de France SA

    5,592       60,589  

Endesa SA

    3,024       69,759  

Enel SpA

    72,583       389,298  

Entergy Corp.

    1,225       94,043  

Eversource Energy

    2,210       134,169  

Exelon Corp.

    6,397       230,740  

FirstEnergy Corp.

    2,935       85,585  

Fortum Oyj

    4,228       66,353  

HK Electric Investments & HK Electric Investments Ltd.–Class SS(e)

    104,180       96,051  

Iberdrola SA

    62,572       495,846  

Kansai Electric Power Co., Inc. (The)

    8,491       117,086  

Kyushu Electric Power Co., Inc.

    4,100       49,830  

Mercury NZ Ltd.

    13,502       32,849  

NextEra Energy, Inc.

    3,245       454,722  

PG&E Corp.

    3,475       230,636  

Pinnacle West Capital Corp.

    785       66,851  

Power Assets Holdings Ltd.

    8,500       75,029  

PPL Corp.

    4,695       181,509  

Red Electrica Corp. SA

    5,707       119,393  

Southern Co. (The)

    6,810       326,063  

SSE PLC

    10,739       203,196  

Terna Rete Elettrica Nazionale SpA

    23,069       124,599  

Tohoku Electric Power Co., Inc.

    4,300       59,594  

Tokyo Electric Power Co. Holdings, Inc.(a)

    13,800       56,971  

Xcel Energy, Inc.

    3,520       161,498  
   

 

 

 
      5,436,925  
   

 

 

 

GAS UTILITIES–0.1%

   

APA Group

    12,605       88,817  

Gas Natural SDG SA

    3,334       78,044  

Hong Kong & China Gas Co., Ltd.

    79,344       149,221  

Osaka Gas Co., Ltd.

    18,000       73,707  

Toho Gas Co., Ltd.

    6,000       43,704  

Tokyo Gas Co., Ltd.

    19,000       98,965  
   

 

 

 
      532,458  
   

 

 

 

INDEPENDENT POWER AND RENEWABLE ELECTRICITY PRODUCERS–0.0%

   

AES Corp./VA

    4,585       50,940  

Electric Power Development Co., Ltd.

    1,600       39,629  
   

Meridian Energy Ltd.

    18,542     $ 39,536  

NRG Energy, Inc.

    2,190       37,712  
   

 

 

 
      167,817  
   

 

 

 

MULTI-UTILITIES–0.6%

   

AGL Energy Ltd.

    6,423       125,868  

Ameren Corp.

    1,660       90,752  

CenterPoint Energy, Inc.

    2,995       82,003  

Centrica PLC

    64,140       167,229  

CMS Energy Corp.

    1,920       88,800  

Consolidated Edison, Inc.

    2,130       172,147  

Dominion Energy, Inc.

    4,385       336,023  

DTE Energy Co.

    1,270       134,353  

E.ON SE

    19,048       179,812  

Engie SA

    18,347       276,925  

Innogy SE(e)

    2,613       102,838  

National Grid PLC

    36,605       453,554  

NiSource, Inc.

    2,205       55,919  

Public Service Enterprise Group, Inc.

    3,505       150,750  

RWE AG(a)

    5,973       119,315  

SCANA Corp.

    995       66,675  

Sempra Energy

    1,760       198,440  

Suez

    5,769       106,821  

United Utilities Group PLC

    8,008       90,521  

Veolia Environnement SA

    2,727       57,694  

WEC Energy Group, Inc.

    2,188       134,299  
   

 

 

 
      3,190,738  
   

 

 

 

WATER UTILITIES–0.0%

   

American Water Works Co., Inc.

    1,221       95,177  

Severn Trent PLC

    2,239       63,651  
   

 

 

 
      158,828  
   

 

 

 
      9,486,766  
   

 

 

 

TELECOMMUNICATION SERVICES–1.6%

   

DIVERSIFIED TELECOMMUNICATION SERVICES–1.2%

   

AT&T, Inc.

    42,926       1,619,598  

Bezeq The Israeli Telecommunication Corp., Ltd.

    25,040       41,536  

BT Group PLC

    89,935       345,822  

CenturyLink, Inc.

    3,810       90,983  

Deutsche Telekom AG (REG)

    34,368       619,482  

Elisa Oyj

    1,354       52,524  

HKT Trust & HKT Ltd.–Class SS

    55,098       72,406  

Iliad SA

    332       78,461  

Inmarsat PLC

    6,433       64,517  

Koninklijke KPN NV

    28,755       92,032  

Level 3 Communications, Inc.(a)

    1,997       118,422  

Nippon Telegraph & Telephone Corp.

    7,400       349,310  

Orange SA

    18,911       300,967  

Proximus SADP

    1,568       54,879  

Singapore Telecommunications Ltd.

    76,000       214,639  

Spark New Zealand Ltd.

    17,417       48,260  

 

18


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

Swisscom AG (REG)

    247     $ 119,375  

TDC A/S

    10,476       60,922  

Telecom Italia SpA/Milano (ordinary shares)(a)

    150,129       138,895  

Telecom Italia SpA/Milano (savings shares)

    96,487       71,403  

Telefonica Deutschland Holding AG

    17,113       85,582  

Telefonica SA

    50,008       517,663  

Telenor ASA

    7,146       118,554  

Telia Co. AB

    24,258       111,795  

Telstra Corp., Ltd.

    40,732       134,584  

TPG Telecom Ltd.

    8,880       38,903  

Verizon Communications, Inc.

    28,445       1,270,354  
   

 

 

 
      6,831,868  
   

 

 

 

WIRELESS TELECOMMUNICATION SERVICES–0.4%

   

KDDI Corp.

    19,550       517,051  

Millicom International Cellular SA

    641       37,914  

NTT DOCOMO, Inc.

    14,767       349,249  

SoftBank Group Corp.

    8,832       717,954  

StarHub Ltd.

    23,000       45,441  

Tele2 AB–Class B

    3,826       40,095  

Vodafone Group PLC

    283,081       803,937  
   

 

 

 
      2,511,641  
   

 

 

 
      9,343,509  
   

 

 

 

Total Common Stocks
(cost $236,440,496)

      293,938,903  
   

 

 

 
    Principal
Amount
(000)
       

GOVERNMENTS–
TREASURIES–29.5%

   

UNITED STATES–29.5%

   

U.S. Treasury Bonds
2.25%, 8/15/46

  $       5,033       4,431,751  

2.50%, 2/15/45

    520       485,388  

2.75%, 8/15/42

    920       910,081  

2.875%, 5/15/43–8/15/45

    5,597       5,631,428  

3.00%, 5/15/45–5/15/47

    1,065       1,098,407  

3.125%, 11/15/41–2/15/43

    2,825       2,988,206  

3.50%, 2/15/39

    358       404,540  

3.625%, 8/15/43

    3,475       3,998,422  

3.75%, 8/15/41

    220       257,606  

3.875%, 8/15/40

    280       333,244  

4.25%, 5/15/39

    240       300,675  

4.375%, 11/15/39–5/15/41

    1,258       1,605,284  

4.50%, 8/15/39

    220       285,003  

4.75%, 2/15/37–2/15/41

    2,661       3,549,120  

5.375%, 2/15/31

    650       873,641  

6.00%, 2/15/26

    2,846       3,688,238  

6.25%, 8/15/23–5/15/30

    724       1,009,545  

6.875%, 8/15/25

    590       796,684  
   

7.25%, 8/15/22

  $          775     $ 975,773  

7.625%, 2/15/25

             55       76,261  

8.00%, 11/15/21

    9,123       11,492,129  

U.S. Treasury Notes
1.00%, 9/30/19

    995       985,827  

1.125%, 2/28/21–9/30/21

    2,905       2,838,642  

1.25%, 11/30/18–10/31/21

    24,271       24,121,407  

1.375%, 12/31/18–5/31/21

    12,309       12,242,118  

1.50%, 5/31/19–8/15/26

    6,875       6,747,697  

1.625%, 6/30/20–2/15/26

    14,732       14,385,217  

1.75%, 3/31/22–5/15/23

    6,871       6,816,434  

1.875%, 11/30/21

    3,207       3,214,516  

2.00%, 11/15/21–11/15/26

    14,375       14,327,729  

2.125%, 8/15/21–5/15/25

    5,862       5,873,097  

2.25%, 11/15/24–2/15/27

    1,881       1,875,382  

2.375%, 8/15/24–5/15/27

    1,437       1,453,820  

2.50%, 8/15/23–5/15/24

    2,242       2,299,266  

2.625%, 8/15/20–11/15/20

    3,700       3,817,406  

2.75%, 2/28/18–11/15/23

    3,189       3,276,940  

3.125%, 5/15/21

    394       414,123  

3.375%, 11/15/19

    1,890       1,974,459  

3.50%, 5/15/20

    910       960,050  

3.625%, 2/15/20–2/15/21

    13,021       13,859,670  

3.75%, 11/15/18

    5,038       5,201,735  
   

 

 

 

Total Governments–Treasuries
(cost $173,016,516)

      171,876,961  
   

 

 

 
    Shares        

INVESTMENT COMPANIES–14.8%

   

FUNDS AND INVESTMENT TRUSTS–14.8%(f)

   

iShares Core MSCI Emerging Markets ETF

      671,403       33,597,006  

iShares International Developed Real Estate ETF(d)

    293,373       8,355,263  

SPDR S&P MidCap 400 ETF Trust

    40,670       12,917,605  

Vanguard Global ex-U.S. Real Estate ETF

    150,903       8,488,294  

Vanguard Mid-Cap ETF

    18,523       2,639,898  

Vanguard REIT ETF

    154,197       12,833,816  

Vanguard Small-Cap ETF(d)

    51,851       7,027,885  
   

 

 

 

Total Investment Companies
(cost $80,650,449)

      85,859,767  
   

 

 

 

RIGHTS–0.0%

   

INDUSTRIALS–0.0%

   

CONSTRUCTION & ENGINEERING–0.0%

   

ACS Actividades de Construccion y Servicios SA, expiring 7/11/17(a)
(cost $2,153)

    2,540       2,031  
   

 

 

 

 

19


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

SHORT-TERM INVESTMENTS–4.4%

   

INVESTMENT COMPANIES–4.4%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(f)(g)
(cost $25,600,289)

    25,600,289     $ 25,600,289  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–99.3%
(cost $515,709,903)

      577,277,951  
   

 

 

 
   

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.9%

   

INVESTMENT COMPANIES–0.9%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(f)(g)
(cost $5,129,485)

    5,129,485     $ 5,129,485  
   

 

 

 

TOTAL INVESTMENTS–100.2%
(cost $520,839,388)

      582,407,436  

Other assets less liabilities–(0.2)%

      (1,187,480
   

 

 

 

NET ASSETS–100.0%

    $   581,219,956  
   

 

 

 

FUTURES (see Note D)

 

Type    Number of
Contracts
     Expiration
Month
     Original
Value
     Value at
June 30,
2017
     Unrealized
Appreciation/
(Depreciation)
 

Purchased Contracts

 

Euro STOXX 50 Futures

     96        September 2017      $ 3,883,241      $ 3,761,967      $ (121,274

Euro-Bund Futures

     25        September 2017        4,699,055        4,621,994        (77,061

FTSE 100 Index Futures

     69        September 2017        6,667,673        6,508,764        (158,909

Mini MSCI EAFE Futures

     9        September 2017        851,732        850,320        (1,412

TOPIX Index Futures

     40        September 2017        5,747,898        5,731,051        (16,847

U.S. T-Note 5 Yr (CBT) Futures

     18        September 2017        2,125,793        2,121,047        (4,746

U.S. T-Note 10 Yr (CBT) Futures

     274        September 2017          34,484,321          34,395,563        (88,758

U.S. Ultra Bond (CBT) Futures

     31        September 2017        5,036,827        5,142,125            105,298  

Sold Contracts

 

Hang Seng Index Futures

     13        July 2017          2,130,808          2,130,049        759  

S&P 500 E Mini Futures

     69        September 2017        8,346,853        8,352,105        (5,252

SPI 200 Futures

     63        September 2017        6,814,022        6,838,368        (24,346
              

 

 

 
               $   (392,548
              

 

 

 

 

20


    AB Variable Products Series Fund

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Barclays Bank PLC

     AUD        15,381        USD        11,609        9/15/17      $   (202,788

Barclays Bank PLC

     CAD        1,304        USD        972        9/15/17        (34,834

BNP Paribas SA

     GBP        1,675        USD        2,160        9/15/17        (25,722

Citibank, NA

     NOK        7,781        USD        921        9/15/17        (12,548

Citibank, NA

     USD        4,251        EUR        3,770        9/15/17        71,064  

Citibank, NA

     USD        3,887        JPY        423,564        9/15/17        (109,166

Credit Suisse International

     CHF        5,435        USD        5,635        9/15/17        (59,048

Credit Suisse International

     GBP        4,053        USD        5,188        9/15/17        (102,184

Credit Suisse International

     USD        12,618        EUR        11,415        9/15/17        467,774  

Credit Suisse International

     USD        1,766        SEK        15,287        9/15/17        55,872  

JPMorgan Chase Bank, NA

     USD        4,496        JPY        498,195        9/15/17        (52,916

JPMorgan Chase Bank, NA

     USD        2,758        SEK        23,747        9/15/17        72,525  

Morgan Stanley Capital Services, Inc.

     JPY        428,927        USD        3,836        9/15/17        10,364  

Morgan Stanley Capital Services, Inc.

     USD        3,750        CHF        3,602        9/15/17        23,901  

State Street Bank & Trust Co.

     CHF        3,475        USD        3,621        9/15/17        (19,254
                 

 

 

 
   $ 83,040  
                 

 

 

 

TOTAL RETURN SWAPS (see Note D)

 

Counterparty &
Referenced Obligation

  # of Shares
or Units
    Rate Paid/
Received
    Notional
Amount
(000)
    Maturity
Date
    Unrealized
Appreciation/
(Depreciation)
 

Receive Total Return on Reference Obligation

 

UBS AG

         

Russell 2000 Total Return Index

    1,256       LIBOR Minus 0.40   $ 8,538       2/15/18     $ 142,036  

Pay Total Return on Reference Obligation

 

Deutsche Bank AG

         

S&P 500 Total Return Index

    3,575       LIBOR Plus 0.30       16,797       9/15/17       77,009  
         

 

 

 
          $   219,045  
         

 

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Illiquid security.

 

(c)   Fair valued by the Adviser.

 

(d)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(e)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2017, the aggregate market value of these securities amounted to $875,534 or 0.2% of net assets.

 

(f)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618.

 

(g)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

Currency Abbreviations:

AUD—Australian Dollar

CAD—Canadian Dollar

CHF—Swiss Franc

EUR—Euro

GBP—Great British Pound

JPY—Japanese Yen

NOK—Norwegian Krone

SEK—Swedish Krona

USD—United States Dollar

 

21


DYNAMIC ASSET ALLOCATION PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Glossary:

ADR—American Depositary Receipt

ASX—Australian Stock Exchange

CBOE—Chicago Board Options Exchange

CBT—Chicago Board of Trade

CME—Chicago Mercantile Exchange

EAFE—Europe, Australia, and Far East

ETF—Exchange Traded Fund

FTSE—Financial Times Stock Exchange

LIBOR—London Interbank Offered Rates

MSCI—Morgan Stanley Capital International

REG—Registered Shares

REIT—Real Estate Investment Trust

SPDR—Standard & Poor’s Depository Receipt

SPI—Share Price Index

TOPIX—Tokyo Price Index

See notes to financial statements.

 

22


DYNAMIC ASSET ALLOCATION PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $490,109,614)

   $ 551,677,662 (a) 

Affiliated issuers (cost $30,729,774—including investment of cash collateral for securities loaned of $5,129,485)

     30,729,774  

Cash collateral due from broker

     2,119,215  

Foreign currencies, at value (cost $1,608,062)

     1,622,668  

Unaffiliated interest and dividends receivable

     1,843,992  

Receivable for investment securities sold

     1,285,994  

Unrealized appreciation on forward currency exchange contracts

     701,500  

Receivable for capital stock sold

     324,799  

Collateral due from Securities Lending Agent

     281,750  

Unrealized appreciation on total return swaps

     219,045  

Affiliated dividends receivable

     15,486  
  

 

 

 

Total assets

     590,821,885  
  

 

 

 

LIABILITIES

 

Due to custodian

     3,979  

Payable for collateral received on securities loaned

     5,411,235  

Payable for investment securities purchased

     2,302,782  

Unrealized depreciation on forward currency exchange contracts

     618,460  

Payable for capital stock redeemed

     389,003  

Advisory fee payable

     354,274  

Distribution fee payable

     128,299  

Payable for variation margin on exchange-traded derivatives

     60,418  

Administrative fee payable

     12,674  

Transfer Agent fee payable

     82  

Accrued expenses

     320,723  
  

 

 

 

Total liabilities

     9,601,929  
  

 

 

 

NET ASSETS

   $ 581,219,956  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 46,799  

Additional paid-in capital

     506,144,565  

Undistributed net investment income

     12,418,388  

Accumulated net realized gain on investment and foreign currency transactions

     1,109,669  

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     61,500,535  
  

 

 

 
   $ 581,219,956  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $ 311,373          24,880        $ 12.51  
B      $   580,908,583          46,774,605        $   12.42  

 

 

 

(a)   Includes securities on loan with a value of $5,019,111 (see Note E).

See notes to financial statements.

 

23


DYNAMIC ASSET ALLOCATION PORTFOLIO
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $280,339)

   $ 5,113,517  

Affiliated issuers

     80,305  

Interest

     1,477,637  

Other income

     41  
  

 

 

 
     6,671,500  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     2,021,843  

Distribution fee—Class B

     721,698  

Transfer agency—Class A

     1  

Transfer agency—Class B

     2,354  

Custodian

     134,352  

Audit and tax

     48,521  

Administrative

     25,108  

Legal

     23,137  

Printing

     21,808  

Directors’ fees

     13,383  

Miscellaneous

     35,536  
  

 

 

 

Total expenses

     3,047,741  

Less: expenses waived and reimbursed by the Adviser (see Notes B & E)

     (29,415
  

 

 

 

Net expenses

     3,018,326  
  

 

 

 

Net investment income

     3,653,174  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain (loss) on:

  

Investment transactions

     4,254,421  

Futures

     (1,109,667

Swaps

     2,591,887  

Foreign currency transactions

     426,100  

Net change in unrealized appreciation/depreciation of:

  

Investments

     33,435,611  

Futures

     (509,004

Swaps

     (1,718,459

Foreign currency denominated assets and liabilities

     309,467  
  

 

 

 

Net gain on investment and foreign currency transactions

     37,680,356  
  

 

 

 

Contributions from Affiliates (see Note B)

     2,689  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 41,336,219  
  

 

 

 

 

 

See notes to financial statements.

 

24


 
DYNAMIC ASSET ALLOCATION PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 3,653,174     $ 4,716,370  

Net realized gain on investment and foreign currency transactions

     6,162,741       2,382,396  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     31,517,615       9,384,262  

Contributions from Affiliates (see Note B)

     2,689       –0
  

 

 

   

 

 

 

Net increase in net assets from operations

     41,336,219       16,483,028  

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (3,253

Class B

     –0 –      (3,066,140

Net realized gain on investment transactions

    

Class A

     –0 –      (89

Class B

     –0 –      (118,984

CAPITAL STOCK TRANSACTIONS

    

Net increase (decrease)

     (19,144,670     34,170,007  
  

 

 

   

 

 

 

Total increase

     22,191,549       47,464,569  

NET ASSETS

    

Beginning of period

     559,028,407       511,563,838  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $12,418,388 and $8,765,214, respectively)

   $ 581,219,956     $ 559,028,407  
  

 

 

   

 

 

 

 

 

See notes to financial statements.

 

25


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Dynamic Asset Allocation Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to maximize total return consistent with the determination of AllianceBernstein L.P. (the “Adviser”) of reasonable risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S.

 

26


    AB Variable Products Series Fund

 

markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

 

27


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

     Level 1      Level 2      Level 3      Total  

Investments in Securities:

           

Assets:

           

Common Stocks:

           

Financials

   $ 21,715,609      $ 31,363,799      $ –0 –(a)     $ 53,079,408  

Information Technology

     33,144,770        8,102,550        –0 –       41,247,320  

Health Care

     21,804,826        15,383,377        –0 –       37,188,203  

Industrials

     15,064,192        21,409,491        –0 –       36,473,683  

Consumer Discretionary

     18,560,848        17,495,350        –0 –       36,056,198  

Consumer Staples

     13,585,185        16,820,428        –0 –       30,405,613  

Energy

     8,752,617        6,919,363        –0 –       15,671,980  

Materials

     4,415,515        10,895,686        –0 –       15,311,201  

Real Estate

     4,366,116        5,308,906        –0 –       9,675,022  

Utilities

     4,571,207        4,915,559        –0 –       9,486,766  

Telecommunication Services

     3,171,763        6,171,746        –0 –       9,343,509  

Governments—Treasuries

     –0 –       171,876,961        –0 –       171,876,961  

Investment Companies

     85,859,767        –0 –       –0 –       85,859,767  

Rights

     2,031        –0 –       –0 –       2,031  

Short-Term Investments

     25,600,289        –0 –       –0 –       25,600,289  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

     5,129,485        –0 –       –0 –       5,129,485  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

     265,744,220        316,663,216        –0 –       582,407,436  

Other Financial Instruments(b):

           

Assets:

           

Futures

     105,298        759        –0 –       106,057 (c) 

Forward Currency Exchange Contracts

     –0 –       701,500        –0 –       701,500  

Total Return Swaps

     –0 –       219,045        –0 –       219,045  

Liabilities:

           

Futures

     (177,229      (321,376      –0 –       (498,605 )(c) 

Forward Currency Exchange Contracts

     –0 –       (618,460      –0 –       (618,460
  

 

 

    

 

 

    

 

 

    

 

 

 

Total(d)

   $ 265,672,289      $ 316,644,684      $             –0 –     $ 582,316,973  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   The Portfolio held a security with zero market value at period end.

 

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

 

(c)   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.

 

(d)   There were de minimis transfers under 1% of net assets between Level 1 and Level 2 during the reporting period.

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

28


    AB Variable Products Series Fund

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.

 

    Common Stocks(a)     Total  

Balance as of 12/31/16

  $             –0 –    $             –0 – 

Accrued discounts/(premiums)

    –0 –      –0 – 

Realized gain (loss)

    –0 –      –0 – 

Change in unrealized appreciation/depreciation

    –0 –      –0 – 

Purchases

    –0 –      –0 – 

Sales

    –0 –      –0 – 

Transfers in to Level 3

    –0 –      –0 – 

Transfers out of Level 3

    –0 –      –0 – 
 

 

 

   

 

 

 

Balance as of 6/30/17

  $ –0 –    $ –0 – 
 

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation from Investments held as of 6/30/17(b)

  $ –0 –    $ –0 – 
 

 

 

   

 

 

 

 

(a)   The Portfolio held a security with zero market value at period end.

 

(b)   The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

 

29


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to the portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .70% of the Portfolio’s average daily net assets. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to .85% and 1.10% of daily average net assets for Class A and Class B shares, respectively. The Expense Caps will remain in effect until May 1, 2018 and then may be extended by the Adviser for additional one-year terms. For the six months ended June 30, 2017, there were no expenses waived by the Adviser.

During the six months ended June 30, 2017, the Adviser reimbursed the Portfolio $2,689 for trading losses incurred due to a trade entry error.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,108.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

The Portfolio may invest in AB Government Money Market Portfolio (the “Government Money Market Portfolio”) which has a contractual annual advisory fee rate of .20% of the portfolio’s average daily net assets and bears its own expenses. In connection with the investment by the Portfolio in the Government Money Market Portfolio, the Adviser has agreed to waive its advisory fee from the Portfolio in an amount equal to the Portfolio’s pro rata share of the effective advisory fee of Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six

 

30


    AB Variable Products Series Fund

 

months ended June 30, 2017, such waiver amounted to $26,658. A summary of the Portfolio’s transactions in shares of the Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

   

Dividend

Income

(000)

 
$ 21,929     $ 84,045     $ 80,374     $ 25,600     $ 69  

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $41,449, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.    

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases        Sales  

Investment securities (excluding U.S. government securities)

     $ 64,903,174        $ 62,711,004  

U.S. government securities

       23,651,384          14,685,924  

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 (excluding futures, foreign currency and swap transactions)are as follows:

 

Gross unrealized appreciation

   $ 71,198,934  

Gross unrealized depreciation

     (9,630,886
  

 

 

 

Net unrealized appreciation

   $ 61,568,048  
  

 

 

 

1. Derivative Financial Instruments

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

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

 

   

Futures

The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and

 

31


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.

At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.

During the six months ended June 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.

 

   

Swaps

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

Risks may arise as a result of the failure of the counterparty to the swap to comply with the terms of the swap. The loss incurred by the failure of a counterparty is generally limited to the net interim payment to be received by the Portfolio, and/or the termination value at the end of the contract. Therefore, the Portfolio considers the creditworthiness of each counterparty to a swap in evaluating potential counterparty risk. This risk is mitigated by

 

32


    AB Variable Products Series Fund

 

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

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

At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Interest Rate Swaps:

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

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

During the six months ended June 30, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.

Credit Default Swaps:

The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the

 

33


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same reference obligation with the same counterparty. As of June 30, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligation and same counterparty for its Sales Contracts outstanding.

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

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

During the six months ended June 30, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.

Total Return Swaps:

The Portfolio may enter into total return swaps in order take a “long” or “short” position with respect to an underlying referenced asset. The Portfolio is subject to market price volatility of the underlying referenced asset. A total return swap involves commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent that the total return of the security, group of securities or index underlying the transaction exceeds or falls short of the offsetting interest obligation, the Portfolio will receive a payment from or make a payment to the counterparty.

During the six months ended June 30, 2017, the Portfolio held total return swaps for hedging and non-hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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

 

34


    AB Variable Products Series Fund

 

defaulting party. In the event of a default by a Master Agreements counterparty, the return of collateral with market value in excess of the Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of

Assets and Liabilities

Location

   Fair Value    

Statement of

Assets and Liabilities

Location

   Fair Value  

Interest rate contracts

  Receivable/Payable for variation margin on exchange-traded derivatives    $ 105,298   Receivable/Payable for variation margin on exchange-traded derivatives    $ 170,565

Equity contracts

  Receivable/Payable for variation margin on exchange-traded derivatives      759   Receivable/Payable for variation margin on exchange-traded derivatives      328,040

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts      701,500     Unrealized depreciation on forward currency exchange contracts      618,460  

Equity contracts

  Unrealized appreciation on total return swaps      219,045       
    

 

 

      

 

 

 

Total

     $ 1,026,602        $ 1,117,065  
    

 

 

      

 

 

 

 

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

 

Derivative Type

  

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

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

Interest rate contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures    $ 703,898     $ (164,101

Equity contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures      (1,813,565     (344,903

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities      229,216       279,060  

Interest rate contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      150,796       (36,130

Credit contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      502,331       (502,331

Equity contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      1,938,760       (1,179,998
     

 

 

   

 

 

 

Total

      $ 1,711,436     $ (1,948,403
     

 

 

   

 

 

 

 

35


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Futures:

  

Average original value of buy contracts

   $ 60,747,803  

Average original value of sale contracts

   $ 26,199,885  

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 53,269,661  

Average principal amount of sale contracts

   $ 64,295,579  

Centrally Cleared Interest Rate Swaps:

  

Average notional amount

   $ 4,469,883 (a) 

Centrally Cleared Credit Default Swaps:

  

Average notional amount of buy contracts

   $ 16,380,500 (b) 

Average notional amount of sale contracts

   $ 16,380,500 (b) 

Total Return Swaps:

  

Average notional amount

   $ 25,925,258  

 

(a)   Positions were open for four months during the period.

 

(b)   Positions were open for one month during the period.

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

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

Counterparty

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

OTC Derivatives:

           

Citibank, NA

   $ 71,064      $ (71,064   $             –0 –    $             –0 –    $ –0 – 

Credit Suisse International

     523,646        (161,232     –0 –      –0 –      362,414  

Deutsche Bank AG

     77,009        –0 –      –0 –      –0 –      77,009  

JPMorgan Chase Bank, NA

     72,525        (52,916     –0 –      –0 –      19,609  

Morgan Stanley Capital Services, Inc.

     34,265        –0 –      –0 –      –0 –      34,265  

UBS AG

     142,036        –0 –      –0 –      –0 –      142,036  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 920,545      $ (285,212   $ –0 –    $ –0 –    $ 635,333
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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:

           

Morgan Stanley & Co., Inc.**

   $ 60,418      $ –0 –    $ (60,418   $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 60,418      $ –0 –    $ (60,418   $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

           

Barclays Bank PLC

   $ 237,622      $ –0 –    $ –0 –    $ –0 –    $ 237,622  

BNP Paribas SA

     25,722        –0 –      –0 –      –0 –      25,722  

Citibank, NA

     121,714        (71,064     –0 –      –0 –      50,650  

Credit Suisse International

     161,232        (161,232     –0 –      –0 –      –0 – 

JPMorgan Chase Bank, NA

     52,916        (52,916     –0 –      –0 –      –0 – 

State Street Bank & Trust Co.

     19,254        –0 –      –0 –      –0 –      19,254  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 618,460      $ (285,212   $ –0 –    $ –0 –    $ 333,248
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

*   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 June 30, 2017.

 

^   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.

 

36


    AB Variable Products Series Fund

 

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $5,019,111 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $5,129,485. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $11,307 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $2,757. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 8,035     $ 108,702     $ 111,326     $ 5,411  

 

37


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    3,724       11,244       $ 45,115     $ 125,982  

Shares issued in reinvestment of dividends and distributions

    –0 –      284         –0 –      3,342  

Shares redeemed

    (4,896     (20,757       (59,331     (236,231
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (1,172     (9,229     $ (14,216   $ (106,907
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    1,997,074       9,938,397       $ 24,061,129     $ 113,721,017  

Shares issued in reinvestment of dividends and distributions

    –0 –      271,768         –0 –      3,185,124  

Shares redeemed

    (3,570,979     (7,265,964       (43,191,583     (82,629,227
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (1,573,905     2,944,201       $ (19,130,454   $ 34,276,914  
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 91% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

Allocation Risk—The allocation of investments among different global asset classes may have a significant effect on the Portfolio’s net asset value, or NAV, when one of these asset classes is performing more poorly than others. As both the direct investments and derivatives positions will be periodically adjusted to reflect the Adviser’s view of market and economic conditions, there will be transaction costs that may be, over time, significant. In addition, there is a risk that certain asset allocation decisions may not achieve the desired results and, as a result, the Portfolio may incur significant losses.

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

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

ETF Risk—ETFs are investment companies. When the Portfolio invests in an ETF, the Portfolio bears its share of the ETF’s expenses and runs the risk that the ETF may not achieve its investment objective.

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

 

38


    AB Variable Products Series Fund

 

Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares.

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

Real Estate Risk—The Portfolio’s investments in the real estate securities have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in real estate investment trusts, or “REITs”, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.

Commodity Risk—Investing in commodities and commodity-linked derivative instruments may subject the Portfolio to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016        2015  

Distributions paid from:

         

Ordinary income

     $ 3,071,351        $ 8,554,468  

Net long-term capital gains

       117,115          3,931,919  
    

 

 

      

 

 

 

Total taxable distributions paid

     $ 3,188,466        $ 12,486,387  
    

 

 

      

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 10,747,798  

Accumulated capital and other losses

     (1,736,257 )(a) 

Unrealized appreciation/(depreciation)

     24,683,522 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 33,695,063  
  

 

 

 

 

(a)   As of December 31, 2016, the Portfolio had a net capital loss carryforward of $1,736,257.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and passive foreign investment companies (PFICs), return of capital distributions received from underlying securities, the tax treatment of corporate restructurings, the tax treatment of partnership investments, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments.

 

39


DYNAMIC ASSET ALLOCATION PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio had a net short-term capital loss carryforward of $1,713,361 and a net long-term capital loss carryforward of $22,896 which may be carried forward for an indefinite period.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Recent Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.

NOTE L: Subsequent Events

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

 

40


DYNAMIC ASSET ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30,  2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.63       $11.33       $11.74       $11.74       $10.53       $9.75  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (loss) (a)

    .09 (b)      .13 (b)†      .08       .08 (b)      .03 (b)      (.01 )(b) 

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .79       .27       (.19     .44       1.26       .81  

Contributions from Affiliates

    .00 (c)      –0 –      –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .88       .40       (.11     .52       1.29       .80  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment
income

    –0 –      (.10     (.10     (.07     (.04     (.01

Distributions from net realized gain on investment transactions

    –0 –      (.00 )(c)      (.20     (.45     (.04     (.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.10     (.30     (.52     (.08     (.02
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $12.51       $11.63       $11.33       $11.74       $11.74       $10.53  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    7.65     3.59 %†      (1.09 )%      4.45     12.31     8.22
           

Ratios/Supplemental Data

           

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

    $311       $303       $400       $350       $269       $27  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (e)

    .80 %^      .79     .83     .85     .85     .85

Expenses, before waivers/reimbursements (e)

    .81 %^      .81     .83     .85     .89     1.22

Net investment income (loss)

    1.51 %(b)^      1.11 %(b)†      .67     .69 %(b)      .31 %(b)      (.14 )%(b) 

Portfolio turnover rate

    14     64     93     53     52     51

 

 

 

 

See footnote summary on page 43.

 

41


DYNAMIC ASSET ALLOCATION PORTFOLIO
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.56       $11.26       $11.68       $11.68       $10.49       $9.74  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .08 (b)      .10 (b)†      .05       .05 (b)      .01 (b)      .01 (b) 

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .78       .27       (.19     .45       1.25       .76  

Contributions from Affiliates

    .00 (c)      –0 –      –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .86       .37       (.14     .50       1.26       .77  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.07     (.08     (.05     (.03     (.01

Distributions from net realized gain on investment transactions

    –0 –      (.00 )(c)      (.20     (.45     (.04     (.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.07     (.28     (.50     (.07     (.02
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $12.42       $11.56       $11.26       $11.68       $11.68       $10.49  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    7.44     3.37 %†      (1.30 )%      4.21     12.04     7.90
           

Ratios/Supplemental Data

           

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

    $580,909       $558,725       $511,164       $481,600       $387,519       $220,663  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (e)

    1.05 %^      1.05     1.08     1.10     1.10     1.10

Expenses, before waivers/reimbursements (e)

    1.06 %^      1.07     1.08     1.10     1.14     1.29

Net investment income

    1.26 %(b)^      .89 %(b)†      .43     .44 %(b)      .05 %(b)      .12 %(b) 

Portfolio turnover rate

    14     64     93     53     52     51

 

 

 

See footnote summary on page 43.

 

42


    AB Variable Products Series Fund

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of fees waived and expenses reimbursed by the Adviser.

 

(c)   Amount is less than $.005.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

(e)   In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the six months ended June 30, 2017 and year ended December 31, 2016, such waiver amounted to .01% and .02%, respectively, annualized for the Portfolio.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per  Share
  Net Investment
Income  Ratio
  Total Return
$.00005   .0004%   .0004%

 

^   Annualized.

See notes to financial statements.

 

43


DYNAMIC ASSET ALLOCATION PORTFOLIO
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Dynamic Asset Allocation Portfolio (the “Fund”) at a meeting held on August 2-3, 2016 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.

The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

 

44


    AB Variable Products Series Fund

 

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3- and 5-year periods ended May 31, 2016 and (in the case of comparisons with the broad-based securities market index) the period since inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors considered the Fund’s contractual advisory fee rate against a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund is based on services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs in which the Fund may invest.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted the effects of any fee waivers and/or reimbursements as a result of an undertaking by the Adviser. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or

 

45


DYNAMIC ASSET ALLOCATION PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. After reviewing and discussing the Adviser’s explanations of the reasons that the Fund’s expense ratio was above the medians, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had previously discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.

 

46


 

 

 

VPS-DAA-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

GLOBAL BOND PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
GLOBAL BOND PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

     Beginning
Account Value
January 1, 2017
    Ending
Account Value
June 30, 2017
    Expenses Paid
During Period*
    Annualized
Expense Ratio*
    Total
Expenses Paid
During Period+
    Total
Annualized
Expense Ratio+
 

Class A

           

Actual

  $ 1,000     $ 1,018.60     $ 1.90       0.38   $ 3.20       0.64

Hypothetical (5% annual return before expenses)

  $ 1,000     $ 1,022.91     $ 1.91       0.38   $ 3.21       0.64
           

Class B

           

Actual

  $ 1,000     $ 1,006.50     $ 3.13       0.63   $ 4.43       0.89

Hypothetical (5% annual return before expenses)

  $   1,000     $   1,021.67     $   3.16       0.63   $   4.46       0.89

 

 

 

*   Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

+   In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees and expenses from the Portfolio in an amount equal to the Portfolio’s pro rata share of affiliated acquired fund fees and expenses. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


GLOBAL BOND PORTFOLIO  
SECURITY TYPE BREAKDOWN(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

SECURITY TYPE    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Investment Companies

   $ 5,384,873          48.0

Governments—Treasuries

     3,602,863          32.1  

Inflation-Linked Securities

     536,089          4.8  

Corporates—Investment Grade

     397,270          3.5  

Governments—Sovereign Agencies

     284,272          2.5  

Mortgage Pass-Throughs

     193,229          1.7  

Collateralized Mortgage Obligations

     135,616          1.2  

Emerging Markets—Treasuries

     122,558          1.1  

Corporates—Non-Investment Grade

     51,286          0.5  

Commercial Mortgage-Backed Securities

     20,479          0.2  

Local Governments—Provincial Bonds

     19,442          0.2  

Quasi-Sovereigns

     15,802          0.1  

Emerging Markets—Corporate Bonds

     15,026          0.1  

Emerging Markets—Sovereigns

     6,144          0.1  

Short-Term Investments

     435,737          3.9  
    

 

 

      

 

 

 

Total Investments

   $   11,220,686          100.0

COUNTRY BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

COUNTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

United States

   $ 7,663,475          68.3

Canada

     691,872          6.2  

Italy

     584,436          5.2  

United Kingdom

     448,863          4.0  

Spain

     191,155          1.7  

Belgium

     184,538          1.6  

Brazil

     151,741          1.4  

Mexico

     146,383          1.3  

Sweden

     119,636          1.1  

France

     118,106          1.1  

Australia

     106,568          0.9  

Germany

     94,703          0.8  

New Zealand

     69,610          0.6  

Other

     213,863          1.9  

Short-Term Investments

     435,737          3.9  
    

 

 

      

 

 

 

Total Investments

   $   11,220,686          100.0

 

 

 

(1)   The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivatives transactions, which may be used for hedging or investment purpose (see “Portfolio of Investments” section of the report for additional details).

 

(2)   All data are as of June 30, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 0.6% or less in the following countries: Argentina, Israel, Malaysia, Russia, South Africa and Switzerland.

 

2


GLOBAL BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
     

INVESTMENT COMPANIES–49.2%

 

   

FUNDS AND INVESTMENT TRUSTS–49.2%

 

   

AB Global Bond Fund, Inc.–Class Z(a)
(cost $5,398,327)

      638,775     $ 5,384,873  
     

 

 

 
    Principal
Amount
(000)
       

GOVERNMENTS–TREASURIES–32.9%

 

   

AUSTRALIA–1.0%

     

Australia Government Bond
Series 128
5.75%, 7/15/22(b)

    AUD       75       67,416  

Series 142
4.25%, 4/21/26(b)

      45       39,152  
     

 

 

 
        106,568  
     

 

 

 

BELGIUM–1.7%

     

Kingdom of Belgium Government Bond
Series 71
3.75%, 6/22/45(b)

    EUR       27       44,917  

Series 72
2.60%, 6/22/24(b)

      53       70,003  

Series 81
0.80%, 6/22/27(b)

      61       69,618  
     

 

 

 
        184,538  
     

 

 

 

CANADA–3.4%

     

Canadian Government Bond
1.25%, 8/01/17

    CAD       360       277,740  

2.50%, 6/01/24

      105       85,900  

2.75%, 12/01/48

      15       13,186  
     

 

 

 
        376,826  
     

 

 

 

FRANCE–1.1%

     

French Republic Government Bond OAT
2.50%, 5/25/30(b)

    EUR       35       46,762  

3.50%, 4/25/26(b)

      50       71,344  
     

 

 

 
        118,106  
     

 

 

 

GERMANY–0.9%

     

Bundesrepublik Deutschland
2.50%, 7/04/44–8/15/46(b)

      64       94,703  
     

 

 

 

ITALY–5.3%

     

Italy Buoni Poliennali Del Tesoro
1.35%, 4/15/22

      75       87,613  

3.45%, 3/01/48(b)

      13       15,117  

3.75%, 5/01/21

      262       336,278  

4.50%, 8/01/18

      45       54,092  

5.50%, 11/01/22

      65       91,336  
     

 

 

 
        584,436  
     

 

 

 
   

Principal
Amount
(000)

    U.S. $ Value  
     

MALAYSIA–0.2%

     

Malaysia Government Bond
Series 0511
3.58%, 9/28/18

    MYR       120     $ 28,043  
     

 

 

 

MEXICO–1.2%

     

Mexican Bonos
Series M
6.50%, 6/10/21

    MXN       1,045       57,406  

8.00%, 6/11/20

      1,280       73,175  
     

 

 

 
        130,581  
     

 

 

 

NEW ZEALAND–0.5%

     

New Zealand Government Bond
Series 423
5.50%, 4/15/23(b)

    NZD       65       54,785  
     

 

 

 

RUSSIA–0.3%

     

Russian Federal Bond–OFZ
Series 6214
6.40%, 5/27/20

    RUB       1,850       30,198  
     

 

 

 

SOUTH AFRICA–0.6%

     

Republic of South Africa Government Bond
Series 2048
8.75%, 2/28/48

    ZAR       724       49,398  

Series R186
10.50%, 12/21/26

      189       16,019  
     

 

 

 
        65,417  
     

 

 

 

SPAIN–1.7%

     

Spain Government Bond
1.30%, 10/31/26(b)

    EUR       54       61,070  

1.95%, 7/30/30(b)

      13       14,876  

2.15%, 10/31/25(b)

      20       24,447  

2.90%, 10/31/46(b)

      4       4,622  

4.10%, 7/30/18(b)

      45       53,847  

4.20%, 1/31/37(b)

      21       30,633  

5.15%, 10/31/44(b)

      1       1,660  
     

 

 

 
        191,155  
     

 

 

 

SWEDEN–1.1%

     

Sweden Government Bond
Series 1054
3.50%, 6/01/22

    SEK       860       119,636  
     

 

 

 

UNITED KINGDOM–4.1%

     

United Kingdom Gilt
1.50%, 7/22/26(b)

    GBP       45       60,172  

1.75%, 9/07/22(b)

      20       27,476  

2.00%, 7/22/20–9/07/25(b)

      115       159,468  

2.25%, 9/07/23(b)

      78       110,272  

3.25%, 1/22/44(b)

      55       91,475  
     

 

 

 
        448,863  
     

 

 

 

 

3


GLOBAL BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

UNITED STATES–9.8%

     

U.S. Treasury Bonds
2.875%, 5/15/43–11/15/46

    U.S.$       109     $ 109,824  

3.00%, 11/15/44–2/15/47

      125       128,900  

3.625%, 8/15/43

      90       103,556  

6.25%, 5/15/30

      90       128,292  

U.S. Treasury Notes
1.375%, 4/30/20

      75       74,672  

1.625%, 2/15/26–5/15/26

      130       123,311  

2.00%, 2/15/25–11/15/26

      98       96,043  

2.25%, 11/15/25–2/15/27

      280       279,027  

2.375%, 8/15/24

      25       25,383  
     

 

 

 
        1,069,008  
     

 

 

 

Total Governments–Treasuries
(cost $3,580,847)

        3,602,863  
     

 

 

 

INFLATION-LINKED SECURITIES–4.9%

     

BRAZIL–0.5%

     

Brazil Notas do Tesouro Nacional
Series B
6.00%, 8/15/50–5/15/55

    BRL       56       53,033  
     

 

 

 

NEW ZEALAND–0.1%

     

New Zealand Government Bond
Series 0925
2.00%, 9/20/25(b)

    NZD       20       14,825  
     

 

 

 

UNITED STATES–4.3%

     

U.S. Treasury Inflation Index
0.125%, 4/15/19–4/15/20 (TIPS)

    U.S.$       443       442,884  

0.25%, 1/15/25 (TIPS)

      26       25,347  
     

 

 

 
        468,231  
     

 

 

 

Total Inflation-Linked Securities
(cost $538,054)

        536,089  
     

 

 

 

CORPORATES–INVESTMENT GRADE–3.6%

 

   

INDUSTRIAL–2.9%

     

BASIC–0.2%

     

Fibria Overseas Finance Ltd.
5.50%, 1/17/27

      2       2,043  

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

      5       4,996  

4.125%, 5/30/23(b)

      5       5,131  

4.625%, 4/29/24(b)

      4       4,178  

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

      5       5,103  
     

 

 

 
        21,451  
     

 

 

 

CAPITAL GOODS–0.0%

     

General Electric Co.
Series D
5.00%, 1/21/21(c)

      5       5,302  
     

 

 

 
     

COMMUNICATIONS–MEDIA–0.3%

     

Charter Communications Operating LLC/Charter Communications Operating Capital
3.579%, 7/23/20

  U.S.$       5     $ 5,168  

4.908%, 7/23/25

      15       16,205  

Cox Communications, Inc.
2.95%, 6/30/23(b)

      8       7,795  
     

 

 

 
        29,168  
     

 

 

 

COMMUNICATIONS–
TELECOMMUNICATIONS–0.3%

 

 

AT&T, Inc.
3.40%, 5/15/25

      3       2,944  

3.60%, 2/17/23

      7       7,149  

4.125%, 2/17/26

      12       12,298  

Verizon Communications, Inc.
2.625%, 8/15/26

      10       9,228  

3.50%, 11/01/24

      5       5,047  
     

 

 

 
        36,666  
     

 

 

 

CONSUMER NON–CYCLICAL–0.7%

     

AbbVie, Inc.
2.50%, 5/14/20

      4       4,044  

3.60%, 5/14/25

      10       10,227  

Mylan NV
3.15%, 6/15/21

      11       11,191  

3.95%, 6/15/26

      5       5,071  

Reynolds American, Inc.
4.45%, 6/12/25

      10       10,725  

5.85%, 8/15/45

      3       3,672  

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

      15       14,606  

3.15%, 10/01/26

      15       14,231  
     

 

 

 
        73,767  
     

 

 

 

ENERGY–0.5%

     

Energy Transfer LP
4.65%, 6/01/21

      5       5,273  

EnLink Midstream Partners LP
4.15%, 6/01/25

      13       12,906  

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

      10       10,176  

Hess Corp.
4.30%, 4/01/27

      12       11,751  

Nabors Industries, Inc.
5.50%, 1/15/23(b)

      3       2,841  

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

      12       11,701  
     

 

 

 
        54,648  
     

 

 

 

 

4


    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

SERVICES–0.1%

     

S&P Global, Inc.
4.40%, 2/15/26

    U.S.$       15     $ 16,110  
     

 

 

 

TECHNOLOGY–0.8%

     

Broadcom Corp./Broadcom Cayman Finance Ltd.

     

3.625%, 1/15/24(b)

      5       5,127  

3.875%, 1/15/27(b)

      5       5,134  

Dell International LLC/EMC Corp.
4.42%, 6/15/21(b)

      10       10,539  

5.45%, 6/15/23(b)

      10       10,881  

6.02%, 6/15/26(b)

      5       5,519  

Fidelity National Information Services, Inc.
5.00%, 10/15/25

      3       3,324  

HP, Inc.
4.65%, 12/09/21

      10       10,791  

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

      15       16,188  

Seagate HDD Cayman
4.875%, 3/01/24(b)

      5       5,099  

Western Digital Corp.
7.375%, 4/01/23(b)

      10       10,975  
     

 

 

 
        83,577  
     

 

 

 
        320,689  
     

 

 

 

FINANCIAL INSTITUTIONS–0.7%

     

BANKING–0.7%

 

Bank of America Corp.
3.824%, 1/20/28

      15       15,272  

3.875%, 8/01/25

      20       20,655  

Goldman Sachs Group, Inc. (The)
3.85%, 7/08/24–1/26/27

      13       13,431  

Series E
1.625%, 7/27/26(b)

    EUR       5       5,649  

JPMorgan Chase & Co.
3.782%, 2/01/28

    U.S.$       16       16,366  
     

 

 

 
        71,373  
     

 

 

 

REITS–0.0%

 

VEREIT Operating Partnership LP
4.125%, 6/01/21

      5       5,208  
     

 

 

 
        76,581  
     

 

 

 

Total Corporates–Investment Grade
(cost $388,509)

        397,270  
     

 

 

 

GOVERNMENTS–SOVEREIGN AGENCIES–2.6%

 

   

CANADA–2.6%

 

Canada Housing Trust No. 1
1.70%, 12/15/17(b)

    CAD       60       46,437  

3.80%, 6/15/21(b)

      285       237,835  
     

 

 

 

Total Governments–Sovereign Agencies
(cost $292,947)

        284,272  
     

 

 

 
     

MORTGAGE PASS-THROUGHS–1.8%

     

AGENCY FIXED RATE 30-YEAR–1.7%

     

Federal National Mortgage Association
4.00%, 7/01/47, TBA

    U.S.$       119     $ 125,419  

3.50%, 7/01/47, TBA

      55       56,478  
     

 

 

 
        181,897  
     

 

 

 

OTHER AGENCY FIXED RATE PROGRAMS–0.1%

 

   

Canadian Mortgage Pools
6.125%, 12/15/24

    CAD       12       11,332  
     

 

 

 

Total Mortgage Pass-Throughs
(cost $193,607)

        193,229  
     

 

 

 

COLLATERALIZED MORTGAGE OBLIGATIONS–1.2%

 

   

RISK SHARE FLOATING RATE–1.2%

     

Federal National Mortgage Association Connecticut Avenue Securities
Series 2014-C04, Class 2M2
6.216% (LIBOR 1 Month + 5.00%), 11/25/24(d)

    U.S.$       14       15,643  

Series 2015-C01, Class 1M2
5.516% (LIBOR 1 Month + 4.30%), 2/25/25(d)

      9       9,342  

Series 2015-C01, Class 2M2
5.766% (LIBOR 1 Month + 4.55%), 2/25/25(d)

      15       16,044  

Series 2015-C02, Class 2M2
5.216% (LIBOR 1 Month + 4.00%), 5/25/25(d)

      23       24,849  

Series 2015-C03, Class 2M2
6.216% (LIBOR 1 Month + 5.00%), 7/25/25(d)

      10       11,091  

Series 2016-C01, Class 1M2
7.966% (LIBOR 1 Month + 6.75%), 8/25/28(d)

      13       15,122  

Series 2016-C01, Class 2M2
8.166% (LIBOR 1 Month + 6.95%), 8/25/28(d)

      13       14,997  

Series 2016-C02, Class 1M2
7.216% (LIBOR 1 Month + 6.00%), 9/25/28(d)

      15       17,554  

 

5


GLOBAL BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

Series 2016-C04, Class 1M2
5.466% (LIBOR 1 Month + 4.25%), 1/25/29(d)

    U.S.$       10     $ 10,974  
     

 

 

 

Total Collateralized Mortgage Obligations
(cost $126,918)

        135,616  
     

 

 

 

EMERGING MARKETS–TREASURIES–1.1%

     

ARGENTINA–0.4%

     

Argentine Bonos del Tesoro
15.50%, 10/17/26

    ARS       235       15,712  

16.00%, 10/17/23

      389       25,207  
     

 

 

 
        40,919  
     

 

 

 

BRAZIL–0.7%

     

Brazil Notas do Tesouro Nacional
Series F
10.00%, 1/01/21

    BRL       270       81,639  
     

 

 

 

Total Emerging Markets–Treasuries
(cost $125,045)

        122,558  
     

 

 

 

CORPORATES–NON-INVESTMENT GRADE–0.5%

     

INDUSTRIAL–0.4%

     

BASIC–0.1%

     

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

    U.S.$       7       6,044  
     

 

 

 

COMMUNICATIONS–TELECOMMUNICATIONS–0.1%

 

 

CenturyLink, Inc.
Series S
6.45%, 6/15/21

      8       8,665  

Series Y
7.50%, 4/01/24

      5       5,483  

Uniti Group, Inc./CSL Capital LLC
6.00%, 4/15/23(b)

      2       2,080  
     

 

 

 
        16,228  
     

 

 

 

CONSUMER NON-CYCLICAL–0.1%

     

Valeant Pharmaceuticals International, Inc.
5.875%, 5/15/23(b)

      5       4,287  

6.125%, 4/15/25(b)

      4       3,391  
     

 

 

 
        7,678  
     

 

 

 

ENERGY–0.1%

     

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

      10       6,492  
     

 

 

 
     

TRANSPORTATION–SERVICES–0.0%

     

Hertz Corp. (The)
5.50%, 10/15/24(b)

    U.S.$       5     $ 4,100  
     

 

 

 
        40,542  
     

 

 

 

FINANCIAL INSTITUTIONS–0.1%

     

FINANCE–0.1%

     

Navient Corp.
6.625%, 7/26/21

      10       10,744  
     

 

 

 

Total Corporates–Non-Investment Grade
(cost $51,715)

        51,286  
     

 

 

 

COMMERCIAL MORTGAGE-BACKED SECURITIES–0.2%

     

NON-AGENCY FIXED RATE CMBS–0.2%

     

JPMBB Commercial Mortgage Securities Trust
Series 2015-C32, Class C
4.818%, 11/15/48

      10       9,633  

LB-UBS Commercial Mortgage Trust
Series 2006-C6, Class AJ
5.452%, 9/15/39

      12       10,846  
     

 

 

 

Total Commercial Mortgage-Backed Securities
(cost $22,165)

        20,479  
     

 

 

 

LOCAL GOVERNMENTS–PROVINCIAL BONDS–0.2%

 

   

CANADA–0.2%

     

Province of Ontario Canada
2.40%, 6/02/26

    CAD       15       11,570  

2.60%, 6/02/25

      10       7,872  
     

 

 

 

Total Local Governments–Provincial Bonds
(cost $18,770)

        19,442  
     

 

 

 

QUASI-SOVEREIGNS–0.1%

 

   

QUASI-SOVEREIGN BONDS–0.1%

     

MEXICO–0.1%

     

Petroleos Mexicanos
5.375%, 3/13/22(b)
(cost $14,925)

    U.S.$       15       15,802  
     

 

 

 

EMERGING MARKETS–CORPORATE BONDS–0.1%

 

   

INDUSTRIAL–0.1%

     

ENERGY–0.1%

     

Petrobras Global Finance BV
6.125%, 1/17/22

      9       9,282  

8.75%, 5/23/26

      5       5,744  
     

 

 

 

Total Emerging Markets–Corporate Bonds
(cost $13,925)

        15,026  
     

 

 

 

 

6


 
 
    AB Variable Products Series Fund

 

   

Principal
Amount
(000)

    U.S. $ Value  
     

EMERGING MARKETS–SOVEREIGNS–0.1%

     

ARGENTINA–0.1%

     

Argentine Republic Government International Bond
5.625%, 1/26/22
(cost $6,000)

  U.S.$       6     $ 6,144  
     

 

 

 
        
    
    
Shares
    U.S. $ Value  
     

SHORT-TERM INVESTMENTS–4.0%

     

INVESTMENT COMPANIES–4.0%

     

AB Fixed Income Shares,
Inc.–Government Money Market Portfolio–
Class AB, 0.79%(a)(e)
(cost $435,737)

      435,737     $ 435,737  
     

 

 

 

TOTAL INVESTMENTS–102.5%
(cost $11,207,491)

        11,220,686  

Other assets less liabilities–(2.5)%

        (269,097
     

 

 

 

NET ASSETS–100.0%

      $ 10,951,589  
     

 

 

 

FUTURES (see Note D)

 

Type    Number of
Contracts
     Expiration
Month
     Original
Value
     Value at
June 30, 2017
     Unrealized
Appreciation/
(Depreciation)
 

Purchased Contracts

              

10 Yr Mini Japan Government Bond Futures

     7        September 2017      $   935,951      $   934,972      $ (979

Sold Contracts

              

Euro-BOBL Futures

     1        September 2017        151,916        150,421        1,495  

Euro-Schatz Futures

     1        September 2017        128,079        127,749        330  

U.S. T-Note 5 Yr (CBT) Futures

     2        September 2017        236,716        235,672        1,044  

U.S. T-Note 10 Yr (CBT) Futures

     1        September 2017        134,842        134,813        29  
              

 

 

 
               $   1,919  
              

 

 

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

     BRL        585        USD        177        7/05/17      $ 730  

Bank of America, NA

     USD        91        BRL        305        7/05/17        638  

Bank of America, NA

     USD        85        BRL        280        7/05/17        (120

Bank of America, NA

     TWD        2,536        USD        84        7/28/17        290  

Bank of America, NA

     BRL        305        USD        91        8/02/17        (638

Bank of America, NA

     USD        110        INR        7,094        8/21/17        (441

Bank of America, NA

     INR        3,468        USD        53        8/22/17        69  

Bank of America, NA

     CAD        944        USD        712        8/24/17        (16,200

Barclays Bank PLC

     GBP        395        USD        512        7/21/17        (3,537

Barclays Bank PLC

     KRW        124,657        USD        110        7/27/17        1,453  

 

7


GLOBAL BOND PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Barclays Bank PLC

     USD        55        CNY        378        8/16/17      $ 230  

Barclays Bank PLC

     INR        3,594        USD        55        8/22/17        54  

BNP Paribas SA

     CNY        378        USD        55        7/18/17        (387

Credit Suisse International

     BRL        25        USD        8        7/05/17        41  

Credit Suisse International

     USD        8        BRL        25        7/05/17        (11

Credit Suisse International

     EUR        1,009        USD        1,074        7/13/17        (78,644

Credit Suisse International

     TRY        96        USD        27        8/18/17        (82

Credit Suisse International

     RUB        1,869        USD        32        9/13/17        700  

State Street Bank & Trust Co.

     AUD        315        USD          238        7/10/17        (4,286

State Street Bank & Trust Co.

     CAD        33        NZD        35        7/10/17        238  

State Street Bank & Trust Co.

     NZD        136        USD        95        7/10/17        (4,992

State Street Bank & Trust Co.

     ZAR        721        USD        54        7/11/17        (1,058

State Street Bank & Trust Co.

     EUR        55        SEK        532        7/13/17        667  

State Street Bank & Trust Co.

     EUR        44        USD        49        7/13/17        (1,875

State Street Bank & Trust Co.

     GBP        83        EUR        95        7/13/17        539  

State Street Bank & Trust Co.

     USD        54        EUR        49        7/13/17              2,219  

State Street Bank & Trust Co.

     JPY        1,793        USD        16        7/14/17        (205

State Street Bank & Trust Co.

     SEK        1,518        USD        171        7/14/17        (8,945

State Street Bank & Trust Co.

     USD        49        GBP        39        7/21/17        1,266  

State Street Bank & Trust Co.

     MXN        2,408        USD        133        8/03/17               1,188  

State Street Bank & Trust Co.

     USD        27        TRY        97        8/18/17        222  

State Street Bank & Trust Co.

     USD        55        CAD        73        8/24/17        1,139  
                 

 

 

 
   $ (109,738
                 

 

 

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)

 

Clearing Broker/(Exchange) &
Referenced Obligation
  Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
June 30,
2017
    Notional
Amount
(000)
    Market
Value
    Unrealized
Appreciation/
(Depreciation)
 

Sale Contracts

 

Morgan Stanley & Co. LLC/(INTRCONX)

 

CDX-NAHY Series 27, 5 Year Index, 12/20/21*

    5.00     3.10   $ 199     $ 15,275     $ 9,515  

CDX-NAHY Series 28, 5 Year Index, 6/20/22*

    5.00       3.39       9       636       60  

CDX-NAIG Series 28, 5 Year Index, 6/20/22*

    1.00       0.61         1,100         20,729       4,159  
       

 

 

   

 

 

 
  $ 36,640     $   13,734  
       

 

 

   

 

 

 

 

*   Termination date

CREDIT DEFAULT SWAPS (see Note D)

 

Swap Counterparty &
Referenced Obligation
  Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
June 30,
2017
    Notional
Amount
(000)
    Market
Value
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation/
(Depreciation)
 

Sale Contracts

 

Bank of America, NA

 

CDX-EM Series 23, 5 Year Index, 6/20/20*

    1.00     2.11   $ 147     $ (4,532   $ (7,477   $     2,945  

 

8


    AB Variable Products Series Fund

 

Swap Counterparty &
Referenced Obligation
  Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
June 30,
2017
    Notional
Amount
(000)
    Market
Value
    Upfront
Premiums
Paid
(Received)
    Unrealized
Appreciation/
(Depreciation)
 

Barclays Bank PLC

 

CDX-CMBX.NA.BB Series 6, 5/11/63*

    5.00 %       9.74 %     $ 6     $ (1,071   $ (99   $ (972

CDX-CMBX.NA.BBB Series 7, 1/17/47*

    3.00       4.73         100       (8,605     (593     (8,012)  

Citigroup Global Markets, Inc.

 

CDX-CMBX.NA.BB Series 6, 5/11/63*

    5.00       9.74       6       (1,097     (102     (995

Goldman Sachs International

 

CDX-CMBX.NA.BB Series 6, 5/11/63*

    5.00       9.74       11       (2,012     (200     (1,812

CDX-CMBX.NA.BB Series 6, 5/11/63*

    5.00       9.74       12       (2,194     (192     (2,002
       

 

 

   

 

 

   

 

 

 
        $   (19,511   $   (8,663   $   (10,848
       

 

 

   

 

 

   

 

 

 

 

*   Termination date

 

 

 

(a)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

 

(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 June 30, 2017, the aggregate market value of these securities amounted to $1,626,456 or 14.9% of net assets.

 

(c)   Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date.

 

(d)   Floating Rate Security. Stated interest/floor rate was in effect at June 30, 2017.

 

(e)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

Currency Abbreviations:

ARS—Argentine Peso

AUD—Australian Dollar

BRL—Brazilian Real

CAD—Canadian Dollar

CNY—Chinese Yuan Renminbi

EUR—Euro

GBP—Great British Pound

INR—Indian Rupee

JPY—Japanese Yen

KRW—South Korean Won

MXN—Mexican Peso

MYR—Malaysian Ringgit

NZD—New Zealand Dollar

RUB—Russian Ruble

SEK—Swedish Krona

TRY—Turkish Lira

TWD—New Taiwan Dollar

USD—United States Dollar

ZAR—South African Rand

Glossary:

BOBL—Bundesobligationen

CBT—Chicago Board of Trade

CDX-CMBX.NA—North American Commercial Mortgage-Backed Index

CDX-NAHY—North American High Yield Credit Default Swap Index

CDX-NAIG—North American Investment Grade Credit Default Swap Index

CMBS—Commercial Mortgage-Backed Securities

INTRCONX—Inter-Continental Exchange

LIBOR—London Interbank Offered Rate

OAT—Obligations Assimilables du Trésor

REIT—Real Estate Investment Trust

TBA—To Be Announced

TIPS—Treasury Inflation Protected Security

See notes to financial statements.

 

9


GLOBAL BOND PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value

  

Unaffiliated issuers (cost $5,373,427)

   $ 5,400,076  

Affiliated issuers (cost $5,834,064)

     5,820,610  

Cash

     596  

Cash collateral due from broker

     37,805  

Foreign currencies, at value (cost $38,131)

     38,479  

Unaffiliated interest and dividends receivable

     39,265  

Receivable due from Adviser

     15,908  

Affiliated dividends receivable

     13,588  

Unrealized appreciation on forward currency exchange contracts

     11,683  

Receivable for investment securities sold

     3,611  

Unrealized appreciation on credit default swaps

     2,945  

Receivable for variation margin on exchange-traded derivatives

     1,142  
  

 

 

 

Total assets

     11,385,708  
  

 

 

 

LIABILITIES

  

Payable for investment securities purchased

     198,359  

Unrealized depreciation on forward currency exchange contracts

     121,421  

Custody fee payable

     45,122  

Audit and tax fee payable

     24,194  

Unrealized depreciation on credit default swaps

     13,793  

Upfront premiums received on credit default swaps

     8,663  

Payable for variation margin on exchange-traded derivatives

     535  

Transfer Agent fee payable

     85  

Distribution fee payable

     59  

Payable for capital stock redeemed

     8  

Accrued expenses

     21,880  
  

 

 

 

Total liabilities

     434,119  
  

 

 

 

NET ASSETS

   $ 10,951,589  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 1,053  

Additional paid-in capital

     10,539,337  

Undistributed net investment income

     447,034  

Accumulated net realized gain on investment transactions and foreign currency transactions

     55,790  

Net unrealized depreciation on investments and foreign currency denominated assets and liabilities

     (91,625
  

 

 

 
   $ 10,951,589  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $   10,682,605          1,026,986        $   10.40  
B      $ 268,984          25,976.26        $ 10.35  

 

 

See notes to financial statements.

 

10


GLOBAL BOND PORTFOLIO
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends—Affiliated issuers

   $ 69,446  

Interest

     58,748  
  

 

 

 
     128,194  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     26,950  

Distribution fee—Class B

     208  

Transfer agency—Class A

     1,928  

Transfer agency—Class B

     33  

Custodian

     49,925  

Administrative

     26,055  

Audit and tax

     23,228  

Legal

     13,513  

Directors’ fees

     13,375  

Printing

     7,444  

Miscellaneous

     1,179  
  

 

 

 

Total expenses

     163,838  

Less: expenses waived and reimbursed by the Adviser (see Note B)

     (143,214
  

 

 

 

Net expenses

     20,624  
  

 

 

 

Net investment income

     107,570  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain (loss) on:

  

Investment transactions

     15,695  

Futures

     1,682  

Swaps

     21,436  

Foreign currency transactions

     (22,923

Net change in unrealized appreciation/depreciation of:

  

Affiliated Underlying Portfolios

     50,683  

Investments

     190,090  

Futures

     1,989  

Swaps

     (3,541

Foreign currency denominated assets and liabilities

     (161,757
  

 

 

 

Net gain on investment and foreign currency transactions

     93,354  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 200,924  
  

 

 

 

 

 

See notes to financial statements.

 

11


GLOBAL BOND PORTFOLIO  
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 107,570     $ 227,070  

Net realized gain on investment transactions and foreign currency transactions

     15,890       150,441  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     77,464       163,823  
  

 

 

   

 

 

 

Net increase in net assets from operations

     200,924       541,334  

DIVIDENDS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (291,608

Class B

     –0 –      (383

CAPITAL STOCK TRANSACTIONS

    

Net increase

     249,115       294,472  
  

 

 

   

 

 

 

Total increase

     450,039       543,815  

NET ASSETS

    

Beginning of period

     10,501,550       9,957,735  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $447,034 and $339,464, respectively)

   $ 10,951,589     $ 10,501,550  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

12


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Global Bond Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio commenced operations on April 29, 2015. The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. As of June 30, 2017 AllianceBernstein L.P. (the “Adviser”) was the sole shareholder of Class A shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but

 

13


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

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

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.

 

14


    AB Variable Products Series Fund

 

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

 

Investment Companies

     $ 5,384,873      $ –0 –     $ –0 –     $ 5,384,873  

Governments—Treasuries

       –0 –       3,602,863        –0 –       3,602,863  

Inflation-Linked Securities

       –0 –       536,089        –0 –       536,089  

Corporates—Investment Grade

       –0 –       397,270        –0 –       397,270  

Governments—Sovereign Agencies

       –0 –       284,272        –0 –       284,272  

Mortgage Pass-Throughs

       –0 –       193,229        –0 –       193,229  

Collateralized Mortgage Obligations

       –0 –       135,616        –0 –       135,616  

Emerging Markets—Treasuries

       –0 –       122,558        –0 –       122,558  

Corporates—Non-Investment Grade

       –0 –       51,286        –0 –       51,286  

Commercial Mortgage-Backed Securities

       –0 –       –0 –       20,479        20,479  

Local Governments—Provincial Bonds

       –0 –       19,442        –0 –       19,442  

Quasi-Sovereigns

       –0 –       15,802        –0 –       15,802  

Emerging Markets—Corporate Bonds

       –0 –       15,026        –0 –       15,026  

Emerging Markets—Sovereigns

       –0 –       6,144        –0 –       6,144  

Short-Term Investments

       435,737        –0 –       –0 –       435,737  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       5,820,610        5,379,597        20,479        11,220,686  

Other Financial Instruments(a):

             

Assets:

 

Futures

       2,898        –0 –       –0 –       2,898 (b) 

Forward Currency Exchange Contracts

       –0 –       11,683        –0 –       11,683  

Centrally Cleared Credit Default Swaps

       –0 –       13,734        –0 –       13,734 (b) 

Credit Default Swaps

       –0 –       2,945        –0 –       2,945  

Liabilities:

 

Futures

       (979      –0 –       –0 –       (979 )(b) 

Forward Currency Exchange Contracts

       –0 –       (121,421      –0 –       (121,421

Credit Default Swaps

       –0 –       (13,793      –0 –       (13,793
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 5,822,529      $ 5,272,745      $ 20,479      $ 11,115,753  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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 Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

15


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.

 

     Commercial
Mortgage-
Backed
Securities
    Total  

Balance as of 12/31/16

   $ 21,371     $ 21,371  

Accrued discounts/(premiums)

     2       2  

Realized gain (loss)

     (44     (44

Change in unrealized appreciation/depreciation

     363       363  

Purchases/Payups

     –0 –      –0 – 

Sales/Paydowns

     (1,213     (1,213

Transfers in to Level 3

     –0 –      –0 – 

Transfers out of Level 3

     –0 –      –0 – 
  

 

 

   

 

 

 

Balance as of 6/30/17

   $ 20,479     $ 20,479  
  

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation from investments held as of 6/30/17(a)

   $ 363     $ 363  
  

 

 

   

 

 

 

 

(a)   The unrealized appreciation/depreciation is included in net change in unrealized appreciation/depreciation of investments in the accompanying statement of operations.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

 

16


    AB Variable Products Series Fund

 

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .50% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses (excluding acquired fund fees and expenses other than the fees and expenses of any AB Mutual Funds in which the Portfolio may invest, interest expense, taxes, extraordinary expenses, expenses associated with securities sold short, and brokerage commissions and other transaction costs) on an annual basis (the “Expense Caps”) to .64% and .89% of daily average net assets for Class A and Class B, respectively. Any fees waived and expenses borne by the Adviser through April 28, 2016 are subject to repayment by the Portfolio until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne; such waivers that are subject to repayment amounted to $179,979 for the fiscal period ended December 31, 2015 and $84,021 for the year ended December 31, 2016, respectively. In any case, no reimbursement payment will be made that would cause the Portfolio’s total annual fund operating expenses to exceed the net fee percentages set forth in the preceding sentence. For the six months ended June 30, 2017, the reimbursements/waivers amounted to $103,078. The Expense Caps may not be terminated by the Adviser before May 1, 2018.

The Portfolio may invest in AB mutual funds managed by the Adviser. In addition to the Expense Caps, the Adviser has contractually agreed to waive its management fees and/or bear Portfolio expenses through May 1, 2018 in an amount equal to the Portfolio’s share of all fees and expenses of any AB mutual funds in which the Portfolio invests. For the six months ended June 30, 2017, such waiver amounted to $14,081.

 

17


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

A summary of the Portfolio’s transactions in AB mutual funds for the six months ended June 30, 2017 is as follows:

 

AB Global Bond Fund, Inc.  
                                   

Distributions

 

Market Value
12/31/16
(000)

   

Purchases
at Cost
(000)

   

Sales
Proceeds
(000)

   

Realized
Gain (Loss)
(000)

   

Change in
Unrealized
Appr./(Depr.)
(000)

   

Market Value
6/30/17
(000)

   

Income
(000)

   

Realized
Gains
(000)

 
$ 5,267     $ 67     $ 0     $ 0     $ 51     $ 5,385     $ 68     $ 0  

 

AB Government Money Market  
                           

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

   

Dividend

Income

(000)

 
$ 301     $ 1,421     $ 1,286     $ 436     $ 1  

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the Adviser voluntarily agreed to waive such fees amounting to $26,055.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $0, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases      Sales  

Investment securities (excluding U.S. government securities)

   $ 1,455,581      $ 1,252,058  

U.S. government securities

     1,244,445        823,816  

 

18


    AB Variable Products Series Fund

 

The cost of investments for federal income tax purposes, gross unrealized appreciation and unrealized depreciation (excluding futures, foreign currency and swap transactions) are as follows:

 

Gross unrealized appreciation

   $ 107,350  

Gross unrealized depreciation

     (94,155
  

 

 

 

Net unrealized appreciation

   $ 13,195  
  

 

 

 

1. Derivative Financial Instruments

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

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

 

   

Futures

The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.

At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.

During the six months ended June 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.

 

19


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

 

   

Swaps

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

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

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

At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for centrally cleared swaps is generally less than non-centrally cleared swaps, since the clearinghouse, which is the issuer or counterparty to each centrally cleared swap, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Credit Default Swaps:

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

 

20


    AB Variable Products Series Fund

 

(i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same reference obligation with the same counterparty. As of June 30, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligation and counterparty Sale Contracts outstanding.

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

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

During the six months ended June 30, 2017, the Portfolio held credit default swaps for non-hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

 

21


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of

Assets and Liabilities

Location

   Fair Value    

Statement of

Assets and Liabilities

Location

   Fair Value  

Interest rate contracts

  Receivable/Payable for variation margin on exchange-traded derivatives    $ 2,898   Receivable/Payable for variation margin on exchange-traded derivatives    $ 979

Credit contracts

  Receivable/Payable for variation margin on exchange-traded derivatives      13,734     

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts      11,683     Unrealized depreciation on forward currency exchange contracts      121,421  

Credit contracts

  Unrealized appreciation on credit default swaps      2,945     Unrealized depreciation on credit default swaps      13,793  
    

 

 

      

 

 

 

Total

     $ 31,260        $ 136,193  
    

 

 

      

 

 

 

 

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

 

Derivative Type

  

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

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

Interest rate contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures    $ 1,682     $ 1,989  

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities      (15,291     (162,241

Credit contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      21,436       (3,541
     

 

 

   

 

 

 

Total

      $ 7,827     $ (163,793
     

 

 

   

 

 

 

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

 

Futures:

  

Average original value of buy contracts

   $ 916,116  

Average original value of sale contracts

   $ 237,166  

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 643,999  

Average principal amount of sale contracts

   $ 3,582,080  

 

22


    AB Variable Products Series Fund

 

Credit Default Swaps:

  

Average notional amount of sale contracts

   $ 282,000  

Centrally Cleared Credit Default Swaps:

  

Average notional amount of sale contracts

   $ 1,308,539  

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

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

Counterparty

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

Exchange-Traded Derivatives:

           

Morgan Stanley & Co., Inc./Morgan Stanley & Co. LLC*

   $ 1,142      $ (535   $             –0 –    $             –0 –    $ 607  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,142      $ (535   $ –0 –    $ –0 –    $ 607  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

           

Bank of America, NA

   $ 1,727      $ (1,727   $ –0 –    $ –0 –    $ –0 – 

Barclays Bank PLC

     1,737        (1,737     –0 –      –0 –      –0 – 

Credit Suisse International

     741        (741     –0 –      –0 –      –0 – 

State Street Bank & Trust Co.

     7,478        (7,478     –0 –      –0 –      –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 11,683      $ (11,683   $ –0 –    $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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:

           

Morgan Stanley & Co., Inc./Morgan Stanley & Co. LLC*

   $ 535      $ (535   $ –0 –    $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 535      $ (535   $ –0 –    $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

           

Bank of America, NA

   $ 21,931      $ (1,727   $ –0 –    $ –0 –    $ 20,204  

Barclays Bank PLC

     13,213        (1,737     –0 –      –0 –      11,476  

BNP Paribas SA

     387        –0 –      –0 –      –0 –      387  

Citigroup Global Markets, Inc.

     1,097        –0 –      –0 –      –0 –      1,097  

Credit Suisse International

     78,737        (741     –0 –      –0 –      77,996  

Goldman Sachs International

     4,206        –0 –      –0 –      –0 –      4,206  

State Street Bank & Trust Co.

     21,361        (7,478     –0 –      –0 –      13,883  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 140,932      $ (11,683   $ –0 –    $ –0 –    $ 129,249
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

*   Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at June 30, 2017.

 

^   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.

 

23


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

3. TBA and Dollar Rolls

The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.

The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. During the six months ended June 30, 2017, the Portfolio had no transactions in dollar rolls.

NOTE E: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares issued in reinvestment of dividends

    –0 –      27,986       $ –0 –    $ 291,608  
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase

    –0 –      27,986       $ –0 –    $ 291,608  
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    24,655       248       $ 250,000     $ 2,514  

Shares issued in reinvestment of dividends

    –0 –      37         –0 –      383  

Shares redeemed

    (86     (3       (885     (33
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase

    24,569       282       $ 249,115     $ 2,864  
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, the Adviser owns approximately 98% in aggregate of the Portfolio’s outstanding shares.

NOTE F: Risks Involved in Investing in the Portfolio

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

 

24


    AB Variable Products Series Fund

 

Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) are subject to a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, negative perceptions of the junk bond market generally and less secondary market liquidity.

Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.

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

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

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

Investment in Other Investment Companies Risk—As with other investments, investments in Underlying Funds, including exchange-traded funds, or ETFs, are subject to market and selection risk. In addition, when the Portfolio acquires shares of Underlying Funds, Contractholders bear both their proportionate share of expenses in the Portfolio (including management and advisory fees) and, indirectly, the expenses of the Underlying Funds.

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

Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

Non-Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Portfolio’s NAV.

Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.

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

 

25


GLOBAL BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE G: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE H: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal year ended December 31, 2016 was as follows:

 

       2016  

Distributions paid from:

    

Ordinary income

     $ 291,991  
    

 

 

 

Total distributions paid

     $ 291,991  
    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 423,917  

Undistributed capital gains

     13,821 (a) 

Unrealized appreciation/(depreciation)

     (227,464 )(b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 210,274  
  

 

 

 

 

(a)   During the fiscal year, the Portfolio utilized $7,908 of short-term capital loss carryforwards to offset current year net realized gain.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE I: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE J: Recent Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.

NOTE K: Subsequent Events

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

 

26


GLOBAL BOND PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended

June 30, 2017
(unaudited)
    Year Ended
December 31,

2016
    April 29, 2015(a) to
December 31,

2015
 
       

Net asset value, beginning of period

    $10.21       $9.96       $10.00  
 

 

 

   

 

 

   

 

 

 
     

Income From Investment Operations

     

Net investment income (b)(c)

    .10       .22       .18  

Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions

    .09       .32       (.22
 

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .19       .54       (.04
 

 

 

   

 

 

   

 

 

 
     

Less: Dividends

     

Dividends from net investment income

    –0 –      (.29     –0 – 
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $10.40       $10.21       $9.96  
 

 

 

   

 

 

   

 

 

 
     

Total Return

     

Total investment return based on net asset value (d)

    1.86     5.38     (.40 )% 
     

Ratios/Supplemental Data

     

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

    $10,683       $10,488       $9,947  

Ratio to average net assets of:

     

Expenses, net of waivers/reimbursements (e)

    .38 %^      .38     .38 %^ 

Expenses, before waivers/reimbursements (e)

    3.04 %^      3.15     3.63 %^ 

Net investment income (c)

    2.00 %^      2.18     2.74 %^ 

Portfolio turnover rate

    20     38     62

 

 

See footnote summary on page 28.

 

27


GLOBAL BOND PORTFOLIO
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended

June 30, 2017
(unaudited)
    Year Ended
December 31,

2016
    April 29, 2015(a) to
December 31,

2015
 
       

Net asset value, beginning of period

    $10.18       $9.94       $10.00  
 

 

 

   

 

 

   

 

 

 
     

Income From Investment Operations

     

Net investment income (b)(c)

    .09       .20       .17  

Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions

    .08       .32       (.23
 

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .17       .52       (.06
 

 

 

   

 

 

   

 

 

 
     

Less: Dividends

     

Dividends from net investment income

    –0 –      (.28     –0 – 
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $10.35       $10.18       $9.94  
 

 

 

   

 

 

   

 

 

 
     

Total Return

     

Total investment return based on net asset value (d)

    1.67     5.17     (.60 )% 
     

Ratios/Supplemental Data

     

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

    $269       $14       $11  

Ratio to average net assets of:

     

Expenses, net of waivers/reimbursements (e)

    .63 %^      .63     .64 %^ 

Expenses, before waivers/reimbursements (e)

    3.28 %^      3.38     3.90 %^ 

Net investment income (c)

    1.79 %^      1.94     2.55 %^ 

Portfolio turnover rate

    20     38     62

 

 

 

(a)   Commencement of operations.

 

(b)   Based on average shares outstanding.

 

(c)   Net of fees and expenses waived/reimbursed by the Adviser.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

(e)   In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of affiliated acquired fund fees and expenses, and for the six months ended June 30, 2017 and year ended December 31, 2016, such waiver amounted to 0.26% and 0.26%, respectively, annualized for the Portfolio.

 

^   Annualized.

See notes to financial statements.

 

28


 
GLOBAL BOND PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Bond Portfolio (the “Fund”) at a meeting held on November 1-3, 2016 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.

The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for the period ended December 31, 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency and distribution services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by

 

29


GLOBAL BOND PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors noted that the Fund was not profitable to the Adviser in the period reviewed.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors considered the Fund’s contractual effective advisory fee rate against a peer group median.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors concluded, based on the Adviser’s explanation of how it may use ETFs when they are the most cost-effective way to obtain desired exposures or to “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund would be for services in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs in which the Fund may invest.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted the effects of an undertaking by the Adviser to waive fees and/or reimburse expenses, which the Adviser informed the directors would remain in effect until May 2018, including a waiver or reimbursement of a portion of the advisory fees earned by the Adviser from assets of the Fund that are invested in another AB Fund. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors

 

30


    AB Variable Products Series Fund

 

view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

31


 

 

 

 

 

VPS-GB-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS SERIES FUND, INC.

 

+  

GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

     Beginning
Account Value
January 1, 2017
    Ending
Account Value
June 30, 2017
    Expenses Paid
During Period*
    Annualized
Expense Ratio*
    Total
Expenses Paid
During Period+
    Total
Annualized
Expense Ratio+
 

Class A

           

Actual

  $   1,000     $   1,054.20     $   3.21       0.63   $   3.82       0.75

Hypothetical (5% annual return before expenses)

  $ 1,000     $ 1,021.67     $ 3.16       0.63   $ 3.76       0.75
           

Class B

           

Actual

  $ 1,000     $ 1,053.30     $ 4.48       0.88   $ 5.09       1.00

Hypothetical (5% annual return before expenses)

  $ 1,000     $ 1,020.43     $ 4.41       0.88   $ 5.01       1.00

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

+   In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees and expenses from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain affiliated/unaffiliated acquired fund fees and expenses. The Portfolio’s total expenses are equal to the classes’ annualized expense ratio plus the Portfolio’s pro rata share of the weighted average expense ratio of the affiliated/unaffiliated underlying portfolios in which it invests, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


GLOBAL RISK ALLOCATION-MODERATE PORTFOLIO
SECURITY TYPE BREAKDOWN(1)
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

SECURITY TYPE    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Investment Companies

   $   32,491,520          37.0

Inflation-Linked Securities

     3,699,036          4.2  

Options Purchased—Puts

     108,767          0.1  

Options Purchased—Calls

     5,959          0.0  

Short-Term Investments

     51,551,957          58.7  
    

 

 

      

 

 

 

Total Investments

   $ 87,857,239          100.0

COUNTRY BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

COUNTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

United States

   $ 36,233,169          41.2

Germany

     55,164          0.1  

United Kingdom

     9,796          0.0  

Japan

     7,153          0.0  

Short-Term Investments

     51,551,957          58.7  
    

 

 

      

 

 

 

Total Investments

   $   87,857,239          100.0

 

 

 

(1)   The Portfolio’s security type breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivatives transactions, which may be used for hedging or investment purpose (see “Portfolio of Investments” section of the report for additional details).

 

(2)   All data are as of June 30, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time.

 

2


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
        Shares     U.S. $ Value  
     

INVESTMENT
COMPANIES–36.1%

     

FUNDS AND INVESTMENT TRUSTS–36.1%(a)

     

iShares Core MSCI EAFE ETF

      76,670     $ 4,668,436  

iShares Core S&P 500 ETF

      23,730       5,776,120  

iShares MSCI EAFE ETF

      90,720       5,914,944  

iShares Russell 2000 ETF

      11,040       1,555,757  

SPDR S&P 500 ETF Trust

      35,560       8,598,408  

Vanguard S&P 500 ETF

      26,920       5,977,855  
     

 

 

 

Total Investment Companies
(cost $28,266,024)

        32,491,520  
     

 

 

 
          Principal
Amount
(000)
       

INFLATION-LINKED SECURITIES–4.1%

     

UNITED STATES–4.1%

     

U.S. Treasury Inflation Index
0.375%, 7/15/25 (TIPS)
(cost $3,759,281)

    $   3,727       3,699,036  
     

 

 

 
          Contracts        

OPTIONS PURCHASED–PUTS–0.1%

     

OPTIONS ON INDICES–0.1%

     

Euro STOXX 50 Index
Expiration: Jul 2017, Exercise Price: EUR 3,450.00(b)(c)

      820       55,164  

FTSE 100 Index
Expiration: Jul 2017, Exercise Price: GBP 7,250.00(b)(c)

      130       9,796  

Nikkei 225 Index
Expiration: Jul 2017, Exercise Price: JPY 19,500.00(b)(c)

      12,000       7,153  
     

 

 

 
        72,113  
     

 

 

 

OPTIONS ON FUNDS AND INVESTMENT TRUSTS–0.0%

     

SPDR S&P 500 ETF Trust
Expiration: Jul 2017, Exercise Price: $ 237.00(c)(d)

      447       36,654  
     

 

 

 

Total Options Purchased–Puts
(premiums paid $100,531)

        108,767  
     

 

 

 

OPTIONS PURCHASED–CALLS–0.0%

     

OPTIONS ON FUNDS AND INVESTMENT TRUSTS–0.0%

     

SPDR S&P 500 ETF Trust
Expiration: Jul 2017, Exercise Price: $ 247.00(c)(d)

      198       4,257  
     

SPDR S&P 500 ETF Trust
Expiration: Jul 2017, Exercise Price: $ 248.00(c)(d)

      148     $ 1,702  
     

 

 

 

Total Options Purchased–Calls
(premiums paid $19,045)

        5,959  
     

 

 

 

SHORT-TERM
INVESTMENTS–57.3%

     

INVESTMENT COMPANIES–24.6%

     

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB,
0.79%(a)(e)
(cost $22,143,469)

      22,143,469       22,143,469  
     

 

 

 
          Principal
Amount
(000)
       

GOVERNMENTS–
TREASURIES–21.7%

     

JAPAN–21.7%

     

Japan Treasury Discount Bill
Series 686
Zero Coupon, 9/04/17

    JPY         298,250       2,652,259  

Series 689
Zero Coupon, 9/19/17

      1,892,000       16,825,235  
     

 

 

 

Total Governments–Treasuries
(cost $19,932,092)

        19,477,494  
     

 

 

 

U.S. TREASURY BILLS–11.0%

     

U.S. Treasury Bill
Zero Coupon, 7/06/17–9/28/17
(cost $9,930,994)

  $         9,944       9,930,994  
     

 

 

 

Total Short-Term Investments
(cost $52,006,555)

        51,551,957  
     

 

 

 

TOTAL
INVESTMENTS–97.6%
(cost $84,151,436)

        87,857,239  

Other assets less
liabilities–2.4%

        2,185,803  
     

 

 

 

NET ASSETS–100.0%

      $ 90,043,042  
     

 

 

 

 

3


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

FUTURES (see Note D)

 

Type   Number of
Contracts
    Expiration
Month
    Original
Value
    Value at
June 30, 2017
    Unrealized
Appreciation/
(Depreciation)
 

Purchased Contracts

 

10 Yr Australian Bond Futures

    12       September 2017     $   1,209,520     $   1,192,188       $  (17,332)  

10 Yr Canadian Bond Futures

    4       September 2017       445,612       433,529       (12,083

Euro STOXX 50 Index Futures

    179       September 2017       7,238,469       7,014,501       (223,968

Euro-BTP Futures

    13       September 2017       1,981,328       2,006,551       25,223  

Euro-OAT Futures

    16       September 2017       2,731,130       2,713,382       (17,748

FTSE 100 Index Futures

    22       September 2017       2,139,399       2,075,258       (64,141

Long Gilt Futures

    4       September 2017       664,358       654,194       (10,164

Nikkei 225 (CME) Futures

    24       September 2017       2,411,474       2,412,600       1,126  

S&P 500 E Mini Futures

    62       September 2017       7,527,920       7,504,790       (23,130

S&P TSX 60 Index Futures

    11       September 2017         1,537,865         1,508,513       (29,352

SPI 200 Futures

    7       September 2017       766,886       759,819       (7,067

TOPIX Index Futures

    18       September 2017       2,564,445       2,578,973       14,528  

U.S. T-Note 10 Yr (CBT) Futures

    25       September 2017       3,143,986       3,138,281       (5,705

U.S. Ultra Bond (CBT) Futures

    3       September 2017       487,435       497,625       10,190  

Sold Contracts

         

Euro-Bund Futures

    26       September 2017       4,886,572       4,806,874       79,698  

Nikkei 225 (OSE) Futures

    5       September 2017       893,500       889,976       3,524  
         

 

 

 
            $  (276,401
         

 

 

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty   

Contracts to
Deliver
(000)

    

In Exchange
For
(000)

     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

     USD        2,737        EUR        2,383        9/15/17      $ (4,726

Barclays Bank PLC

     JPY        819,684        EUR        6,567        7/18/17        213,768  

Barclays Bank PLC

     EUR        3,267        USD        3,653        9/15/17        (92,567

Citibank, NA

     JPY        351,262        USD        3,168        9/15/17        35,555  

Citibank, NA

     USD        1,241        JPY        135,268        9/15/17        (34,863

HSBC Bank USA

     USD        6,429        JPY        713,182        9/15/17        (68,507

Nomura Global Financial Products, Inc.

     JPY        298,252        USD        2,699        9/06/17        40,199  

State Street Bank & Trust Co.

     AUD        1,080        USD        817        9/15/17        (11,965

State Street Bank & Trust Co.

     CHF        866        USD        902        9/15/17        (4,799

State Street Bank & Trust Co.

     EUR        2,871        USD        3,242        9/15/17        (50,010

State Street Bank & Trust Co.

     HKD        1,141        USD        147        9/15/17        325  

State Street Bank & Trust Co.

     SGD        190        USD        137        9/15/17        (1,243

State Street Bank & Trust Co.

     JPY        1,892,104        USD        17,277        9/21/17        398,113  

UBS AG

     GBP        1,990        USD        2,581        9/15/17        (16,416

UBS AG

     USD        826        GBP        637        9/15/17        5,255  
                 

 

 

 
                  $   408,119  
                 

 

 

 

 

4


    AB Variable Products Series Fund

 

CALL OPTIONS WRITTEN (see Note D)

 

Description

   Contracts      Exercise
Price
     Expiration
Month
     Premiums
Received
     U.S. $ Value  

Nikkei 225 Index (b)

     12,000        JPY      20,875.00        July 2017      $   4,442      $   (1,276

PUT OPTIONS WRITTEN (see Note D)

 

Description

   Contracts      Exercise
Price
     Expiration
Month
     Premiums
Received
     U.S. $ Value  

Euro STOXX 50 Index(b)

     820      EUR 3,325.00        July 2017      $ 11,939      $ (19,696

FTSE 100 Index(b)

     130      GBP 7,000.00        July 2017        1,911        (3,026

Nikkei 225 Index(b)

     12,000      JPY     18,875.00        July 2017        5,694        (2,780

SPDR S&P 500 ETF Trust(d)

     148      $ 228.00        July 2017        7,246        (3,774

SPDR S&P 500 ETF Trust(d)

     645        230.00        July 2017        35,446        (20,318
           

 

 

    

 

 

 
            $   62,236      $   (49,594
           

 

 

    

 

 

 

 

 

(a)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov. Additionally, shareholder reports for AB funds can be obtained by calling AB at (800) 227-4618.

 

(b)   One contract relates to 1 share.

 

(c)   Non-income producing security.

 

(d)   One contract relates to 100 shares.

 

(e)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

Currency Abbreviations:

AUD—Australian Dollar

CHF—Swiss Franc

EUR—Euro

GBP—Great British Pound

HKD—Hong Kong Dollar

JPY—Japanese Yen

SGD—Singapore Dollar

USD—United States Dollar

Glossary:

BTP—Buoni del Tesoro Poliennali

CBT—Chicago Board of Trade

CME—Chicago Mercantile Exchange

EAFE—Europe, Australia, and Far East

ETF—Exchange Traded Fund

FTSE—Financial Times Stock Exchange

MSCI—Morgan Stanley Capital International

OAT—Obligations Assimilables du Trésor

OSE—Osaka Securities Exchange

SPDR—Standard & Poor’s Depository Receipt

SPI—Share Price Index

TIPS—Treasury Inflation Protected Security

TOPIX—Tokyo Price Index

TSX—Toronto Stock Exchange

See notes to financial statements.

 

5


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $62,007,967)

   $ 65,713,770  

Affiliated issuers (cost $22,143,469)

     22,143,469  

Cash collateral due from broker

     1,364,112  

Foreign currencies, at value (cost $516,794)

     513,410  

Unrealized appreciation on forward currency exchange contracts

     693,215  

Receivable for capital stock sold

     192,809  

Unaffiliated dividends and interest receivable

     61,918  

Receivable for investment securities sold

     22,684  

Affiliated dividends receivable

     13,164  
  

 

 

 

Total assets

     90,718,551  
  

 

 

 

LIABILITIES

 

Due to custodian

     15,626  

Options written, at value (premiums received $66,678)

     50,870  

Unrealized depreciation on forward currency exchange contracts

     285,096  

Payable for variation margin on exchange-traded derivatives

     113,610  

Payable for capital stock redeemed

     48,835  

Advisory fee payable

     26,106  

Distribution fee payable

     19,807  

Administrative fee payable

     12,899  

Transfer Agent fee payable

     84  

Accrued expenses

     102,576  
  

 

 

 

Total liabilities

     675,509  
  

 

 

 

NET ASSETS

   $ 90,043,042  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 8,773  

Additional paid-in capital

     83,478,652  

Undistributed net investment income

     147,239  

Accumulated net realized gain on investment transactions and foreign currency transactions

     2,558,434  

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     3,849,944  
  

 

 

 
   $ 90,043,042  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $ 11,344          1,100        $ 10.31  
B      $   90,031,698          8,771,478        $   10.26  

 

 

 

 

See notes to financial statements.

 

6


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers

   $ 383,155  

Affiliated issuers

     71,233  

Interest

     61,858  

Other income

     2  
  

 

 

 
     516,248  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     256,801  

Distribution fee—Class B

     106,987  

Transfer agency—Class B

     1,911  

Custodian

     40,122  

Administrative

     25,500  

Audit and tax

     23,569  

Legal

     14,318  

Directors’ fees

     13,374  

Printing

     9,367  

Miscellaneous

     18,658  
  

 

 

 

Total expenses

     510,607  

Less: expenses waived and reimbursed by the Adviser (see Notes B and E)

     (132,651
  

 

 

 

Net expenses

     377,956  
  

 

 

 

Net investment income

     138,292  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain on:

  

Investment transactions

     80,545  

Futures

     2,255,802  

Options written

     719,035  

Swaptions written

     51,146  

Foreign currency transactions

     137,849  

Net change in unrealized appreciation/depreciation of:

  

Investments

     1,539,487  

Futures

     (558,867

Options written

     (150,731

Swaptions written

     (257

Foreign currency denominated assets and liabilities

     104,013  
  

 

 

 

Net gain on investment and foreign currency transactions

     4,178,022  
  

 

 

 

Contributions from Affiliates (see Note B)

     146  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 4,316,460  
  

 

 

 

 

 

See notes to financial statements.

 

7


 
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 138,292     $ 154,316  

Net realized gain on investment transactions and foreign currency transactions

     3,244,377       174,910  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     933,645       2,874,799  

Contributions from Affiliates (see Note B)

     146       –0 – 
  

 

 

   

 

 

 

Net increase in net assets from operations

     4,316,460       3,204,025  

DIVIDENDS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (36

Class B

     –0 –      (194,179

CAPITAL STOCK TRANSACTIONS

    

Net increase

     6,418,005       25,173,454  
  

 

 

   

 

 

 

Total increase

     10,734,465       28,183,264  

NET ASSETS

    

Beginning of period

     79,308,577       51,125,313  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $147,239 and $8,947, respectively)

   $ 90,043,042     $ 79,308,577  
  

 

 

   

 

 

 

 

 

See notes to financial statements.

 

8


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Global Risk Allocation—Moderate Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). AB Global Risk Allocation—Moderate Portfolio commenced operations on April 28, 2015. The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. The Portfolio is non-diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S.

 

9


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk

 

10


    AB Variable Products Series Fund

 

of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Investment Companies

     $ 32,491,520      $ –0 –     $             –0 –     $ 32,491,520  

Inflation-Linked Securities

       –0 –       3,699,036        –0 –       3,699,036  

Options Purchased—Puts

       –0 –       108,767        –0 –       108,767  

Options Purchased—Calls

       –0 –       5,959        –0 –       5,959  

Short-Term Investments:

             

Investment Companies

       22,143,469        –0 –       –0 –       22,143,469  

Governments—Treasuries

       –0 –       19,477,494        –0 –       19,477,494  

U.S. Treasury Bills

       –0 –       9,930,994        –0 –       9,930,994  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       54,634,989        33,222,250        –0 –       87,857,239  

Other Financial Instruments(a):

             

Assets:

             

Futures

       116,237        18,052        –0 –       134,289 (b) 

Forward Currency Exchange Contracts

       –0 –       693,215        –0 –       693,215  

Liabilities:

             

Futures

       (115,514      (295,176      –0 –       (410,690 )(b) 

Forward Currency Exchange Contracts

       –0 –       (285,096      –0 –       (285,096

Call Options Written

       –0 –       (1,276      –0 –       (1,276

Put Options Written

       –0 –       (49,594      –0 –       (49,594
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 54,635,712      $ 33,302,375      $ –0 –     $ 87,938,087  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/(depreciation) on the instrument. Other financial instruments may also include options written which are valued at market value.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor

 

11


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

due diligence meetings, review of methodologies, new developments and processes at vendors, 2) daily comparison of security valuation versus prior day for all securities that exceeded established thresholds, and 3) daily review of unpriced, stale, and variance reports with exceptions reviewed by senior management and the Committee.

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .60% of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive

 

12


    AB Variable Products Series Fund

 

its fees and bear certain expenses, to the extent necessary to limit total operating expenses, inclusive of the Portfolio’s proportionate share of fees and expenses of registered investment companies or series thereof in which the Portfolio invests (“Acquired Fund Expenses”) on an annual basis (the “Expense Caps”) to .75% and 1.00% of daily average net assets for Class A and Class B, respectively. Any fees waived and expenses borne by the Adviser through April 27, 2016 are subject to repayment by the Portfolio until the end of the third fiscal year after the fiscal period in which the fee was waived or the expense was borne; such waivers that are subject to repayment amounted to $157,734 for the fiscal period ended December 31, 2015 and $70,109 for the year ended December 31, 2016, respectively. In any case, no reimbursement payment will be made that would cause the Portfolio’s total annual fund operating expenses to exceed the net fee percentage set forth above. For the six months ended June 30, 2017, the reimbursements/waivers, exclusive of Acquired Fund Expenses, amounted to $82,619.

For the six months ended June 30, 2017, such waiver for Acquired Fund Expenses for both affiliated and unaffiliated underlying portfolios amounted to $29,144 and $20,855, respectively. The Expense Caps may not be terminated by the Adviser before May 1, 2018.

A summary of the Portfolio’s transactions in shares of the AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

   

Dividend

Income

(000)

 
$ 36,333     $ 21,267     $ 35,457     $ 22,143     $ 71  

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,500.

During the six months ended June 30, 2017, the Adviser reimbursed the Portfolio $146 for trading losses incurred due to a trade entry error.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $39,859, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

 

13


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases        Sales  

Investment securities (excluding U.S. government securities)

     $ 4,652,627        $ 4,727,083  

U.S. government securities

       2,322,781          –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 (excluding futures, foreign currency, written options and swap transactions) are as follows:

 

Gross unrealized appreciation

   $ 4,258,837  

Gross unrealized depreciation

     (553,034
  

 

 

 

Net unrealized appreciation

   $ 3,705,803  
  

 

 

 

1. Derivative Financial Instruments

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

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

 

   

Futures

The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.

At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.

During the six months ended June 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of

 

14


    AB Variable Products Series Fund

 

such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.

 

   

Option Transactions

For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.

The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.

When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.

At June 30, 2017, the maximum payments for written put options amounted to $6,495,175. In certain circumstances maximum payout amounts may be partially offset by recovery values of the respective referenced assets and upfront premium received upon entering into the contract.

The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.

During the six months ended June 30, 2017, the Portfolio held purchased options for hedging and non-hedging purposes. During the six months ended June 30, 2017, the Portfolio held written options for hedging and non-hedging purposes.

During the six months ended June 30, 2017, the Portfolio held written swaptions for hedging and non-hedging purposes.

 

15


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

For the six months ended June 30, 2017, the Portfolio had the following transactions in written options:

 

     Number of
Contracts
     Premiums
Received
 

Options written outstanding as of 12/31/16

     48,805      $ 227,170  

Options written

     20,677,164        594,830  

Options assigned

     (12,000      (7,244

Options expired

     (20,665,227      (721,252

Options bought back

     (22,999      (26,826

Options exercised

     –0 –       –0 – 
  

 

 

    

 

 

 

Options written outstanding as of 6/30/17

     25,743      $ 66,678  
  

 

 

    

 

 

 
     Notional
Amount
     Premiums
Received
 

Swaptions written outstanding as of 12/31/16

   $ 11,900,000      $ 22,545  

Swaptions written

     10,400,000        28,600  

Swaptions assigned

     –0 –       –0 – 

Swaptions expired

     (22,300,000      (51,145

Swaptions bought back

     –0 –       –0 – 

Swaptions exercised

     –0 –       –0 – 
  

 

 

    

 

 

 

Swaptions written outstanding as of 6/30/17

   $ –0 –     $ –0 – 
  

 

 

    

 

 

 

The Portfolio 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

    

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

  

Statement of
Assets and Liabilities
Location

   Fair Value    

Statement of
Assets and Liabilities
Location

   Fair Value  

Interest rate contracts

   Receivable/Payable for variation margin on exchange-traded derivatives    $ 115,111   Receivable/Payable for variation margin on exchange-traded derivatives    $ 63,032

Equity contracts

   Receivable/Payable for variation margin on exchange-traded derivatives      19,178   Receivable/Payable for variation margin on exchange-traded derivatives      347,658

 

16


    AB Variable Products Series Fund

 

    

Asset Derivatives

    

Liability Derivatives

 

Derivative Type

  

Statement of
Assets and Liabilities
Location

   Fair Value     

Statement of
Assets and Liabilities
Location

   Fair Value  

Foreign exchange contracts

   Unrealized appreciation on forward currency exchange contracts    $ 693,215      Unrealized depreciation on forward currency exchange contracts    $ 285,096  

Equity contracts

   Investments in securities, at value      114,726        

Equity contracts

         Options written, at value      50,870  
     

 

 

       

 

 

 

Total

      $ 942,230         $ 746,656  
     

 

 

       

 

 

 

 

*   Only variation margin receivable/payable at period end is reported within the statement of assets and liabilities.

This amount reflects cumulative appreciation/(depreciation) of exchange-traded derivatives as reported in the portfolio of investments.

 

Derivative Type

  

Location of Gain or (Loss) on Derivatives

Within Statement of Operations

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

Interest rate contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures    $ 104,206     $ 16,007  

Equity contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures      2,151,596       (574,874

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities      (876,729     107,556  

Interest rate contracts

   Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments      37,986       (4,717

Foreign exchange contracts

   Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments      (5,317     0  

Equity contracts

   Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments      (607,970     15,941  

Foreign exchange contracts

   Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written      107,814       0  

Equity contracts

   Net realized gain (loss) on options written; Net change in unrealized appreciation/depreciation of options written      611,221       (150,731

Interest rate contracts

   Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written      51,146       (257
     

 

 

   

 

 

 

Total

      $ 1,573,953     $ (591,075
     

 

 

   

 

 

 

 

17


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Futures:

  

Average original value of buy contracts

   $ 33,325,820  

Average original value of sale contracts

   $ 4,332,512 (a) 

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 12,002,991  

Average principal amount of sale contracts

   $ 28,811,459  

Purchased Options:

  

Average monthly cost

   $ 158,304  

 

(a)   Positions were open for four months during the period.

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

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

Counterparty

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

Exchange-Traded Derivatives:

 

Morgan Stanley & Co., Inc.*

   $ 42,613      $ (42,613   $             –0 –    $             –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 42,613      $ (42,613   $ –0 –    $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

 

Barclays Bank PLC

   $ 213,768      $ (92,567   $ –0 –    $ –0 –    $ 121,201  

Citibank, NA

     42,708        (38,919     –0 –       –0 –      3,789  

Goldman Sachs & Co.

     64,960        (22,722     –0 –      –0 –      42,238  

Nomura Global Financial Products, Inc.

     40,199        –0 –      –0 –      –0 –      40,199  

State Street Bank & Trust Co.

     398,438        (68,017     –0 –      –0 –      330,421  

UBS AG

     5,255        (5,255     –0 –      –0 –      –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 765,328      $ (227,480   $ –0 –    $ –0 –    $ 537,848
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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:

 

Morgan Stanley & Co., Inc.*

   $ 137,702      $ (42,613   $ (95,089   $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 137,702      $ (42,613   $ (95,089   $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

 

Bank of America, NA

   $ 4,726      $ –0 –    $ –0 –    $ –0 –    $ 4,726  

Barclays Bank PLC

     92,567        (92,567     –0 –      –0 –      –0 – 

Citibank, NA

     38,919        (38,919     –0 –      –0 –      –0 – 

Goldman Sachs & Co.

     22,722        (22,722     –0 –      –0 –      –0 – 

HSBC Bank USA

     68,507        –0 –      –0 –      –0 –      68,507  

State Street Bank & Trust Co.

     68,017        (68,017     –0 –      –0 –      –0 – 

UBS AG

     16,416        (5,255     –0 –      –0 –      11,161  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 311,874      $ (227,480   $ –0 –    $ –0 –    $ 84,394
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

*  

Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at June 30, 2017.

 

**   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.

 

18


    AB Variable Products Series Fund

 

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had no securities on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $148 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $33. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities. A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 0     $ 1,583     $ 1,583     $ 0  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class B

 

Shares sold

    1,622,912       3,808,075       $ 16,333,610     $ 35,747,390  

Shares issued in reinvestment of dividends

    –0 –      20,203         –0 –      194,152  

Shares redeemed

    (983,603     (1,139,548       (9,915,605     (10,768,088
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase

    639,309       2,688,730       $ 6,418,005     $ 25,173,454  
 

 

 

   

 

 

     

 

 

   

 

 

 

 

19


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

There were no transactions in capital shares for Class A for the six months ended June 30, 2017 and the year ended December 31, 2016.

At June 30, 2017, certain shareholders of the Portfolio owned 98% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Allocation Risk—The allocation of investments among asset classes may have a significant effect on the Portfolio’s net asset value, or NAV, when asset classes in which the Portfolio has invested more heavily perform worse than the asset classes invested in less heavily.

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

High Yield Securities Risk—Investments in fixed-income securities with ratings below investment grade (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.

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

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

Investment in Other Investment Companies Risk—As with other investments, investments in other investment companies, including ETFs, are subject to market and selection risk. In addition, shareholders of the Portfolio bear both their proportionate share of expenses in the Portfolio (including management fees) and, indirectly, the expenses of the investment companies.

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

Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes of liquidity risk may include low trading volumes and large positions. Foreign fixed-income securities may have more liquidity risk because secondary trading markets for these securities may be smaller and less well-developed and the securities may trade less frequently. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.

Non-Diversification Risk—The Portfolio may have more risk because it is “non-diversified”, meaning that it can invest more of its assets in a smaller number of issuers and that adverse changes in the value of one security could have a more significant effect on the Portfolio’s NAV.

 

20


    AB Variable Products Series Fund

 

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal year ended December 31, 2016 was as follows:

 

       2016  

Distributions paid from:

    

Ordinary income

     $ 194,215  
    

 

 

 

Total distributions paid

     $ 194,215  
    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 763,954  

Accumulated capital and other losses

     (806,303 )(a) 

Unrealized appreciation/(depreciation)

     2,281,652 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 2,239,303  
  

 

 

 

 

(a)   As of December 31, 2016, the cumulative deferred loss on straddles was $806,303. During the fiscal year, the Portfolio utilized $246,484 of short-term capital loss carryforwards and $525,178 of long-term capital loss carryforwards to offset current year net realized gains.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Recent Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.

 

21


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE L: Subsequent Events

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

 

22


 
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
    April 28, 2015(a) to
December 31,
2015
 

Net asset value, beginning of period

    $9.78       $9.40       $10.00  
 

 

 

   

 

 

   

 

 

 
     

Income From Investment Operations

     

Net investment income (b)(c)

    .03       .04       .05  

Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions

    .50       .37       (.65

Contributions from Affiliates

    .00 (d)      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .53       .41       (.60
 

 

 

   

 

 

   

 

 

 
     

Less: Dividends

     

Dividends from net investment income

    –0 –      (.03     –0 – 
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $10.31       $9.78       $9.40  
 

 

 

   

 

 

   

 

 

 
     

Total Return

     

Total investment return based on net asset value (e)

    5.42     4.39     (6.00 )% 
     

Ratios/Supplemental Data

     

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

    $11       $11       $10  

Ratio to average net assets of:

     

Expenses, net of waivers/reimbursements (f)

    .63 %^      .63     .69 %^ 

Expenses, before waivers/reimbursements (f)

    .95 %^      1.08     3.21 %^ 

Net investment income (c)

    .56 %^      .46     .82 %^ 

Portfolio turnover rate

    14     79     111

 

 

 

See footnote summary on page 24.

 

23


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
    April 28, 2015(a) to
December 31,
2015
 

Net asset value, beginning of period

    $9.75       $9.39       $10.00  
 

 

 

   

 

 

   

 

 

 
     

Income From Investment Operations

     

Net investment income (b)(c)

    .02       .02       .01  

Net realized and unrealized gain (loss) on investment transactions and foreign currency transactions

    .49       .37       (.62

Contributions from Affiliates

    .00 (d)      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .51       .39       (.61
 

 

 

   

 

 

   

 

 

 
     

Less: Dividends

     

Dividends from net investment income

    –0 –      (.03     –0 – 
 

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $10.26       $9.75       $9.39  
 

 

 

   

 

 

   

 

 

 
     

Total Return

     

Total investment return based on net asset value (e)

    5.33     4.24     (6.20 )% 
     

Ratios/Supplemental Data

     

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

    $90,032       $79,298       $51,115  

Ratio to average net assets of:

     

Expenses, net of waivers/reimbursements (f)

    .88 %^      .88     .94 %^ 

Expenses, before waivers/reimbursements (f)

    1.19 %^      1.33     1.62 %^ 

Net investment income (c)

    .32 %^      .24     .19 %^ 

Portfolio turnover rate

    14     79     111

 

 

(a)   Commencement of operations.

 

(b)   Based on average shares outstanding.

 

(c)   Net of fees waived and expenses reimbursed by the Adviser.

 

(d)   Amount is less than $.005.

 

(e)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

(f)   In connection with the Portfolio’s investments in affiliated/unaffiliated underlying portfolios, the Portfolio incurs no direct expenses, but bears proportionate shares of the fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated/unaffiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain affiliated/unaffiliated acquired fund fees and expenses and for the six months ended June 30, 2017 and years ended December 31, 2016 and December 31, 2015, respectively such waiver amounted to 0.12%, 0.12% and 0.06%, respectively, annualized for the Portfolio.

 

^   Annualized.

See notes to financial statements.

 

24


 
GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Risk Allocation—Moderate Portfolio (the “Fund”) at a meeting held on August 2-3, 2016 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.

The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues, expenses and related notes indicating the profitability of the Fund to the Adviser for the period ended December 31, 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by

 

25


GLOBAL RISK ALLOCATION—MODERATE PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors noted that the Fund was not profitable to the Adviser in the period reviewed.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Fund’s unprofitability to the Adviser would be exacerbated without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-year period ended May 31, 2016 and (in the case of comparisons with the broad-based securities market index) the period since inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors considered the Fund’s contractual advisory fee rate against a peer group median.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors noted that the Fund invests in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it uses ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund is based on services that are in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs in which the Fund may invest.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted the effects of any fee waivers and/or reimbursements as a result of an undertaking by the Adviser. The

 

26


    AB Variable Products Series Fund

 

directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund does not contain breakpoints and that they had previously discussed their strong preference for breakpoints in advisory contracts with the Adviser. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. The directors informed the Adviser that they would monitor the Fund’s assets (which were well below the level at which they would anticipate adding an initial breakpoint) and its profitability (currently unprofitable) to the Adviser and anticipated revisiting the question of breakpoints in the future if circumstances warranted doing so.

 

27


 

 

 

 

 

 

VPS-GRA-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

GLOBAL THEMATIC GROWTH PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
GLOBAL THEMATIC GROWTH PORTFOLIO
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The first line of each class’ table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The second line of each class’ table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

     Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,214.40      $   5.60        1.02

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.74      $ 5.11        1.02
           

Class B

           

Actual

   $ 1,000      $ 1,212.80      $ 6.97        1.27

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,018.50      $ 6.36        1.27

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


GLOBAL THEMATIC GROWTH PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE                 PERCENT OF NET ASSETS           

Vestas Wind Systems A/S

   $ 3,314,137          2.6

Housing Development Finance Corp., Ltd.

     3,182,160          2.5  

AIA Group Ltd.

     3,175,300          2.4  

Kingspan Group PLC

     3,153,650          2.4  

MSCI, Inc.—Class A

     2,909,467          2.2  

Ecolab, Inc.

     2,844,832          2.2  

Hexcel Corp.

     2,838,993          2.2  

Xylem, Inc./NY

     2,831,919          2.2  

Abbott Laboratories

     2,795,075          2.2  

American Water Works Co., Inc.

     2,735,967          2.1  
    

 

 

      

 

 

 
     $   29,781,500            23.0

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Information Technology

   $ 27,199,132          20.8

Health Care

     26,537,830          20.3  

Financials

     23,997,705          18.4  

Industrials

     17,984,287          13.8  

Consumer Discretionary

     8,290,840          6.4  

Utilities

     5,511,063          4.2  

Consumer Staples

     4,562,925          3.5  

Materials

     2,844,832          2.2  

Telecommunication Services

     1,604,060          1.2  

Real Estate

     1,250,643          1.0  

Short-Term Investments

     10,689,194          8.2  
    

 

 

      

 

 

 

Total Investments

   $   130,472,511          100.0

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivatives transactions, which may be used for hedging or investment purpose (see “Portfolio of Investments” section of the report for additional details).

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


GLOBAL THEMATIC GROWTH PORTFOLIO
COUNTRY BREAKDOWN(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COUNTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

United States

   $ 63,122,252          48.4

China

     8,020,835          6.2  

India

     7,700,961          5.9  

Switzerland

     6,834,294          5.2  

France

     4,557,189          3.5  

Germany

     3,754,337          2.9  

Denmark

     3,314,137          2.5  

Indonesia

     3,206,227          2.5  

Hong Kong

     3,175,300          2.4  

Ireland

     3,153,650          2.4  

Sweden

     3,055,208          2.3  

United Kingdom

     2,830,329          2.2  

Japan

     2,182,755          1.7  

Other

     4,875,843          3.7  

Short-Term Investments

     10,689,194          8.2  
    

 

 

      

 

 

 

Total Investments

   $   130,472,511          100.0

 

 

 

 

(1)   All data are as of June 30, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments and may vary over time. “Other” country weightings represent 1.4% or less in the following countries: Austria, Brazil, Norway, Peru and Philippines.

 

3


GLOBAL THEMATIC GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

COMMON STOCKS–92.4%

   

INFORMATION TECHNOLOGY–21.0%

   

COMMUNICATIONS EQUIPMENT–0.9%

   

Lumentum Holdings, Inc.(a)

    20,950     $ 1,195,197  
   

 

 

 

INTERNET SOFTWARE & SERVICES–7.6%

   

Alibaba Group Holding Ltd. (Sponsored ADR)(a)

    19,030       2,681,327  

Alphabet, Inc.–Class C(a)

    2,537       2,305,448  

Facebook, Inc.–Class A(a)

    17,290       2,610,444  

Tencent Holdings Ltd.

    64,300       2,306,759  
   

 

 

 
      9,903,978  
   

 

 

 

IT SERVICES–1.9%

   

Visa, Inc.–Class A

    25,640       2,404,519  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–5.8%

   

ams AG(a)

    27,880       1,809,186  

Broadcom Ltd.

    9,850       2,295,543  

Infineon Technologies AG

    73,720       1,565,854  

NVIDIA Corp.

    12,808       1,851,524  
   

 

 

 
      7,522,107  
   

 

 

 

SOFTWARE–3.0%

   

Microsoft Corp.

    33,950       2,340,174  

salesforce.com, Inc.(a)

    17,812       1,542,519  
   

 

 

 
      3,882,693  
   

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.8%

   

Apple, Inc.

    15,905       2,290,638  
   

 

 

 
      27,199,132  
   

 

 

 

HEALTH CARE–20.5%

   

BIOTECHNOLOGY–2.4%

   

Foundation Medicine, Inc.(a)(b)

    40,531       1,611,107  

Regeneron Pharmaceuticals, Inc.(a)

    2,890       1,419,395  
   

 

 

 
      3,030,502  
   

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES–7.1%

   

Abbott Laboratories

    57,500       2,795,075  

Danaher Corp.

    23,160       1,954,472  

Essilor International SA

    17,507       2,227,113  

West Pharmaceutical Services, Inc.

    24,070       2,275,097  
   

 

 

 
      9,251,757  
   

 

 

 

HEALTH CARE PROVIDERS & SERVICES–3.4%

   

Apollo Hospitals Enterprise Ltd.(a)

    91,640       1,803,806  

UnitedHealth Group, Inc.

    14,030       2,601,442  
   

 

 

 
      4,405,248  
   

 

 

 
   

LIFE SCIENCES TOOLS & SERVICES–5.3%

   

Bio-Rad Laboratories, Inc.–Class A(a)

    11,800     $ 2,670,458  

Bruker Corp.

    78,810       2,272,880  

ICON PLC(a)

    20,010       1,956,778  
   

 

 

 
      6,900,116  
   

 

 

 

PHARMACEUTICALS–2.3%

   

Roche Holding AG

    7,080       1,809,045  

Vectura Group PLC(a)

    782,990       1,141,162  
   

 

 

 
      2,950,207  
   

 

 

 
      26,537,830  
   

 

 

 

FINANCIALS–18.5%

   

BANKS–5.6%

   

Bank Mandiri Persero Tbk PT

    1,671,500       1,602,167  

Credicorp Ltd.

    7,140       1,280,845  

HDFC Bank Ltd.

    51,450       1,325,263  

Svenska Handelsbanken AB–Class A

    113,190       1,621,121  

Swedbank AB–Class A

    58,760       1,434,087  
   

 

 

 
      7,263,483  
   

 

 

 

CAPITAL MARKETS–5.6%

   

Charles Schwab Corp. (The)

    40,580       1,743,317  

MSCI, Inc.–Class A

    28,250       2,909,467  

Partners Group Holding AG

    4,260       2,645,079  
   

 

 

 
      7,297,863  
   

 

 

 

CONSUMER FINANCE–1.1%

   

Bharat Financial Inclusion Ltd.(a)

    124,820       1,389,732  
   

 

 

 

INSURANCE–3.7%

   

AIA Group Ltd.

    434,000       3,175,300  

Prudential PLC

    73,590       1,689,167  
   

 

 

 
      4,864,467  
   

 

 

 

THRIFTS & MORTGAGE FINANCE–2.5%

   

Housing Development Finance Corp., Ltd.

    127,660       3,182,160  
   

 

 

 
      23,997,705  
   

 

 

 

INDUSTRIALS–13.9%

   

AEROSPACE & DEFENSE–2.2%

   

Hexcel Corp.

    53,779       2,838,993  
   

 

 

 

BUILDING PRODUCTS–2.4%

   

Kingspan Group PLC

    91,870       3,153,650  
   

 

 

 

COMMERCIAL SERVICES & SUPPLIES–1.0%

   

China Everbright International Ltd.

    1,064,000       1,327,029  
   

 

 

 

ELECTRICAL EQUIPMENT–4.4%

   

Schneider Electric SE (Paris)(a)

    30,320       2,330,076  

Vestas Wind Systems A/S

    35,880       3,314,137  
   

 

 

 
      5,644,213  
   

 

 

 

 

4


    AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

INDUSTRIAL CONGLOMERATES–1.7%

   

Siemens AG (REG)

    15,910     $ 2,188,483  
   

 

 

 

MACHINERY–2.2%

   

Xylem, Inc./NY

    51,090       2,831,919  
   

 

 

 
      17,984,287  
   

 

 

 

CONSUMER DISCRETIONARY–6.4%

   

AUTO COMPONENTS–1.8%

   

Delphi Automotive PLC

    26,360       2,310,454  
   

 

 

 

DIVERSIFIED CONSUMER SERVICES–0.7%

   

Bright Horizons Family Solutions, Inc.(a)

    12,056       930,844  
   

 

 

 

HOTELS, RESTAURANTS & LEISURE–1.3%

   

Starbucks Corp.

    28,640       1,669,998  
   

 

 

 

INTERNET & DIRECT MARKETING RETAIL–1.2%

   

Amazon.com, Inc.(a)

    1,653       1,600,104  
   

 

 

 

TEXTILES, APPAREL & LUXURY GOODS–1.4%

   

NIKE, Inc.–Class B

    30,160       1,779,440  
   

 

 

 
      8,290,840  
   

 

 

 

UTILITIES–4.2%

   

WATER UTILITIES–4.2%

   

American Water Works Co., Inc.

    35,099       2,735,967  

AquaVenture Holdings Ltd.(a)(b)

    35,076       534,207  

Beijing Enterprises Water Group Ltd.(a)

    2,198,000       1,705,720  

Cia de Saneamento Basico do Estado de Sao Paulo

    56,000       535,169  
   

 

 

 
      5,511,063  
   

 

 

 

CONSUMER STAPLES–3.5%

   

FOOD PRODUCTS–1.8%

   

Nestle SA (REG)

    27,290       2,380,170  
   

 

 

 

HOUSEHOLD PRODUCTS–1.7%

   

Unicharm Corp.

    86,700       2,182,755  
   

 

 

 
      4,562,925  
   

 

 

 

MATERIALS–2.2%

   

CHEMICALS–2.2%

   

Ecolab, Inc.

    21,430       2,844,832  
   

 

 

 

TELECOMMUNICATION SERVICES–1.2%

   

DIVERSIFIED TELECOMMUNICATION SERVICES–1.2%

   

Telekomunikasi Indonesia Persero Tbk PT

    4,723,500       1,604,060  
   

 

 

 
   

REAL ESTATE–1.0%

   

REAL ESTATE MANAGEMENT & DEVELOPMENT–1.0%

   

SM Prime Holdings, Inc.

    1,914,100     $ 1,250,643  
   

 

 

 

Total Common Stocks
(cost $88,792,760)

      119,783,317  
   

 

 

 

WARRANTS–0.0%

   

INFORMATION TECHNOLOGY–0.0%

   

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–0.0%

   

Thin Film Electronics ASA, expiring 7/14/18(a)(c)(d)
(cost $0)

    591,845       –0 – 
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–8.3%

   

TIME DEPOSIT–8.3%

   

State Street Time Deposit
0.09%, 7/03/17
(cost $10,689,194)

  U.S.$     10,689       10,689,194  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–100.7%
(cost $99,481,954)

      130,472,511  
   

 

 

 
    Shares        

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.7%

   

INVESTMENT COMPANIES–1.7%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–
Class AB, 0.79%(e)(f)
(cost $2,252,022)

    2,252,022       2,252,022  
   

 

 

 

TOTAL INVESTMENTS–102.4%
(cost $101,733,976)

      132,724,533  

Other assets less
liabilities–(2.4)%

      (3,086,139
   

 

 

 

NET ASSETS–100.0%

    $   129,638,394  
   

 

 

 

 

5


GLOBAL THEMATIC GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

     USD        494        RUB        28,928        9/13/17      $ (10,641

Bank of America, NA

     INR        252,308        USD        3,870        9/15/17        (2,674

Bank of America, NA

     USD        1,742        GBP        1,339        9/15/17        5,725  

Bank of America, NA

     USD        2,098        KRW        2,362,364        9/15/17        (33,396

Barclays Bank PLC

     CNY        28,540        USD        4,175        9/15/17        (16,136

Barclays Bank PLC

     INR        95,324        USD        1,468        9/15/17        4,393  

Barclays Bank PLC

     USD        1,991        CAD        2,672        9/15/17        71,365  

Barclays Bank PLC

     USD        1,561        TWD        46,930        9/15/17        (17,135

BNP Paribas SA

     USD        574        GBP        444        9/15/17        5,645  

BNP Paribas SA

     USD        150        TWD        4,498        9/15/17        (1,712

Citibank, NA

     BRL        3,090        USD        928        7/05/17        (4,790

Citibank, NA

     USD        934        BRL        3,090        7/05/17        (1,325

Citibank, NA

     USD        922        BRL        3,090        8/02/17        4,801  

Citibank, NA

     USD        7,853        JPY        857,607        9/15/17        (205,071

Citibank, NA

     USD        211        KRW        238,277        9/15/17        (2,308

Credit Suisse International

     BRL        3,090        USD        934        7/05/17        1,325  

Credit Suisse International

     USD        965        BRL        3,090        7/05/17        (32,334

Credit Suisse International

     USD        1,365        CAD        1,803        9/15/17        26,723  

Deutsche Bank AG

     GBP        962        USD        1,229        9/15/17        (26,509

JPMorgan Chase Bank, NA

     INR        75,564        USD        1,161        9/15/17        802  

Morgan Stanley &
Co., Inc.

     SEK        4,642        USD        535        9/15/17        (18,314

Royal Bank of Scotland PLC

     HKD        8,879        USD        1,142        9/15/17        2,456  

Royal Bank of Scotland PLC

     USD        1,260        AUD        1,710        9/15/17        53,061  

Royal Bank of Scotland PLC

     USD        845        ZAR        11,647        9/15/17        34,430  

Standard Chartered Bank

     EUR        1,193        USD        1,319        9/15/17        (49,001

State Street Bank & Trust Co.

     CHF        2,508        USD        2,614        9/15/17        (13,898

State Street Bank & Trust Co.

     HKD        3,679        USD        474        9/15/17        1,657  

State Street Bank & Trust Co.

     USD        546        EUR        489        9/15/17        15,089  

State Street Bank & Trust Co.

     USD        471        JPY        52,386        9/15/17        (3,486

State Street Bank & Trust Co.

     USD        488        MXN        9,452        9/15/17        27,106  

State Street Bank & Trust Co.

     USD        262        NOK        2,208        9/15/17        3,271  

UBS AG

     USD        2,375        GBP        1,831        9/15/17        15,105  
                 

 

 

 
                  $   (165,776
                 

 

 

 

 

6


    AB Variable Products Series Fund

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Illiquid security.

 

(d)   Fair valued by the Adviser.

 

(e)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(f)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

Currency Abbreviations:

AUD—Australian Dollar

BRL—Brazilian Real

CAD—Canadian Dollar

CHF—Swiss Franc

CNY—Chinese Yuan Renminbi

EUR—Euro

GBP—Great British Pound

HKD—Hong Kong Dollar

INR—Indian Rupee

JPY—Japanese Yen

KRW—South Korean Won

MXN—Mexican Peso

NOK—Norwegian Krone

RUB—Russian Ruble

SEK—Swedish Krona

TWD—New Taiwan Dollar

USD—United States Dollar

ZAR—South African Rand

Glossary:

ADR—American Depositary Receipt

REG—Registered Shares

See notes to financial statements.

 

7


GLOBAL THEMATIC GROWTH PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $99,481,954)

   $ 130,472,511 (a) 

Affiliated issuers (cost $2,252,022—investment of cash collateral for securities loaned)

     2,252,022  

Foreign currencies, at value (cost $145,006)

     148,055  

Receivable for investment securities sold and foreign currency transactions

     6,153,580  

Unrealized appreciation on forward currency exchange contracts

     272,954  

Dividends and interest receivable

     176,833  

Receivable for capital stock sold

     115,140  
  

 

 

 

Total assets

     139,591,095  
  

 

 

 

LIABILITIES

 

Payable for investment securities purchased and foreign currency transactions

     6,974,953  

Payable for collateral received on securities loaned

     2,252,022  

Unrealized depreciation on forward currency exchange contracts

     438,730  

Advisory fee payable

     84,837  

Payable for capital stock redeemed

     48,163  

Distribution fee payable

     21,139  

Administrative fee payable

     12,927  

Transfer Agent fee payable

     81  

Accrued expenses

     119,849  
  

 

 

 

Total liabilities

     9,952,701  
  

 

 

 

NET ASSETS

   $ 129,638,394  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 4,921  

Additional paid-in capital

     112,031,209  

Undistributed net investment income

     706,793  

Accumulated net realized loss on investment and foreign currency transactions

     (13,934,072

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     30,829,543  
  

 

 

 
   $ 129,638,394  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $ 32,864,596          1,213,856        $ 27.07  
B      $   96,773,798          3,707,295        $   26.10  

 

 

 

(a)   Includes securities on loan with a value of $2,145,315 (see Note E).

See notes to financial statements.

 

8


GLOBAL THEMATIC GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $87,348)

   $ 937,445  

Affiliated issuers

     8,843  

Interest

     1,813  

Securities lending income

     23,999  

Other income

     2,440  
  

 

 

 
     974,540  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     449,467  

Distribution fee—Class B

     110,878  

Transfer agency—Class A

     975  

Transfer agency—Class B

     2,781  

Custodian

     48,106  

Printing

     27,205  

Audit and tax

     26,562  

Administrative

     25,031  

Legal

     15,684  

Directors’ fees

     13,383  

Miscellaneous

     4,784  
  

 

 

 

Total expenses

     724,856  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (2,355
  

 

 

 

Net expenses

     722,501  
  

 

 

 

Net investment income

     252,039  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain on:

  

Investment transactions

     4,876,003  

Foreign currency transactions

     122,978  

Net change in unrealized appreciation/depreciation of:

  

Investments

     17,461,407  

Foreign currency denominated assets and liabilities

     (95,595
  

 

 

 

Net gain on investment and foreign currency transactions

     22,364,793  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 22,616,832  
  

 

 

 

 

 

See notes to financial statements.

 

9


 
GLOBAL THEMATIC GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

Net investment income (loss)

   $ 252,039     $ (10,710

Net realized gain on investment and foreign currency transactions

     4,998,981       3,729,311  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     17,365,812       (4,937,260
  

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

     22,616,832       (1,218,659

CAPITAL STOCK TRANSACTIONS

 

Net decrease

     (61,796     (15,530,375
  

 

 

   

 

 

 

Total increase (decrease)

     22,555,036       (16,749,034

NET ASSETS

 

Beginning of period

     107,083,358       123,832,392  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $706,793 and $454,754, respectively)

   $ 129,638,394     $ 107,083,358  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

10


GLOBAL THEMATIC GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Global Thematic Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern

 

11


GLOBAL THEMATIC GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

     Level 1     Level 2     Level 3     Total  

Investments in Securities:

        

Assets:

        

Common Stocks:

        

Information Technology

   $ 21,517,333     $ 5,681,799     $             –0 –    $ 27,199,132  

Health Care

     20,697,866       5,839,964       –0 –      26,537,830  

Financials

     5,933,629       18,064,076       –0 –      23,997,705  

Industrials

     8,824,562       9,159,725       –0 –      17,984,287  

Consumer Discretionary

     8,290,840       –0 –      –0 –      8,290,840  

Utilities

     3,805,343       1,705,720       –0 –      5,511,063  

Consumer Staples

     –0 –      4,562,925       –0 –      4,562,925  

Materials

     2,844,832       –0 –      –0 –      2,844,832  

Telecommunication Services

     –0 –      1,604,060       –0 –      1,604,060  

Real Estate

     –0 –      1,250,643       –0 –      1,250,643  

Warrants

     –0 –      –0 –      –0 –(a)      –0 – 

Short-Term Investments

     –0 –      10,689,194       –0 –      10,689,194  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

     2,252,022       –0 –      –0 –      2,252,022  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

     74,166,427       58,558,106 (b)      –0 –      132,724,533  

 

12


    AB Variable Products Series Fund

 

     Level 1     Level 2     Level 3      Total  

Other Financial Instruments(c):

         

Assets:

         

Forward Currency Exchange Contracts

   $ –0 –    $ 272,954     $ –0 –     $ 272,954  

Liabilities:

         

Forward Currency Exchange Contracts

     –0 –      (438,730     –0 –       (438,730
  

 

 

   

 

 

   

 

 

    

 

 

 

Total(d)

   $ 74,166,427     $ 58,392,330     $ –0 –     $ 132,558,757  
  

 

 

   

 

 

   

 

 

    

 

 

 

 

(a)   The Portfolio held securities with zero market value at period end.

 

(b)   A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.

 

     Warrants(a)     Total  

Balance as of 12/31/16

   $             –0 –    $             –0 – 

Accrued discounts/(premiums)

     –0 –      –0 – 

Realized gain (loss)

     –0 –      –0 – 

Change in unrealized appreciation/depreciation

     –0 –      –0 – 

Purchases

     –0 –      –0 – 

Sales

     –0 –      –0 – 

Transfers in to Level 3

     –0 –      –0 – 

Transfers out of Level 3

     –0 –      –0 – 
  

 

 

   

 

 

 

Balance as of 06/30/17

   $ –0 –    $ –0 – 
  

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation from investments held as of 06/30/17(b)

   $ –0 –    $ –0 – 
  

 

 

   

 

 

 

 

(a)   The Portfolio held securities with zero market value at period end.

 

(b)   The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and any third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor 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.

 

13


GLOBAL THEMATIC GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,031.

 

14


    AB Variable Products Series Fund

 

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $37,754, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases     Sales  

Investment securities (excluding U.S. government securities)

   $ 25,487,576     $ 33,471,998  

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 (excluding foreign currency transactions)are as follows:

 

Gross unrealized appreciation

   $ 31,659,235  

Gross unrealized depreciation

     (668,678
  

 

 

 

Net unrealized appreciation

   $ 30,990,557  
  

 

 

 

1. Derivative Financial Instruments

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

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

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

 

15


GLOBAL THEMATIC GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

 

Liability Derivatives

Derivative Type

 

Statement of
Assets and Liabilities
Location

  

Fair Value

 

Statement of
Assets and Liabilities
Location

  

Fair Value

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts    $272,954   Unrealized depreciation on forward currency exchange contracts    $438,730
    

 

    

 

Total

     $272,954      $438,730
    

 

    

 

 

Derivative Type

  

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

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

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities    $ 61,443      $ (110,652
        

 

 

    

 

 

 

Total

      $ 61,443      $ (110,652
     

 

 

    

 

 

 

 

16


    AB Variable Products Series Fund

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 28,471,974  

Average principal amount of sale contracts

   $ 24,422,613  

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

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

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

   $ 5,725      $ (5,725   $             –0 –    $             –0 –    $ –0 – 

Barclays Bank PLC

     75,758        (33,271     –0 –      –0 –      42,487  

BNP Paribas SA

     5,645        (1,712     –0 –      –0 –      3,933  

Citibank, NA

     4,801        (4,801     –0 –      –0 –      –0 – 

Credit Suisse International

     28,048        (28,048     –0 –      –0 –      –0 – 

JPMorgan Chase Bank, NA

     802        –0 –      –0 –      –0 –      802  

Royal Bank of Scotland PLC

     89,947        –0 –      –0 –      –0 –      89,947  

State Street Bank & Trust Co.

     47,123        (17,384     –0 –      –0 –      29,739  

UBS AG

     15,105        –0 –      –0 –      –0 –      15,105  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 272,954      $ (90,941   $ –0 –    $ –0 –    $ 182,013
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Counterparty

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

OTC Derivatives:

           

Bank of America, NA

   $ 46,711      $ (5,725   $ –0 –    $ –0 –    $ 40,986  

Barclays Bank PLC

     33,271        (33,271     –0 –      –0 –      –0 – 

BNP Paribas SA

     1,712        (1,712     –0 –      –0 –      –0 – 

Citibank, NA

     213,494        (4,801     –0 –      –0 –      208,693  

Credit Suisse International

     32,334        (28,048     –0 –      –0 –      4,286  

Deutsche Bank AG

     26,509        –0 –      –0 –      –0 –      26,509  

Morgan Stanley & Co., Inc.

     18,314        –0 –      –0 –      –0 –      18,314  

Standard Chartered Bank

     49,001        –0 –      –0 –      –0 –      49,001  

State Street Bank & Trust Co.

     17,384        (17,384     –0 –      –0 –      –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 438,730      $ (90,941   $ –0 –    $ –0 –    $ 347,789
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

^   Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

 

17


GLOBAL THEMATIC GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $2,145,315 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $2,252,022. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $23,999 and $8,843 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $2,355. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 4,544     $ 22,974     $ 25,266     $ 2,252  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    38,770       114,273       $ 981,830     $ 2,477,642  

Shares redeemed

    (101,421     (243,647       (2,515,885     (5,303,033
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (62,651     (129,374     $ (1,534,055   $ (2,825,391
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    421,949       511,535       $ 10,366,099     $ 10,794,955  

Shares redeemed

    (368,088     (1,110,011       (8,893,840     (23,499,939
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    53,861       (598,476     $ 1,472,259     $ (12,704,984
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 64% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

 

18


    AB Variable Products Series Fund

 

NOTE G: Risks Involved in Investing in the Portfolio

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

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid as well as being subject to increased economic, political, regulatory or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

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

Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.

Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Components of Accumulated Earnings (Deficit)

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 433,018  

Accumulated capital and other losses

     (18,800,560 )(a) 

Unrealized appreciation/(depreciation)

     13,352,974 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ (5,014,568
  

 

 

 

 

(a)   On December 31, 2016, the Portfolio had a net capital loss carryforward of $18,800,560. During the fiscal year, the Portfolio utilized $3,051,026 of capital loss carryforwards to offset current year net realized gains. The Portfolio also had $18,381,213 of capital loss carryforwards expire during the fiscal year.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, return of capital distributions received from underlying securities and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments.

 

19


GLOBAL THEMATIC GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-December 22, 2010 capital losses must be utilized prior to the earlier capital losses, which are subject to expiration. Post-December 22, 2010 capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of December 31, 2016, the Portfolio had a net capital loss carryforward of $18,800,560 which will expire in 2017.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

20


 
GLOBAL THEMATIC GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $22.29       $22.43       $21.80       $20.75       $16.88       $14.87  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .08 (b)      .04 (b)†      .02       .06       .04       .13  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    4.70       (.18     .60       .99       3.88       1.88  

Contributions from Affiliates

    –0 –      –0 –      .01       –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    4.78       (.14     .63       1.05       3.92       2.01  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      –0 –      –0 –      –0 –      (.05     –0 – 

Tax return of capital

    –0 –      –0 –      –0 –      –0 –      .00 (c)      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      –0 –      –0 –      –0 –      (.05     –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $27.07       $22.29       $22.43       $21.80       $20.75       $16.88  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)*

    21.44     (.62 )%†      2.89     5.06     23.26     13.52
           

Ratios/Supplemental Data

           

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

    $32,864       $28,458       $31,534       $30,886       $32,195       $40,231  

Ratio to average net assets of:

 

Expenses, net of waivers/reimbursements

    1.02 %^      1.06     1.01     1.01     .98     .99

Expenses, before waivers/reimbursements

    1.02 %^      1.06     1.01     1.01     .98     .99

Net investment income

    .61 %(b)^      .17 %(b)†      .07     .26     .22     .83

Portfolio turnover rate

    23     54     47     48     96     152

 

 

See footnote summary on page 22.

 

21


GLOBAL THEMATIC GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six  Months
Ended
June 30,  2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $21.52       $21.71       $21.15       $20.18       $16.42       $14.50  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (loss) (a)

    .04 (b)      (.02 )(b)†      (.04     .00 (c)      (.01     .09  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    4.54       (.17     .59       .97       3.77       1.83  

Contributions from Affiliates

    –0 –      –0 –      .01       –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    4.58       (.19     .56       .97       3.76       1.92  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      –0 –      –0 –      –0 –      .00 (c)      –0 – 

Tax return of capital

    –0 –      –0 –      –0 –      –0 –      .00 (c)      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      –0 –      –0 –      –0 –      .00       –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $26.10       $21.52       $21.71       $21.15       $20.18       $16.42  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)*

    21.28     (.87 )%†      2.65     4.81     22.93     13.24
           

Ratios/Supplemental Data

           

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

    $96,774       $78,625       $92,298       $96,728       $101,388       $91,864  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    1.27 %^      1.31     1.26     1.26     1.23     1.24

Expenses, before waivers/reimbursements

    1.27 %^      1.31     1.26     1.26     1.23     1.24

Net investment income (loss)

    .36 %(b)^      (.07 )%(b)†      (.17 )%      .01     (.06 )%      .58

Portfolio turnover rate

    23     54     47     48     96     152

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of fees waived and expenses reimbursed by the Adviser.

 

(c)   Amount is less than $.005.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per  Share
  Net Investment
Income  Ratio
  Total Return
$.004   .02%   .02%

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 by 0.04%, 0.28%, 0.01%, 0.02%, 0.05% and 0.07%, respectively.

 

^   Annualized.

See notes to financial statements.

 

22


 
GLOBAL THEMATIC GROWTH PORTFOLIO
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Global Thematic Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors

 

23


GLOBAL THEMATIC GROWTH PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of

 

24


    AB Variable Products Series Fund

 

scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

25


 

 

 

VPS-GTG-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

GROWTH PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
GROWTH PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,183.20      $   6.17        1.14

Hypothetical (5% annual return before expenses)

   $   1,000      $   1,019.14      $   5.71        1.14
           

Class B

           

Actual

   $   1,000      $   1,181.80      $   7.52        1.39

Hypothetical (5% annual return before expenses)

   $   1,000      $   1,017.90      $   6.95        1.39

 

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


GROWTH PORTFOLIO  
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

Alphabet, Inc.—Class C

   $ 4,648,154          7.0

Facebook, Inc.—Class A

     3,694,028          5.5  

UnitedHealth Group, Inc.

     3,016,413          4.5  

Visa, Inc.—Class A

     2,970,951          4.4  

Edwards Lifesciences Corp.

     2,523,242          3.8  

Home Depot, Inc. (The)

     2,294,711          3.4  

NIKE, Inc.—Class B

     2,255,098          3.4  

Monster Beverage Corp.

     2,035,290          3.0  

Intuitive Surgical, Inc.

     2,011,045          3.0  

Adobe Systems, Inc.

     1,917,926          2.9  
    

 

 

      

 

 

 
     $   27,366,858          40.9

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Information Technology

   $ 24,003,385          35.8

Consumer Discretionary

     14,032,067          20.9  

Health Care

     13,297,874          19.8  

Industrials

     6,282,977          9.4  

Consumer Staples

     4,929,911          7.3  

Materials

     1,748,601          2.6  

Financials

     923,016          1.4  

Short-Term Investments

     1,895,478          2.8  
    

 

 

      

 

 

 

Total Investments

   $   67,113,309          100.0

 

 

 

(1)   

Long-term investments.

 

(2)   

The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time.

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


GROWTH FUND  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

COMMON STOCKS–97.6%

   

INFORMATION TECHNOLOGY–35.9%

   

COMMUNICATIONS EQUIPMENT–1.2%

   

Arista Networks, Inc.(a)

    2,530     $ 378,969  

Palo Alto Networks, Inc.(a)

    2,950       394,739  
   

 

 

 
      773,708  
   

 

 

 

INTERNET SOFTWARE & SERVICES–14.0%

   

Alphabet, Inc.–Class C(a)

    5,115       4,648,154  

CoStar Group, Inc.(a)

    1,990       524,564  

Facebook, Inc.–Class A(a)

    24,467       3,694,028  

Trade Desk, Inc. (The)–Class A(a)

    9,650       483,561  
   

 

 

 
      9,350,307  
   

 

 

 

IT SERVICES–6.8%

   

Fiserv, Inc.(a)

    7,570       926,114  

Vantiv, Inc.–Class A(a)

    10,560       668,870  

Visa, Inc.–Class A

    31,680       2,970,951  
   

 

 

 
      4,565,935  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–4.2%

   

NVIDIA Corp.

    6,080       878,925  

Xilinx, Inc.

    29,610       1,904,515  
   

 

 

 
      2,783,440  
   

 

 

 

SOFTWARE–7.4%

   

Adobe Systems, Inc.(a)

    13,560       1,917,926  

Electronic Arts, Inc.(a)

    11,380       1,203,094  

Ellie Mae, Inc.(a)

    4,640       509,982  

HubSpot, Inc.(a)

    8,090       531,917  

ServiceNow, Inc.(a)

    4,777       506,362  

Splunk, Inc.(a)

    5,050       287,295  
   

 

 

 
      4,956,576  
   

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–2.3%

   

Apple, Inc.

    10,925       1,573,419  
   

 

 

 
      24,003,385  
   

 

 

 

CONSUMER DISCRETIONARY–21.0%

   

DIVERSIFIED CONSUMER SERVICES–1.0%

   

Bright Horizons Family Solutions, Inc.(a)

    9,210       711,104  
   

 

 

 

HOTELS, RESTAURANTS & LEISURE–4.9%

   

Buffalo Wild Wings, Inc.(a)

    4,730       599,291  

Planet Fitness, Inc.

    54,450       1,270,863  

Starbucks Corp.

    23,900       1,393,609  
   

 

 

 
      3,263,763  
   

 

 

 
   

INTERNET & DIRECT MARKETING RETAIL–1.3%

   

Priceline Group, Inc. (The)(a)

    457     $ 854,828  
   

 

 

 

MEDIA–2.4%

   

Comcast Corp.–Class A

    41,110       1,600,001  
   

 

 

 

MULTILINE RETAIL–1.5%

   

Dollar Tree, Inc.(a)

    14,570       1,018,734  
   

 

 

 

SPECIALTY RETAIL–6.5%

   

Burlington Stores, Inc.(a)

    8,590       790,194  

Home Depot, Inc. (The)

    14,959       2,294,711  

O’Reilly Automotive, Inc.(a)

    2,806       613,785  

Ulta Salon Cosmetics & Fragrance, Inc.(a)

    2,192       629,849  
   

 

 

 
      4,328,539  
   

 

 

 

TEXTILES, APPAREL & LUXURY GOODS–3.4%

   

NIKE, Inc.–Class B

    38,222       2,255,098  
   

 

 

 
      14,032,067  
   

 

 

 

HEALTH CARE–19.9%

   

BIOTECHNOLOGY–2.4%

   

Biogen, Inc.(a)

    5,884       1,596,682  
   

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES–9.1%

   

Align Technology, Inc.(a)

    3,193       479,333  

DexCom, Inc.(a)

    7,970       583,006  

Edwards Lifesciences Corp.(a)

    21,340       2,523,242  

Intuitive Surgical, Inc.(a)

    2,150       2,011,045  

Nevro Corp.(a)

    6,980       519,521  
   

 

 

 
      6,116,147  
   

 

 

 

HEALTH CARE PROVIDERS & SERVICES–5.3%

   

Teladoc, Inc.(a)(b)

    14,219       493,399  

UnitedHealth Group, Inc.

    16,268       3,016,413  
   

 

 

 
      3,509,812  
   

 

 

 

HEALTH CARE TECHNOLOGY–1.3%

   

Cerner Corp.(a)

    13,080       869,428  
   

 

 

 

PHARMACEUTICALS–1.8%

   

Zoetis, Inc.

    19,330       1,205,805  
   

 

 

 
      13,297,874  
   

 

 

 

INDUSTRIALS–9.4%

   

AEROSPACE & DEFENSE–0.6%

   

Hexcel Corp.

    7,570       399,620  
   

 

 

 

BUILDING PRODUCTS–3.1%

   

Allegion PLC

    10,070       816,878  

AO Smith Corp.

    10,450       588,649  

Lennox International, Inc.

    3,730       684,977  
   

 

 

 
      2,090,504  
   

 

 

 

COMMERCIAL SERVICES & SUPPLIES–1.1%

   

Copart, Inc.(a)

    23,660       752,152  
   

 

 

 

 

3


GROWTH FUND  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

INDUSTRIAL CONGLOMERATES–2.0%

   

Roper Technologies, Inc.

    5,690     $ 1,317,406  
   

 

 

 

MACHINERY–2.6%

   

IDEX Corp.

    8,750       988,837  

WABCO Holdings, Inc.(a)

    5,760       734,458  
   

 

 

 
      1,723,295  
   

 

 

 
      6,282,977  
   

 

 

 

CONSUMER STAPLES–7.4%

   

BEVERAGES–5.5%

   

Constellation Brands, Inc.– Class A

    8,490       1,644,768  

Monster Beverage Corp.(a)

    40,968       2,035,290  
   

 

 

 
      3,680,058  
   

 

 

 

FOOD & STAPLES RETAILING–1.9%

   

Costco Wholesale Corp.

    7,815       1,249,853  
   

 

 

 
      4,929,911  
   

 

 

 

MATERIALS–2.6%

   

CHEMICALS–2.6%

   

Ecolab, Inc.

    7,000       929,250  

PolyOne Corp.

    21,150       819,351  
   

 

 

 
      1,748,601  
   

 

 

 

FINANCIALS–1.4%

   

CAPITAL MARKETS–1.4%

   

MarketAxess Holdings, Inc.

    1,490       299,639  

S&P Global, Inc.

    4,270       623,377  
   

 

 

 
      923,016  
   

 

 

 

Total Common Stocks
(cost $45,271,446)

      65,217,831  
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–2.8%

   

TIME DEPOSIT–2.8%

   

State Street Bank & Trust Co. 0.09%, 7/03/17
(cost $1,895,478)

  $ 1,895       1,895,478  
   

 

 

 

TOTAL INVESTMENTS BEFORE SECURITY LENDING COLLATERAL FOR SECURITIES LOANED–100.4%
(cost $47,166,924)

      67,113,309  
   

 

 

 
   

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–0.8%

   

INVESTMENT COMPANIES–0.8%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB,
0.79%(c)(d)
(cost $511,884)

    511,884     $ 511,884  
   

 

 

 

TOTAL INVESTMENTS–101.2%
(cost $47,678,808)

      67,625,193  

Other assets less
liabilities–(1.2)%

      (792,045
   

 

 

 

NET ASSETS–100.0%

    $ 66,833,148  
   

 

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(d)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

 

4


GROWTH PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value

  

Unaffiliated issuers (cost $47,166,924)

   $ 67,113,309 (a) 

Affiliated issuers (cost $511,884—investment of cash collateral for securities loaned)

     511,884  

Receivable for capital stock sold

     72,025  

Dividends and interest receivable

     20,000  
  

 

 

 

Total assets

     67,717,218  
  

 

 

 

LIABILITIES

  

Payable for collateral received on securities loaned

     511,884  

Payable for investment securities purchased

     136,020  

Payable for capital stock redeemed

     86,694  

Advisory fee payable

     44,613  

Administrative fee payable

     12,927  

Distribution fee payable

     8,894  

Transfer Agent fee payable

     81  

Accrued expenses

     82,957  
  

 

 

 

Total liabilities

     884,070  
  

 

 

 

NET ASSETS

   $ 66,833,148  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 2,088  

Additional paid-in capital

     37,942,525  

Accumulated net investment loss

     (172,630

Accumulated net realized gain on investment and foreign currency transactions

     9,114,780  

Net unrealized appreciation on investments

     19,946,385  
  

 

 

 
   $ 66,833,148  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $   26,839,042          811,645        $   33.07  
B      $   39,994,106          1,276,700        $   31.33  

 

 

 

(a)   Includes securities on loan with a value of $493,399 (see Note E).

See notes to financial statements.

 

5


GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers

   $ 245,987  

Affiliated issuers

     537  

Interest

     872  

Securities lending income

     757  

Other income

     1,661  
  

 

 

 
     249,814  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     245,849  

Distribution fee—Class B

     49,113  

Transfer agency—Class A

     1,186  

Transfer agency—Class B

     1,774  

Custodian

     34,648  

Administrative

     25,031  

Audit and tax

     20,472  

Legal

     14,684  

Printing

     14,003  

Directors’ fees

     13,383  

Miscellaneous

     2,457  
  

 

 

 

Total expenses

     422,600  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (156
  

 

 

 

Net expenses

     422,444  
  

 

 

 

Net investment loss

     (172,630
  

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS

  

Net realized gain on investment transactions

     5,970,537  

Net change in unrealized appreciation/depreciation of investments

     5,024,497  
  

 

 

 

Net gain on investment transactions

     10,995,034  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 10,822,404  
  

 

 

 

 

 

 

See notes to financial statements.

 

6


 
GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

    

Net investment loss

   $ (172,630   $ (250,501

Net realized gain on investment and foreign currency transactions

     5,970,537       3,223,597  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities.

     5,024,497       (2,531,961
  

 

 

   

 

 

 

Net increase in net assets from operations

     10,822,404       441,135  

DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net realized gain on investment transactions

    

Class A

     –0 –      (3,012,916

Class B

     –0 –      (4,764,325

CAPITAL STOCK TRANSACTIONS

    

Net decrease

     (5,660,454     (1,435,411
  

 

 

   

 

 

 

Total increase (decrease)

     5,161,950       (8,771,517

NET ASSETS

    

Beginning of period

     61,671,198       70,442,715  
  

 

 

   

 

 

 

End of period (including accumulated net investment loss of ($172,630) and ($0), respectively)

   $ 66,833,148     $ 61,671,198  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

7


GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

8


    AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Common Stocks(a)

     $ 65,217,831      $ –0 –     $             –0 –     $ 65,217,831  

Short-Term Investments

       –0 –       1,895,478        –0 –       1,895,478  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

       511,884        –0 –       –0 –       511,884  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       65,729,715        1,895,478        –0 –       67,625,193  

Other Financial Instruments(b)

       –0 –       –0 –       –0 –       –0 – 
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 65,729,715      $ 1,895,478      $ –0 –     $ 67,625,193  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

9


GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

10


    AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,031.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $6,517, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases      Sales  

Investment securities (excluding U.S. government securities)

     $ 15,794,122      $ 22,825,777  

U.S. government securities

       –0 –       –0 – 

 

11


GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

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 (excluding foreign currency transactions) are as follows:

 

Gross unrealized appreciation

   $ 20,381,139  

Gross unrealized depreciation

     (434,754
  

 

 

 

Net unrealized appreciation

   $ 19,946,385  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $493,399 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $511,884. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $757 and $537 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $156. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

 

12


    AB Variable Products Series Fund

 

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value
12/31/16
(000)

   

Purchases
at Cost
(000)

   

Sales
Proceeds
(000)

   

Market Value
6/30/17
(000)

 
$ 684     $ 4,774     $ 4,946     $ 512  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    39,693       232,533       $ 1,237,707     $ 6,654,909  

Shares issued in reinvestment of distributions

    –0 –      104,073         –0 –      3,012,916  

Shares redeemed

    (109,681     (326,387       (3,398,845     (9,201,540
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (69,988     10,219       $ (2,161,138   $ 466,285  
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    19,191       46,733       $ 581,024     $ 1,326,261  

Shares issued in reinvestment of distributions

    –0 –      173,311         –0 –      4,764,325  

Shares redeemed

    (138,932     (284,346       (4,080,340     (7,992,282
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (119,741     (64,302     $ (3,499,316   $ (1,901,696
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 77% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

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

Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s NAV.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

 

13


GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016      2015  

Distributions paid from:

       

Ordinary income

     $ –0 –     $ 542,864  

Net long-term capital gains

       7,777,241        12,548,338  
    

 

 

    

 

 

 

Total taxable distributions paid

     $ 7,777,241      $ 13,091,202  
    

 

 

    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed capital gains

   $ 3,418,275  

Unrealized appreciation/(depreciation)

     14,647,857 (a) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 18,066,132  
  

 

 

 

 

(a)   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

14


 
GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $27.95       $31.05       $34.47       $31.03       $23.22       $20.40  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (loss) (a)

    (.06 )(b)      (.07 )(b)†      (.08     (.09     (.03     .06  

Net realized and unrealized gain on investment and foreign currency transactions

    5.18       .54       3.18       4.15       7.92       2.77  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    5.12       .47       3.10       4.06       7.89       2.83  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      –0 –      –0 –      –0 –      (.08     (.01

Distributions from net realized gain on investment transactions

    –0 –      (3.57     (6.52     (.62     –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (3.57     (6.52     (.62     (.08     (.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $33.07       $27.95       $31.05       $34.47       $31.03       $23.22  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    18.32     1.12 %      9.06     13.28     34.01     13.89
           

Ratios/Supplemental Data

           

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

    $26,839       $24,645       $27,060       $28,141       $28,650       $25,220  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    1.14 %^      1.15     1.09     1.08     1.06     1.06

Expenses, before waivers/reimbursements

    1.14 %^      1.15     1.09     1.08     1.06     1.06

Net investment income (loss)

    (.38 )%(b)^      (.23 )%(b)†      (.24 )%      (.28 )%      (.10 )%      .27

Portfolio turnover rate

    25     57     51     66     63     83

 

 

 

See footnote summary on page 16.

 

15


GROWTH PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $26.51       $29.70       $33.30       $30.08       $22.50       $19.81  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (loss) (a)

    (.09 )(b)      (.13 )(b)†      (.16     (.16     (.09     .01  

Net realized and unrealized gain on investment and foreign currency transactions

    4.91       .51       3.08       4.00       7.68       2.68  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    4.82       .38       2.92       3.84       7.59       2.69  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      –0 –      –0 –      –0 –      (.01     –0 – 

Distributions from net realized gain on investment transactions

    –0 –      (3.57     (6.52     (.62     –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (3.57     (6.52     (.62     (.01     –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $31.33       $26.51       $29.70       $33.30       $30.08       $22.50  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    18.18     .85 %†      8.82     12.96     33.72     13.58
           

Ratios/Supplemental Data

           

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

    $39,994       $37,026       $43,383       $46,330       $51,993       $46,948  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    1.39 %^      1.40     1.34     1.33     1.31     1.31

Expenses, before waivers/reimbursements

    1.39 %^      1.40     1.34     1.33     1.31     1.31

Net investment income (loss)

    (.63 )%(b)^      (.48 )%(b)†      (.49 )%      (.52 )%      (.35 )%      .03

Portfolio turnover rate

    25     57     51     66     63     83

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per Share

   

Net Investment
Income Ratio

   

Total
Return

 
$ .015       .05     .05

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 by 0.09%, 0.01%, 0.06%, 0.03%, 0.06% and 0.28%, respectively.

 

^   Annualized.

 

16


 
GROWTH PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous

 

17


GROWTH PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

 

18


    AB Variable Products Series Fund

 

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

19


 

 

 

 

VPS-GTH-0152-0617


 

 

JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS SERIES FUND, INC.

 

+  

GROWTH & INCOME PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
GROWTH & INCOME PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,058.00      $   3.01        0.59

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,021.87      $ 2.96        0.59
           

Class B

           

Actual

   $ 1,000      $ 1,056.40      $ 4.28        0.84

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,020.63      $ 4.21        0.84

 

 

 

*   Expenses are equal to the classes’ annualized expense ratios multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


GROWTH & INCOME PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

JPMorgan Chase & Co.

   $ 52,541,290          5.0

Time Warner, Inc.

     41,092,793          3.9  

Raytheon Co.

     37,789,550          3.6  

Wal-Mart Stores, Inc.

     33,657,696          3.2  

Gilead Sciences, Inc.

     27,458,393          2.6  

Aetna, Inc.

     27,095,582          2.6  

Biogen, Inc.

     24,316,570          2.3  

Eli Lilly & Co.

     23,509,818          2.3  

Berkshire Hathaway, Inc.—Class B

     22,695,919          2.2  

Cigna Corp.

     22,375,021          2.1  
    

 

 

      

 

 

 
     $   312,532,632          29.8

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Financials

   $ 209,612,446          19.9

Health Care

     170,091,923          16.1  

Consumer Discretionary

     131,164,170          12.5  

Information Technology

     122,887,399          11.7  

Industrials

     109,867,474          10.4  

Energy

     60,006,264          5.7  

Consumer Staples

     55,918,096          5.3  

Real Estate

     28,924,800          2.7  

Utilities

     14,753,712          1.4  

Materials

     6,149,533          0.6  

Short-Term Investments

     144,037,317          13.7  
    

 

 

      

 

 

 

Total Investments

   $   1,053,413,134          100.0

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time.

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


GROWTH & INCOME PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

Company

  Shares     U.S. $ Value  
   

COMMON STOCKS–86.8%

   
   

FINANCIALS–20.0%

   

BANKS–8.0%

   

Citigroup, Inc.

    257,430     $ 17,216,919  

JPMorgan Chase & Co.

    574,850       52,541,290  

Wells Fargo & Co.

    261,440       14,486,390  
   

 

 

 
      84,244,599  
   

 

 

 

CAPITAL MARKETS–5.7%

   

BlackRock, Inc.–Class A

    15,940       6,733,216  

Goldman Sachs Group, Inc. (The)

    97,780       21,697,382  

Northern Trust Corp.

    128,120       12,454,545  

State Street Corp.

    161,870       14,524,595  

TD Ameritrade Holding Corp.

    105,700       4,544,043  
   

 

 

 
      59,953,781  
   

 

 

 

DIVERSIFIED FINANCIAL SERVICES–2.2%

   

Berkshire Hathaway, Inc.–Class B(a)

    134,002       22,695,919  

INSURANCE–4.1%

   

Allstate Corp. (The)

    164,950       14,588,178  

Chubb Ltd.

    113,980       16,570,412  

FNF Group

    174,700       7,831,801  

Validus Holdings Ltd.

    71,729       3,727,756  
   

 

 

 
      42,718,147  
   

 

 

 
      209,612,446  
   

 

 

 

HEALTH CARE–16.2%

   

BIOTECHNOLOGY–4.9%

   

Biogen, Inc.(a)

    89,610       24,316,570  

Gilead Sciences, Inc.

    387,940       27,458,393  
   

 

 

 
      51,774,963  
   

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES–1.2%

   

Hologic, Inc.(a)

    284,220       12,897,903  
   

 

 

 

HEALTH CARE PROVIDERS & SERVICES–5.4%

   

Aetna, Inc.

    178,460       27,095,582  

Cigna Corp.

    133,670       22,375,021  

Quest Diagnostics, Inc.

    61,050       6,786,318  
   

 

 

 
      56,256,921  
   

 

 

 

PHARMACEUTICALS–4.7%

   

Eli Lilly & Co.

    285,660       23,509,818  

Pfizer, Inc.

    522,420       17,548,088  

Roche Holding AG (Sponsored ADR)

    254,850       8,104,230  
   

 

 

 
      49,162,136  
   

 

 

 
      170,091,923  
   

 

 

 

CONSUMER DISCRETIONARY–12.5%

   

AUTO COMPONENTS–0.4%

   

BorgWarner, Inc.

    89,920       3,809,011  
   

 

 

 
   

HOUSEHOLD DURABLES–2.6%

   

DR Horton, Inc.

    428,300     $ 14,806,331  

Garmin Ltd.(b)

    240,580       12,276,797  
   

 

 

 
      27,083,128  
   

 

 

 

MEDIA–7.8%

   

AMC Networks, Inc.–Class A(a)

    131,790       7,038,904  

Comcast Corp.–Class A

    358,860       13,966,831  

Discovery Communications, Inc.–Class A(a)(b)

    504,760       13,037,951  

Scripps Networks Interactive, Inc.–Class A(b)

    106,230       7,256,571  

Time Warner, Inc.

    409,250       41,092,793  
   

 

 

 
      82,393,050  
   

 

 

 

SPECIALTY RETAIL–1.7%

   

Ross Stores, Inc.

    309,700       17,878,981  
   

 

 

 
      131,164,170  
   

 

 

 

INFORMATION TECHNOLOGY–11.7%

   

COMMUNICATIONS EQUIPMENT–0.8%

   

Cisco Systems, Inc.

    274,740       8,599,362  
   

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–2.5%

   

Dolby Laboratories, Inc.–Class A

    247,760       12,130,330  

Flex Ltd.(a)

    248,750       4,057,112  

FLIR Systems, Inc.

    170,000       5,892,200  

TE Connectivity Ltd.

    53,110       4,178,695  
   

 

 

 
      26,258,337  
   

 

 

 

IT SERVICES–3.2%

   

International Business Machines Corp.

    108,640       16,712,091  

Mastercard, Inc.–Class A

    134,920       16,386,034  
   

 

 

 
      33,098,125  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.2%

   

Intel Corp.

    339,992       11,471,330  

Xilinx, Inc.

    184,300       11,854,176  
   

 

 

 
      23,325,506  
   

 

 

 

SOFTWARE–1.5%

   

Microsoft Corp.

    103,581       7,139,838  

VMware, Inc.–Class A(a)(b)

    104,660       9,150,424  
   

 

 

 
      16,290,262  
   

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.5%

   

Apple, Inc.

    106,345       15,315,807  
   

 

 

 
      122,887,399  
   

 

 

 

INDUSTRIALS–10.5%

   

AEROSPACE & DEFENSE–4.4%

   

Boeing Co. (The)

    41,370       8,180,917  

Raytheon Co.

    234,020       37,789,550  
   

 

 

 
      45,970,467  
   

 

 

 

 

3


GROWTH & INCOME PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company

  Shares     U.S. $ Value  
   

AIRLINES–0.6%

   

Delta Air Lines, Inc.

    117,630     $ 6,321,436  
   

 

 

 

ELECTRICAL EQUIPMENT–0.4%

   

AMETEK, Inc.

    63,830       3,866,183  
   

 

 

 

INDUSTRIAL CONGLOMERATES–0.8%

   

Carlisle Cos., Inc.

    90,339       8,618,341  
   

 

 

 

MACHINERY–1.4%

   

Caterpillar, Inc.

    60,110       6,459,421  

Parker-Hannifin Corp.

    51,599       8,246,552  
   

 

 

 
      14,705,973  
   

 

 

 

ROAD & RAIL–2.0%

   

Landstar System, Inc.

    46,475       3,978,260  

Norfolk Southern Corp.

    138,630       16,871,271  
   

 

 

 
      20,849,531  
   

 

 

 

TRADING COMPANIES & DISTRIBUTORS–0.9%

   

MSC Industrial Direct Co., Inc.–Class A

    110,930       9,535,543  
   

 

 

 
      109,867,474  
   

 

 

 

ENERGY–5.7%

   

ENERGY EQUIPMENT & SERVICES–2.2%

   

Dril-Quip, Inc.(a)

    78,370       3,824,456  

National Oilwell Varco, Inc.

    183,550       6,046,137  

Oceaneering International, Inc.

    114,930       2,625,001  

Oil States International, Inc.(a)

    140,055       3,802,493  

TechnipFMC PLC(a)

    268,150       7,293,680  
   

 

 

 
      23,591,767  
   

 

 

 

OIL, GAS & CONSUMABLE FUELS–3.5%

   

Exxon Mobil Corp.

    212,750       17,175,308  

Noble Energy, Inc.

    679,830       19,239,189  
   

 

 

 
      36,414,497  
   

 

 

 
      60,006,264  
   

 

 

 

CONSUMER STAPLES–5.4%

   

BEVERAGES–1.8%

   

PepsiCo, Inc.

    156,880       18,118,071  
   

 

 

 

FOOD & STAPLES RETAILING–3.6%

   

United Natural Foods, Inc.(a)

    112,870       4,142,329  

Wal-Mart Stores, Inc.

    444,737       33,657,696  
   

 

 

 
      37,800,025  
   

 

 

 
      55,918,096  
   

 

 

 

REAL ESTATE–2.8%

   

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–1.1%

   

Liberty Property Trust

    265,250       10,798,328  
   

 

 

 
   

REAL ESTATE MANAGEMENT & DEVELOPMENT–1.7%

   

CBRE Group, Inc.–Class A(a)

    497,980     18,126,472  
   

 

 

 
      28,924,800  
   

 

 

 

UTILITIES–1.4%

   

ELECTRIC UTILITIES–1.4%

   

Exelon Corp.

    409,030       14,753,712  
   

 

 

 

MATERIALS–0.6%

   

METALS & MINING–0.6%

   

Reliance Steel & Aluminum Co.

    84,460       6,149,533  
   

 

 

 

Total Common Stocks (cost $778,058,516)

      909,375,817  
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–13.7%

   

TIME DEPOSIT–13.7%

   

State Street Time Deposit 0.09%, 7/03/17 (cost $144,037,317)

  $   144,037       144,037,317  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–100.5% (cost $922,095,833)

      1,053,413,134  
   

 

 

 
    Shares        

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.2%

   

INVESTMENT COMPANIES–1.2%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(c)(d) (cost $12,966,314)

    12,966,314       12,966,314  
   

 

 

 

TOTAL
INVESTMENTS–101.7%

(cost $935,062,147)

      1,066,379,448  

Other assets less liabilities–(1.7)%

      (18,142,607
   

 

 

 

NET ASSETS–100.0%

    $   1,048,236,841  
   

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(d)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

Glossary:

ADR—American Depositary Receipt

See notes to financial statements.

 

4


GROWTH & INCOME PORTFOLIO  
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $922,095,833)

   $ 1,053,413,134 (a) 

Affiliated issuers (cost $12,966,314—investment of cash collateral for securities loaned)

     12,966,314  

Receivable for investment securities sold

     1,157,405  

Dividends and interest receivable

     660,942  

Receivable for capital stock sold

     146,528  
  

 

 

 

Total assets

     1,068,344,323  
  

 

 

 

LIABILITIES

 

Payable for collateral received on securities loaned

     12,966,314  

Payable for investment securities purchased

     5,810,450  

Advisory fee payable

     504,132  

Payable for capital stock redeemed

     446,198  

Distribution fee payable

     196,372  

Administrative fee payable

     12,917  

Transfer Agent fee payable

     81  

Accrued expenses

     171,018  
  

 

 

 

Total liabilities

     20,107,482  
  

 

 

 

NET ASSETS

   $ 1,048,236,841  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 32,116  

Additional paid-in capital

     760,495,734  

Undistributed net investment income

     18,143,688  

Accumulated net realized gain on investment transactions

     138,248,002  

Net unrealized appreciation on investments

     131,317,301  
  

 

 

 
   $ 1,048,236,841  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $   151,874,903          4,598,801        $   33.02  
B      $   896,361,938          27,516,963        $   32.57  
(a)   Includes securities on loan with a value of $12,658,374 (see Note E).

See notes to financial statements.

 

 

5


GROWTH & INCOME PORTFOLIO  
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

    

Dividends

    

Unaffiliated issuers (net of foreign taxes withheld of $17,968)

   $ 8,739,719    

Affiliated issuers

     26,745    

Interest

     48,819    

Securities lending income

     27,152    

Other income

     18,866     $ 8,861,301  
  

 

 

   

EXPENSES

    

Advisory fee (see Note B)

     2,891,397    

Distribution fee—Class B

     1,120,213    

Transfer agency—Class A

     772    

Transfer agency—Class B

     4,461    

Custodian

     78,119    

Printing

     49,888    

Legal

     30,225    

Administrative

     25,021    

Audit and tax

     20,895    

Directors’ fees

     13,372    

Miscellaneous

     15,177    
  

 

 

   

Total expenses

     4,249,540    

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (6,702  
  

 

 

   

Net expenses

       4,242,838  
    

 

 

 

Net investment income

       4,618,463  
    

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS

    

Net realized gain on investment transactions

       51,127,752  

Net change in unrealized appreciation/depreciation of investments

       2,475,113  
    

 

 

 

Net gain on investment transactions

       53,602,865  
    

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

     $ 58,221,328  
    

 

 

 

 

 

 

 

See notes to financial statements.

 

6


 
GROWTH & INCOME PORTFOLIO  
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 4,618,463     $ 11,500,311  

Net realized gain on investment transactions

     51,127,752       89,905,772  

Net change in unrealized appreciation/depreciation of investments

     2,475,113       2,606,255  
  

 

 

   

 

 

 

Net increase in net assets from operations

     58,221,328       104,012,338  

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (1,498,498

Class B

     –0 –      (6,966,608

Net realized gain on investment transactions

    

Class A

     –0 –      (8,951,112

Class B

     –0 –      (51,731,717

CAPITAL STOCK TRANSACTIONS

    

Net increase (decrease)

     (52,574,438     210,500,227  
  

 

 

   

 

 

 

Total increase

     5,646,890       245,364,630  

NET ASSETS

 

Beginning of period

     1,042,589,951       797,225,321  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $18,143,688 and $13,525,225, respectively)

   $ 1,048,236,841     $ 1,042,589,951  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

7


GROWTH & INCOME PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Growth & Income Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S.

 

8


    AB Variable Products Series Fund

 

markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

     Level 1     Level 2     Level 3     Total  

Investments in Securities:

        

Assets:

        

Common Stocks(a)

   $ 909,375,817     $ –0 –    $             –0 –    $ 909,375,817  

Short-Term Investments

     –0 –      144,037,317       –0 –      144,037,317  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

     12,966,314       –0 –      –0 –      12,966,314  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

     922,342,131       144,037,317       –0 –      1,066,379,448  

Other Financial Instruments(b)

     –0 –      –0 –      –0 –      –0 – 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total(c)

   $ 922,342,131     $ 144,037,317     $ –0 –    $ 1,066,379,448  
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

9


GROWTH & INCOME PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

10


    AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,021.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $240,731, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.    

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases     Sales  

Investment securities (excluding U.S. government securities)

   $ 337,862,325     $ 429,033,752  

U.S. government securities

     –0 –      –0 – 

 

11


GROWTH & INCOME PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

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

   $ 142,981,446  

Gross unrealized depreciation

     (11,664,145
  

 

 

 

Net unrealized appreciation

   $ 131,317,301  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $12,658,374 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $12,966,314. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $27,152 and $26,745 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $6,702. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

 

12


    AB Variable Products Series Fund

 

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 13,560     $ 112,584     $ 113,178     $ 12,966  

NOTE F : Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
   

 

    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    258,241       472,723       $ 8,213,044     $ 14,176,667  

Shares issued in reinvestment of dividends and distributions

    –0 –      356,156         –0 –      10,449,610  

Shares redeemed

    (655,302     (840,378       (21,080,333     (25,013,777
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (397,061     (11,499     $ (12,867,289   $ (387,500
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    810,993       8,766,206       $ 25,654,191     $ 262,089,607  

Shares issued in reinvestment of dividends and distributions

    –0 –      2,023,382         –0 –      58,698,325  

Shares redeemed

    (2,059,585     (3,729,838       (65,361,340     (109,900,205
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (1,248,592     7,059,750       $ (39,707,149   $ 210,887,727  
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 60% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G : Risks Involved in Investing in the Portfolio

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

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

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

Industry/Sector Risk—Investments in a particular industry or group of related industries may have more risk because market or economic factors affecting that industry could have a significant effect on the value of the Portfolio’s investments.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and

 

13


GROWTH & INCOME PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I : Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

     2016      2015  

Distributions paid from:

     

Ordinary income

   $ 8,465,106      $   10,205,309  

Long-term capital gains

     60,682,829        –0 – 
  

 

 

    

 

 

 

Total taxable distributions paid

   $ 69,147,935      $ 10,205,309  
  

 

 

    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 21,976,798  

Undistributed capital gains

     83,068,952  

Unrealized appreciation/(depreciation)

     124,441,915 (a) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 229,487,665  
  

 

 

 

 

(a)   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

14


 
GROWTH & INCOME PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $31.21       $30.12       $30.04       $27.80       $20.88       $18.05  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .18 (b)      .43† (b)      .37       .40       .33       .29  

Net realized and unrealized gain on investment transactions

    1.63       2.84       .14       2.23       6.92       2.86  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    1.81       3.27       .51       2.63       7.25       3.15  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.32     (.43     (.39     (.33     (.32

Distributions from net realized gain on investment transactions

    –0 –      (1.86     –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (2.18     (.43     (.39     (.33     (.32
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $33.02       $31.21       $30.12       $30.04       $27.80       $20.88  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    5.80     11.30 %†      1.70     9.54     34.96     17.53
           

Ratios/Supplemental Data

           

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

    $151,875       $155,924       $150,801       $168,135       $164,154       $131,402  

Ratio to average net assets of:

 

Expenses, net of waivers/reimbursements

    .59 %^      .61     .60     .60     .60     .60

Expenses, before waivers/reimbursements

    .60 %^      .61     .60     .60     .60     .60

Net investment income

    1.09 %(b)^      1.46 %(b)†      1.21     1.39     1.35     1.48

Portfolio turnover rate

    37     101     73     51     63     80

 

 

See footnote summary on page 16.

 

15


GROWTH & INCOME PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $30.82       $29.78       $29.71       $27.49       $20.66       $17.86  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income From Investment Operations

           

Net investment income (a)

    .13 (b)      .36 (b)†      .29       .32       .27       .24  

Net realized and unrealized gain on investment transactions

    1.62       2.79       .14       2.22       6.83       2.83  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    1.75       3.15       .43       2.54       7.10       3.07  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.25     (.36     (.32     (.27     (.27

Distributions from net realized gain on investment transactions

    –0 –      (1.86     –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (2.11     (.36     (.32     (.27     (.27
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $32.57       $30.82       $29.78       $29.71       $27.49       $20.66  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    5.64     11.07 %†      1.43     9.29     34.59     17.24
           

Ratios/Supplemental Data

           

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

    $896,362       $886,666       $646,424       $701,442       $709,257       $764,198  

Ratio to average net assets of:

 

Expenses, net of waivers/reimbursements

    .84 %^      .86     .85     .85     .85     .85

Expenses, before waivers/reimbursements

    .85 %^      .86     .85     .85     .85     .85

Net investment income

    .84 %(b)^      1.21 %(b)†      .96     1.14     1.11     1.23

Portfolio turnover rate

    37     101     73     51     63     80

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per Share

    Net Investment
Income Ratio
    Total
Return
 
$ .002       .01     .01

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 by 0.55%, 0.03%, 0.14%, 0.11%, 0.08% and 0.19%, respectively.

 

^   Annualized.

See notes to financial statements.

 

16


 
GROWTH & INCOME PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Growth and Income Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous

 

17


GROWTH & INCOME PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of

 

18


    AB Variable Products Series Fund

 

scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

19


 

 

 

 

VPS-GI-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS SERIES FUND, INC.

 

+  

INTERMEDIATE BOND PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
INTERMEDIATE BOND PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees of other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees of other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

        

Actual

   $   1,000      $   1,025.40      $   5.57        1.11

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.29      $ 5.56        1.11
           

Class B

        

Actual

   $ 1,000      $ 1,023.70      $ 6.82        1.36

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,018.05      $ 6.80        1.36

 

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


 
INTERMEDIATE BOND PORTFOLIO  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

TOP TEN SECTORS (including derivatives)(1)        

Governments—Treasuries(2)

     23.3

Mortgage Pass-Throughs

     20.9  

Corporates—Investment Grade

     20.2  

Asset-Backed Securities

     13.7  

Commercial Mortgage-Backed Securities(3)

     10.3  

Agency Discount Notes

     8.7  

Collateralized Mortgage Obligations

     7.4  

Inflation-Linked Securities

     5.8  

Corporates—Non-Investment Grade(3)

     3.8  

Interest Rate Swaps(4)

     -5.8  

 

SECTOR BREAKDOWN (excluding derivatives)(5)                  

Mortgage Pass-Throughs

     18.4    Agencies        2.5

Corporates—Investment Grade

     17.8      Emerging Markets—Treasuries        0.9  

Governments—Treasuries

     13.3      Quasi-Sovereigns        0.5  

Asset-Backed Securities

     12.0      Local Governments—US Municipal Bonds        0.5  

Commercial Mortgage-Backed Securities

     7.2      Governments—Sovereign Bonds        0.3  

Collateralized Mortgage Obligations

     6.5      Short-Term Investments        11.9  

Inflation-Linked Securities

     5.1      Other(6)        0.4  

Corporates—Non-Investment Grade

     2.7                  

 

 

 

(1)   All data are as of June 30, 2017. The Portfolio’s sectors include derivative exposure and are expressed as approximate percentages of the Portfolio’s total net assets, based on the Adviser’s internal classification. The percentages will vary over time.

 

(2)   Includes Treasury Futures

 

(3)   Includes Credit Default Swaps

 

(4)   Represents the exposure of the Portfolio’s fixed-rate payments on the Interest Rate Swaps. Interest Rate Swaps involve the exchange by a fund with another party of payments calculated by reference to specified interest rates (e.g., an exchange of floating-rate payments for fixed-rate payments).

 

(5)   All data are as of June 30, 2017. The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details).

 

(6)   “Other” represents less than 0.2% weightings in the following security types: Emerging Markets—Corporate Bonds and Preferred Stocks.

 

2


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

MORTGAGE PASS-THROUGHS–20.9%

 

   

AGENCY FIXED RATE 15-YEAR–2.4%

 

   

Federal National Mortgage Association
2.50%, 7/01/31–1/01/32

    U.S.$       1,364     $ 1,373,287  
     

 

 

 

AGENCY FIXED RATE 30-YEAR–18.5%

 

   

Federal Home Loan Mortgage Corp. Gold
4.00%, 2/01/46

      276       292,165  

Series 2017
4.00%, 7/01/44

      223       235,263  

Series 2005
5.50%, 1/01/35

      97       108,368  

Series 2007
5.50%, 7/01/35

      27       29,753  

Federal National Mortgage Association
4.00%, 7/01/47, TBA

      1,258       1,322,177  

4.00%, 12/01/40–10/01/43

      670       709,283  

4.50%, 7/25/47, TBA

      2,656       2,848,560  

3.50%, 7/01/47, TBA

      2,351       2,414,183  

Series 2005
5.50%, 2/01/35

      97       108,241  

Series 2004
5.50%, 4/01/34–11/01/34

      81       90,101  

Series 2003
5.50%, 4/01/33–7/01/33

      92       101,804  

Government National Mortgage Association
3.00%, 4/20/46

      325       329,168  

3.50%, 7/01/47, TBA

      1,635       1,693,247  

Series 1994
9.00%, 9/15/24

      1       1,343  
     

 

 

 
        10,283,656  
     

 

 

 

Total Mortgage Pass-Throughs
(cost $11,631,625)

        11,656,943  
     

 

 

 

CORPORATES-INVESTMENT GRADE–20.2%

 

   

INDUSTRIAL–11.1%

 

 

BASIC–1.1%

 

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

      50       51,429  

Glencore Funding LLC
4.125%, 5/30/23(a)

      58       59,517  

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

      53       54,094  

Sociedad Quimica y Minera de Chile SA
3.625%, 4/03/23(a)

      260       259,532  

Vale Overseas Ltd.
6.875%, 11/21/36

      80       85,800  

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

      81       81,787  
     

 

 

 
        592,159  
     

 

 

 
     

CAPITAL GOODS–0.2%

 

Embraer Netherlands Finance BV
5.40%, 2/01/27

  U.S.$       85     $ 88,381  

General Electric Co.
Series D
5.00%, 1/21/21(b)

      40       42,418  
     

 

 

 
        130,799  
     

 

 

 

COMMUNICATIONS–MEDIA–0.7%

 

   

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

      135       145,842  

Cox Communications, Inc.
2.95%, 6/30/23(a)

      51       49,696  

Time Warner Cable LLC
4.125%, 2/15/21

      200       209,604  
     

 

 

 
        405,142  
     

 

 

 

COMMUNICATIONS–TELECOMMUNICATIONS–1.6%

 

   

AT&T, Inc.
3.40%, 5/15/25

      310       304,243  

4.125%, 2/17/26

      147       150,646  

Rogers Communications, Inc.
4.00%, 6/06/22

    CAD       27       22,379  

Verizon Communications, Inc.
2.625%, 8/15/26

    U.S.$       157       144,880  

3.50%, 11/01/24

      145       146,354  

5.50%, 3/16/47

      105       114,770  
     

 

 

 
        883,272  
     

 

 

 

CONSUMER CYCLICAL–AUTOMOTIVE–0.5%

 

   

General Motors Co.
3.50%, 10/02/18

      80       81,378  

General Motors Financial Co., Inc.
3.10%, 1/15/19

      110       111,516  

3.25%, 5/15/18

      9       9,105  

4.00%, 1/15/25

      23       23,131  

4.30%, 7/13/25

      30       30,642  
     

 

 

 
        255,772  
     

 

 

 

CONSUMER NON-CYCLICAL–1.9%

 

   

Becton Dickinson and Co.
3.734%, 12/15/24

      40       40,672  

Biogen, Inc.
4.05%, 9/15/25

      144       152,256  

Bunge Ltd. Finance Corp.
8.50%, 6/15/19

      2       2,234  

Grupo Bimbo SAB de CV
3.875%, 6/27/24(a)

      201       207,104  

Laboratory Corp. of America Holdings
3.60%, 2/01/25

      60       60,815  

 

3


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

Medtronic, Inc.
3.50%, 3/15/25

  U.S.$       195     $ 202,734  

Mylan NV
3.95%, 6/15/26

      37       37,527  

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

      122       118,797  

3.15%, 10/01/26

      86       81,592  

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

      39       39,491  

3.95%, 8/15/24

      123       128,945  
     

 

 

 
        1,072,167  
     

 

 

 

ENERGY–3.2%

     

Cenovus Energy, Inc.
3.00%, 8/15/22

      12       11,503  

5.70%, 10/15/19

      36       37,993  

Ecopetrol SA
5.875%, 5/28/45

      57       52,326  

Encana Corp.
3.90%, 11/15/21

      45       45,925  

Energy Transfer LP
7.50%, 7/01/38

      149       181,469  

EnLink Midstream Partners LP
5.05%, 4/01/45

      125       118,322  

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

      161       163,830  

5.20%, 9/01/20

      55       59,694  

Hess Corp.
4.30%, 4/01/27

      109       106,743  

Nabors Industries, Inc.
5.50%, 1/15/23(a)

      113       107,017  

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

      107       109,598  

8.25%, 3/01/19

      238       260,665  

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

      137       133,582  

Sabine Pass Liquefaction LLC
5.00%, 3/15/27

      80       85,148  

TransCanada PipeLines Ltd.
3.392% (LIBOR 3 Month + 2.21%), 5/15/67(c)

      235       223,501  

Williams Partners LP
4.125%, 11/15/20

      97       101,246  
     

 

 

 
        1,798,562  
     

 

 

 

SERVICES–0.3%

     

S&P Global, Inc.
4.40%, 2/15/26

      127       136,396  

Total System Services, Inc.
3.75%, 6/01/23

      19       19,713  
     

 

 

 
        156,109  
     

 

 

 

TECHNOLOGY–1.6%

     

Broadcom Corp./Broadcom Cayman Finance Ltd.
3.625%, 1/15/24(a)

      28       28,713  

3.875%, 1/15/27(a)

      62       63,660  
     

Dell International LLC/EMC Corp.
5.45%, 6/15/23(a)

  U.S.$       160     $ 174,098  

6.02%, 6/15/26(a)

      31       34,217  

Fidelity National Information Services, Inc.
5.00%, 10/15/25

      2       2,216  

HP, Inc.
4.65%, 12/09/21

      107       115,462  

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

      134       144,610  

Lam Research Corp.
2.80%, 6/15/21

      39       39,552  

Motorola Solutions, Inc.
3.50%, 3/01/23

      82       81,999  

7.50%, 5/15/25

      23       27,419  

Seagate HDD Cayman
4.75%, 1/01/25

      75       75,551  

Western Digital Corp.
7.375%, 4/01/23(a)

      89       97,677  
     

 

 

 
        885,174  
     

 

 

 
        6,179,156  
     

 

 

 

FINANCIAL INSTITUTIONS–8.4%

 

BANKING–7.2%

 

Banco Santander SA
3.50%, 4/11/22

      200       204,582  

Bank of America Corp.
2.881%, 4/24/23

      145       145,396  

3.824%, 1/20/28

      145       147,627  

BNP Paribas SA
3.80%, 1/10/24(a)

      200       207,858  

Compass Bank
5.50%, 4/01/20

      250       265,860  

Cooperatieve Rabobank UA
4.375%, 8/04/25

      250       261,973  

Credit Suisse Group Funding Guernsey Ltd.
3.80%, 6/09/23

      265       272,860  

Goldman Sachs Group, Inc. (The)
2.35%, 11/15/21

      118       116,425  

3.75%, 5/22/25

      53       54,164  

3.85%, 7/08/24

      210       217,928  

Series D
6.00%, 6/15/20

      195       215,177  

JPMorgan Chase & Co.
3.22%, 3/01/25

      140       140,391  

Lloyds Banking Group PLC
4.65%, 3/24/26

      200       208,368  

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

      200       208,888  

Morgan Stanley
5.625%, 9/23/19

      143       153,603  

Nationwide Building Society
6.25%, 2/25/20(a)

      230       253,444  

 

4


    AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

Santander Issuances SAU
3.25%, 4/04/26(a)

    EUR       200     $ 243,666  

UBS AG/Stamford CT
7.625%, 8/17/22

    U.S.$       250       293,745  

UBS Group Funding Switzerland AG
4.125%, 9/24/25(a)

      200       209,374  

US Bancorp
Series J
5.30%, 4/15/27(b)

      63       67,048  

Wells Fargo & Co.
3.069%, 1/24/23

      113       114,394  
     

 

 

 
        4,002,771  
     

 

 

 

INSURANCE–0.4%

 

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

      31       33,593  

Lincoln National Corp.
8.75%, 7/01/19

      35       39,376  

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

      35       59,083  

XLIT Ltd.
3.25%, 6/29/47

    EUR       100       112,988  
     

 

 

 
        245,040  
     

 

 

 

REITS–0.8%

 

American Tower Corp.
5.05%, 9/01/20

    U.S.$       260       279,825  

Host Hotels & Resorts LP
Series D
3.75%, 10/15/23

      6       6,113  

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

      146       151,171  
     

 

 

 
        437,109  
     

 

 

 
        4,684,920  
     

 

 

 

UTILITY–0.7%

 

ELECTRIC–0.7%

 

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

      90       115,873  

Exelon Corp.
5.15%, 12/01/20

      64       68,797  

Israel Electric Corp., Ltd.
Series 6
5.00%, 11/12/24(a)

      200       215,500  
     

 

 

 
        400,170  
     

 

 

 

Total Corporates–Investment Grade
(cost $10,806,500)

        11,264,246  
     

 

 

 

GOVERNMENTS–TREASURIES–15.2%

 

   

UNITED STATES–15.2%

 

U.S. Treasury Bonds
2.875%, 8/15/45–11/15/46

      330       331,317  

3.00%, 11/15/45–5/15/47

      2,183       2,249,456  
     

3.625%, 2/15/44

  U.S.$       65     $ 74,892  

4.50%, 2/15/36

      99       127,772  

5.50%, 8/15/28

      147       191,941  

6.25%, 5/15/30

      261       371,477  

U.S. Treasury Notes
0.625%, 9/30/17

      2,000       1,997,812  

1.125%, 1/31/19

      450       448,383  

1.625%, 5/15/26

      266       252,486  

1.75%, 11/30/21

      1,247       1,243,688  

2.00%, 11/15/26

      328       319,851  

2.25%, 11/15/24–11/15/25

      611       611,604  

2.50%, 8/15/23

      215       220,644  
     

 

 

 

Total Governments–Treasuries
(cost $8,666,402)

        8,441,323  
     

 

 

 

ASSET-BACKED SECURITIES–13.7%

 

   

AUTOS–FIXED RATE–7.4%

 

   

Ally Auto Receivables Trust
Series 2015-2, Class A3
1.49%, 11/15/19

      129       129,191  

Ally Master Owner Trust
Series 2015-3, Class A
1.63%, 5/15/20

      259       259,032  

Americredit Automobile Receivables Trust
Series 2016-4, Class A2A
1.34%, 4/08/20

      101       101,343  

Avis Budget Rental Car Funding AESOP LLC
Series 2013-2A, Class A
2.97%, 2/20/20(a)

      288       290,965  

Series 2016-1A, Class A
2.99%, 6/20/22(a)

      100       100,544  

Bank of The West Auto Trust
Series 2015-1, Class A3
1.31%, 10/15/19(a)

      159       159,118  

California Republic Auto Receivables Trust
Series 2014-2, Class A4
1.57%, 12/16/19

      69       69,330  

Series 2015-2, Class A3
1.31%, 8/15/19

      42       42,356  

Capital Auto Receivables Asset Trust
Series 2014-1, Class B
2.22%, 1/22/19

      45       44,971  

Chrysler Capital Auto Receivables Trust
Series 2015-BA, Class A3
1.91%, 3/16/20(a)

      142       142,503  

CPS Auto Receivables Trust
Series 2013-B, Class A
1.82%, 9/15/20(a)

      40       40,109  

Enterprise Fleet Financing LLC
Series 2014-2, Class A2
1.05%, 3/20/20(a)

      17       17,247  

Series 2015-1, Class A2
1.30%, 9/20/20(a)

      74       73,588  

 

5


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

Exeter Automobile Receivables Trust

 

   

Series 2016-3A, Class A
1.84%, 11/16/20(a)

  U.S.$       35     $ 35,310  

Series 2016-3A, Class D
6.40%, 7/17/23(a)

      100       103,245  

Series 2017-2A, Class A
2.11%, 6/15/21(a)

      84       83,680  

Fifth Third Auto Trust
Series 2014-3, Class A4
1.47%, 5/17/21

      165       164,939  

Flagship Credit Auto Trust
Series 2016-3, Class A1
1.61%, 12/15/19(a)

      56       56,374  

Series 2016-4, Class D
3.89%, 11/15/22(a)

      125       125,890  

Ford Credit Auto Owner Trust
Series 2014-2, Class A
2.31%, 4/15/26(a)

      257       259,622  

Ford Credit Floorplan Master Owner Trust
Series 2015-2, Class A1
1.98%, 1/15/22

      198       197,456  

Series 2016-1, Class A1
1.76%, 2/15/21

      131       130,995  

Series 2017-1, Class A1
2.07%, 5/15/22

      115       115,021  

GM Financial Automobile Leasing Trust
Series 2015-2, Class A3
1.68%, 12/20/18

      206       205,728  

GMF Floorplan Owner Revolving Trust
Series 2015-1, Class A1
1.65%, 5/15/20(a)

      128       128,460  

Harley-Davidson Motorcycle Trust
Series 2015-1, Class A3
1.41%, 6/15/20

      107       107,200  

Hertz Vehicle Financing II LP
Series 2015-1A, Class B
3.52%, 3/25/21(a)

      115       115,242  

Hertz Vehicle Financing LLC
Series 2013-1A, Class A2
1.83%, 8/25/19(a)

      485       483,378  

Hyundai Auto Lease Securitization Trust
Series 2015-B, Class A3
1.40%, 11/15/18(a)

      81       81,276  

Mercedes Benz Auto Lease Trust
Series 2015-B, Class A3
1.34%, 7/16/18

      101       101,447  

Nissan Auto Lease Trust
Series 2015-A, Class A3
1.40%, 6/15/18

      33       32,888  
     

Santander Drive Auto Receivables Trust
Series 2016-3, Class A2
1.34%, 11/15/19

  U.S.$       80     $ 80,459  

Westlake Automobile Receivables Trust
Series 2016-2A, Class A2
1.57%, 6/17/19(a)

      51       50,664  
     

 

 

 
        4,129,571  
     

 

 

 

OTHER ABS–FIXED RATE–2.3%

 

   

Ascentium Equipment Receivables Trust
Series 2016-1A, Class A2
1.75%, 11/13/18(a)

      24       24,043  

CNH Equipment Trust
Series 2014-B, Class A4
1.61%, 5/17/21

      101       100,966  

Series 2015-A, Class A4
1.85%, 4/15/21

      134       133,921  

Dell Equipment Finance Trust
Series 2015-1, Class A3
1.30%, 3/23/20(a)

      6       5,674  

Marlette Funding Trust
Series 2016-1A, Class A
3.06%, 1/17/23(a)

      56       56,038  

Series 2017-1A, Class A
2.827%, 3/15/24(a)

      86       86,068  

Series 2017-2A, Class A
2.39%, 7/15/24(a)

      140       140,000  

Series 2017-2A, Class C
4.58%, 7/15/24(a)

      100       99,994  

SBA Tower Trust
3.156%, 10/15/20(a)

      147       149,872  

SoFi Consumer Loan Program LLC
Series 2016-2, Class A
3.09%, 10/27/25(a)

      83       83,553  

Series 2016-3, Class A
3.05%, 12/26/25(a)

      90       90,274  

Series 2017-1, Class A
3.28%, 1/26/26(a)

      84       84,931  

Series 2017-2, Class A
3.28%, 2/25/26(a)

      100       101,617  

Series 2017-3, Class A
2.77%, 5/25/26(a)

      112       112,145  
     

 

 

 
        1,269,096  
     

 

 

 

CREDIT CARDS–FIXED RATE–1.5%

 

   

Barclays Dryrock Issuance Trust
Series 2015-2, Class A
1.56%, 3/15/21

      183       183,056  

Synchrony Credit Card Master Note Trust
Series 2012-2, Class A
2.22%, 1/15/22

      232       233,732  

 

6


    AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

Series 2015-3, Class A
1.74%, 9/15/21

  U.S.$       173     $ 173,148  

Series 2016-1, Class A
2.04%, 3/15/22

      130       130,502  

World Financial Network Credit Card Master Trust
Series 2016-B, Class A
1.44%, 6/15/22

      137       136,657  
     

 

 

 
        857,095  
     

 

 

 

AUTOS–FLOATING RATE–1.5%

 

   

BMW Floorplan Master Owner Trust
Series 2015-1A, Class A
1.659% (LIBOR 1 Month + 0.50%), 7/15/20(a)(c)

      214       214,700  

Hertz Fleet Lease Funding LP
Series 2013-3, Class A
1.408%, 12/10/27(a)

      14       13,693  

NCF Dealer Floorplan Master Trust
Series 2014-1A, Class A
2.712% (LIBOR 1 Month + 1.50%), 10/20/20(a)(c)

      197       197,000  

Volkswagen Credit Auto Master Trust
Series 2014-1A, Class A1
1.562% (LIBOR 1 Month + 0.35%), 7/22/19(a)(c)

      70       70,004  

Wells Fargo Dealer Floorplan Master Note Trust
Series 2014-1, Class A
1.592% (LIBOR 1 Month + 0.38%), 7/20/19(c)

      120       120,013  

Series 2015-1, Class A
1.712% (LIBOR 1 Month + 0.50%), 1/20/20(c)

      227       227,414  

Westlake Automobile Receivables Trust
Series 2015-3A, Class A2A
1.42%, 5/17/21(a)

      5       5,154  
     

 

 

 
        847,978  
     

 

 

 

CREDIT CARDS–FLOATING RATE–0.8%

 

   

Discover Card Execution Note Trust
Series 2015-A1, Class A1
1.509% (LIBOR 1 Month + 0.35%), 8/17/20(c)

      263       263,500  

World Financial Network Credit Card Master Trust
Series 2015-A, Class A
1.639% (LIBOR 1 Month + 0.48%), 2/15/22(c)

      150       150,380  
     

 

 

 
        413,880  
     

 

 

 
     

HOME EQUITY LOANS–FIXED RATE–0.1%

 

   

Credit-Based Asset Servicing & Securitization LLC
Series 2003-CB1, Class AF
3.95%, 1/25/33

  U.S.$       65     $ 65,077  
     

 

 

 

HOME EQUITY LOANS–FLOATING RATE–0.1%

 

   

Asset Backed Funding Certificates Trust
Series 2003-WF1, Class A2
2.341% (LIBOR 1 Month + 1.13%), 12/25/32(c)

      33       32,199  
     

 

 

 

Total Asset-Backed Securities
(cost $7,594,509)

        7,614,896  
     

 

 

 

COMMERCIAL MORTGAGE-BACKED SECURITIES–8.2%

 

   

NON-AGENCY FIXED RATE CMBS–6.6%

 

   

Banc of America Commercial Mortgage Trust
Series 2007-5, Class AM
5.772%, 2/10/51

      78       78,434  

Bear Stearns Commercial Mortgage Securities Trust
Series 2006-PW13, Class AJ
5.611%, 9/11/41

      1       1,124  

BHMS Commercial Mortgage Trust
Series 2014-ATLS, Class AFX
3.601%, 7/05/33(a)

      200       202,502  

CGRBS Commercial Mortgage Trust
Series 2013-VN05, Class A
3.369%, 3/13/35(a)

      260       268,935  

Citigroup Commercial Mortgage Trust
Series 2012-GC8, Class D
5.014%, 9/10/45(a)

      128       117,998  

Series 2015-GC27, Class A5
3.137%, 2/10/48

      144       144,345  

Series 2016-C1, Class A4
3.209%, 5/10/49

      192       193,516  

Commercial Mortgage Trust
Series 2013-SFS, Class A1
1.873%, 4/12/35(a)

      82       80,280  

CSAIL Commercial Mortgage Trust
Series 2015-C3, Class A4
3.718%, 8/15/48

      117       121,291  

Series 2015-C4, Class A4
3.808%, 11/15/48

      150       156,766  

GS Mortgage Securities Corp. II
Series 2013-KING, Class A
2.706%, 12/10/27(a)

      240       243,414  

 

7


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

GS Mortgage Securities Trust
Series 2013-G1, Class A2
3.557%, 4/10/31(a)

    U.S.$       136     $ 136,165  

JP Morgan Chase Commercial Mortgage Securities Trust
Series 2006-LDP9, Class AM
5.372%, 5/15/47

      45       45,341  

Series 2012-C6, Class D
5.299%, 5/15/45

      110       113,348  

Series 2012-C6, Class E
5.299%, 5/15/45(a)

      132       118,654  

JPMBB Commercial Mortgage Securities Trust
Series 2014-C22, Class XA
1.087%, 9/15/47(d)

      2,874       144,773  

Series 2015-C31, Class A3
3.801%, 8/15/48

      130       136,505  

LB-UBS Commercial Mortgage Trust
Series 2006-C6, Class AJ
5.452%, 9/15/39

      40       34,752  

LSTAR Commercial Mortgage Trust
Series 2016-4, Class A2
2.579%, 3/10/49(a)

      159       155,298  

ML-CFC Commercial Mortgage Trust
Series 2007-9, Class A4
5.70%, 9/12/49

      517       517,455  

UBS-Barclays Commercial Mortgage Trust
Series 2012-C4, Class A5
2.85%, 12/10/45

      112       113,023  

Wachovia Bank Commercial Mortgage Trust
Series 2006-C26, Class A1A
6.009%, 6/15/45

      5       4,617  

Wells Fargo Commercial Mortgage Trust
Series 2016-LC25, Class C
4.584%, 12/15/59

      85       83,222  

Series 2016-NXS6, Class C
4.453%, 11/15/49

      100       99,541  

WF-RBS Commercial Mortgage Trust
Series 2013-C11, Class XA
1.49%, 3/15/45(a)(d)

      1,600       77,074  

Series 2013-C14, Class A5
3.337%, 6/15/46

      132       136,372  

Series 2014-C20, Class A2
3.036%, 5/15/47

      125       127,623  
     

 

 

 
        3,652,368  
     

 

 

 
     

NON-AGENCY FLOATING RATE CMBS–1.6%

 

   

CGBAM Commercial Mortgage Trust
Series 2016-IMC, Class A
3.072% (LIBOR 1 Month + 1.90%), 11/15/21(a)(c)

  U.S.$       115     $ 115,072  

Series 2016-IMC, Class C
5.122% (LIBOR 1 Month + 3.95%), 11/15/21(a)(c)

      123       123,497  

CSMC Mortgage-Backed Trust
Series 2016-MFF, Class D
5.367% (LIBOR 1 Month + 4.60%), 11/15/33(a)(c)

      100       100,563  

JP Morgan Chase Commercial Mortgage Securities Trust
Series 2015-SGP, Class A
2.859% (LIBOR 1 Month + 1.70%), 7/15/36(a)(c)

      138       138,346  

Resource Capital Corp., Ltd.
Series 2014-CRE2, Class A
2.222% (LIBOR 1 Month + 1.05%), 4/15/32(a)(c)

      11       11,222  

Starwood Retail Property Trust
Series 2014-STAR, Class A
2.347% (LIBOR 1 Month + 1.22%), 11/15/27(a)(c)

      196       194,068  

Waldorf Astoria Boca Raton Trust
Series 2016-BOCA, Class A
2.509% (LIBOR 1 Month + 1.35%), 6/15/29(a)(c)

      211       211,654  
     

 

 

 
        894,422  
     

 

 

 

Total Commercial Mortgage-Backed Securities
(cost $4,585,358)

        4,546,790  
     

 

 

 

COLLATERALIZED MORTGAGE OBLIGATIONS–7.4%

 

   

RISK SHARE FLOATING RATE–5.3%

 

   

Bellemeade Re II Ltd.
Series 2016-1A, Class M2B
7.716% (LIBOR 1 Month + 6.50%), 4/25/26(c)(e)

      150       156,011  

Federal Home Loan Mortgage Corp. Structured Agency Credit Risk Debt Notes
Series 2014-DN3, Class M2
3.616% (LIBOR 1 Month + 2.40%), 8/25/24(c)

      21       20,924  

Series 2014-DN4, Class M3
5.766% (LIBOR 1 Month + 4.55%), 10/25/24(c)

      248       272,949  

Series 2014-HQ3, Class M2
3.866% (LIBOR 1 Month + 2.65%), 10/25/24(c)

      64       64,500  

 

8


    AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

Series 2015-DNA1, Class M3
4.516% (LIBOR 1 Month + 3.30%), 10/25/27(c)

  U.S.$       250     $ 277,165  

Series 2015-HQA1, Class M2
3.866% (LIBOR 1 Month + 2.65%), 3/25/28(c)

      184       188,156  

Federal National Mortgage Association Connecticut Avenue Securities
Series 2014-C03, Class 1M1
2.416% (LIBOR 1 Month + 1.20%), 7/25/24(c)

      10       10,024  

Series 2014-C04, Class 1M2
6.116% (LIBOR 1 Month + 4.90%), 11/25/24(c)

      169       192,687  

Series 2014-C04, Class 2M2
6.216% (LIBOR 1 Month + 5.00%), 11/25/24(c)

      58       65,600  

Series 2015-C01, Class 1M2
5.516% (LIBOR 1 Month + 4.30%), 2/25/25(c)

      82       88,746  

Series 2015-C01, Class 2M2
5.766% (LIBOR 1 Month + 4.55%), 2/25/25(c)

      75       81,056  

Series 2015-C02, Class 1M2
5.216% (LIBOR 1 Month + 4.00%), 5/25/25(c)

      101       108,678  

Series 2015-C02, Class 2M2
5.216% (LIBOR 1 Month + 4.00%), 5/25/25(c)

      121       129,216  

Series 2015-C03, Class 1M2
6.216% (LIBOR 1 Month + 5.00%), 7/25/25(c)

      125       139,531  

Series 2015-C03, Class 2M2
6.216% (LIBOR 1 Month + 5.00%), 7/25/25(c)

      105       116,455  

Series 2015-C04, Class 1M2
6.916% (LIBOR 1 Month + 5.70%), 4/25/28(c)

      145       165,221  

Series 2015-C04, Class 2M2
6.766% (LIBOR 1 Month + 5.55%), 4/25/28(c)

      138       154,573  

Series 2016-C01, Class 1M2
7.966% (LIBOR 1 Month + 6.75%), 8/25/28(c)

      160       193,308  

Series 2016-C01, Class 2M2
8.166% (LIBOR 1 Month + 6.95%), 8/25/28(c)

      92       110,524  

Series 2016-C02, Class 1M2
7.216% (LIBOR 1 Month + 6.00%), 9/25/28(c)

      130       152,134  

Series 2016-C03, Class 2M2
7.116% (LIBOR 1 Month + 5.90%), 10/25/28(c)

      148       172,355  
     

Wells Fargo Credit Risk Transfer Securities Trust
Series 2015-WF1, Class 1M2
6.466% (LIBOR 1 Month + 5.25%), 11/25/25(c)(e)

  U.S.$       48     $ 52,178  

Series 2015-WF1, Class 2M2
6.716% (LIBOR 1 Month + 5.50%), 11/25/25(c)(e)

      20       23,311  
     

 

 

 
        2,935,302  
     

 

 

 

NON-AGENCY FIXED RATE–1.2%

 

   

Alternative Loan Trust
Series 2005-20CB, Class 3A6
5.50%, 7/25/35

      23       21,799  

Series 2005-57CB, Class 4A3
5.50%, 12/25/35

      48       43,765  

Series 2006-23CB, Class 1A7
6.00%, 8/25/36

      29       27,959  

Series 2006-24CB, Class A16
5.75%, 6/25/36

      84       69,715  

Series 2006-28CB, Class A14
6.25%, 10/25/36

      59       51,311  

Series 2006-9T1, Class A1
5.75%, 5/25/36

      36       28,070  

Series 2006-J1, Class 1A13
5.50%, 2/25/36

      49       44,176  

Chase Mortgage Finance Trust
Series 2007-S5, Class 1A17
6.00%, 7/25/37

      28       25,654  

Citigroup Mortgage Loan Trust, Inc.
Series 2005-2, Class 1A4
3.234%, 5/25/35

      59       58,964  

Countrywide Home Loan Mortgage Pass-Through Trust
Series 2006-10, Class 1A8
6.00%, 5/25/36

      42       35,845  

Series 2006-13, Class 1A19
6.25%, 9/25/36

      24       20,479  

First Horizon Alternative Mortgage Securities Trust
Series 2006-FA3, Class A9
6.00%, 7/25/36

      72       59,813  

JP Morgan Alternative Loan Trust
Series 2006-A3, Class 2A1
3.515%, 7/25/36

      155       130,341  

JP Morgan Mortgage Trust
Series 2007-S3, Class 1A8
6.00%, 8/25/37

      39       33,691  

 

9


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

Wells Fargo Mortgage Backed Securities Trust
Series 2007-8, Class 2A5
5.75%, 7/25/37

    U.S.$       23     $ 22,902  
     

 

 

 
        674,484  
     

 

 

 

AGENCY FLOATING RATE–0.5%

 

   

Federal National Mortgage Association REMICs
Series 2011-131, Class ST
5.324% (6.54%-LIBOR 1 Month), 12/25/41(c)(f)

      204       44,559  

Series 2015-90, Class SL
4.934% (6.15%-LIBOR 1 Month), 12/25/45(c)(f)

      418       83,269  

Series 2016-77, Class DS
4.78% (6.00%-LIBOR 1 Month), 10/25/46(c)(f)

      410       83,629  

Series 2017-26, Class TS
4.734% (5.95%-LIBOR 1 Month), 4/25/47(c)(f)

      366       83,119  
     

 

 

 
        294,576  
     

 

 

 

NON-AGENCY FLOATING RATE–0.3%

     

Deutsche Alt-A Securities Mortgage Loan Trust
Series 2006-AR4, Class A2
1.406% (LIBOR 1 Month + 0.19%), 12/25/36(c)

      161       97,278  

HomeBanc Mortgage Trust
Series 2005-1, Class A1
1.466% (LIBOR 1 Month + 0.25%), 3/25/35(c)

      60       52,896  
     

 

 

 
        150,174  
     

 

 

 

AGENCY FIXED RATE–0.1%

     

Federal National Mortgage Association Grantor Trust
Series 2004-T5, Class AB4
1.668%, 5/28/35

      50       44,910  
     

 

 

 

Total Collateralized Mortgage Obligations
(cost $3,918,552)

        4,099,446  
     

 

 

 

INFLATION-LINKED SECURITIES–5.8%

 

   

JAPAN–1.0%

     

Japanese Government CPI Linked Bond
Series 2022
0.10%, 3/10/27

    JPY       59,631       556,281  
     

 

 

 

UNITED STATES–4.8%

     

U.S. Treasury Inflation Index
0.125%, 4/15/19–4/15/20 (TIPS)

    U.S.$       1,199       1,199,762  

0.25%, 1/15/25 (TIPS)

      646       634,676  

0.375%, 7/15/25 (TIPS)

      851       844,318  
     

 

 

 
        2,678,756  
     

 

 

 
     

Total Inflation-Linked Securities
(cost $3,284,409)

      $ 3,235,037  
     

 

 

 

CORPORATES–NON-INVESTMENT GRADE–3.1%

 

   

INDUSTRIAL–2.0%

     

BASIC–0.1%

     

NOVA Chemicals Corp.
5.25%, 8/01/23(a)

    U.S.$       74       76,078  
     

 

 

 

COMMUNICATIONS–MEDIA–0.3%

 

CSC Holdings LLC
6.75%, 11/15/21

      30       33,211  

SFR Group SA
5.375%, 5/15/22(a)

    EUR       120       142,955  
     

 

 

 
        176,166  
     

 

 

 

COMMUNICATIONS– TELECOMMUNICATIONS–0.9%

 

   

Arqiva Broadcast Finance PLC
9.50%, 3/31/20(a)

    GBP       100       138,770  

CenturyLink, Inc.
Series Y
7.50%, 4/01/24

    U.S.$       42       46,058  

Sprint Capital Corp.
6.90%, 5/01/19

      210       224,213  

Windstream Services LLC
6.375%, 8/01/23

      80       65,990  
     

 

 

 
        475,031  
     

 

 

 

CONSUMER CYCLICAL–OTHER–0.1%

 

   

KB Home
4.75%, 5/15/19

      63       64,933  
     

 

 

 

CONSUMER CYCLICAL–RETAILERS–0.1%

 

   

Hanesbrands, Inc.
4.625%, 5/15/24(a)

      39       39,643  
     

 

 

 

CONSUMER NON-CYCLICAL–0.2%

 

   

First Quality Finance Co., Inc.
4.625%, 5/15/21(a)

      85       86,135  

Lamb Weston Holdings, Inc.
4.625%, 11/01/24(a)

      16       16,447  

4.875%, 11/01/26(a)

      16       16,568  
     

 

 

 
        119,150  
     

 

 

 

ENERGY–0.1%

     

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

      68       44,148  

SM Energy Co.
6.50%, 1/01/23

      9       8,593  
     

 

 

 
        52,741  
     

 

 

 

TECHNOLOGY–0.1%

     

Dell International LLC/EMC Corp.
7.125%, 6/15/24(a)

      35       38,486  
     

 

 

 

 

10


    AB Variable Products Series Fund

 

   

    
Principal
Amount
(000)

    U.S. $ Value  
     

TRANSPORTATION–SERVICES–0.1%

 

   

Avis Budget Car Rental LLC/Avis Budget Finance, Inc.
5.25%, 3/15/25(a)

    U.S.$       52     $ 49,177  
     

 

 

 
        1,091,405  
     

 

 

 

FINANCIAL INSTITUTIONS–1.1%

 

   

BANKING–0.9%

     

Bank of America Corp.
Series Z
6.50%, 10/23/24(b)

      49       54,579  

Barclays Bank PLC
6.86%, 6/15/32(a)(b)

      29       33,812  

Intesa Sanpaolo SpA
Series E
3.928%, 9/15/26(a)

    EUR       100       120,762  

Lloyds Banking Group PLC
7.50%, 6/27/24(b)

    U.S.$       200       219,756  

Standard Chartered PLC
2.68% (LIBOR 3 Month + 1.51%), 1/30/27(a)(b)(c)

      100       85,046  
     

 

 

 
        513,955  
     

 

 

 

FINANCE–0.2%

     

Navient Corp.
6.625%, 7/26/21

      95       102,068  
     

 

 

 
        616,023  
     

 

 

 

Total Corporates–Non-Investment Grade
(cost $1,751,829)

        1,707,428  
     

 

 

 

AGENCIES–2.9%

     

AGENCY DEBENTURES–2.9%

 

   

Residual Funding Corp. Principal Strip
Zero Coupon, 7/15/20
(cost $1,491,654)

      1,677       1,588,119  
     

 

 

 

EMERGING MARKETS–TREASURIES–1.1%

 

   

BRAZIL–1.1%

     

Brazil Notas do Tesouro Nacional
Series F
10.00%, 1/01/21–1/01/27
(cost $537,426)

    BRL       2,015       601,845  
     

 

 

 

Total Emerging Markets–Treasuries
(cost $537,426)

        601,845  
     

 

 

 

QUASI-SOVEREIGNS–0.6%

     

QUASI-SOVEREIGN BONDS–0.6%

 

   

CHILE–0.4%

     

Empresa de Transporte de Pasajeros Metro SA
4.75%, 2/04/24(a)

    U.S.$       210       227,850  
     

 

 

 
     

MEXICO–0.2%

     

Petroleos Mexicanos
4.625%, 9/21/23

    U.S.$       120     $ 121,440  
     

 

 

 

Total Quasi-Sovereigns
(cost $328,874)

        349,290  
     

 

 

 

LOCAL GOVERNMENTS–US MUNICIPAL BONDS–0.5%

 

   

CALIFORNIA–0.5%

     

State of California
Series 2010
7.625%, 3/01/40
(cost $203,103)

      200       305,550  
     

 

 

 

GOVERNMENTS–SOVEREIGN BONDS–0.3%

 

   

QATAR–0.3%

     

Qatar Government International Bond
2.375%, 6/02/21(a)
(cost $198,292)

      200       195,000  
     

 

 

 

EMERGING MARKETS–CORPORATE BONDS–0.3%

 

   

INDUSTRIAL–0.3%

     

CAPITAL GOODS–0.2%

     

Odebrecht Finance Ltd.
7.125%, 6/26/42(a)

      200       80,500  
     

 

 

 

ENERGY–0.1%

     

Petrobras Global Finance BV
6.125%, 1/17/22

      65       67,034  
     

 

 

 

Total Emerging Markets–Corporate Bonds
(cost $123,601)

        147,534  
     

 

 

 
    Shares        

PREFERRED STOCKS–0.2%

 

   

FINANCIAL INSTITUTIONS–0.2%

 

   

REITS–0.2%

     

Sovereign Real Estate Investment Trust
12.00%(a)
(cost $87,658)

      93       116,250  
     

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–13.5%

 

   

AGENCY DISCOUNT
NOTE–8.7%

     

Federal Home Loan Bank Discount Notes
Zero Coupon, 7/05/17-11/10/17
(cost $4,848,547)

    U.S.$       4,855       4,848,547  
     

 

 

 

 

11


INTERMEDIATE BOND PORTFOLIO

 
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company             
Principal
Amount
(000)
    U.S. $ Value  
     

GOVERNMENTS–TREASURIES–3.9%

 

   

JAPAN–3.9%

     

Japan Treasury Discount Bill
Series 687
Zero Coupon, 12/11/17
(cost $2,237,738)

    JPY       246,000     $ 2,188,395  
     

 

 

 

TIME DEPOSIT–0.9%

 

   

State Street Time Deposit
0.09%, 7/03/17
(cost $492,701)

    U.S.$       493       492,701  
     

 

 

 

Total Short-Term Investments
(cost $7,578,986)

        7,529,643  
     

 

 

 
     

TOTAL INVESTMENTS–113.9%
(cost $62,788,778)

      $ 63,399,340  

Other assets less
liabilities–(13.9)%

        (7,713,997
     

 

 

 

NET ASSETS–100.0%

      $ 55,685,343  
     

 

 

 

FUTURES (see Note D)

 

Type    Number of
Contracts
     Expiration
Month
     Original
Value
     Value at
June 30, 2017
     Unrealized
Appreciation/
(Depreciation)
 

Purchased Contracts

 

U.S. T-Note 5 Yr (CBT) Futures

     74        September 2017      $   8,740,983      $   8,719,860      $   (21,123

U.S. Ultra Bond (CBT) Futures

     14        September 2017        2,274,695        2,322,250        47,555  

Sold Contracts

 

10 Yr Mini Japan Government Bond Futures

     4        September 2017        534,858        534,270        588  

Euro-BOBL Futures

     37        September 2017        5,619,213        5,565,581        53,632  

U.S. T-Note 2 Yr (CBT) Futures

     12        September 2017        2,595,502        2,593,313        2,189  
              

 

 

 
               $ 82,841  
              

 

 

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Australia and New Zealand Banking Group Ltd.

     AUD        814        USD        614        7/10/17      $ (10,928

Bank of America, NA

     JPY        320,000        USD        2,884        7/14/17           37,876  

Bank of America, NA

     KRW        240,509        USD        214        7/27/17        3,444  

Bank of America, NA

     TWD        6,546        USD        218        8/16/17        2,566  

Bank of America, NA

     USD        62        MYR        265        8/18/17        (651

Barclays Bank PLC

     USD        142        CNY        970        8/16/17        509  

Citibank, NA

     BRL        1,443        USD        436        7/05/17        619  

Citibank, NA

     USD        369        BRL        1,228        7/05/17        1,904  

Citibank, NA

     USD        65        BRL        215        7/05/17        (184

Citibank, NA

     TWD        6,016        USD        199        7/28/17        720  

Citibank, NA

     BRL        1,228        USD        367        8/02/17        (1,908

Citibank, NA

     USD        81        MYR        344        8/18/17        (957

Citibank, NA

     USD        344        INR        22,237        8/21/17        (1,390

Citibank, NA

     INR        22,137        USD        341        8/22/17        264  

Deutsche Bank AG

     BRL        1,184        USD        358        7/05/17        183  

 

12


    AB Variable Products Series Fund

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Deutsche Bank AG

     USD        358        BRL        1,184        7/05/17      $ (508

Goldman Sachs Bank USA

     BRL        259        USD        78        7/05/17        329  

Goldman Sachs Bank USA

     USD        78        BRL        259        7/05/17        (111

JPMorgan Chase Bank, NA

     USD        218        TWD        6,564        9/20/17        (2,486

State Street Bank & Trust Co.

     NZD        260        USD        181        7/10/17        (9,600

State Street Bank & Trust Co.

     USD        163        AUD        214        7/10/17        1,926  

State Street Bank & Trust Co.

     USD        171        NZD        240        7/10/17             4,559  

State Street Bank & Trust Co.

     EUR        109        USD        125        7/13/17        232  

State Street Bank & Trust Co.

     EUR        458        USD        495        7/13/17        (28,989

State Street Bank & Trust Co.

     USD        225        EUR        200        7/13/17        3,023  

State Street Bank & Trust Co.

     SEK        2,563        USD        290        7/14/17        (14,824

State Street Bank & Trust Co.

     USD        219        NOK        1,848        7/14/17        2,631  

State Street Bank & Trust Co.

     USD        290        SEK        2,516        7/14/17        9,213  

State Street Bank & Trust Co.

     GBP        320        USD        413        7/21/17        (4,849

State Street Bank & Trust Co.

     USD        143        TRY        512        8/18/17        1,168  

State Street Bank & Trust Co.

     CAD        562        USD        424        8/24/17        (9,319

State Street Bank & Trust Co.

     USD        219        CAD        290        8/24/17        4,518  
                 

 

 

 
   $ (11,020
                 

 

 

 

CENTRALLY CLEARED CREDIT DEFAULT SWAPS (see Note D)

 

Clearing Broker/

(Exchange) &

Referenced Obligation

   Fixed
Rate
(Pay)
Receive
     Implied
Credit
Spread at
June 30,
2017
     Notional
Amount
(000)
     Market
Value
     Unrealized
Appreciation/
(Depreciation)
 

Sale Contracts

              

Morgan Stanley & Co., LLC/(INTRCONX)

              

CDX-NAHY Series 28, 5 Year Index, 6/20/22*

     5.00      3.39    $   600      $   42,433      $   4,040  

 

*   Termination date

CENTRALLY CLEARED INTEREST RATE SWAPS (see Note D)

 

                       Rate Type      
Clearing Broker/
(Exchange)
    Notional
Amount
(000)
    Termination
Date
    Payments
made
by the
Fund
  Payments
received
by the
Fund
  Unrealized
Appreciation/
(Depreciation)
 

Morgan Stanley & Co., LLC/(CME Group)

     MXN       2,243       6/22/20     4 Week TIIE   6.770%   $ 85  

Morgan Stanley & Co., LLC/(CME Group)

     JPY       278,240       3/31/22     0.099%   6 Month LIBOR     6  

Morgan Stanley & Co., LLC/(CME Group)

     SEK       4,830       3/31/22     3 Month STIBOR   0.341%     (606

Morgan Stanley & Co., LLC/(CME Group)

     NZD       1,950       3/31/22     3 Month BKBM   2.936%        16,464  

Morgan Stanley & Co., LLC/(CME Group)

       530       1/14/24     2.980%   3 Month LIBOR     (35,401

Morgan Stanley & Co., LLC/(CME Group)

       650       4/28/24     2.817%   3 Month LIBOR     (31,850

 

13


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

                       Rate Type        
Clearing Broker/
(Exchange)
    Notional
Amount
(000)
    Termination
Date
    Payments
made
by the
Fund
    Payments
received
by the
Fund
    Unrealized
Appreciation/
(Depreciation)
 

Morgan Stanley & Co., LLC/(CME Group)

     NZD       740       11/10/25       2.256%       3 Month LIBOR     $ (4,384

Morgan Stanley & Co., LLC/(CME Group)

       80       6/28/26       1.460%       3 Month LIBOR       5,159  

Morgan Stanley & Co., LLC/(CME Group)

       200       12/21/26       3 Month LIBOR       2.497%       4,107  

Morgan Stanley & Co., LLC/(CME Group)

       650       4/26/27       2.287%       3 Month LIBOR       (1,637

Morgan Stanley & Co., LLC/(CME Group)

     MXN       818       6/14/27       7.090%       4 Week TIIE       235  

Morgan Stanley & Co., LLC/(LCH Group)

       175       11/08/26       1.657%       3 Month LIBOR       8,582  

Morgan Stanley & Co., LLC/(LCH Group)

       200       11/09/26       1.672%       3 Month LIBOR            9,558  
            

 

 

 
             $ (29,682
            

 

 

 

CREDIT DEFAULT SWAPS (see Note D)

 

Swap Counterparty &
Referenced Obligation
   Fixed
Rate
(Pay)
Receive
    Implied
Credit
Spread at
June 30,
2017
     Notional
Amount
(000)
     Market
Value
     Upfront
Premiums
Paid
(Received)
     Unrealized
Appreciation/
(Depreciation)
 

Buy Contracts

                

Citibank, NA

                

Sprint Communications, Inc.,
8.375%, 8/15/17, 6/20/19*

     (5.00 )%      0.72    $   112      $ (9,548    $ (2,804    $ (6,744

Sprint Communications, Inc.,
8.375%, 8/15/17, 6/20/19*

     (5.00     0.72        98        (8,355      (2,366        (5,989

Credit Suisse International

                

CDX-CMBX.NA.BBB
Series 7, 1/17/47*

     (3.00     4.73        350          31,022          23,255          7,767  

CDX-CMBX.NA.AAA
Series 9, 9/17/58*

     (0.50     0.69        330        4,489        4,244        245  

Goldman Sachs International

                

CDX-CMBX.NA.AAA
Series 9, 9/17/58*

     (0.50     0.69        46        627        633        (6

Morgan Stanley & Co. International PLC

                

CDX-CMBX.NA.AAA
Series 9, 9/17/58*

     (0.50     0.69        99        1,351        1,325        26  

CDX-CMBX.NA.AAA
Series 9, 9/17/58*

     (0.50     0.69        50        682        669        13  

Sale Contracts

                

Citigroup Global Markets, Inc.

                

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00       5.74        60        (6,988      (8,611      1,623  

 

14


    AB Variable Products Series Fund

 

Swap Counterparty &
Referenced Obligation
   Fixed
Rate
(Pay)
Receive
     Implied
Credit
Spread at
June 30,
2017
     Notional
Amount
(000)
     Market
Value
     Upfront
Premiums
Paid
(Received)
     Unrealized
Appreciation/
(Depreciation)
 

Sale Contracts (continued)

                 

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00      5.74    $ 32      $ (3,716    $ (4,486    $ 770  

Credit Suisse International

                 

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74          350          (40,647        (21,411        (19,236

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        318        (36,952      (13,751      (23,201

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        28        (3,251      (2,046      (1,205

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        94        (10,917      (6,428      (4,489

Deutsche Bank AG

                 

CDX-CMBX.NA.A
Series 6, 5/11/63*

     2.00        2.66        135        (4,273      (2,791      (1,482

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        8        (929      (991      62  

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        51        (5,931      (6,793      862  

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        84        (9,756      (9,566      (190

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        27        (3,135      (3,263      128  

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        28        (3,251      (3,385      134  

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        85        (9,871      (7,390      (2,481

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        8        (929      (485      (444

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        132        (15,330      (9,779      (5,551

Goldman Sachs International

                 

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        185        (21,485      (14,950      (6,535

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        49        (5,691      (4,476      (1,215

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        4        (465      (379      (86

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        8        (929      (772      (157

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        8        (929      (835      (94

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        16        (1,858      (1,826      (32

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        57        (6,619      (6,419      (200

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        92        (10,723      (12,893           2,170  

 

15


INTERMEDIATE BOND PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Swap Counterparty &
Referenced Obligation
   Fixed
Rate
(Pay)
Receive
     Implied
Credit
Spread at
June 30,
2017
     Notional
Amount
(000)
     Market
Value
     Upfront
Premiums
Paid
(Received)
     Unrealized
Appreciation/
(Depreciation)
 

Sale Contracts (continued)

                 

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00      5.74    $ 41      $ (4,761    $ (5,898    $ 1,137  

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74          125        (14,517      (10,519      (3,998

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        246        (28,569      (12,717      (15,852

Morgan Stanley Capital Services LLC

                 

CDX-CMBX.NA.BBB
Series 6, 5/11/63*

     3.00        5.74        35        (4,065      (2,609      (1,456
           

 

 

    

 

 

    

 

 

 
            $   (236,219    $   (150,513    $   (85,706
           

 

 

    

 

 

    

 

 

 

 

*   Termination date

 

(a)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2017, the aggregate market value of these securities amounted to $9,910,352 or 17.8% of net assets.

 

(b)   Securities are perpetual and, thus, do not have a predetermined maturity date. The date shown, if applicable, reflects the next call date.

 

(c)   Floating Rate Security. Stated interest/floor rate was in effect at June 30, 2017.

 

(d)   IO—Interest Only.

 

(e)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities, which represent 0.41% of net assets as of June 30, 2017, are considered illiquid and restricted. Additional information regarding such securities follows:

 

144A/Restricted & Illiquid
Securities
   Acquisition
Date
     Cost      Market
Value
     Percentage
of
Net Assets
 

Bellemeade Re II Ltd.

           

Series 2016-1A, Class M2B
7.716%, 4/25/26

     4/29/16      $   150,000      $   156,011        0.28

Wells Fargo Credit Risk Transfer Securities Trust

           

Series 2015-WF1, Class 1M2
6.466%, 11/25/25

     9/28/15        47,973        52,178        0.09

Wells Fargo Credit Risk Transfer Securities Trust

           

Series 2015-WF1, Class 2M2
6.716%, 11/25/25

     9/28/15        20,439        23,311        0.04

 

(f)   Inverse interest only security.

Currency Abbreviations:

AUD—Australian Dollar

BRL—Brazilian Real

CAD—Canadian Dollar

CNY—Chinese Yuan Renminbi

EUR—Euro

GBP—Great British Pound

INR—Indian Rupee

JPY—Japanese Yen

KRW—South Korean Won

MXN—Mexican Peso

MYR—Malaysian Ringgit

NOK—Norwegian Krone

NZD—New Zealand Dollar

SEK—Swedish Krona

TRY—Turkish Lira

TWD—New Taiwan Dollar

USD—United States Dollar

 

16


    AB Variable Products Series Fund

 

Glossary:

ABS—Asset-Backed Securities

BKBM—Bank Bill Benchmark (New Zealand)

BOBL—Bundesobligationen

CBT—Chicago Board of Trade

CDX-CMBX.NA—North American Commercial Mortgage-Backed Index

CDX-NAHY—North American High Yield Credit Default Swap Index

CMBS—Commercial Mortgage-Backed Securities

CME—Chicago Mercantile Exchange

INTRCONX—Inter-Continental Exchange

LCH—London Clearing House

LIBOR—London Interbank Offered Rates

REIT—Real Estate Investment Trust

REMICs—Real Estate Mortgage Investment Conduits

STIBOR—Stockholm Interbank Offered Rate

TBA—To Be Announced

TIIE—Banco de México Equilibrium Interbank Interest Rate

TIPS—Treasury Inflation Protected Security

See notes to financial statements.

 

17


INTERMEDIATE BOND PORTFOLIO

 

STATEMENT OF ASSETS & LIABILITIES

June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value (cost $62,788,778)

   $ 63,399,340  

Cash collateral due from broker

     256,295  

Foreign currencies, at value (cost $59,668)

     58,772  

Receivable for investment securities sold

     1,047,199  

Interest receivable

     277,933  

Unrealized appreciation on forward currency exchange contracts

     75,684  

Upfront premiums paid on credit default swaps

     30,126  

Receivable for capital stock sold

     18,677  

Unrealized appreciation on credit default swaps

     14,937  

Receivable for variation margin on exchange-traded derivatives

     2,461  
  

 

 

 

Total assets

     65,181,424  
  

 

 

 

LIABILITIES

  

Payable for investment securities purchased and foreign currency transactions

     8,848,588  

Upfront premiums received on credit default swaps

     180,639  

Unrealized depreciation on credit default swaps

     100,643  

Unrealized depreciation on forward currency exchange contracts

     86,704  

Payable for capital stock redeemed

     66,011  

Advisory fee payable

     22,183  

Payable for variation margin on exchange-traded derivatives

     18,440  

Administrative fee payable

     12,674  

Distribution fee payable

     3,519  

Payable for newly entered credit default swaps

     2,616  

Transfer Agent fee payable

     81  

Accrued expenses

     153,983  
  

 

 

 

Total liabilities

     9,496,081  
  

 

 

 

NET ASSETS

   $ 55,685,343  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 5,119  

Additional paid-in capital

     52,027,250  

Undistributed net investment income

     2,365,439  

Accumulated net realized gain on investment and foreign currency transactions

     719,280  

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     568,255  
  

 

 

 
   $ 55,685,343  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class

     Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $   39,752,002          3,641,869        $   10.92  
B      $ 15,933,341          1,476,899        $ 10.79  

 

 

See notes to financial statements.

 

18


INTERMEDIATE BOND PORTFOLIO  
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Interest

   $ 961,842  

Dividends

     5,737  

Other income(a)

     3,971  
  

 

 

 
     971,550  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     128,207  

Distribution fee—Class B

     20,031  

Transfer agency—Class A

     2,030  

Transfer agency—Class B

     796  

Custodian

     75,968  

Audit and tax

     39,512  

Administrative

     25,107  

Legal

     14,581  

Directors’ fees

     13,385  

Printing

     12,779  

Miscellaneous

     2,550  
  

 

 

 

Total expenses

     334,946  
  

 

 

 

Net investment income

     636,604  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain (loss) on:

  

Investment transactions

     231,475  

Futures

     58,788  

Swaptions written

     9,636  

Swaps

     71,370  

Foreign currency transactions

     (191,143

Net change in unrealized appreciation/depreciation of:

  

Investments

     622,637  

Futures

     127,961  

Swaptions written

     (5,271

Swaps

     (143,608

Foreign currency denominated assets and liabilities

     (38,037
  

 

 

 

Net gain on investment and foreign currency transactions

     743,808  
  

 

 

 

Contributions from Affiliates (see Note B)

     286  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 1,380,698  
  

 

 

 

 

 

 

(a)   Other income represents a refund for overbilling of prior years’ custody out-of-pocket fees.

See notes to financial statements.

 

19


 
INTERMEDIATE BOND PORTFOLIO  
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December  31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 636,604     $ 1,592,498  

Net realized gain on investment and foreign currency transactions

     180,126       725,272  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     563,682       653,981  

Contributions from Affiliates (see Note B)

     286       –0 – 
  

 

 

   

 

 

 

Net increase in net assets from operations

     1,380,698       2,971,751  

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (1,406,468

Class B

     –0 –      (466,376

Net realized gain on investment transactions

    

Class A

     –0 –      (589,257

Class B

     –0 –      (215,377

CAPITAL STOCK TRANSACTIONS

    

Net decrease

     (3,907,277     (7,317,811
  

 

 

   

 

 

 

Total decrease

     (2,526,579     (7,023,538

NET ASSETS

    

Beginning of period

     58,211,922       65,235,460  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $2,365,439 and $1,728,835, respectively)

   $ 55,685,343     $ 58,211,922  
  

 

 

   

 

 

 

 

 

 

 

See notes to financial statements.

 

20


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Intermediate Bond Portfolio (the “Portfolio”), is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is to generate income and price appreciation without assuming what the Adviser considers undue risk. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

21


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

Options are valued using market-based inputs to models, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency, where such inputs and models are available. Alternatively the values may be obtained through unobservable management determined inputs and/or management’s proprietary models. Where models are used, the selection of a particular model to value an option depends upon the contractual terms of, and specific risks inherent in, the option as well as the availability of pricing information in the market. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and correlations of such inputs. Exchange traded options generally will be classified as Level 2. For options that do not trade on exchange but trade in liquid markets, inputs can generally be verified and model selection does not involve significant management judgment. Options are classified within Level 2 on the fair value hierarchy when all of the significant inputs can be corroborated to market evidence. Otherwise such instruments are classified as Level 3.

Valuations of mortgage-backed or other asset-backed securities, by pricing vendors, are based on both proprietary and industry recognized models and discounted cash flow techniques. Significant inputs to the valuation of these instruments are value of the collateral, the rates and timing of delinquencies, the rates and timing of prepayments, and default and loss

 

22


    AB Variable Products Series Fund

 

expectations, which are driven in part by housing prices for residential mortgages. Significant inputs are determined based on relative value analyses, which incorporate comparisons to instruments with similar collateral and risk profiles, including relevant indices. Mortgage and asset-backed securities for which management has collected current observable data through pricing services are generally categorized within Level 2. Those investments for which current observable data has not been provided are classified as Level 3.

Other fixed income investments, including non-U.S. government and corporate debt, are generally valued using quoted market prices, if available, which are typically impacted by current interest rates, maturity dates and any perceived credit risk of the issuer. Additionally, in the absence of quoted market prices, these inputs are used by pricing vendors to derive a valuation based upon industry or proprietary models which incorporate issuer specific data with relevant yield/spread comparisons with more widely quoted bonds with similar key characteristics. Those investments for which there are observable inputs are classified as Level 2. Where the inputs are not observable, the investments are classified as Level 3.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Mortgage Pass-Throughs

     $ –0 –     $ 11,656,943      $ –0 –      $ 11,656,943  

Corporates—Investment Grade

       –0 –        11,264,246        –0 –        11,264,246  

Governments—Treasuries

       –0 –        8,441,323        –0 –        8,441,323  

Asset-Backed Securities

       –0 –        6,513,128        1,101,768        7,614,896  

Commercial Mortgage-Backed Securities

       –0 –        3,630,316        916,474        4,546,790  

Collateralized Mortgage Obligations

       –0 –        4,054,536        44,910        4,099,446  

Inflation-Linked Securities

       –0 –        3,235,037        –0 –        3,235,037  

Corporates—Non-Investment Grade

       –0 –        1,707,428        –0 –        1,707,428  

Agencies

       –0 –        1,588,119        –0 –        1,588,119  

Emerging Markets—Treasuries

       –0 –        601,845        –0 –        601,845  

Quasi-Sovereigns

       –0 –        349,290        –0 –        349,290  

Local Governments—US Municipal Bonds

       –0 –        305,550        –0 –        305,550  

Governments—Sovereign Bonds

       –0 –        195,000        –0 –        195,000  

Emerging Markets—Corporate Bonds

       –0 –        147,534        –0 –        147,534  

Preferred Stocks

       –0 –        116,250        –0 –        116,250  

Short-Term Investments:

             

Agency Discount Notes

       –0 –        4,848,547        –0 –        4,848,547  

Governments—Treasuries

       –0 –        2,188,395        –0 –        2,188,395  

Time Deposits

       –0 –        492,701        –0 –        492,701  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       –0 –        61,336,188        2,063,152        63,399,340  

Other Financial Instruments(a):

             

Assets:

 

Futures

       103,964        –0 –        –0 –        103,964 (b) 

Forward Currency Exchange Contracts

       –0 –        75,684        –0 –        75,684  

Centrally Cleared Credit Default Swaps

       –0 –        4,040        –0 –        4,040 (b) 

Centrally Cleared Interest Rate Swaps

       –0 –        44,196        –0 –        44,196 (b) 

Credit Default Swaps

       –0 –        14,937        –0 –        14,937  

 

23


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

       Level 1      Level 2      Level 3      Total  

Liabilities:

 

Futures

     $ (21,123    $ –0 –      $ –0 –      $ (21,123 )(b) 

Forward Currency Exchange Contracts

       –0 –        (86,704      –0 –        (86,704

Centrally Cleared Interest Rate Swaps

       –0 –        (73,878      –0 –        (73,878 )(b) 

Credit Default Swaps

       –0 –        (100,643      –0 –        (100,643
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 82,841      $ 61,213,820      $ 2,063,152      $ 63,359,813  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(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.

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value.

 

     Asset-
Backed
Securities
    Commercial
Mortgage-
Backed
Securities
    Collateralized
Mortgage
Obligations
 

Balance as of 12/31/16

   $ 699,392     $ 1,500,896     $ –0 –  

Accrued discounts/(premiums)

     27       (353     –0 –  

Realized gain (loss)

     3,580       (33,243     –0 –  

Change in unrealized appreciation/depreciation

     7,536       36,656       454  

Purchases/Payups

     669,792       –0 –       –0 –  

Sales/Paydowns

     (278,559     (587,482     –0 –  

Transfers in to Level 3

     –0 –       –0 –       44,456  

Transfers out of Level 3

     –0 –       –0 –       –0 –  
  

 

 

   

 

 

   

 

 

 

Balance as of 6/30/17

   $ 1,101,768     $ 916,474     $ 44,910  
  

 

 

   

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation
from investments held as of 6/30/17(a)

   $ 8,002     $ 3,842     $ 454  
  

 

 

   

 

 

   

 

 

 
     Total              

Balance as of 12/31/16

   $ 2,200,288      

Accrued discounts/(premiums)

     (326    

Realized gain (loss)

     (29,663    

Change in unrealized appreciation/depreciation

     44,646      

Purchases/Payups

     669,792      

Sales/Paydowns

     (866,041    

Transfers in to Level 3

     44,456      

Transfers out of Level 3

     –0 –      
  

 

 

     

Balance as of 6/30/17

   $ 2,063,152 (b)     
  

 

 

     

Net change in unrealized appreciation/depreciation
from investments held as of 6/30/17(a)

   $ 12,298      
  

 

 

     

 

(a)   The unrealized appreciation/(depreciation) is included in net change in unrealized appreciation/(depreciation) on investments and other financial instruments in the accompanying statement of operations.

 

(b)   There were de minimis transfers under 1% of net assets during the reporting period.

As of June 30, 2017, all Level 3 securities were priced by third party vendors.

 

24


    AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

25


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .45% of the first $2.5 billion, .40% of the next $2.5 billion and .35% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,107.

During the six months ended June 30, 2017, the Adviser reimbursed the Portfolio $286 for trading losses incurred due to a trade entry error.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $1,200, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

 

26


    AB Variable Products Series Fund

 

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases      Sales  

Investment securities (excluding U.S. government securities)

   $ 5,459,486      $ 9,436,950  

U.S. government securities

     62,226,641        63,676,921  

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 (excluding futures, swaps and foreign currency transactions) are as follows:

 

Gross unrealized appreciation

   $ 1,300,394  

Gross unrealized depreciation

     (689,832
  

 

 

 

Net unrealized appreciation

   $ 610,562  
  

 

 

 

1. Derivative Financial Instruments

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

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

 

   

Futures

The Portfolio may buy or sell futures for investment purposes or for the purpose of hedging its portfolio against adverse effects of potential movements in the market. The Portfolio bears the market risk that arises from changes in the value of these instruments and the imperfect correlation between movements in the price of the futures and movements in the price of the assets, reference rates or indices which they are designed to track. Among other things, the Portfolio may purchase or sell futures for foreign currencies or options thereon for non-hedging purposes as a means of making direct investment in foreign currencies, as described below under “Currency Transactions”.

At the time the Portfolio enters into futures, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the exchange on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential inability of a counterparty to meet the terms of the contract. The credit/counterparty risk for exchange-traded futures is generally less than privately negotiated futures, since the clearinghouse, which is the issuer or counterparty to each exchange-traded future, has robust risk mitigation standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Use of long futures subjects the Portfolio to risk of loss in excess of the amounts shown on the statement of assets and liabilities, up to the notional value of the futures. Use of short futures subjects the Portfolio to unlimited risk of loss. Under some circumstances, futures exchanges may establish daily limits on the amount that the price of futures can vary from the previous day’s settlement price, which could effectively prevent liquidation of unfavorable positions.

During the six months ended June 30, 2017, the Portfolio held futures for hedging and non-hedging purposes.

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

 

27


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.

 

   

Option Transactions

For hedging and investment purposes, the Portfolio may purchase and write (sell) put and call options on U.S. and foreign securities, including government securities, and foreign currencies that are traded on U.S. and foreign securities exchanges and over-the-counter markets. Among other things, the Portfolio may use options transactions for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions” and may use options strategies involving the purchase and/or writing of various combinations of call and/or put options, for hedging and investment purposes.

The risk associated with purchasing an option is that the Portfolio pays a premium whether or not the option is exercised. Additionally, the Portfolio bears the risk of loss of the premium and change in market value should the counterparty not perform under the contract. If a put or call option purchased by the Portfolio were permitted to expire without being sold or exercised, its premium would represent a loss to the Portfolio. Put and call options purchased are accounted for in the same manner as portfolio securities. The cost of securities acquired through the exercise of call options is increased by premiums paid. The proceeds from securities sold through the exercise of put options are decreased by the premiums paid.

When the Portfolio writes an option, the premium received by the Portfolio is recorded as a liability and is subsequently adjusted to the current market value of the option written. Premiums received from written options which expire unexercised are recorded by the Portfolio on the expiration date as realized gains from options written. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium received is less than the amount paid for the closing purchase transaction, as a realized loss. If a call option is exercised, the premium received is added to the proceeds from the sale of the underlying security or currency in determining whether the Portfolio has realized a gain or loss. If a put option is exercised, the premium received reduces the cost basis of the security or currency purchased by the Portfolio. In writing an option, the Portfolio bears the market risk of an unfavorable change in the price of the security or currency underlying the written option. Exercise of an option written by the Portfolio could result in the Portfolio selling or buying a security or currency at a price different from the current market value.

The Portfolio may also invest in options on swap agreements, also called “swaptions”. A swaption is an option that gives the buyer the right, but not the obligation, to enter into a swap on a future date in exchange for paying a market-based “premium”. A receiver swaption gives the owner the right to receive the total return of a specified asset, reference rate, or index. A payer swaption gives the owner the right to pay the total return on a specified asset, reference rate, or index. Swaptions also include options that allow an existing swap to be terminated or extended by one of the counterparties.

During the six months ended June 30, 2017, the Portfolio held purchased options for hedging purposes.

During the six months ended June 30, 2017, the Portfolio held written swaptions for hedging purposes.

 

28


    AB Variable Products Series Fund

 

For the six months ended June 30, 2017, the Portfolio had the following transactions in written options:

 

     Notional
Amount
     Premiums
Received
 

Swaptions written outstanding as of 12/31/16

   $ 2,890,000      $ 11,077  

Swaptions written

     4,400,000        4,403  

Swaptions assigned

     –0 –       –0 – 

Swaptions expired

     –0 –       –0 – 

Swaptions bought back

     (7,290,000      (15,480

Swaptions exercised

     –0 –       –0 – 
  

 

 

    

 

 

 

Swaptions written outstanding as of 6/30/17

   $ –0 –     $ –0 – 
  

 

 

    

 

 

 

 

   

Swaps

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

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

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

At the time the Portfolio enters into a centrally cleared swap, the Portfolio deposits and maintains as collateral an initial margin with the broker, as required by the clearinghouse on which the transaction is effected. Such amount is shown as cash collateral due from broker on the statement of assets and liabilities. Pursuant to the contract, the Portfolio agrees to receive from or pay to the broker an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as variation margin and are recorded by the Portfolio as unrealized gains or losses. Risks may arise from the potential 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

 

29


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

standards, including the requirement to provide initial and variation margin. When the contract is closed, the Portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the time it was closed.

Interest Rate Swaps:

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

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

During the six months ended June 30, 2017, the Portfolio held interest rate swaps for hedging and non-hedging purposes.

Credit Default Swaps:

The Portfolio may enter into credit default swaps, including to manage its exposure to the market or certain sectors of the market, to reduce its risk exposure to defaults by corporate and sovereign issuers held by the Portfolio, or to create exposure to corporate or sovereign issuers to which it is not otherwise exposed. The Portfolio may purchase credit protection (“Buy Contract”) or provide credit protection (“Sale Contract”) on the referenced obligation of the credit default swap. During the term of the swap, the Portfolio receives/(pays) fixed payments from/(to) the respective counterparty, calculated at the agreed upon rate applied to the notional amount. If the Portfolio is a buyer/(seller) of protection and a credit event occurs, as defined under the terms of the swap, the Portfolio will either (i) receive from the seller/(pay to the buyer) of protection an amount equal to the notional amount of the swap (the “Maximum Payout Amount”) and deliver/(take delivery of) the referenced obligation or (ii) receive/(pay) a net settlement amount in the form of cash or securities equal to the notional amount of the swap less the recovery value of the referenced obligation.

In certain circumstances Maximum Payout Amounts may be partially offset by recovery values of the respective referenced obligations, upfront premium received upon entering into the agreement, or net amounts received from settlement of buy protection credit default swaps entered into by the Portfolio for the same reference obligation with the same counterparty. As of June 30, 2017, the Portfolio did not have Buy Contracts outstanding with respect to the same referenced obligations and same counterparty for its Sale Contracts outstanding.

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

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

 

30


    AB Variable Products Series Fund

 

soundness and greater likelihood of default or other credit event occurring as defined under the terms of the agreement. A credit spread identified as “Defaulted” indicates a credit event has occurred for the referenced obligation.

During the six months ended June 30, 2017, the Portfolio held credit default swaps for hedging and non-hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of
Assets and Liabilities

Location

  Fair Value    

Statement of
Assets and Liabilities

Location

  Fair Value  

Interest rate contracts

  Receivable/Payable for variation margin on exchange-traded derivatives   $ 148,160   Receivable/Payable for variation margin on exchange-traded derivatives   $ 95,001

Credit contracts

  Receivable/Payable for variation margin on exchange-traded derivatives     4,040    

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts     75,684     Unrealized depreciation on forward currency exchange contracts     86,704  

Credit contracts

  Unrealized appreciation on credit default swaps     14,937     Unrealized depreciation on credit default swaps     100,643  
   

 

 

     

 

 

 

Total

    $ 242,821       $ 282,348  
   

 

 

     

 

 

 

 

*   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.

 

31


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

 

Derivative Type

  

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

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

Interest rate contracts

   Net realized gain (loss) on futures; Net change in unrealized appreciation/depreciation of futures    $ 58,788     $ 127,961  

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities      75,321       (36,103

Interest rate contracts

   Net realized gain (loss) on investment transactions; Net change in unrealized appreciation/depreciation of investments      (4,898     (652

Interest rate contracts

   Net realized gain (loss) on swaptions written; Net change in unrealized appreciation/depreciation of swaptions written      9,636       (5,271

Interest rate contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      (19,095     (9,361

Credit contracts

   Net realized gain (loss) on swaps; Net change in unrealized appreciation/depreciation of swaps      90,465       (134,247
     

 

 

   

 

 

 

Total

      $ 210,217     $ (57,673
     

 

 

   

 

 

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Futures:

  

Average original value of buy contracts

   $ 12,971,717  

Average original value of sale contracts

   $ 6,169,562  

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 2,574,344  

Average principal amount of sale contracts

   $ 7,889,354  

Purchased Options:

  

Average monthly cost

   $ 4,886 (a) 

Centrally Cleared Interest Rate Swaps:

  

Average notional amount

   $ 17,575,602  

Credit Default Swaps:

  

Average notional amount of buy contracts

   $ 568,286  

Average notional amount of sale contracts

   $ 2,351,615  

Centrally Cleared Credit Default Swaps:

  

Average notional amount of sale contracts

   $ 740,074  

 

(a)   Positions were open for two months during the period.

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

 

32


    AB Variable Products Series Fund

 

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

Counterparty

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

Exchange-Traded Derivatives:

           

Morgan Stanley & Co., LLC*

   $ 2,461      $ –0 –    $         –0 –    $         –0 –    $ 2,461  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 2,461      $ –0 –    $ –0 –    $ –0 –    $ 2,461  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

           

Bank of America, NA

   $ 43,886      $ (651   $ –0 –    $ –0 –    $ 43,235  

Barclays Bank PLC

     509        –0 –      –0 –      –0 –      509  

Citibank, NA

     3,507        (3,507     –0 –      –0 –      –0 – 

Credit Suisse International

     35,511        (35,511     –0 –      –0 –      –0 – 

Deutsche Bank AG

     183        (183     –0 –      –0 –      –0 – 

Goldman Sachs Bank USA/Goldman Sachs International

     956        (738     –0 –      –0 –      218  

Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC

     2,033        (2,033     –0 –      –0 –      –0 – 

State Street Bank & Trust Co.

     27,270        (27,270     –0 –      –0 –      –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 113,855      $ (69,893   $ –0 –    $ –0 –    $ 43,962
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

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:

           

Goldman Sachs & Co.*

   $ 18,440      $ –0 –    $ (18,440   $ –0 –    $ –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 18,440      $ –0 –    $ (18,440   $ –0 –      –0 –  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

OTC Derivatives:

           

Australia and New Zealand Banking Group Ltd.

   $ 10,928      $ –0 –    $ –0 –    $ –0 –    $ 10,928  

Bank of America, NA

     651        (651     –0 –      –0 –      –0 – 

Citibank, NA

     22,342        (3,507     –0 –      –0 –      18,835  

Citigroup Global Markets, Inc.

     10,704        –0 –      –0 –      –0 –      10,704  

Credit Suisse International

     91,767        (35,511     –0 –      –0 –      56,256  

Deutsche Bank AG

     53,913        (183     –0 –      –0 –      53,730  

Goldman Sachs Bank USA/Goldman Sachs International

     96,657        (738     –0 –      –0 –      95,919  

JPMorgan Chase Bank, NA

     2,486        –0 –      –0 –      –0 –      2,486  

Morgan Stanley & Co. International PLC/Morgan Stanley Capital Services LLC

     4,065        (2,033     –0 –      –0 –      2,032  

State Street Bank & Trust Co.

     67,581        (27,270     –0 –      –0 –      40,311  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 361,094      $ (69,893   $ –0 –    $ –0 –    $ 291,201
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

*   Cash has been posted for initial margin requirements for exchange-traded derivatives outstanding at June 30, 2017.

 

**   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.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The

 

33


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

3. TBA and Dollar Rolls

The Portfolio may invest in TBA mortgage-backed securities. A TBA, or “To Be Announced”, trade represents a contract for the purchase or sale of mortgage-backed securities to be delivered at a future agree-upon date; however, the specific mortgage pool numbers or the number of pools that will be delivered to fulfill the trade obligation or terms of the contract are unknown at the time of the trade. Mortgage pools (including fixed-rate or variable-rate mortgages) guaranteed by the Government National Mortgage Association, or GNMA, the Federal National Mortgage Association, or FNMA, or the Federal Home Loan Mortgage Corporation, or FHLMC, are subsequently allocated to the TBA transactions.

The Portfolio may enter into dollar rolls. Dollar rolls involve sales by the Portfolio of securities for delivery in the current month and the Portfolio’s simultaneously contracting to repurchase substantially similar (same type and coupon) securities on a specified future date. During the roll period, the Portfolio forgoes principal and interest paid on the securities. The Portfolio is compensated by the difference between the current sales price and the lower forward price for the future purchase (often referred to as the “drop”) as well as by the interest earned on the cash proceeds of the initial sale. Dollar rolls involve the risk that the market value of the securities the Portfolio is obligated to repurchase under the agreement may decline below the repurchase price. Dollar rolls are speculative techniques. For the six months ended June 30, 2017, the Portfolio earned drop income of $77,567 which is included in interest income in the accompanying statement of operations.

4. Reverse Repurchase Agreements

The Portfolio may enter into reverse repurchase transactions (“RVP”) in accordance with the terms of a Master Repurchase Agreement (“MRA”), under which the Portfolio sells securities and agrees to repurchase them at a mutually agreed upon date and price. At the time the Portfolio enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing liquid assets having a value comparable to the repurchase price. Under the MRA and other Master Agreements, the Portfolio is permitted to offset payables and/or receivables with collateral held and/or posted to the counterparty and create one single net payment due to or from the Portfolio in the event of a default. In the event of a default by a MRA counterparty, the Portfolio may be considered an unsecured creditor with respect to any excess collateral (collateral with a market value in excess of the repurchase price) held by and/or posted to the counterparty, and as such the return of such excess collateral may be delayed or denied. For the six months ended June 30, 2017, the Portfolio had no transactions in reverse repurchase agreements.

NOTE E: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

 

Shares sold

    39,890       137,696       $ 430,371     $ 1,484,595  

Shares issued in reinvestment of dividends and distributions

    –0 –      183,938         –0 –      1,995,725  

Shares redeemed

    (358,624     (832,622       (3,867,934     (9,095,889
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (318,734     (510,988     $ (3,437,563   $ (5,615,569
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

 

Shares sold

    62,601       143,982       $ 667,250     $ 1,560,346  

Shares issued in reinvestment of dividends and distributions

    –0 –      63,478         –0 –      681,753  

Shares redeemed

    (106,510     (366,495       (1,136,964     (3,944,341
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (43,909     (159,035     $ (469,714   $ (1,702,242
 

 

 

   

 

 

     

 

 

   

 

 

 

 

34


    AB Variable Products Series Fund

 

At June 30, 2017, certain shareholders of the Portfolio owned 81% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE F: Risks Involved in Investing in the Portfolio

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

Below Investment Grade Securities Risk—Investments in fixed-income securities with lower ratings (commonly known as “junk bonds”) tend to have a higher probability that an issuer will default or fail to meet its payment obligations. These securities may be subject to greater price volatility due to such factors as specific corporate developments, interest rate sensitivity, negative perceptions of the junk bond market generally and less secondary market liquidity.

Duration Risk—Duration is a measure that relates the expected price volatility of a fixed-income security to changes in interest rates. The duration of a fixed-income security may be shorter than or equal to full maturity of a fixed-income security. Fixed-income securities with longer durations have more risk and will decrease in price as interest rates rise. For example, a fixed-income security with a duration of three years will decrease in value by approximately 3% if interest rates increase by 1%.

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

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

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

Prepayment Risk—The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some of these securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with these securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.

Leverage Risk—When the Portfolio borrows money or otherwise leverages its portfolio, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

Liquidity Risk—Liquidity risk occurs when certain investments become difficult to purchase or sell. Difficulty in selling less liquid securities may result in sales at disadvantageous prices affecting the value of your investment in the Portfolio. Causes

 

35


INTERMEDIATE BOND PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

of liquidity risk may include low trading volumes, large positions and heavy redemptions of Portfolio shares. Over recent years liquidity risk has also increased because the capacity of dealers in the secondary market for fixed-income securities to make markets in these securities has decreased, even as the overall bond market has grown significantly, due to, among other things, structural changes, additional regulatory requirements and capital and risk restraints that have led to reduced inventories. Liquidity risk may be higher in a rising interest rate environment, when the value and liquidity of fixed-income securities generally decline.

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

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

NOTE G: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE H: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

     2016     2015  

Distributions paid from:

    

Ordinary income

   $ 2,677,478     $ 3,320,511  

Net long-term capital gains

     –0 –      1,228,137  
  

 

 

   

 

 

 

Total taxable distributions paid

   $ 2,677,478     $ 4,548,648  
  

 

 

   

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 1,774,670  

Undistributed capital gains

     527,150  

Accumulated capital and other losses

     (12,239 )(a) 

Unrealized appreciation/(depreciation)

     (17,019 )(b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 2,272,562  
  

 

 

 

 

(a)   As of December 31, 2016, the Portfolio had cumulative deferred loss on straddles of $12,239.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of swaps, and the recognition for tax purposes of unrealized gains/losses on certain derivative instruments.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE I: 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,

 

36


    AB Variable Products Series Fund

 

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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE J: Recent Accounting Pronouncements

In March 2017, the Financial Accounting Standards Board issued an Accounting Standards Update, ASU 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20), Premium Amortization on Purchased Callable Debt Securities (the “ASU”) which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. The ASU does not require any accounting change for debt securities held at a discount; the discount continues to be amortized to maturity. The ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. At this time, management is evaluating the implications of these changes on the financial statements.

NOTE K: Subsequent Events

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

 

37


 
INTERMEDIATE BOND PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.65       $10.63       $11.37       $11.22       $12.30       $12.54  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .12†       .28†       .27       .28       .32       .33  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .15       .23       (.27     .44       (.59     .35

Contributions from Affiliates

    .00 (b)      –0 –      –0 –      –0 –      –0 –      .05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .27       .51       –0 –      .72       (.27     .73  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.35     (.40     (.41     (.45     (.58

Distributions from net realized gain on investment transactions

    –0 –      (.14     (.34     (.16     (.36     (.39
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.49     (.74     (.57     (.81     (.97
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $10.92       $10.65       $10.63       $11.37       $11.22       $12.30  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)

    2.54 %†*      4.71 %*†      .01 %*      6.48     (2.16 )%*      6.05 %* 
           

Ratios/Supplemental Data

           

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

    $39,752       $42,183       $47,554       $56,437       $61,848       $79,104  

Ratio to average net assets of:

           

Expenses

    1.11 %^      1.06     .96     .88     .77     .70

Net investment income

    2.30 %†^      2.60 %†      2.44     2.46     2.74     2.67

Portfolio turnover rate **

    117     156     230     262     217     116

 

 

See footnote summary on page 40.

 

38


    AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.54       $10.53       $11.26       $11.11       $12.17       $12.41  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .11†       .25†       .24       .25       .29       .30  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .14       .22       (.26     .43       (.58     .35

Contributions from Affiliates

    .00 (b)      –0 –      –0 –      –0 –      –0 –      .05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .25       .47       (.02     .68       (.29     .70  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.32     (.37     (.37     (.41     (.55

Distributions from net realized gain on investment transactions

    –0 –      (.14     (.34     (.16     (.36     (.39
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.46     (.71     (.53     (.77     (.94
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $10.79       $10.54       $10.53       $11.26       $11.11       $12.17  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)

    2.37 %*†      4.36 %*†      (.18 )%*      6.22     (2.34 )%*      5.79 %* 
           

Ratios/Supplemental Data

           

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

    $15,933       $16,029       $17,681       $19,891       $22,450       $29,363  

Ratio to average net assets of:

           

Expenses

    1.36 %^      1.32     1.21     1.13     1.02     .96

Net investment income

    2.06 %     2.36 %†      2.19     2.21     2.49     2.43

Portfolio turnover rate **

    117     156     230     262     217     116

 

 

See footnote summary on page 40.

 

39


INTERMEDIATE BOND PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

 

(a)   Based on average shares outstanding.

 

(b)   Amount is less than $.005.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  The amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Date

   Net Investment
Income Per Share
     Net Investment
Income Ratio
    Total Return  

For the year ended December 31, 2016

   $ .03        .28     .29

For the six months ended June 30, 2017 (unaudited)

   $ .001        .01     .01

 

#   Amount reclassified from realized gain (loss) on investment transactions.

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2016, December 31, 2015, December 31, 2013 and December 31, 2012 by 0.02%, 0.03%, 0.03%, 0.02% and 0.05%, respectively.

 

^   Annualized.

 

**   The Portfolio accounts for dollar roll transactions as purchases and sales.

 

40


 
INTERMEDIATE BOND PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Intermediate Bond Portfolio (the “Fund”) at a meeting held on November 1-3, 2016 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer) of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they receive presentations from the Adviser on the investment results of the Fund and review extensive materials and information presented by the Adviser.

The directors also considered all other factors they believed relevant, including the specific matters discussed below. In their deliberations, the directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2014 and 2015 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of fund advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous

 

41


INTERMEDIATE BOND PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by Broadridge Financial Solutions, Inc. (“Broadridge”), an analytical service that is not affiliated with the Adviser, showing the performance of the Class A Shares of the Fund against a peer group and a peer universe selected by Broadridge, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended July 31, 2016 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by Broadridge concerning advisory fee rates paid by other funds in the same Broadridge category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors noted that the Adviser advises another AB Fund with a similar investment style for the same fee schedule as the Fund.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by Broadridge. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s Broadridge category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of

 

42


    AB Variable Products Series Fund

 

scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

43


 

 

 

 

VPS-IB-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

INTERNATIONAL GROWTH PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
INTERNATIONAL GROWTH PORTFOLIO
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

        

Actual

   $   1,000      $   1,227.80      $   6.85        1.24

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,018.65      $ 6.21        1.24
           

Class B

        

Actual

   $ 1,000      $ 1,225.90      $ 8.22        1.49

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,017.41      $ 7.45        1.49

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


INTERNATIONAL GROWTH PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

Partners Group Holding AG

   $ 2,651,288          4.0

AIA Group Ltd.

     2,554,873          3.8  

Alibaba Group Holding Ltd. (Sponsored ADR)

     2,298,079          3.4  

Vestas Wind Systems A/S

     2,265,769          3.4  

Kingspan Group PLC

     2,258,394          3.4  

Tencent Holdings Ltd.

     2,245,771          3.4  

Siemens AG (REG)

     2,176,103          3.3  

Housing Development Finance Corp., Ltd.

     2,113,970          3.2  

HDFC Bank Ltd.

     2,019,706          3.0  

Taiwan Semiconductor Manufacturing Co., Ltd.

     1,947,181          2.9  
    

 

 

      

 

 

 
     $   22,531,134          33.8

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Financials

   $ 18,921,436          28.6

Information Technology

     11,753,716          17.7  

Industrials

     8,596,910          13.0  

Consumer Staples

     7,714,624          11.6  

Health Care

     4,771,134          7.2  

Consumer Discretionary

     3,868,478          5.8  

Utilities

     1,998,644          3.0  

Materials

     1,895,260          2.9  

Telecommunication Services

     1,317,091          2.0  

Real Estate

     815,032          1.2  

Short-Term Investments

     4,647,835          7.0  
    

 

 

      

 

 

 

Total Investments

   $   66,300,160          100.0

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details).

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


INTERNATIONAL GROWTH PORTFOLIO
COUNTRY BREAKDOWN(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COUNTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

India

   $ 7,610,752          11.5

Japan

     6,882,049          10.4  

China

     6,012,104          9.1  

Switzerland

     5,804,371          8.8  

United Kingdom

     5,557,516          8.4  

Germany

     4,239,181          6.4  

Denmark

     4,161,029          6.3  

France

     3,593,916          5.4  

Sweden

     3,198,736          4.8  

Hong Kong

     2,554,873          3.8  

Ireland

     2,258,394          3.4  

Taiwan

     1,947,181          2.9  

United States

     1,555,787          2.3  

Other

     6,276,436          9.5  

Short-Term Investments

     4,647,835          7.0  
    

 

 

      

 

 

 

Total Investments

   $   66,300,160          100.0

 

 

 

 

(1)   All data are as of June 30, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. “Other” country weightings represent 2.3% or less in the following countries: Austria, Brazil, Indonesia, Netherlands, Peru and Philippines.

 

3


INTERNATIONAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

Company        

Shares

    U.S. $ Value  
     

COMMON STOCKS–92.6%

 

   
     

FINANCIALS–28.4%

     

BANKS–10.1%

     

Credicorp Ltd.

      8,300     $ 1,488,937  

HDFC Bank Ltd.

      78,410       2,019,706  

Svenska Handelsbanken AB–Class A

      112,970       1,617,970  

Swedbank AB–Class A

      64,770       1,580,766  
     

 

 

 
        6,707,379  
     

 

 

 

CAPITAL MARKETS–6.5%

 

   

London Stock Exchange Group PLC

      35,510       1,689,121  

Partners Group Holding AG

      4,270       2,651,288  
     

 

 

 
        4,340,409  
     

 

 

 

CONSUMER FINANCE–1.9%

 

   

Bharat Financial Inclusion Ltd.(a)

      117,110       1,303,890  
     

 

 

 

INSURANCE–6.7%

     

AIA Group Ltd.

      349,200       2,554,873  

Prudential PLC

      82,815       1,900,915  
     

 

 

 
        4,455,788  
     

 

 

 

THRIFTS & MORTGAGE FINANCE–3.2%

 

   

Housing Development Finance Corp., Ltd.

      84,807       2,113,970  
     

 

 

 
        18,921,436  
     

 

 

 

INFORMATION TECHNOLOGY–17.7%

 

   

INTERNET SOFTWARE & SERVICES–6.8%

     

Alibaba Group Holding Ltd. (Sponsored ADR)(a)

      16,310       2,298,079  

Tencent Holdings Ltd.

      62,600       2,245,771  
     

 

 

 
        4,543,850  
     

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR
EQUIPMENT–10.9%

     

ams AG(a)

      23,400       1,518,471  

Disco Corp.

      6,700       1,074,621  

Infineon Technologies AG

      67,920       1,442,659  

NXP Semiconductors NV(a)

      11,210       1,226,934  

Taiwan Semiconductor Manufacturing Co., Ltd.

      285,000       1,947,181  
     

 

 

 
        7,209,866  
     

 

 

 
        11,753,716  
     

 

 

 

INDUSTRIALS–12.9%

     

BUILDING PRODUCTS–3.4%

 

   

Kingspan Group PLC

      65,790       2,258,394  
     

 

 

 
     

ELECTRICAL EQUIPMENT–6.2%

 

   

Schneider Electric SE (Paris)(a)

      24,680     $ 1,896,644  

Vestas Wind Systems A/S

      24,530       2,265,769  
     

 

 

 
        4,162,413  
     

 

 

 

INDUSTRIAL CONGLOMERATES–3.3%

 

   

Siemens AG (REG)

      15,820       2,176,103  
     

 

 

 
        8,596,910  
     

 

 

 

CONSUMER STAPLES–11.6%

 

   

FOOD & STAPLES RETAILING–1.6%

     

Tsuruha Holdings, Inc.

      9,800       1,041,383  
     

 

 

 

FOOD PRODUCTS–2.8%

     

Nestle SA (REG)

      21,328       1,860,178  
     

 

 

 

HOUSEHOLD PRODUCTS–5.6%

 

   

Pigeon Corp.

      46,500       1,690,522  

Reckitt Benckiser Group PLC

      12,430       1,260,067  

Unicharm Corp.

      30,300       762,832  
     

 

 

 
        3,713,421  
     

 

 

 

PERSONAL PRODUCTS–1.6%

     

Godrej Consumer Products Ltd.

      36,690       550,122  

Godrej Consumer Products Ltd.(a)

      36,690       549,520  
     

 

 

 
        1,099,642  
     

 

 

 
        7,714,624  
     

 

 

 

HEALTH CARE–7.2%

     

HEALTH CARE EQUIPMENT & SUPPLIES–2.6%

     

Essilor International SA

      13,342       1,697,272  
     

 

 

 

HEALTH CARE PROVIDERS & SERVICES–1.6%

     

Apollo Hospitals Enterprise Ltd.(a)

      54,540       1,073,544  
     

 

 

 

PHARMACEUTICALS–3.0%

 

   

Roche Holding AG

      5,060       1,292,905  

Vectura Group PLC(a)(b)

      485,380       707,413  
     

 

 

 
        2,000,318  
     

 

 

 
        4,771,134  
     

 

 

 

CONSUMER DISCRETIONARY–5.8%

 

   

AUTO COMPONENTS–2.3%

 

   

Delphi Automotive PLC

      17,750       1,555,787  
     

 

 

 

 

4


    AB Variable Products Series Fund

 

Company        

Shares

    U.S. $ Value  
     

HOUSEHOLD DURABLES–1.8%

 

   

Panasonic Corp.

      85,800     $ 1,169,047  
     

 

 

 

MULTILINE RETAIL–1.7%

 

   

Don Quijote Holdings Co., Ltd.(b)

      30,100       1,143,644  
     

 

 

 
        3,868,478  
     

 

 

 

UTILITIES–3.0%

     

WATER UTILITIES–3.0%

     

Beijing Enterprises Water Group Ltd.(a)

      1,892,000       1,468,254  

Cia de Saneamento Basico do Estado de Sao Paulo

      55,500       530,390  
     

 

 

 
        1,998,644  
     

 

 

 

MATERIALS–2.8%

     

CHEMICALS–2.8%

     

Chr Hansen Holding A/S

      26,060       1,895,260  
     

 

 

 

TELECOMMUNICATION SERVICES–2.0%

 

   

DIVERSIFIED TELECOMMUNICATION SERVICES–2.0%

 

   

Deutsche Telekom AG (REG)

      34,420       620,419  

Telekomunikasi Indonesia Persero Tbk PT

      2,051,500       696,672  
     

 

 

 
        1,317,091  
     

 

 

 

REAL ESTATE–1.2%

     

REAL ESTATE MANAGEMENT & DEVELOPMENT–1.2%

     

SM Prime Holdings, Inc.

      1,247,400       815,032  
     

 

 

 

Total Common Stocks
(cost $42,427,259)

        61,652,325  
     

 

 

 
Company  

Principal
Amount
(000)

    U.S. $ Value  
     

SHORT-TERM INVESTMENTS–7.0%

 

   

TIME DEPOSIT–7.0%

     

State Street Time Deposit
0.09%, 7/03/17
(cost $4,647,835)

    U.S.$       4,648     $ 4,647,835  
     

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–99.6%
(cost $47,075,094)

        66,300,160  
     

 

 

 
          Shares        

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.9%

 

   

INVESTMENT COMPANIES–1.9%

 

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB,
0.79%(c)(d)
(cost $1,278,293)

      1,278,293       1,278,293  
     

 

 

 

TOTAL INVESTMENTS–101.5%
(cost $48,353,387)

        67,578,453  

Other assets less liabilities–(1.5)%

        (1,004,171
     

 

 

 

NET ASSETS–100.0%

      $ 66,574,282  
     

 

 

 

 

5


INTERNATIONAL GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS
(continued)   AB Variable Products Series Fund

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

     BRL        1,968        USD        587        8/16/17      $ (1,577

Bank of America, NA

     USD        1,128        BRL        3,677        8/16/17        (27,925

Bank of America, NA

     USD        117        KRW        133,026        8/16/17        (890

Barclays Bank PLC

     CAD        956        USD        710        8/16/17        (28,036

Barclays Bank PLC

     CNY        4,068        USD        587        8/16/17        (11,889

Barclays Bank PLC

     USD        854        KRW        957,052        8/16/17        (17,867

BNP Paribas SA

     USD        1,036        EUR        923        8/16/17        20,827  

Citibank, NA

     CNY        630        USD        90        8/16/17        (2,381

Citibank, NA

     EUR        627        USD        686        8/16/17        (32,017

Citibank, NA

     INR        119,868        USD        1,854        8/16/17        7,237  

Citibank, NA

     INR        242,428        USD        3,700        8/16/17        (34,196

Citibank, NA

     JPY        67,174        USD        605        8/16/17        6,457  

Citibank, NA

     RUB        4,588        USD        80        8/16/17        3,039  

Citibank, NA

     SEK        13,984        USD        1,594        8/16/17        (69,292

Citibank, NA

     USD        1,295        EUR        1,187        8/16/17        63,706  

Citibank, NA

     USD        1,269        GBP        980        8/16/17        9,061  

Citibank, NA

     USD        1,537        KRW        1,745,005        8/16/17        (12,255

Citibank, NA

     USD        539        MXN        10,410        8/16/17        30,721  

Citibank, NA

     USD        591        RUB        34,878        8/16/17        (4,917

Citibank, NA

     USD        720        SEK        6,237        8/16/17        21,755  

Credit Suisse International

     USD        1,401        CAD        1,851        8/16/17        27,534  

Deutsche Bank AG

     CHF        527        USD        534        8/16/17        (17,433

Deutsche Bank AG

     GBP        621        USD        793        8/16/17        (17,075

Goldman Sachs Bank USA

     USD        1,467        AUD        2,001        8/16/17        70,392  

Goldman Sachs Bank USA

     USD        2,880        CAD        3,946        8/16/17        164,656  

Goldman Sachs Bank USA

     USD        824        JPY        91,140        8/16/17        (11,806

JPMorgan Chase Bank, NA

     CNY        6,261        USD        902        8/16/17        (19,435

JPMorgan Chase Bank, NA

     INR        44,464        USD        685        8/16/17        351  

JPMorgan Chase Bank, NA

     SEK        7,470        USD        839        8/16/17        (49,899

Morgan Stanley & Co., Inc.

     HKD        9,596        USD        1,235        8/16/17        4,627  

Morgan Stanley & Co., Inc.

     USD        855        GBP        683        8/16/17        35,905  

Morgan Stanley & Co., Inc.

     USD        2,857        JPY        324,756        8/16/17        35,701  

Royal Bank of Scotland PLC

     USD        949        ZAR        13,013        8/16/17        38,734  

State Street Bank & Trust Co.

     CHF        1,089        USD        1,092        8/16/17        (45,992

State Street Bank & Trust Co.

     EUR        812        USD        896        8/16/17        (33,361

State Street Bank & Trust Co.

     USD        823        AUD        1,102        8/16/17        23,842  

State Street Bank & Trust Co.

     USD        275        EUR        252        8/16/17        13,506  

State Street Bank & Trust Co.

     USD        666        GBP        513        8/16/17        3,322  

State Street Bank & Trust Co.

     USD        807        JPY        90,317        8/16/17        (2,894

State Street Bank & Trust Co.

     USD        277        NOK        2,374        8/16/17        7,964  

State Street Bank & Trust Co.

     USD        93        ZAR        1,223        8/16/17        (393
                 

 

 

 
                  $   147,807  
                 

 

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(d)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

 

6


    AB Variable Products Series Fund

 

Currency Abbreviations:

AUD—Australian Dollar

BRL—Brazilian Real

CAD—Canadian Dollar

CHF—Swiss Franc

CNY—Chinese Yuan Renminbi

EUR—Euro

GBP—Great British Pound

HKD—Hong Kong Dollar

INR—Indian Rupee

JPY—Japanese Yen

KRW—South Korean Won

MXN—Mexican Peso

NOK—Norwegian Krone

RUB—Russian Ruble

SEK—Swedish Krona

USD—United States Dollar

ZAR—South African Rand

Glossary:

ADR—American Depositary Receipt

REG—Registered Shares

See notes to financial statements.

 

7


INTERNATIONAL GROWTH PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $47,075,094)

   $ 66,300,160 (a) 

Affiliated issuers (cost $1,278,293—investment of cash collateral for securities loaned)

     1,278,293  

Foreign currencies, at value (cost $140,599)

     142,265  

Unrealized appreciation on forward currency exchange contracts

     589,337  

Dividends and interest receivable

     218,098  

Receivable for capital stock sold

     51,640  
  

 

 

 

Total assets

     68,579,793  
  

 

 

 

LIABILITIES

 

Payable for collateral received on securities loaned

     1,278,293  

Unrealized depreciation on forward currency exchange contracts

     441,530  

Payable for capital stock redeemed

     113,846  

Advisory fee payable

     43,880  

Administrative fee payable

     12,927  

Distribution fee payable

     8,416  

Transfer Agent fee payable

     81  

Accrued expenses

     106,538  
  

 

 

 

Total liabilities

     2,005,511  
  

 

 

 

NET ASSETS

   $ 66,574,282  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 3,156  

Additional paid-in capital

     75,757,288  

Undistributed net investment income

     1,285,241  

Accumulated net realized loss on investment and foreign currency transactions

     (29,848,457

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     19,377,054  
  

 

 

 
   $ 66,574,282  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $ 28,469,359          1,337,509        $ 21.29  
B      $   38,104,923          1,818,762        $   20.95  

 

 

 

(a)   Includes securities on loan with a value of $1,213,065 (see Note E).

See notes to financial statements.

 

8


INTERNATIONAL GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $84,024)

   $ 777,269  

Affiliated issuers

     2,215  

Interest

     887  

Securities lending income

     5,996  

Other income(a)

     3,370  
  

 

 

 
     789,737  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     239,572  

Distribution fee—Class B

     45,221  

Transfer agency—Class A

     1,247  

Transfer agency—Class B

     1,630  

Custodian

     48,101  

Audit and tax

     27,291  

Administrative

     25,031  

Printing

     18,877  

Legal

     14,963  

Directors’ fees

     13,385  

Miscellaneous

     6,464  
  

 

 

 

Total expenses

     441,782  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (512
  

 

 

 

Net expenses

     441,270  
  

 

 

 

Net investment income

     348,467  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain (loss) on:

  

Investment transactions

     3,281,963  

Foreign currency transactions

     (364,623

Net change in unrealized appreciation/depreciation of:

  

Investments

     9,076,456  

Foreign currency denominated assets and liabilities

     520,979  
  

 

 

 

Net gain on investment and foreign currency transactions

     12,514,775  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 12,863,242  
  

 

 

 

 

 

 

(a)   Other income represents a refund for overbilling of prior years’ custody out-of-pocket fees.

See notes to financial statements.

 

9


INTERNATIONAL GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

 

Net investment income

   $ 348,467     $ 311,652  

Net realized gain on investment and foreign currency transactions

     2,917,340       913,421  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     9,597,435       (5,935,975
  

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

     12,863,242       (4,710,902

CAPITAL STOCK TRANSACTIONS

 

Net decrease

     (5,177,063     (10,057,214
  

 

 

   

 

 

 

Total increase (decrease)

     7,686,179       (14,768,116

NET ASSETS

 

Beginning of period

     58,888,103       73,656,219  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $1,285,241 and $936,774, respectively)

   $ 66,574,282     $ 58,888,103  
  

 

 

   

 

 

 

 

 

 

 

See notes to financial statements.

 

10


INTERNATIONAL GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB International Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

11


INTERNATIONAL GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2     Level 3      Total  

Investments in Securities:

            

Assets:

            

Common Stocks:

            

Financials

     $ 1,488,937      $ 17,432,499     $ –0 –     $ 18,921,436  

Information Technology

       3,525,013        8,228,703       –0 –       11,753,716  

Industrials

       2,258,394        6,338,516       –0 –       8,596,910  

Consumer Staples

       549,520        7,165,104       –0 –       7,714,624  

Health Care

       707,413        4,063,721       –0 –       4,771,134  

Consumer Discretionary

       1,555,787        2,312,691       –0 –       3,868,478  

Utilities

       530,390        1,468,254       –0 –       1,998,644  

Materials

       –0 –       1,895,260       –0 –       1,895,260  

Telecommunication Services

       –0 –       1,317,091       –0 –       1,317,091  

Real Estate

       –0 –       815,032       –0 –       815,032  

Short-Term Investments

       –0 –       4,647,835       –0 –       4,647,835  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

       1,278,293        –0 –      –0 –       1,278,293  
    

 

 

    

 

 

   

 

 

    

 

 

 

Total Investments in Securities

       11,893,747        55,684,706 (a)                  –0 –       67,578,453  

 

12


    AB Variable Products Series Fund

 

       Level 1      Level 2      Level 3      Total  

Other Financial Instruments(b):

             

Assets:

             

Forward Currency Exchange Contracts

     $ –0 –     $ 589,337      $ –0 –     $ 589,337  

Liabilities:

             

Forward Currency Exchange Contracts

       –0 –       (441,530      –0 –       (441,530
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 11,893,747      $ 55,832,513      $             –0 –     $ 67,726,260  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore,

 

13


INTERNATIONAL GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,031.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $28,690, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to

 

14


    AB Variable Products Series Fund

 

its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases      Sales  

Investment securities (excluding U.S. government securities)

     $ 13,205,212      $ 19,846,056  

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 (excluding foreign currency transactions) are as follows:

 

Gross unrealized appreciation

   $ 19,877,126  

Gross unrealized depreciation

     (652,060
  

 

 

 

Net unrealized appreciation

   $ 19,225,066  
  

 

 

 

1. Derivative Financial Instruments

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

The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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 Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio and a counterparty gives the non-defaulting party

 

15


INTERNATIONAL GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of
Assets and Liabilities
Location

  Fair Value    

Statement of
Assets and Liabilities
Location

  Fair Value  

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts   $ 589,337     Unrealized depreciation on forward currency exchange contracts   $ 441,530  
   

 

 

     

 

 

 

Total

    $ 589,337       $ 441,530  
   

 

 

     

 

 

 

 

Derivative Type

  

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

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

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities    $ (345,175   $ 491,245  
     

 

 

   

 

 

 

Total

      $ (345,175   $ 491,245  
     

 

 

   

 

 

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 15,462,965  

Average principal amount of sale contracts

   $ 12,389,954  

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

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

Counterparty

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

OTC Derivatives:

           

BNP Paribas SA

   $ 20,827      $ –0 –    $ –0 –    $ –0 –    $ 20,827  

Citibank, NA

     141,976        (141,976     –0 –      –0 –      –0 – 

Credit Suisse International

     27,534        –0 –      –0 –      –0 –      27,534  

Goldman Sachs Bank USA

     235,048        (11,806     –0 –      –0 –      223,242  

JPMorgan Chase Bank, NA

     351        (351     –0 –      –0 –      –0 – 

Morgan Stanley & Co., Inc.

     76,233        –0 –      –0 –      –0 –      76,233  

Royal Bank of Scotland PLC

     38,734        –0 –      –0 –      –0 –      38,734  

State Street Bank & Trust Co.

     48,634        (48,634     –0 –      –0 –      –0 – 
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 589,337      $ (202,767   $             –0 –    $             –0 –    $ 386,570
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

16


    AB Variable Products Series Fund

 

Counterparty

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

OTC Derivatives:

           

Bank of America, NA

   $ 30,392      $ –0 –    $ –0 –    $ –0 –    $ 30,392  

Barclays Bank PLC

     57,792        –0 –      –0 –      –0 –      57,792  

Citibank, NA

     155,058        (141,976     –0 –      –0 –      13,082  

Deutsche Bank AG

     34,508        –0 –      –0 –      –0 –      34,508  

Goldman Sachs Bank USA

     11,806        (11,806     –0 –      –0 –      –0 – 

JPMorgan Chase Bank, NA

     69,334        (351     –0 –      –0 –      68,983  

State Street Bank & Trust Co.

     82,640        (48,634     –0 –      –0 –      34,006  
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 441,530      $ (202,767   $             –0 –    $             –0 –    $ 238,763
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

^   Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $1,213,065 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,278,293. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $5,996 and $2,215 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $512. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

 

17


INTERNATIONAL GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 2,304     $ 12,021     $ 13,047     $ 1,278  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    48,310       49,300       $ 979,918     $ 888,299  

Shares redeemed

    (212,427     (325,011       (4,170,427     (5,899,125
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (164,117     (275,711     $ (3,190,509   $ (5,010,826
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    230,637       234,251       $ 4,437,583     $ 4,158,386  

Shares redeemed

    (333,266     (518,336       (6,424,137     (9,204,774
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (102,629     (284,085     $ (1,986,554   $ (5,046,388
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 80% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

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

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

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

Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

 

18


    AB Variable Products Series Fund

 

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016      2015  

Distributions paid from:

       

Ordinary income

     $             –0 –     $ 153,359  
    

 

 

    

 

 

 

Total taxable distributions paid

     $ –0 –     $ 153,359  
    

 

 

    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 684,721  

Accumulated capital and other losses

   $ (32,715,606 )(a) 

Unrealized appreciation/(depreciation)

     9,981,482 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ (22,049,403
  

 

 

 

 

(a)   As of December 31, 2016, the Portfolio had a net capital loss carryforward of $32,467,053. During the fiscal year, the Portfolio utilized $377,958 of capital loss carryforwards to offset current year net realized gains. At December 31, 2016, the Portfolio had a post-October short-term capital loss deferral of $227,199, and a post-October long-term capital loss deferral of $ 21,354 which are deemed to arise on January 1, 2017.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales, the tax treatment of passive foreign investment companies (PFICs) and the recognition for tax purposes of unrealized gain/losses on certain derivative instruments.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-December 22, 2010 capital losses must be utilized prior to the earlier capital losses, which are subject to expiration. Post-December 22, 2010 capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of December 31, 2016, the Portfolio had a net short-term capital loss carryforward of $32,467,053 which will expire in 2017.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

19


INTERNATIONAL GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $17.34       $18.62       $19.04       $19.27       $17.13       $15.08  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .12 (b)†      .11 (b)†      .15       .24       .21       .21  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    3.83       (1.39     (.50     (.47     2.11       2.12  

Contributions from Affiliates

    –0 –      –0 –      –0 –      .00 (c)      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    3.95       (1.28     (.35     (.23     2.32       2.33  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends

           

Dividends from net investment income

    –0 –      –0 –      (.07     –0 –      (.18     (.28
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $21.29       $17.34       $18.62       $19.04       $19.27       $17.13  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    22.78 %†      (6.87 )%†*      (1.87 )%      (1.19 )%      13.60     15.54
           

Ratios/Supplemental Data

           

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

    $28,469       $26,045       $33,090       $38,924       $102,467       $97,611  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    1.24 %^      1.27     1.11     1.07     .94     .97

Expenses, before waivers/reimbursements

    1.24     1.27     1.11     1.07     .94     .97

Net investment income

    1.23 %(b)†^      .60 %(b)†      .78     1.20     1.15     1.33

Portfolio turnover rate

    22     52     17     29     31     52

 

 

See footnote summary on page 21.

 

20


    AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $17.09       $18.39       $18.81       $19.08       $16.96       $14.93  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .10 (b)†      .07 (b)†      .10       .20       .16       .18  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    3.76       (1.37     (.51     (.47     2.09       2.08  

Contributions from Affiliates

    –0 –      –0 –      –0 –      .00 (c)      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    3.86       (1.30     (.41     (.27     2.25       2.26  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends

           

Dividends from net investment income

    –0 –      –0 –      (.01     –0 –      (.13     (.23
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $20.95       $17.09       $18.39       $18.81       $19.08       $16.96  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    22.59 %†      (7.07 )%†*      (2.17 )%      (1.41 )%      13.32     15.23
           

Ratios/Supplemental Data

           

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

    $38,105       $32,843       $40,566       $47,884       $54,643       $58,694  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    1.49 %^      1.52     1.36     1.36     1.19     1.22

Expenses, before waivers/reimbursements

    1.49 %^      1.52     1.36     1.36     1.19     1.22

Net investment income

    .99 %(b)†^      .37 %(b)†      .52     1.02     .92     1.11

Portfolio turnover rate

    22     52     17     29     31     52

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Amount is less than $.005.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  The amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Date

   Net Investment
Income Per Share
     Net Investment
Income Ratio
     Total
Return
 

For the year ended December 31, 2016

   $ .04        .22      .23

For the six months ended June 30, 2017(unaudited)

   $ .001        .01      .01

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the year ended December 31, 2016 by 0.09%.

 

^   Annualized.

See notes to financial statements.

 

21


 
INTERNATIONAL GROWTH PORTFOLIO
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected

 

22


    AB Variable Products Series Fund

 

by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

 

23


INTERNATIONAL GROWTH PORTFOLIO
CONTINUANCE DISCLOSURE
(continued)   AB Variable Products Series Fund

 

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

24


 

 

 

VPS-IG-0152-0617


 

JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS SERIES FUND, INC.

 

+  

INTERNATIONAL VALUE PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


INTERNATIONAL VALUE PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,150.60      $   4.59        0.86

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,020.53      $ 4.31        0.86
           

Class B

           

Actual

   $ 1,000      $ 1,148.90      $ 5.91        1.11

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.29      $ 5.56        1.11

 

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


INTERNATIONAL VALUE PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

Nippon Telegraph & Telephone Corp.

   $ 18,102,761          3.7

Royal Dutch Shell PLC

     17,513,966          3.6  

British American Tobacco PLC

     15,619,029          3.2  

BT Group PLC

     14,896,302          3.1  

Sanofi

     12,116,427          2.5  

Yahoo Japan Corp.

     11,884,876          2.5  

Roche Holding AG

     11,710,245          2.4  

Vodafone Group PLC

     11,219,584          2.3  

Credit Suisse Group AG (REG)

     11,072,678          2.3  

Qantas Airways Ltd.

     10,952,265          2.3  
    

 

 

      

 

 

 
     $   135,088,133          27.9

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Financials

   $ 108,826,195          22.7

Telecommunication Services

     56,752,742          11.8  

Industrials

     54,116,287          11.3  

Information Technology

     52,963,642          11.1  

Consumer Discretionary

     50,843,444          10.6  

Materials

     38,231,739          8.0  

Consumer Staples

     37,567,409          7.8  

Energy

     35,351,730          7.4  

Health Care

     31,992,148          6.7  

Utilities

     7,340,859          1.5  

Real Estate

     874,009          0.2  

Short-Term Investments

     4,502,233          0.9  
    

 

 

      

 

 

 

Total Investments

   $   479,362,437          100.0

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. The Portfolio also enters into derivative transactions, which may be used for hedging or investment purposes (see “Portfolio of Investments” section of the report for additional details).

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


INTERNATIONAL VALUE PORTFOLIO  
COUNTRY BREAKDOWN(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

 

COUNTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Japan

   $ 128,195,079          26.8

United Kingdom

     69,897,273          14.6  

France

     58,481,934          12.2  

Netherlands

     29,901,690          6.2  

Australia

     27,974,260          5.8  

Switzerland

     22,782,923          4.8  

South Korea

     15,062,543          3.2  

Norway

     13,096,066          2.7  

China

     12,539,779          2.6  

Denmark

     12,298,220          2.6  

Canada

     12,076,482          2.5  

Germany

     12,044,287          2.5  

Finland

     10,178,290          2.1  

Other

     50,331,378          10.5  

Short-Term Investments

     4,502,233          0.9  
    

 

 

      

 

 

 

Total Investments

   $   479,362,437          100.0

 

 

 

 

(1)   All data are as of June 30, 2017. The Portfolio’s country breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time. “Other” country weightings represent 1.8% or less in the following countries: Argentina, Austria, Brazil, Hong Kong, Israel, Portugal, Russia and Taiwan.

 

3


INTERNATIONAL VALUE PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

COMMON STOCKS–98.2%

   

FINANCIALS–22.5%

   

BANKS–17.4%

   

Australia & New Zealand Banking Group Ltd.

    429,910     $ 9,488,833  

Barclays PLC

    2,365,220       6,255,469  

BNP Paribas SA

    144,440       10,398,625  

BOC Hong Kong Holdings Ltd.

    1,613,000       7,719,351  

Danske Bank A/S

    193,570       7,447,231  

DNB ASA

    411,810       7,010,974  

Erste Group Bank AG(a)

    222,710       8,530,847  

ING Groep NV

    583,160       10,066,950  

Itau Unibanco Holding SA (Preference Shares)

    304,370       3,376,376  

KB Financial Group, Inc.

    84,850       4,284,094  

Mitsubishi UFJ Financial Group, Inc.

    1,407,200       9,491,625  
   

 

 

 
      84,070,375  
   

 

 

 

CAPITAL MARKETS–3.1%

   

Amundi SA(b)

    54,726       3,965,257  

Credit Suisse Group AG (REG)(a)

    760,957       11,072,678  
   

 

 

 
      15,037,935  
   

 

 

 

CONSUMER FINANCE–1.0%

   

Hitachi Capital Corp.(c)

    201,600       4,861,212  
   

 

 

 

INSURANCE–1.0%

   

PICC Property & Casualty Co., Ltd.–Class H

    2,908,000       4,856,673  
   

 

 

 
      108,826,195  
   

 

 

 

TELECOMMUNICATION SERVICES–11.7%

   

DIVERSIFIED TELECOMMUNICATION SERVICES–9.4%

   

BT Group PLC

    3,873,960       14,896,302  

China Unicom Hong Kong Ltd.(a)

    5,176,000       7,683,106  

Nippon Telegraph & Telephone Corp.

    383,500       18,102,761  

TDC A/S

    834,164       4,850,989  
   

 

 

 
      45,533,158  
   

 

 

 

WIRELESS TELECOMMUNICATION SERVICES–2.3%

   

Vodafone Group PLC

    3,950,624       11,219,584  
   

 

 

 
      56,752,742  
   

 

 

 

INDUSTRIALS–11.2%

   

AEROSPACE & DEFENSE–3.4%

   

Airbus SE

    113,660       9,379,846  

BAE Systems PLC

    835,060       6,893,650  
   

 

 

 
      16,273,496  
   

 

 

 
   

AIRLINES–5.8%

   

International Consolidated Airlines Group SA(c)

    998,140     $ 7,935,003  

Japan Airlines Co., Ltd.

    303,800       9,410,406  

Qantas Airways Ltd.

    2,491,675       10,952,265  
   

 

 

 
      28,297,674  
   

 

 

 

ELECTRICAL EQUIPMENT–0.5%

   

Philips Lighting NV(b)

    62,830       2,320,774  
   

 

 

 

MACHINERY–1.5%

   

IHI Corp.(a)

    2,114,000       7,224,343  
   

 

 

 
      54,116,287  
   

 

 

 

INFORMATION TECHNOLOGY–11.0%

   

COMMUNICATIONS EQUIPMENT–2.1%

   

Nokia Oyj

    1,659,940       10,178,290  
   

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS &
COMPONENTS–1.0%

   

Largan Precision Co., Ltd.

    31,000       4,935,652  
   

 

 

 

INTERNET SOFTWARE & SERVICES–2.5%

   

Yahoo Japan Corp.

    2,733,900       11,884,876  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–2.4%

   

SCREEN Holdings Co., Ltd.(c)

    68,500       4,582,138  

Sumco Corp.(c)

    480,400       6,982,587  
   

 

 

 
      11,564,725  
   

 

 

 

SOFTWARE–1.5%

   

Nintendo Co., Ltd.

    21,300       7,131,056  
   

 

 

 

TECHNOLOGY HARDWARE, STORAGE &
PERIPHERALS–1.5%

   

Samsung Electronics Co., Ltd.

    3,490       7,269,043  
   

 

 

 
      52,963,642  
   

 

 

 

CONSUMER DISCRETIONARY–10.5%

   

AUTO COMPONENTS–4.5%

   

Faurecia

    137,540       6,974,818  

Hankook Tire Co., Ltd.

    63,134       3,509,406  

Magna International, Inc. (New York)–Class A

    154,470       7,156,595  

Sumitomo Electric Industries Ltd.

    283,800       4,390,501  
   

 

 

 
      22,031,320  
   

 

 

 

AUTOMOBILES–3.4%

   

Honda Motor Co., Ltd.

    287,600       7,879,681  

Peugeot SA

    420,570       8,381,813  
   

 

 

 
      16,261,494  
   

 

 

 

 

4


    AB Variable Products Series Fund

 

Company       
    
    
Shares
    U.S. $ Value  
   

HOUSEHOLD DURABLES–1.6%

   

Panasonic Corp.

    552,900     $ 7,533,405  
   

 

 

 

TEXTILES, APPAREL & LUXURY GOODS–1.0%

   

HUGO BOSS AG

    71,570       5,017,225  
   

 

 

 
      50,843,444  
   

 

 

 

MATERIALS–7.9%

   

CHEMICALS–5.5%

   

Air Water, Inc.

    246,200       4,543,787  

Arkema SA

    68,031       7,265,148  

Incitec Pivot Ltd.

    1,826,780       4,791,588  

Johnson Matthey PLC

    109,110       4,083,617  

Nippon Shokubai Co., Ltd.

    93,300       6,026,548  
   

 

 

 
      26,710,688  
   

 

 

 

METALS & MINING–2.4%

   

BlueScope Steel Ltd.

    270,798       2,741,574  

Gerdau SA (Preference Shares)

    1,643,700       5,100,437  

MMC Norilsk Nickel PJSC (ADR)

    68,118       935,260  

MMC Norilsk Nickel PJSC (ADR) (London)

    198,995       2,743,780  
   

 

 

 
      11,521,051  
   

 

 

 
      38,231,739  
   

 

 

 

CONSUMER STAPLES–7.8%

   

FOOD PRODUCTS–1.3%

   

Orkla ASA

    598,690       6,085,092  
   

 

 

 

HOUSEHOLD PRODUCTS–1.4%

   

Henkel AG & Co. KGaA (Preference Shares)

    50,960       7,027,062  
   

 

 

 

TOBACCO–5.1%

   

British American Tobacco PLC

    229,210       15,619,029  

Japan Tobacco, Inc.

    251,400       8,836,226  
   

 

 

 
      24,455,255  
   

 

 

 
      37,567,409  
   

 

 

 

ENERGY–7.3%

   

OIL, GAS & CONSUMABLE FUELS–7.3%

   

Canadian Natural Resources Ltd. (Toronto)

    170,500       4,919,887  

JXTG Holdings, Inc.

    1,928,900       8,439,918  

Royal Dutch Shell PLC (Euronext Amsterdam)–Class A

    390,540       10,384,415  

Royal Dutch Shell PLC–Class A

    268,344       7,129,551  

YPF SA (Sponsored ADR)

    204,473       4,477,959  
   

 

 

 
      35,351,730  
   

 

 

 
   

HEALTH CARE–6.6%

   

PHARMACEUTICALS–6.6%

   

Roche Holding AG

    45,830     $ 11,710,245  

Sanofi

    126,450       12,116,427  

Teva Pharmaceutical Industries Ltd. (Sponsored ADR)

    245,800       8,165,476  
   

 

 

 
      31,992,148  
   

 

 

 

UTILITIES–1.5%

   

ELECTRIC UTILITIES–0.9%

   

EDP–Energias de Portugal SA

    1,328,630       4,346,240  
   

 

 

 

WATER UTILITIES–0.6%

   

Pennon Group PLC(c)

    278,650       2,994,619  
   

 

 

 
      7,340,859  
   

 

 

 

REAL ESTATE–0.2%

   

REAL ESTATE MANAGEMENT & DEVELOPMENT–0.2%

   

Leopalace21 Corp.

    140,500       874,009  
   

 

 

 

Total Common Stocks
(cost $409,928,992)

      474,860,204  
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–0.9%

   

TIME DEPOSIT–0.9%

   

State Street Time Deposit
0.09%, 7/03/17
(cost $4,502,233)

  $          4,502       4,502,233  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–99.1%
(cost $414,431,225)

      479,362,437  
   

 

 

 
    Shares        

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–3.2%

   

INVESTMENT COMPANIES–3.2%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB,
0.79%(d)(e)
(cost $15,511,171)

    15,511,171       15,511,171  
   

 

 

 

TOTAL INVESTMENTS–102.3%
(cost $429,942,396)

      494,873,608  

Other assets less
liabilities–(2.3)%

      (10,988,752
   

 

 

 

NET ASSETS–100.0%

    $ 483,884,856  
   

 

 

 

 

5


INTERNATIONAL VALUE PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

FORWARD CURRENCY EXCHANGE CONTRACTS (see Note D)

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Bank of America, NA

     BRL        5,602        USD        1,681        7/05/17      $ (9,693

Bank of America, NA

     USD        1,693        BRL        5,602        7/05/17        (2,402

Bank of America, NA

     CAD        10,600        USD        7,778        7/18/17        (398,284

Bank of America, NA

     JPY        394,854        USD        3,556        7/18/17        42,987  

Bank of America, NA

     RUB        97,979        USD        1,619        9/13/17        (17,808

Barclays Bank PLC

     INR        620,944        USD        9,577        7/18/17        (16,241

Barclays Bank PLC

     TWD        89,578        USD        2,973        7/18/17        25,384  

Barclays Bank PLC

     USD        1,213        KRW        1,360,039        7/18/17        (25,387

Barclays Bank PLC

     USD        1,434        TRY        5,217        7/18/17        42,123  

BNP Paribas SA

     AUD        2,019        USD        1,505        7/18/17        (46,225

BNP Paribas SA

     CHF        3,969        USD        4,074        7/18/17        (68,446

BNP Paribas SA

     CNY        32,013        USD        4,599        7/18/17        (124,944

BNP Paribas SA

     USD        2,287        AUD        3,036        7/18/17        46,155  

BNP Paribas SA

     USD        2,285        CHF        2,220        7/18/17        31,576  

BNP Paribas SA

     USD        12,937        JPY        1,408,317        7/18/17        (409,334

BNP Paribas SA

     USD        3,872        KRW        4,362,046        7/18/17        (61,908

BNP Paribas SA

     CAD        1,269        USD        957        10/17/17        (22,589

BNP Paribas SA

     CNY        32,120        USD        4,688        10/17/17        (16,859

BNP Paribas SA

     KRW        818,323        USD        720        10/17/17        4,033  

Citibank, NA

     BRL        43,528        USD        13,194        7/05/17        54,759  

Citibank, NA

     USD        7,377        BRL        24,565        7/05/17        38,077  

Citibank, NA

     USD        5,732        BRL        18,963        7/05/17        (8,132

Citibank, NA

     GBP        2,446        USD        3,089        7/18/17        (97,630

Citibank, NA

     USD        8,448        CHF        8,345        7/18/17        261,524  

Citibank, NA

     USD        36,711        EUR        33,781        7/18/17          1,898,060  

Citibank, NA

     USD        950        KRW        1,077,825        7/18/17        (8,927

Citibank, NA

     USD        1,441        ZAR        19,261        7/18/17        27,672  

Citibank, NA

     BRL        24,565        USD        7,333        8/02/17        (38,167

Citibank, NA

     ILS        3,380        USD        965        10/17/17        (8,018

Citibank, NA

     USD        15,331        EUR        13,632        10/17/17        325,538  

Credit Suisse International

     USD        4,158        NOK        35,040        7/18/17        40,420  

Credit Suisse International

     USD        6,619        SEK        58,173        7/18/17        290,934  

Credit Suisse International

     NOK        44,716        USD        5,236        10/17/17        (130,965

Deutsche Bank AG

     ILS        15,836        USD        4,361        7/18/17        (180,357

Goldman Sachs Bank USA

     CNY        16,314        USD        2,346        7/18/17        (60,976

Goldman Sachs Bank USA

     NOK        93,132        USD        10,852        7/18/17        (306,059

Goldman Sachs Bank USA

     TWD        47,202        USD        1,551        7/18/17        (1,814

Goldman Sachs Bank USA

     USD        7,005        AUD        9,249        7/18/17        102,719  

Goldman Sachs Bank USA

     USD        7,212        SEK        64,538        7/18/17        454,007  

Goldman Sachs Bank USA

     USD        1,039        AUD        1,373        10/17/17        15,307  

JPMorgan Chase Bank, NA

     AUD        4,233        USD        3,190        7/18/17        (63,112

JPMorgan Chase Bank, NA

     EUR        10,638        USD        11,356        7/18/17        (802,083

JPMorgan Chase Bank, NA

     INR        65,186        USD        1,005        7/18/17        (1,953

JPMorgan Chase Bank, NA

     KRW        22,746,131        USD        20,120        7/18/17        251,374  

JPMorgan Chase Bank, NA

     USD        10,500        INR        686,130        7/18/17        101,193  

Morgan Stanley & Co., Inc.

     USD        6,972        GBP        5,393        7/18/17        55,072  

Morgan Stanley & Co., Inc.

     USD        7,621        HKD        59,349        7/18/17        (16,038

Morgan Stanley & Co., Inc.

     USD        1,303        NOK        11,121        7/18/17        29,465  

 

6


    AB Variable Products Series Fund

 

Counterparty    Contracts to
Deliver
(000)
     In Exchange
For
(000)
     Settlement
Date
     Unrealized
Appreciation/
(Depreciation)
 

Morgan Stanley & Co., Inc.

     USD        2,307        TRY        8,366        7/18/17      $ 60,272  

Morgan Stanley & Co., Inc.

     USD        2,159        EUR        1,924        10/17/17        50,620  

Royal Bank of Scotland PLC

     AUD        6,033        USD        4,599        7/18/17        (37,011

Royal Bank of Scotland PLC

     EUR        1,989        USD        2,232        7/18/17        (41,431

Royal Bank of Scotland PLC

     JPY        2,748,952        USD        24,775        7/18/17        320,634  

Royal Bank of Scotland PLC

     USD        10,094        CHF        10,068        7/18/17        414,010  

Royal Bank of Scotland PLC

     USD        6,112        EUR        5,706        7/18/17        409,394  

State Street Bank & Trust Co.

     CAD        3,305        USD        2,463        7/18/17        (85,870

State Street Bank & Trust Co.

     EUR        4,944        USD        5,422        7/18/17        (228,268

State Street Bank & Trust Co.

     HKD        59,349        USD        7,655        7/18/17        50,929  

State Street Bank & Trust Co.

     USD        1,676        JPY        186,855        7/18/17        (13,626

State Street Bank & Trust Co.

     JPY        314,609        USD        2,825        10/17/17        14,966  

UBS AG

     USD        4,104        EUR        3,823        7/18/17        265,414  
                 

 

 

 
                  $   2,374,061  
                 

 

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Security is exempt from registration under Rule 144A of the Securities Act of 1933. These securities are considered restricted, but liquid and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At June 30, 2017, the aggregate market value of these securities amounted to $6,286,031 or 1.3% of net assets.

 

(c)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(d)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(e)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

Currency Abbreviations:

AUD—Australian Dollar

BRL—Brazilian Real

CAD—Canadian Dollar

CHF—Swiss Franc

CNY—Chinese Yuan Renminbi

EUR—Euro

GBP—Great British Pound

HKD—Hong Kong Dollar

ILS—Israeli Shekel

INR—Indian Rupee

JPY—Japanese Yen

KRW—South Korean Won

NOK—Norwegian Krone

RUB—Russian Ruble

SEK—Swedish Krona

TRY—Turkish Lira

TWD—New Taiwan Dollar

USD—United States Dollar

ZAR—South African Rand

Glossary:

ADR—American Depositary Receipt

PJSC—Public Joint Stock Company

REG—Registered Shares

See notes to financial statements.

 

7


INTERNATIONAL VALUE PORTFOLIO  
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value

  

Unaffiliated issuers (cost $414,431,225)

   $ 479,362,437 (a) 

Affiliated issuers (cost $15,511,171—investment of cash collateral for securities loaned)

     15,511,171  

Cash collateral due from broker

     440,000  

Foreign currencies, at value (cost $1,590,553)

     1,588,945  

Unrealized appreciation on forward currency exchange contracts

     5,724,618  

Dividends and interest receivable

     3,294,387  

Receivable for investment securities sold and foreign currency transactions

     1,843,440  

Receivable for capital stock sold

     19,862  
  

 

 

 

Total assets

     507,784,860  
  

 

 

 

LIABILITIES

  

Payable for collateral received on securities loaned

     15,511,171  

Payable for investment securities purchased and foreign currency transactions

     3,650,412  

Unrealized depreciation on forward currency exchange contracts

     3,350,557  

Payable for capital stock redeemed

     638,095  

Advisory fee payable

     318,243  

Distribution fee payable

     95,711  

Administrative fee payable

     12,927  

Transfer Agent fee payable

     81  

Accrued expenses

     322,807  
  

 

 

 

Total liabilities

     23,900,004  
  

 

 

 

NET ASSETS

   $ 483,884,856  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 31,971  

Additional paid-in capital

     1,394,052,751  

Undistributed net investment income

     7,348,508  

Accumulated net realized loss on investment and foreign currency transactions

     (984,834,997

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     67,286,623  
  

 

 

 
   $ 483,884,856  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class    Net Assets        Shares
Outstanding
       Net Asset
Value
 
A    $ 50,247,002          3,289,157        $   15.28  
B    $   433,637,854          28,681,561        $ 15.12  

 

 

 

(a)   Includes securities on loan with a value of $14,774,529 (see Note E).

See notes to financial statements.

 

8


INTERNATIONAL VALUE PORTFOLIO  
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $1,221,919)

   $ 9,834,414  

Affiliated issuers

     43,927  

Securities lending income

     113,160  

Other income

     9,649  
  

 

 

 
     10,001,150  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     1,915,714  

Distribution fee—Class B

     577,292  

Transfer agency—Class A

     346  

Transfer agency—Class B

     3,235  

Custodian

     100,812  

Printing

     87,635  

Audit and tax

     27,299  

Administrative

     25,031  

Legal

     24,638  

Directors’ fees

     13,383  

Miscellaneous

     13,827  
  

 

 

 

Total expenses

     2,789,212  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (10,952
  

 

 

 

Net expenses

     2,778,260  
  

 

 

 

Net investment income

     7,222,890  
  

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain on:

  

Investment transactions

     12,169,977  

Foreign currency transactions

     780,010  

Net change in unrealized appreciation/depreciation of:

  

Investments

     48,614,514  

Foreign currency denominated assets and liabilities

     1,342,476  
  

 

 

 

Net gain on investment and foreign currency transactions

     62,906,977  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 70,129,867  
  

 

 

 

 

 

See notes to financial statements.

 

9


 
INTERNATIONAL VALUE PORTFOLIO  
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 7,222,890     $ 11,024,712  

Net realized gain (loss) on investment and foreign currency transactions

     12,949,987       (32,865,471

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     49,956,990       17,903,236  
  

 

 

   

 

 

 

Net increase (decrease) in net assets from operations

     70,129,867       (3,937,523

DIVIDENDS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (613,805

Class B

     –0 –      (5,112,977

CAPITAL STOCK TRANSACTIONS

    

Net decrease

     (93,716,165     (82,276,063
  

 

 

   

 

 

 

Total decrease

     (23,586,298     (91,940,368

NET ASSETS

    

Beginning of period

     507,471,154       599,411,522  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $7,348,508 and $125,618, respectively)

   $ 483,884,856     $ 507,471,154  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

10


INTERNATIONAL VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB International Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

11


INTERNATIONAL VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

     Level 1     Level 2     Level 3      Total  

Investments in Securities:

         

Assets:

         

Common Stocks:

         

Financials

   $ 3,376,376     $ 105,449,819     $             –0 –     $ 108,826,195  

Telecommunication Services

     –0 –      56,752,742       –0 –       56,752,742  

Industrials

     –0 –      54,116,287       –0 –       54,116,287  

Information Technology

     –0 –      52,963,642       –0 –       52,963,642  

Consumer Discretionary

     7,156,595       43,686,849       –0 –       50,843,444  

Materials

     6,035,697       32,196,042       –0 –       38,231,739  

Consumer Staples

     –0 –      37,567,409       –0 –       37,567,409  

Energy

     9,397,846       25,953,884       –0 –       35,351,730  

Health Care

     8,165,476       23,826,672       –0 –       31,992,148  

Utilities

     –0 –      7,340,859       –0 –       7,340,859  

Real Estate

     –0 –      874,009       –0 –       874,009  

Short-Term Investments

     –0 –      4,502,233       –0 –       4,502,233  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

     15,511,171       –0 –      –0 –       15,511,171  
  

 

 

   

 

 

   

 

 

    

 

 

 

Total Investments in Securities

     49,643,161       445,230,447 (a)      –0 –       494,873,608  

 

12


    AB Variable Products Series Fund

 

       Level 1      Level 2      Level 3      Total  

Other Financial Instruments(b):

             

Assets:

             

Forward Currency Exchange Contracts

     $ –0 –     $ 5,724,618      $             –0 –     $ 5,724,618  

Liabilities:

             

Forward Currency Exchange Contracts

       –0 –       (3,350,557      –0 –       (3,350,557
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)(d)

     $ 49,643,161      $ 447,604,508      $ –0 –     $ 497,247,669  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   A significant portion of the Portfolio’s foreign equity investments are categorized as Level 2 investments since they are valued using fair value prices based on third party vendor modeling tools to the extent available, see Note A.1.

 

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

 

(c)   An amount of $7,117,167 was transferred from Level 2 to Level 1 due to increase in trading volume during the reporting period.

 

(d)   There were no transfers from Level 1 to Level 2 during the reporting period.

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

 

13


INTERNATIONAL VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the six months ended June 30, 2017, there were no expenses waived by the Adviser.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,031.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $239,743, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits

 

14


    AB Variable Products Series Fund

 

payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.    

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases      Sales  

Investment securities (excluding U.S. government securities)

     $ 127,096,363      $ 212,684,161  

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 (excluding futures and foreign currency transactions) are as follows:

 

Gross unrealized appreciation

   $ 81,064,752  

Gross unrealized depreciation

     (16,133,540
  

 

 

 

Net unrealized appreciation

   $ 64,931,212  
  

 

 

 

1. Derivative Financial Instruments

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

The principal type of derivative utilized by the Portfolio, as well as the methods in which they may be used are:

 

   

Forward Currency Exchange Contracts

The Portfolio may enter into forward currency exchange contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, to hedge certain firm purchase and sale commitments denominated in foreign currencies and for non-hedging purposes as a means of making direct investments in foreign currencies, as described below under “Currency Transactions”.

A forward currency exchange contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. The gain or loss arising from the difference between the original contract and the closing of such contract would be included in net realized gain or loss on foreign currency transactions. Fluctuations in the value of open forward currency exchange contracts are recorded for financial reporting purposes as unrealized appreciation and/or depreciation by the Portfolio. Risks may arise from the potential inability of a counterparty to meet the terms of a contract and from unanticipated movements in the value of a foreign currency relative to the U.S. dollar.

During the six months ended June 30, 2017, the Portfolio held forward currency exchange contracts for hedging and non-hedging purposes.

The Portfolio typically enters into International Swaps and Derivatives Association, Inc. Master Agreements (“ISDA Master Agreement”) 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

 

15


INTERNATIONAL VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

obligations, representations, collateral and events of default or termination. Under an ISDA Master Agreement, the Portfolio typically may offset with the counterparty certain derivative financial instruments’ payables and/or receivables with collateral held and/or posted and create one single net payment (close-out netting) in the event of default or termination.

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 Portfolio 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 Portfolio’s net liability, held by the defaulting party, may be delayed or denied.

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

During the six months ended June 30, 2017, the Portfolio had entered into the following derivatives:

 

   

Asset Derivatives

   

Liability Derivatives

 

Derivative Type

 

Statement of
Assets and Liabilities
Location

  Fair Value    

Statement of
Assets and Liabilities
Location

  Fair Value  

Foreign exchange contracts

  Unrealized appreciation on forward currency exchange contracts   $ 5,724,618     Unrealized depreciation on forward currency exchange contracts   $ 3,350,557  
   

 

 

     

 

 

 

Total

    $ 5,724,618       $ 3,350,557  
   

 

 

     

 

 

 

 

Derivative Type

  

Location of Gain or (Loss) on Derivatives

Within Statement of Operations

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

Foreign exchange contracts

   Net realized gain (loss) on foreign currency transactions; Net change in unrealized appreciation/depreciation of foreign currency denominated assets and liabilities    $ 644,507      $ 1,172,027  
     

 

 

    

 

 

 

Total

      $ 644,507      $   1,172,027  
     

 

 

    

 

 

 

The following table represents the average monthly volume of the Portfolio’s derivative transactions during the six months ended June 30, 2017:

 

Forward Currency Exchange Contracts:

  

Average principal amount of buy contracts

   $ 150,440,910  

Average principal amount of sale contracts

   $ 149,088,029  

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

 

16


    AB Variable Products Series Fund

 

All derivatives held at period end were subject to netting arrangements. The following table presents the Portfolio’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 Portfolio as of June 30, 2017:

 

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

   $ 42,987      $ (42,987    $ –0 –     $ –0 –    $ –0 – 

Barclays Bank PLC

     67,507        (41,628      –0 –       –0 –      25,879  

BNP Paribas SA

     81,764        (81,764      –0 –       –0 –      –0 – 

Citibank, NA

     2,605,630        (160,874      –0 –       –0 –      2,444,756  

Credit Suisse International

     331,354        (130,965      –0 –       –0 –      200,389  

Goldman Sachs Bank USA

     572,033        (368,849      –0 –       –0 –      203,184  

JPMorgan Chase Bank, NA

     352,567        (352,567      –0 –       –0 –      –0 – 

Morgan Stanley & Co., Inc.

     195,429        (16,038      –0 –       –0 –      179,391  

Royal Bank of Scotland PLC

     1,144,038        (78,442      –0 –       –0 –      1,065,596  

State Street Bank & Trust Co.

     65,895        (65,895      –0 –       –0 –      –0 – 

UBS AG

     265,414        –0 –       –0 –       –0 –      265,414  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 5,724,618      $ (1,340,009    $   –0 –     $             –0 –    $ 4,384,609
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Counterparty

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

OTC Derivatives:

             

Bank of America, NA

   $ 428,187      $ (42,987    $ –0 –     $ –0 –    $ 385,200  

Barclays Bank PLC

     41,628        (41,628      –0 –       –0 –      –0 – 

BNP Paribas SA

     750,305        (81,764      (440,000      –0 –      228,541  

Citibank, NA

     160,874        (160,874      –0 –       –0 –      –0 – 

Credit Suisse International

     130,965        (130,965      –0 –       –0 –      –0 – 

Deutsche Bank AG

     180,357        –0 –       –0 –       –0 –      180,357  

Goldman Sachs Bank USA

     368,849        (368,849      –0 –       –0 –      –0 – 

JPMorgan Chase Bank, NA

     867,148        (352,567      –0 –       –0 –      514,581  

Morgan Stanley & Co., Inc.

     16,038        (16,038      –0 –       –0 –      –0 – 

Royal Bank of Scotland PLC

     78,442        (78,442      –0 –       –0 –      –0 – 

State Street Bank & Trust Co.

     327,764        (65,895      –0 –       –0 –      261,869  
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 3,350,557      $ (1,340,009    $ (440,000    $   –0 –    $ 1,570,548
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

^   Net amount represents the net receivable/payable that would be due from/to the counterparty in the event of default or termination. The net amount from OTC financial derivative instruments can only be netted across transactions governed under the same master agreement with the same counterparty.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a

direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net

 

17


INTERNATIONAL VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $14,774,529 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $15,511,171. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $113,160 and $43,927 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $10,952. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 8,420     $ 171,719     $ 164,628     $ 15,511  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

 

Shares sold

    146,685       372,097       $ 2,136,127     $ 4,878,130  

Shares issued in reinvestment of dividends

    –0 –      45,592         –0 –      613,805  

Shares redeemed

    (425,504     (448,061       (6,081,609     (5,880,050
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (278,819     (30,372     $ (3,945,482   $ (388,115
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

 

Shares sold

    457,023       4,035,068       $ 6,604,402     $ 50,474,996  

Shares issued in reinvestment of dividends

    –0 –      383,236         –0 –      5,112,977  

Shares redeemed

    (6,735,386     (10,536,008       (96,375,085     (137,475,921
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (6,278,363     (6,117,704     $ (89,770,683   $ (81,887,948
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 55% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

 

18


    AB Variable Products Series Fund

 

NOTE G: Risks Involved in Investing in the Portfolio

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

Emerging Market Risk—Investments in emerging market countries may have more risk because the markets are less developed and less liquid, and because these investments may be subject to increased economic, political, regulatory, or other uncertainties.

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

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

Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016        2015  

Distributions paid from:

         

Ordinary income

     $ 5,726,782        $ 14,277,382  
    

 

 

      

 

 

 

Total taxable distributions paid

     $ 5,726,782        $ 14,277,382  
    

 

 

      

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 1,280,458  

Accumulated capital and other losses

     (994,182,752 )(a) 

Unrealized appreciation/(depreciation)

     12,572,560 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ (980,329,734
  

 

 

 

 

(a)   As of December 31, 2016, the Portfolio had a net capital loss carryforward of $994,182,752. The Portfolio also had $35,584,681 of capital loss carryforwards expire during the fiscal year.

 

(b)   The differences between book-basis and tax-basis unrealized appreciation/(depreciation) are attributable primarily to the tax deferral of losses on wash sales and the recognition for tax purposes of gains/losses on certain derivative instruments.

 

19


INTERNATIONAL VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

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

As of December 31, 2016, the Portfolio had a net capital loss carryforward of $994,182,752 which will expire as follows:

 

SHORT-TERM
AMOUNT

  

LONG-TERM
AMOUNT

  

EXPIRATION

$  917,130,062    n/a    2017
50,169,345    n/a    2018
13,528,753    $  13,354,592    No expiration

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

20


 
INTERNATIONAL VALUE PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $13.28       $13.52       $13.53       $14.99       $12.96       $11.50  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .23 (b)      .30 (b)†      .30       .48       .33       .36  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    1.77       (.37     .05       (1.40     2.59       1.31  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    2.00       (.07     .35       (.92     2.92       1.67  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends

           

Dividends from net investment income

    –0 –      (.17     (.36     (.54     (.89     (.21
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends

    –0 –      (.17     (.36     (.54     (.89     (.21
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $15.28       $13.28       $13.52       $13.53       $14.99       $12.96  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    15.06     (.50 )%†      2.59     (6.21 )%      23.00     14.53
           

Ratios/Supplemental Data

           

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

    $50,247       $47,385       $48,665       $50,504       $58,723       $48,029  

Ratio to average net assets of:

           

Expenses, net of waiver/reimbursements

    .86 %^      .86     .85     .85     .82     .81

Expenses, before waivers/reimbursements

    .87 %^      .86     .85     .85     .82     .81

Net investment income

    3.12 %(b)^      2.27 %(b)†      2.09     3.25     2.33     2.97

Portfolio turnover rate

    26     64     74     64     59     41

 

 

 

See footnote summary on page 22.

 

21


INTERNATIONAL VALUE PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $13.16       $13.41       $13.41       $14.86       $12.84       $11.40  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .20 (b)      .27 (b)†      .26       .45       .30       .32  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    1.76       (.38     .06       (1.40     2.56       1.29  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    1.96       (.11     .32       (.95     2.86       1.61  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends

           

Dividends from net investment income

    –0 –      (.14     (.32     (.50     (.84     (.17
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends

    –0 –      (.14     (.32     (.50     (.84     (.17
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $15.12       $13.16       $13.41       $13.41       $14.86       $12.84  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    14.89     (.80 )%†      2.40     (6.46 )%      22.73     14.19
           

Ratios/Supplemental Data

           

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

    $434       $460       $551       $616       $744       $1,058  

Ratio to average net assets of:

           

Expenses, net of waiver/reimbursements

    1.11 %^      1.11     1.10     1.10     1.07     1.06

Expenses, before waivers/reimbursements

    1.12 %^      1.11     1.10     1.10     1.07     1.06

Net investment income

    2.80 %(b)^      2.04 %(b)†      1.85     3.06     2.20     2.70

Portfolio turnover rate

    26     64     74     64     59     41

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment

Income Per Share

 

Net Investment

Income Ratio

 

Total Return

$.002   .01%   .01%

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and year ended December 31, 2016 by 0.01% and 0.07%, respectively.

 

^   Annualized.

See notes to financial statements.

 

22


 
INTERNATIONAL VALUE PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB International Value Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected

 

23


INTERNATIONAL VALUE PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

 

24


    AB Variable Products Series Fund

 

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

25


 

 

 

 

VPS-IV-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

LARGE CAP GROWTH PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
LARGE CAP GROWTH PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,170.10      $   3.82        0.71

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,021.27      $ 3.56        0.71
           

Class B

           

Actual

   $ 1,000      $ 1,168.70      $ 5.16        0.96

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,020.03      $ 4.81        0.96

 

 

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


LARGE CAP GROWTH PORTFOLIO  
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

Alphabet, Inc.—Class A & Class C

   $ 32,990,729          7.6

Facebook, Inc.—Class A

     28,119,874          6.5  

Visa, Inc.—Class A

     21,334,012          4.9  

UnitedHealth Group, Inc.

     18,021,155          4.1  

Home Depot, Inc. (The)

     16,990,737          3.9  

Apple, Inc.

     16,650,440          3.8  

Edwards Lifesciences Corp.

     15,515,689          3.6  

NIKE, Inc.—Class B

     15,228,490          3.5  

Intuitive Surgical, Inc.

     14,589,901          3.3  

Xilinx, Inc.

     12,366,613          2.8  
    

 

 

      

 

 

 
     $   191,807,640          44.0

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Technology

   $ 130,684,891          29.7

Consumer Discretionary

     95,433,166          21.7  

Health Care

     84,479,313          19.2  

Financial Services

     39,180,951          8.9  

Producer Durables

     28,813,033          6.6  

Consumer Staples

     16,787,383          3.8  

Materials & Processing

     5,559,910          1.3  

Short-Term Investments

     38,923,021          8.8  
    

 

 

      

 

 

 

Total Investments

   $   439,861,668          100.0

 

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments and may vary over time.

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


LARGE CAP GROWTH PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

COMMON STOCKS–92.1%

 

   

TECHNOLOGY–30.0%

 

COMPUTER SERVICES, SOFTWARE & SYSTEMS–18.7%

   

Adobe Systems, Inc.(a)

    85,290     $ 12,063,418  

Alphabet, Inc.–Class A(a)

    4,130       3,839,579  

Alphabet, Inc.–Class C(a)

    32,079       29,151,150  

Cognizant Technology Solutions Corp.–Class A

    51,636       3,428,630  

Facebook, Inc.–Class A(a)

    186,249       28,119,874  

Palo Alto Networks, Inc.(a)

    18,619       2,491,408  

ServiceNow, Inc.(a)

    24,231       2,568,486  
   

 

 

 
      81,662,545  
   

 

 

 

COMPUTER TECHNOLOGY–3.8%

   

Apple, Inc.

    115,612       16,650,440  
   

 

 

 

ELECTRONIC COMPONENTS–0.6%

   

Amphenol Corp.–Class A

    33,706       2,488,177  
   

 

 

 

ELECTRONIC ENTERTAINMENT–1.7%

   

Electronic Arts, Inc.(a)

    68,770       7,270,365  
   

 

 

 

SEMICONDUCTORS & COMPONENT–4.6%

   

NVIDIA Corp.

    25,632       3,705,362  

Texas Instruments, Inc.

    53,100       4,084,983  

Xilinx, Inc.

    192,267       12,366,613  
   

 

 

 
      20,156,958  
   

 

 

 

TELECOMMUNICATIONS EQUIPMENT–0.6%

   

Arista Networks, Inc.(a)

    16,399       2,456,406  
   

 

 

 
      130,684,891  
   

 

 

 

CONSUMER DISCRETIONARY–21.9%

   

AUTO PARTS–0.4%

   

WABCO Holdings, Inc.(a)

    13,482       1,719,090  
   

 

 

 

CABLE TELEVISION SERVICES–2.4%

   

Comcast Corp.–Class A

    263,770       10,265,929  
   

 

 

 

DIVERSIFIED RETAIL–3.8%

   

Costco Wholesale Corp.

    65,330       10,448,227  

Dollar Tree, Inc.(a)

    89,371       6,248,820  
   

 

 

 
      16,697,047  
   

 

 

 

ENTERTAINMENT–1.9%

   

Walt Disney Co. (The)

    77,620       8,247,125  
   

 

 

 

LEISURE TIME–0.9%

   

Priceline Group, Inc. (The)(a)

    2,120       3,965,502  
   

 

 

 

RESTAURANTS–1.8%

   

Starbucks Corp.

    136,160       7,939,490  
   

 

 

 

SPECIALTY RETAIL–7.2%

   

Home Depot, Inc. (The)

    110,761       16,990,737  

O’Reilly Automotive, Inc.(a)

    7,590       1,660,237  
    
    
    
Company
  Shares     U.S. $ Value  
   

TJX Cos., Inc. (The)

    119,389     $ 8,616,304  

Ulta Salon Cosmetics & Fragrance, Inc.(a)

    14,280       4,103,215  
   

 

 

 
      31,370,493  
   

 

 

 

TEXTILES, APPAREL & SHOES–3.5%

   

NIKE, Inc.–Class B

    258,110       15,228,490  
   

 

 

 
      95,433,166  
   

 

 

 

HEALTH CARE–19.4%

 

BIOTECHNOLOGY–2.2%

   

Biogen, Inc.(a)

    34,485       9,357,850  
   

 

 

 

HEALTH CARE FACILITIES–0.4%

   

VCA, Inc.(a)

    20,820       1,921,894  
   

 

 

 

HEALTH CARE MANAGEMENT SERVICES–4.1%

   

UnitedHealth Group, Inc.

    97,191       18,021,155  
   

 

 

 

HEALTH CARE SERVICES–1.4%

   

Cerner Corp.(a)

    93,510       6,215,610  
   

 

 

 

MEDICAL & DENTAL INSTRUMENTS & SUPPLIES–4.3%

   

Align Technology, Inc.(a)

    20,280       3,044,434  

Edwards Lifesciences Corp.(a)

    131,222       15,515,689  
   

 

 

 
      18,560,123  
   

 

 

 

MEDICAL EQUIPMENT–4.9%

   

Danaher Corp.

    80,522       6,795,252  

Intuitive Surgical, Inc.(a)

    15,598       14,589,901  
   

 

 

 
      21,385,153  
   

 

 

 

PHARMACEUTICALS–2.1%

   

Zoetis, Inc.

    144,558       9,017,528  
   

 

 

 
      84,479,313  
   

 

 

 

FINANCIAL SERVICES–9.0%

   

FINANCIAL DATA & SYSTEMS–8.5%

   

Fiserv, Inc.(a)

    63,880       7,815,079  

S&P Global, Inc.

    35,480       5,179,725  

Vantiv, Inc.–Class A(a)

    42,690       2,703,985  

Visa, Inc.–Class A

    227,490       21,334,012  
   

 

 

 
      37,032,801  
   

 

 

 

SECURITIES BROKERAGE & SERVICES–0.5%

   

MarketAxess Holdings, Inc.

    10,682       2,148,150  
   

 

 

 
      39,180,951  
   

 

 

 

PRODUCER DURABLES–6.6%

   

BACK OFFICE SUPPORT, HR & CONSULTING–0.7%

   

Automatic Data Processing, Inc.

    30,030       3,076,874  
   

 

 

 

 

3


LARGE CAP GROWTH PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

RAILROADS–0.9%

   

Union Pacific Corp.

    35,500     $ 3,866,305  
   

 

 

 

SCIENTIFIC INSTRUMENTS: CONTROL & FILTER–3.4%

   

Allegion PLC

    55,442       4,497,455  

IDEX Corp.

    23,400       2,644,434  

Roper Technologies, Inc.

    32,874       7,611,317  
   

 

 

 
      14,753,206  
   

 

 

 

SCIENTIFIC INSTRUMENTS: ELECTRICAL–0.9%

   

AO Smith Corp.

    70,807       3,988,558  
   

 

 

 

SCIENTIFIC INSTRUMENTS: GAUGES & METERS–0.7%

   

Mettler-Toledo International, Inc.(a)

    5,315       3,128,090  
   

 

 

 
      28,813,033  
   

 

 

 

CONSUMER STAPLES–3.9%

   

BEVERAGE: BREWERS & DISTILLERS–1.5%

   

Constellation Brands, Inc.–Class A

    33,230       6,437,648  
   

 

 

 

BEVERAGE: SOFT DRINKS–2.4%

   

Monster Beverage Corp.(a)

    208,328       10,349,735  
   

 

 

 
      16,787,383  
   

 

 

 
    
    
    
Company
  Shares     U.S. $ Value  
   

MATERIALS & PROCESSING–1.3%

   

CHEMICALS: DIVERSIFIED–0.9%

   

Ecolab, Inc.

    29,240     $ 3,881,610  
   

 

 

 

DIVERSIFIED MATERIALS & PROCESSING–0.4%

   

Hexcel Corp.

    31,792       1,678,300  
   

 

 

 
      5,559,910  
   

 

 

 

Total Common Stocks
(cost $275,781,112)

      400,938,647  
   

 

 

 

SHORT-TERM INVESTMENTS–8.9%

   

TIME DEPOSIT–8.9%

   

State Street Time Deposit 0.09%, 7/03/17
(cost $38,923,021)

    38,923       38,923,021  
   

 

 

 

TOTAL INVESTMENTS–101.0%
(cost $314,704,133)

      439,861,668  

Other assets less liabilities–(1.0)%

      (4,248,041
   

 

 

 

NET ASSETS–100.0%

    $ 435,613,627  
   

 

 

 

 

 

(a)   Non-income producing security.

See notes to financial statements.

 

4


LARGE CAP GROWTH PORTFOLIO  
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value (cost $314,704,133)

   $ 439,861,668  

Dividends and interest receivable

     146,335  

Receivable for capital stock sold

     123,568  
  

 

 

 

Total assets

     440,131,571  
  

 

 

 

LIABILITIES

  

Payable for investment securities purchased

     3,623,227  

Payable for capital stock redeemed

     462,349  

Advisory fee payable

     231,513  

Distribution fee payable

     51,016  

Administrative fee payable

     12,658  

Transfer Agent fee payable

     81  

Accrued expenses

     137,100  
  

 

 

 

Total liabilities

     4,517,944  
  

 

 

 

NET ASSETS

   $ 435,613,627  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 8,429  

Additional paid-in capital

     264,937,232  

Accumulated net investment loss

     (47,046

Accumulated net realized gain on investment transactions

     45,557,477  

Net unrealized appreciation on investments

     125,157,535  
  

 

 

 
   $ 435,613,627  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $   204,379,034          3,862,585        $   52.91  
B      $   231,234,593          4,566,868        $   50.63  

 

 

 

See notes to financial statements.

 

5


LARGE CAP GROWTH PORTFOLIO  
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers

   $ 1,694,323  

Affiliated issuers

     280  

Interest

     12,283  

Other income

     7,467  
  

 

 

 
     1,714,353  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     1,301,356  

Distribution fee—Class B

     276,901  

Transfer agency—Class A

     2,339  

Transfer agency—Class B

     2,663  

Custodian

     53,985  

Printing

     35,263  

Administrative

     25,090  

Legal

     22,087  

Audit and tax

     20,481  

Directors’ fees

     13,372  

Miscellaneous

     7,955  
  

 

 

 

Total expenses

     1,761,492  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (93
  

 

 

 

Net expenses

     1,761,399  
  

 

 

 

Net investment loss

     (47,046
  

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS

  

Net realized gain on investment transactions

     23,406,703  

Net change in unrealized appreciation/depreciation of investments

     40,305,263  
  

 

 

 

Net gain on investment transactions

     63,711,966  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 63,664,920  
  

 

 

 

 

 

 

See notes to financial statements.

 

6


 
LARGE CAP GROWTH PORTFOLIO  
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

    

Net investment loss

   $ (47,046   $ (869,666

Net realized gain on investment transactions

     23,406,703       22,457,817  

Net change in unrealized appreciation/depreciation of investments

     40,305,263       (11,055,344

Contributions from Affiliates (see Note B)

     –0 –      214  
  

 

 

   

 

 

 

Net increase in net assets from operations

     63,664,920       10,533,021  

DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net realized gain on investment transactions

    

Class A

     –0 –      (20,330,760

Class B

     –0 –      (29,455,689

CAPITAL STOCK TRANSACTIONS

    

Net decrease

     (9,089,859     (38,446,922
  

 

 

   

 

 

 

Total increase (decrease)

     54,575,061       (77,700,350

NET ASSETS

    

Beginning of period

     381,038,566       458,738,916  
  

 

 

   

 

 

 

End of period (including accumulated net investment loss of ($47,046) and ($0), respectively)

   $ 435,613,627     $ 381,038,566  
  

 

 

   

 

 

 

 

 

 

 

See notes to financial statements.

 

7


LARGE CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Large Cap Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

8


    AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Common Stocks(a)

     $ 400,938,647      $ –0 –     $             –0 –     $ 400,938,647  

Short-Term Investments

       –0 –       38,923,021        –0 –       38,923,021  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       400,938,647        38,923,021        –0 –       439,861,668  

Other Financial Instruments(b)

       –0 –       –0 –       –0 –       –0 – 
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 400,938,647      $ 38,923,021      $ –0 –     $ 439,861,668  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

9


LARGE CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

10


    AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .60% of the first $2.5 billion, .50% of the next $2.5 billion and .45% in excess of $5 billion, of the Portfolio’s average daily net assets. Effective February 3, 2017, the advisory fee was reduced from .75% to .60% of the first $2.5 billion, .65% to .50% of the next $2.5 billion and .60% to .45% in excess of $5 billion of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,090.

During the year ended December 31, 2016, the Adviser reimbursed the Portfolio $214 for trading losses incurred due to a trade entry error.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $47,947, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

 

11


LARGE CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases     Sales  

Investment securities (excluding U.S. government securities)

   $ 117,299,097     $ 137,104,554  

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

   $ 126,400,521  

Gross unrealized depreciation

     (1,242,986
  

 

 

 

Net unrealized appreciation

   $ 125,157,535  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. As of June 30, 2017, the Portfolio had no securities out on loan. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $280 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the

 

12


    AB Variable Products Series Fund

 

Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $93. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 1,452     $ 175     $ 1,627     $ 0  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    247,473       226,292       $ 12,670,034     $ 10,252,042  

Shares issued in reinvestment of distributions

    –0 –      440,632         –0 –      20,330,760  

Shares redeemed

    (324,567     (597,453       (16,277,901     (28,081,720
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (77,094     69,471       $ (3,607,867   $ 2,501,082  
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    243,048       480,054       $ 11,743,106     $ 21,711,096  

Shares issued in reinvestment of distributions

    –0 –      665,665         –0 –      29,455,689  

Shares redeemed

    (359,741     (2,055,480       (17,225,098     (92,114,789
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (116,693     (909,761     $ (5,481,992   $ (40,948,004
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 55% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Focused Portfolio Risk—Investments in a limited number of companies may have more risk because changes in the value of a single security may have a more significant effect, either negative or positive, on the Portfolio’s net asset value, or NAV.

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

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

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

 

13


LARGE CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016        2015  

Distributions paid from:

         

Ordinary income

     $ 237,824        $ –0 – 

Net long-term capital gains

       49,548,625          40,256,261  
    

 

 

      

 

 

 

Total taxable distributions paid

     $ 49,786,449        $ 40,256,261  
    

 

 

      

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed capital gains

   $ 25,097,267  

Unrealized appreciation/(depreciation)

     81,905,778 (a) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 107,003,045  
  

 

 

 

 

(a)   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

14


 
LARGE CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $45.22       $49.50       $48.83       $42.78       $31.17       $26.86  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (loss) (a)

    .03 (b)      (.03 )(b)†      .02       .02       (.04     .05  

Net realized and unrealized gain on investment transactions

    7.66       1.44       5.33       6.03       11.68       4.35  

Contributions from Affiliates

    –0 –      .00 (c)      –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    7.69       1.41       5.35       6.05       11.64       4.40  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      –0 –      –0 –      –0 –      (.03     (.09

Distributions from net realized gain on investment transactions

    –0 –      (5.69     (4.68     –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (5.69     (4.68     –0 –      (.03     (.09
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $52.91       $45.22       $49.50       $48.83       $42.78       $31.17  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)*

    17.01     2.63 %†      11.11     14.14     37.35     16.39
           

Ratios/Supplemental Data

           

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

    $204,379       $178,136       $191,568       $189,620       $190,488       $160,226  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    .71 %^      .85     .82     .83     .85     .86

Expenses, before waivers/reimbursements

    .71 %^      .85     .82     .83     .85     .86

Net investment income (loss)

    .11 %(b)^      (.07 )%(b)†      .04     .04     (.11 )%      .18

Portfolio turnover rate

    31     59     65     65     60     94

 

 

 

See footnote summary on page 17.

 

15


LARGE CAP GROWTH PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $43.32       $47.77       $47.38       $41.62       $30.38       $26.17  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment loss (a)

    (.03 )(b)      (.14 )(b)†      (.10     (.09     (.13     (.02

Net realized and unrealized gain on investment transactions

    7.34       1.38       5.17       5.85       11.37       4.24  

Contributions from Affiliates

    –0 –      .00 (c)      –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    7.31       1.24       5.07       5.76       11.24       4.22  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      –0 –      –0 –      –0 –      –0 –      (.01

Distributions from net realized gain on investment transactions

    –0 –      (5.69     (4.68     –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (5.69     (4.68     –0 –      –0 –      (.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $50.63       $43.32       $47.77       $47.38       $41.62       $30.38  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)*

    16.87     2.36 %†      10.86     13.84     37.00     16.12
           

Ratios/Supplemental Data

           

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

    $231,235       $202,903       $267,171       $237,452       $230,350       $190,896  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements

    .96 %^      1.10     1.07     1.08     1.10     1.11

Expenses, before waivers/reimbursements

    .96 %^      1.10     1.07     1.08     1.10     1.11

Net investment loss

    (.14 )%(b)^      (.32 )%(b)†      (.21 )%      (.21 )%      (.36 )%      (.07 )% 

Portfolio turnover rate

    31     59     65     65     60     94

 

 

 

See footnote summary on page 17.

 

16


LARGE CAP GROWTH PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Amount is less than $.005.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per Share

 

Net Investment
Income Ratio

 

Total Return

$.005   .01%   .01%

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2016, December 31, 2015, December 31, 2014, December 31, 2013 and December 31, 2012 by 0.03%, 0.01%, 0.09%, 0.02%, 0.10% and 0.95%, respectively.

 

^   Annualized.

See notes to financial statements.

 

17


 
LARGE CAP GROWTH PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Large Cap Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts

 

18


    AB Variable Products Series Fund

 

for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable. The directors noted that the reduction in the advisory fee rate effective since February 3, 2017 would likely impact the Adviser’s profitability analysis in future years.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s pro forma contractual effective advisory fee rate (reflecting a reduction in the advisory fee rate effective since February 3, 2017) with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with those for two other AB Funds with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the information included the pro forma expense ratio to reflect a reduction in the Fund’s expense ratio effective since February 3, 2017. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the

 

19


LARGE CAP GROWTH PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s pro forma expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

20


 

 

 

 

 

VPS-LCG-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

REAL ESTATE INVESTMENT PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
REAL ESTATE INVESTMENT PORTFOLIO
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,040.10      $   5.36        1.06

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.54      $ 5.31        1.06
           

Class B

           

Actual

   $ 1,000      $ 1,039.90      $ 6.63        1.31

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,018.30      $ 6.56        1.31

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


REAL ESTATE INVESTMENT PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

American Tower Corp.

   $ 4,144,263          7.9

Equinix, Inc.

     2,327,335          4.4  

Welltower, Inc.

     2,279,182          4.4  

AvalonBay Communities, Inc.

     2,027,393          3.9  

Simon Property Group, Inc.

     1,968,619          3.8  

Ventas, Inc.

     1,869,012          3.6  

Mid-America Apartment Communities, Inc.

     1,618,637          3.1  

Realty Income Corp.

     1,604,634          3.1  

Boston Properties, Inc.

     1,510,562          2.9  

Alexandria Real Estate Equities, Inc.

     1,466,120          2.8  
    

 

 

      

 

 

 
     $   20,815,757          39.9

INDUSTRY BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

INDUSTRY    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Specialized REITs

   $   11,628,225          22.3

Retail REITs

     8,575,901          16.4  

Residential REITs

     8,159,510          15.7  

Office REITs

     7,548,018          14.5  

Health Care REITs

     6,166,855          11.8  

Diversified REITs

     4,436,933          8.5  

Industrial REITs

     2,712,141          5.2  

Hotel & Resort REITs

     2,288,681          4.4  

Movies & Entertainment

     385,466          0.7  

Short-Term Investments

     267,633          0.5  
    

 

 

      

 

 

 

Total Investments

   $ 52,169,363          100.0

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s industry breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time.

Please note: The industry classifications presented herein are based on the industry categorization methodology of the Adviser.

 

2


REAL ESTATE INVESTMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

COMMON STOCKS–99.4%

   
   

REAL ESTATE–98.7%

   

DIVERSIFIED REITS–8.5%

   

Armada Hoffler Properties, Inc.

    59,930     $ 776,093  

Empire State Realty Trust, Inc.–Class A

    43,580       905,157  

Gramercy Property Trust

    33,094       983,223  

Liberty Property Trust

    21,700       883,407  

Washington Real Estate Investment Trust

    27,870       889,053  
   

 

 

 
      4,436,933  
   

 

 

 

HEALTH CARE REITS–11.8%

   

Healthcare Realty Trust, Inc.

    20,910       714,077  

Medical Properties Trust, Inc.

    58,990       759,201  

Sabra Health Care REIT, Inc.(a)

    22,630       545,383  

Ventas, Inc.

    26,900       1,869,012  

Welltower, Inc.

    30,450       2,279,182  
   

 

 

 
      6,166,855  
   

 

 

 

HOTEL & RESORT REITS–4.4%

   

DiamondRock Hospitality Co.

    59,320       649,554  

Park Hotels & Resorts, Inc.

    29,200       787,232  

Summit Hotel Properties, Inc.

    45,678       851,895  
   

 

 

 
      2,288,681  
   

 

 

 

INDUSTRIAL REITS–5.2%

   

Monmouth Real Estate Investment Corp.–Class A

    41,740       628,187  

Rexford Industrial Realty, Inc.

    31,810       872,866  

STAG Industrial, Inc.

    43,880       1,211,088  
   

 

 

 
      2,712,141  
   

 

 

 

OFFICE REITS–14.5%

   

Alexandria Real Estate Equities, Inc.

    12,170       1,466,120  

Boston Properties, Inc.

    12,279       1,510,562  

Brandywine Realty Trust

    41,450       726,618  

Columbia Property Trust, Inc.

    40,720       911,314  

Corporate Office Properties Trust

    21,800       763,654  

Hudson Pacific Properties, Inc.

    30,320       1,036,641  

Parkway, Inc.

    24,930       570,648  

Vornado Realty Trust

    5,990       562,461  
   

 

 

 
      7,548,018  
   

 

 

 

RESIDENTIAL REITS–15.6%

   

AvalonBay Communities, Inc.

    10,550       2,027,393  

Camden Property Trust

    6,960       595,150  

Education Realty Trust, Inc.

    17,770       688,587  

Essex Property Trust, Inc.

    4,940       1,270,914  

Independence Realty Trust, Inc.

    85,230       841,220  

Mid-America Apartment Communities, Inc.

    15,360       1,618,637  

Sun Communities, Inc.

    12,745       1,117,609  
   

 

 

 
      8,159,510  
   

 

 

 

RETAIL REITS–16.4%

   

Brixmor Property Group, Inc.

    67,450       1,206,006  

GGP, Inc.

    62,180       1,464,961  

National Retail Properties, Inc.

    18,810       735,471  
   

Realty Income Corp.

    29,080     1,604,634  

Retail Opportunity Investments Corp.

    43,250       829,968  

Simon Property Group, Inc.

    12,170       1,968,619  

Urban Edge Properties

    32,290       766,242  
   

 

 

 
      8,575,901  
   

 

 

 

SPECIALIZED REITS–22.3%

   

American Tower Corp.

    31,320       4,144,263  

Crown Castle International Corp.

    7,880       789,418  

Digital Realty Trust, Inc.

    12,950       1,462,703  

EPR Properties

    14,170       1,018,398  

Equinix, Inc.

    5,423       2,327,335  

National Storage Affiliates Trust

    38,212       883,079  

Public Storage

    4,810       1,003,029  
   

 

 

 
      11,628,225  
   

 

 

 
      51,516,264  
   

 

 

 

MEDIA–0.7%

   

MOVIES &
ENTERTAINMENT–0.7%

   

Regal Entertainment Group–Class A(a)

    18,840       385,466  
   

 

 

 

Total Common Stocks
(cost $45,031,709)

      51,901,730  
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–0.5%

   

TIME DEPOSIT–0.5%

   

State Street Time Deposit 0.09%, 7/03/17 (cost $267,633)

  $        268       267,633  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–99.9% (cost $45,299,342)

      52,169,363  
   

 

 

 
    Shares        

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED–1.8%

   

INVESTMENT
COMPANIES–1.8%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(b)(c)
(cost $950,075)

    950,075       950,075  
   

 

 

 

TOTAL
INVESTMENTS–101.7%
(cost $46,249,417)

      53,119,438  

Other assets less liabilities–(1.7)%

      (906,288
   

 

 

 

NET ASSETS–100.0%

    $ 52,213,150  
   

 

 

 

 

3


REAL ESTATE INVESTMENT PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

 

 

(a)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(b)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(c)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

Glossary:

REIT—Real Estate Investment Trust

See notes to financial statements.

 

4


REAL ESTATE INVESTMENT PORTFOLIO  
STATEMENT OF ASSETS & LIABILITIES  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value

  

Unaffiliated issuers (cost $45,299,342)

   $ 52,169,363 (a) 

Affiliated issuers (cost $950,075—investment of cash collateral for securities loaned)

     950,075  

Foreign currencies, at value (cost $8,329)

     7,600  

Dividends and interest receivable

     185,610  

Receivable for capital stock sold

     9,441  
  

 

 

 

Total assets

     53,322,089  
  

 

 

 

LIABILITIES

  

Payable for collateral received on securities loaned

     950,075  

Advisory fee payable

     25,360  

Payable for capital stock redeemed

     22,839  

Administrative fee payable

     12,917  

Distribution fee payable

     4,083  

Transfer Agent fee payable

     81  

Accrued expenses

     93,584  
  

 

 

 

Total liabilities

     1,108,939  
  

 

 

 

NET ASSETS

   $ 52,213,150  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 5,434  

Additional paid-in capital

     39,869,068  

Undistributed net investment income

     1,744,833  

Accumulated net realized gain on investment and foreign currency transactions

     3,724,523  

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     6,869,292  
  

 

 

 
   $ 52,213,150  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class    Net Assets        Shares
Outstanding
       Net Asset
Value
 
A    $   33,747,549          3,518,182        $   9.59  
B    $ 18,465,601          1,915,803        $ 9.64  

 

 

 

(a)   Includes securities on loan with a value of $930,849 (see Note E).

See notes to financial statements.

 

5


REAL ESTATE INVESTMENT PORTFOLIO
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers

   $ 950,192  

Affiliated issuers

     325  

Interest

     212  

Other income

     1,206  
  

 

 

 
     951,935  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     144,222  

Distribution fee—Class B

     22,804  

Transfer agency—Class A

     1,849  

Transfer agency—Class B

     991  

Custodian

     33,702  

Audit and tax

     26,698  

Administrative

     25,021  

Printing

     16,562  

Legal

     14,296  

Directors’ fees

     13,372  

Miscellaneous

     2,105  
  

 

 

 

Total expenses

     301,622  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (74
  

 

 

 

Net expenses

     301,548  
  

 

 

 

Net investment income

     650,387  
  

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain on investment transactions

     1,140,489  

Net change in unrealized appreciation/depreciation of:

  

Investments

     308,494  

Foreign currency denominated assets and liabilities

     328  
  

 

 

 

Net gain on investment and foreign currency transactions

     1,449,311  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 2,099,698  
  

 

 

 

 

 

 

See notes to financial statements.

 

6


 
REAL ESTATE INVESTMENT PORTFOLIO
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

 

     Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 650,387     $ 947,416  

Net realized gain on investment and foreign currency transactions

     1,140,489       2,670,848  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     308,822       50,925  
  

 

 

   

 

 

 

Net increase in net assets from operations

     2,099,698       3,669,189  

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net investment income

 

Class A

     –0 –      (601,091

Class B

     –0 –      (228,136

Net realized gain on investment transactions

    

Class A

     –0 –      (1,722,127

Class B

     –0 –      (751,170

CAPITAL STOCK TRANSACTIONS

    

Net increase (decrease)

     (2,797,307     2,686,208  
  

 

 

   

 

 

 

Total increase (decrease)

     (697,609     3,052,873  

NET ASSETS

    

Beginning of period

     52,910,759       49,857,886  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $1,744,833 and $1,094,446, respectively)

   $ 52,213,150     $ 52,910,759  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

7


REAL ESTATE INVESTMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Real Estate Investment Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is total return from long-term growth of capital and income. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

8


    AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Common Stocks(a)

     $ 51,901,730      $ –0 –     $ –0 –     $ 51,901,730  

Short-Term Investments

       –0 –       267,633        –0 –       267,633  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

       950,075        –0 –       –0 –       950,075  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       52,851,805        267,633        –0 –       53,119,438  

Other Financial Instruments(b)

       –0 –       –0 –       –0 –       –0 – 
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 52,851,805      $ 267,633      $             –0 –     $ 53,119,438  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

9


REAL ESTATE INVESTMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

10


    AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,021.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $19,057, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases     Sales  

Investment securities (excluding U.S. government securities)

   $ 17,266,548     $ 19,077,673  

U.S. government securities

     –0 –      –0 – 

 

11


REAL ESTATE INVESTMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

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 (excluding foreign currency transactions) are as follows:

 

Gross unrealized appreciation

   $ 7,908,714  

Gross unrealized depreciation

     (1,038,693
  

 

 

 

Net unrealized appreciation

   $ 6,870,021  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $930,849 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $950,075. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $325 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $74. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

 

12


    AB Variable Products Series Fund

 

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

 

Purchases

at Cost

(000)

 

Sales

Proceeds

(000)

 

Market Value

6/30/17

(000)

$0   $2,745   $1,795   $950

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

 

Shares sold

    103,071       431,092       $ 965,089     $ 4,165,931  

Shares issued in reinvestment of dividends and distributions

    –0 –      235,620         –0 –      2,323,218  

Shares redeemed

    (414,851     (798,588       (3,888,510     (7,520,220
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (311,780     (131,876     $ (2,923,421   $ (1,031,071
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

 

Shares sold

    186,028       582,138       $ 1,734,873     $ 5,543,108  

Shares issued in reinvestment of dividends and distributions

    –0 –      98,621         –0 –      979,306  

Shares redeemed

    (170,401     (300,705       (1,608,759     (2,805,135
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase

    15,627       380,054       $ 126,114     $ 3,717,279  
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 62% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Interest Rate Risk and Credit Risk—Interest rate risk is the risk that changes in interest rates will affect the value of the Portfolio’s investments in fixed-income debt securities such as bonds or notes. Increases in interest rates may cause the value of the Portfolio’s investments to decline. Credit risk is the risk that the issuer or guarantor of a debt security, or the counterparty to a derivative contract, will be unable or unwilling to make timely principal and/or interest payments, or to otherwise honor its obligations. The degree of risk for a particular security may be reflected in its credit rating. Credit risk is greater for medium quality and lower-rated securities. Lower-rated debt securities and similar unrated securities (commonly known as “junk bonds”) have speculative elements or are predominantly speculative risks.

Real Estate Risk—The Portfolio’s investments in the real estate market have many of the same risks as direct ownership of real estate, including the risk that the value of real estate could decline due to a variety of factors that affect the real estate market generally. Investments in REITs, may have additional risks. REITs are dependent on the capability of their managers, may have limited diversification, and could be significantly affected by changes in taxes.

Prepayment Risk—The value of mortgage-related or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early payments of principal on some mortgage-related securities may occur during periods of falling mortgage interest rates and expose the Portfolio to a lower rate of return upon reinvestment of principal. Early payments associated with mortgage-related securities cause these securities to experience significantly greater price and yield volatility than is experienced by traditional fixed-income securities. During periods of rising interest rates, a reduction in prepayments may increase the effective life of mortgage-related securities, subjecting them to greater risk of decline in market value in response to rising interest rates. If the life of a mortgage-related security is inaccurately predicted, the Portfolio may not be able to realize the rate of return it expected.

Derivatives Risk—The Portfolio may enter into derivative transactions such as forwards, options, futures and swaps. Derivatives may be illiquid, difficult to price, and leveraged so that small changes may produce disproportionate losses for

 

13


REAL ESTATE INVESTMENT PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

the Portfolio, and subject to counterparty risk to a greater degree than more traditional investments. Derivatives may result in significant losses, including losses that are far greater than the value of the derivatives reflected on the statement of assets and liabilities.

Leverage Risk—When the Portfolio borrows money or otherwise leverages its investments, its performance may be volatile because leverage tends to exaggerate the effect of any increase or decrease in the value of the Portfolio’s investments. The Portfolio may create leverage through the use of reverse repurchase arrangements, forward currency exchange contracts, forward commitments, dollar rolls or futures or by borrowing money. The use of other types of derivative instruments by the Portfolio, such as options and swaps, may also result in a form of leverage. Leverage may result in higher returns to the Portfolio than if the Portfolio were not leveraged, but may also adversely affect returns, particularly if the market is declining.

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

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

     2016      2015  

Distributions paid from:

     

Ordinary income

   $ 1,278,264      $ 958,181  

Net long-term capital gains

     2,024,260        4,054,113  
  

 

 

    

 

 

 

Total taxable distributions paid

   $ 3,302,524      $ 5,012,294  
  

 

 

    

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 1,399,982  

Undistributed capital gains

     2,346,814  

Unrealized appreciation/(depreciation)

     6,492,155 (a) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 10,238,951  
  

 

 

 

 

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

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carry forwards.

 

14


    AB Variable Products Series Fund

 

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

15


REAL ESTATE INVESTMENT PORTFOLIO
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $9.22       $9.08       $10.00       $11.18       $12.25       $11.58  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .12 (b)      .18 (b)†      .18       .14       .24       .18  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .25       .56       (.12     2.39       .24       2.21  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    .37       .74       .06       2.53       .48       2.39  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.15     (.15     (.37     (.20     (.15

Distributions from net realized gain on investment transactions

    –0 –      (.45     (.83     (3.34     (1.35     (1.57
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.60     (.98     (3.71     (1.55     (1.72
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $9.59       $9.22       $9.08       $10.00       $11.18       $12.25  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)

    4.01     7.76 %†      .80     25.35     4.20     21.19
           

Ratios/Supplemental Data

           

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

    $33,748       $35,294       $35,970       $38,003       $31,576       $70,048  

Ratio to average net assets of:

 

Expenses, net of waivers/reimbursements

    1.06 %^      1.08     1.07     1.08     .86     .84

Expenses, before waivers/reimbursements

    1.06 %^      1.08     1.07     1.08     .86     .84

Net investment income

    2.56 %(b)^      1.90 %(b)†      1.91     1.26     1.92     1.49

Portfolio turnover rate

    33     77     67     67     98     110

 

 

 

See footnote summary on page 17.

 

16


    AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $9.27       $9.14       $10.05       $11.22       $12.28       $11.61  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .11 (b)      .15 (b)†      .16       .11       .27       .15  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .26       .56       (.11     2.40       .18       2.20  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase in net asset value from operations

    .37       .71       .05       2.51       .45       2.35  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment
income

    –0 –      (.13     (.13     (.34     (.16     (.11

Distributions from net realized gain on investment transactions

    –0 –      (.45     (.83     (3.34     (1.35     (1.57
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (.58     (.96     (3.68     (1.51     (1.68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $9.64       $9.27       $9.14       $10.05       $11.22       $12.28  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net
asset value (c)

    3.99     7.38 %†      .66     24.96     3.97     20.83
           

Ratios/Supplemental Data

           

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

    $18,465       $17,617       $13,888       $13,301       $12,394       $13,568  

Ratio to average net assets of:

 

Expenses, net of waivers/reimbursements

    1.31 %^      1.34     1.33     1.33     1.15     1.10

Expenses, before waivers/reimbursements

    1.31 %^      1.34     1.33     1.33     1.15     1.10

Net investment income

    2.34 %(b)^      1.56 %(b)†      1.67     1.03     2.13     1.19

Portfolio turnover rate

    33     77     67     67     98     110

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per Share

   

Net Investment
Income Ratio

   

Total
Return

 
$ .002       .02     .02

 

^   Annualized.

 

17


 
REAL ESTATE INVESTMENT PORTFOLIO
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Real Estate Investment Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors

 

18


    AB Variable Products Series Fund

 

focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

 

19


REAL ESTATE INVESTMENT PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

20


 

 

 

 

VPS-REI-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS SERIES FUND, INC.

 

+  

SMALL CAP GROWTH PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
SMALL CAP GROWTH PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,162.20      $   7.72        1.44

Hypothetical (5% annual return before expenses)

   $   1,000      $   1,017.65      $   7.20        1.44
           

Class B

           

Actual

   $   1,000      $   1,160.50      $   9.05        1.69

Hypothetical (5% annual return before expenses)

   $   1,000      $   1,016.41      $   8.45        1.69

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


SMALL CAP GROWTH PORTFOLIO  
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE      PERCENT OF NET ASSETS

Grand Canyon Education, Inc.

     $ 704,906          1.8 %

Planet Fitness, Inc.

       695,252          1.7

Five Below, Inc.

       592,539          1.5

Ellie Mae, Inc.

       569,334          1.4

Freshpet, Inc.

       567,455          1.4

GrubHub, Inc.

       565,492          1.4

Lithia Motors, Inc.—Class A

       559,726          1.4

Summit Materials, Inc.—Class A

       537,098          1.4

Ollie’s Bargain Outlet Holdings, Inc.

       524,491          1.3

Vail Resorts, Inc.

       517,217          1.3
      

 

 

        

 

 

 
       $   5,833,510          14.6 %

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE      PERCENT OF TOTAL INVESTMENTS

Information Technology

     $ 10,744,278          27.0 %

Health Care

       8,477,133          21.3

Industrials

       6,952,181          17.4

Consumer Discretionary

       6,520,952          16.4

Financials

       2,680,907          6.7

Consumer Staples

       1,310,201          3.3

Materials

       1,050,480          2.6

Energy

       948,499          2.4

Telecommunication Services

       301,886          0.8

Short-Term Investments

       825,954          2.1
      

 

 

        

 

 

 

Total Investments

     $   39,812,471          100.0 %

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time.

 

      Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

Company  

Shares

    U.S. $ Value  
   

COMMON STOCKS–97.8%

   
   

INFORMATION TECHNOLOGY–27.0%

   

COMMUNICATIONS EQUIPMENT–1.8%

   

Arista Networks, Inc.(a)

    1,850     $ 277,112  

Lumentum Holdings, Inc.(a)

    7,800       444,990  
   

 

 

 
      722,102  
   

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–0.7%

   

Coherent, Inc.(a)

    1,170       263,238  
   

 

 

 

INTERNET SOFTWARE & SERVICES–9.5%

   

2U, Inc.(a)

    10,910       511,897  

Cimpress NV(a)(b)

    5,456       515,756  

CoStar Group, Inc.(a)

    1,770       466,572  

GrubHub, Inc.(a)(b)

    12,970       565,492  

LogMeIn, Inc.

    4,530       473,385  

Pandora Media, Inc.(a)(b)

    14,056       125,379  

Q2 Holdings, Inc.(a)

    11,609       428,953  

Trade Desk, Inc. (The)–Class A(a)

    8,953       448,635  

Wix.com Ltd.(a)

    3,687       256,615  
   

 

 

 
      3,792,684  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.9%

   

Advanced Energy Industries, Inc.(a)

    7,530       487,116  

Microsemi Corp.(a)

    4,600       215,280  

Monolithic Power Systems, Inc.

    4,121       397,264  

Silicon Laboratories, Inc.(a)

    6,634       453,434  
   

 

 

 
      1,553,094  
   

 

 

 

SOFTWARE–11.1%

   

Aspen Technology, Inc.(a)

    8,683       479,823  

Blackbaud, Inc.

    4,198       359,978  

Blackline, Inc.(a)

    10,671       381,382  

Ellie Mae, Inc.(a)

    5,180       569,334  

Guidewire Software, Inc.(a)

    4,343       298,408  

HubSpot, Inc.(a)

    5,840       383,980  

Paylocity Holding Corp.(a)

    7,783       351,636  

Proofpoint, Inc.(a)

    5,950       516,638  

RingCentral, Inc.–Class A(a)

    10,990       401,684  

Take-Two Interactive Software, Inc.(a)

    5,542       406,672  

Ultimate Software Group, Inc. (The)(a)(b)

    1,255       263,625  
   

 

 

 
      4,413,160  
   

 

 

 
      10,744,278  
   

 

 

 

HEALTH CARE–21.3%

   

BIOTECHNOLOGY–9.1%

   

Adamas Pharmaceuticals, Inc.(a)(b)

    9,505       166,243  

Aimmune Therapeutics, Inc.(a)(b)

    8,393       172,560  
   

Alder Biopharmaceuticals, Inc.(a)(b)

    7,663     $ 87,741  

Audentes Therapeutics, Inc.(a)(b)

    8,249       157,803  

Avexis, Inc.(a)

    2,750       225,940  

BeiGene Ltd. (ADR)(a)

    800       36,000  

Biohaven Pharmaceutical Holding Co., Ltd.(a)

    2,057       51,425  

Blueprint Medicines Corp.(a)

    5,422       274,733  

Clovis Oncology, Inc.(a)

    5,010       469,086  

DBV Technologies SA (Sponsored ADR)(a)

    5,065       180,871  

Loxo Oncology, Inc.(a)

    4,693       376,332  

Neurocrine Biosciences, Inc.(a)

    3,570       164,220  

Otonomy, Inc.(a)

    8,246       155,437  

Prothena Corp. PLC(a)(b)

    4,600       248,952  

Radius Health, Inc.(a)(b)

    3,450       156,044  

Sage Therapeutics, Inc.(a)

    3,466       276,032  

TESARO, Inc.(a)

    1,418       198,322  

Ultragenyx Pharmaceutical, Inc.(a)

    3,513       218,192  
   

 

 

 
      3,615,933  
   

 

 

 

HEALTH CARE EQUIPMENT & SUPPLIES–6.2%

   

Align Technology, Inc.(a)

    2,551       382,956  

DexCom, Inc.(a)

    4,515       330,272  

Glaukos Corp.(a)(b)

    8,415       348,970  

iRhythm Technologies, Inc.(a)

    10,893       462,844  

Nevro Corp.(a)

    5,799       431,620  

Penumbra, Inc.(a)

    5,848       513,162  
   

 

 

 
      2,469,824  
   

 

 

 

HEALTH CARE PROVIDERS & SERVICES–0.9%

   

Teladoc, Inc.(a)(b)

    10,739       372,643  
   

 

 

 

HEALTH CARE TECHNOLOGY–1.3%

   

Vocera Communications, Inc.(a)

    18,867       498,466  
   

 

 

 

LIFE SCIENCES TOOLS & SERVICES–1.2%

   

ICON PLC(a)

    4,932       482,300  
   

 

 

 

PHARMACEUTICALS–2.6%

   

Aerie Pharmaceuticals, Inc.(a)

    4,130       217,032  

Akorn, Inc.(a)

    2,377       79,725  

GW Pharmaceuticals PLC (ADR)(a)

    1,508       151,177  

Intersect ENT, Inc.(a)

    12,230       341,828  

Medicines Co. (The)(a)(b)

    6,530       248,205  
   

 

 

 
      1,037,967  
   

 

 

 
      8,477,133  
   

 

 

 

INDUSTRIALS–17.4%

   

AEROSPACE & DEFENSE–2.0%

   

Hexcel Corp.

    8,194       432,561  

Mercury Systems, Inc.(a)

    8,970       377,548  
   

 

 

 
      810,109  
   

 

 

 

 

3


SMALL CAP GROWTH PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

Company  

Shares

    U.S. $ Value  
   

COMMERCIAL SERVICES & SUPPLIES–1.7%

   

Advanced Disposal Services, Inc.(a)

    12,175     $ 276,738  

Tetra Tech, Inc.

    8,550       391,162  
   

 

 

 
      667,900  
   

 

 

 

CONSTRUCTION & ENGINEERING–1.1%

   

Dycom Industries, Inc.(a)

    4,743       424,593  
   

 

 

 

INDUSTRIAL CONGLOMERATES–0.9%

   

Carlisle Cos., Inc.

    3,895       371,583  
   

 

 

 

MACHINERY–8.7%

   

Astec Industries, Inc.

    7,650       424,651  

Gardner Denver Holdings, Inc.(a)

    16,219       350,493  

IDEX Corp.

    4,032       455,656  

John Bean Technologies Corp.

    4,620       452,760  

Kennametal, Inc.

    6,190       231,630  

Lincoln Electric Holdings, Inc.

    4,809       442,861  

Middleby Corp. (The)(a)

    2,296       278,987  

Nordson Corp.

    3,440       417,341  

RBC Bearings, Inc.(a)

    4,303       437,873  
   

 

 

 
      3,492,252  
   

 

 

 

ROAD & RAIL–1.0%

   

Genesee & Wyoming, Inc.–Class A(a)

    5,784       395,568  
   

 

 

 

TRADING COMPANIES & DISTRIBUTORS–2.0%

   

H&E Equipment Services, Inc.

    20,299       414,303  

SiteOne Landscape Supply, Inc.(a)

    7,220       375,873  
   

 

 

 
      790,176  
   

 

 

 
      6,952,181  
   

 

 

 

CONSUMER DISCRETIONARY–16.4%

   

DISTRIBUTORS–1.0%

   

Pool Corp.

    3,457       406,440  
   

 

 

 

DIVERSIFIED CONSUMER SERVICES–3.1%

   

Bright Horizons Family Solutions, Inc.(a)

    6,485       500,707  

Grand Canyon Education, Inc.(a)

    8,990       704,906  
   

 

 

 
      1,205,613  
   

 

 

 

HOTELS, RESTAURANTS & LEISURE–6.1%

   

Buffalo Wild Wings, Inc.(a)

    2,922       370,217  

Dave & Buster’s Entertainment, Inc.(a)

    7,377       490,644  

Hilton Grand Vacations, Inc.(a)

    9,921       357,751  

Planet Fitness, Inc.

    29,788       695,252  

Vail Resorts, Inc.

    2,550       517,217  
   

 

 

 
      2,431,081  
   

 

 

 

MEDIA–0.9%

   

IMAX Corp.(a)

    16,250       357,500  
   

 

 

 
   

MULTILINE RETAIL–1.3%

   

Ollie’s Bargain Outlet Holdings, Inc.(a)

    12,312     $ 524,491  
   

 

 

 

SPECIALTY RETAIL–4.0%

   

Five Below, Inc.(a)

    12,002       592,539  

Lithia Motors, Inc.–Class A

    5,940       559,726  

Tile Shop Holdings, Inc.

    21,480       443,562  
   

 

 

 
      1,595,827  
   

 

 

 
      6,520,952  
   

 

 

 

FINANCIALS–6.7%

   

BANKS–4.3%

   

Signature Bank/New York NY(a)

    2,684       385,235  

Sterling Bancorp/DE

    18,396       427,707  

SVB Financial Group(a)

    2,392       420,490  

Western Alliance Bancorp(a)

    9,962       490,130  
   

 

 

 
      1,723,562  
   

 

 

 

CAPITAL MARKETS–2.4%

   

Hamilton Lane, Inc.–Class A

    9,030       198,570  

Houlihan Lokey, Inc.

    12,220       426,478  

Stifel Financial Corp.(a)

    7,227       332,297  
   

 

 

 
      957,345  
   

 

 

 
      2,680,907  
   

 

 

 

CONSUMER STAPLES–3.3%

   

FOOD & STAPLES RETAILING–0.8%

   

Chefs’ Warehouse, Inc. (The)(a)(b)

    25,037       325,481  
   

 

 

 

FOOD PRODUCTS–1.4%

   

Freshpet, Inc.(a)(b)

    34,184       567,455  
   

 

 

 

PERSONAL PRODUCTS–1.1%

   

elf Beauty, Inc.(a)(b)

    15,335       417,265  
   

 

 

 
      1,310,201  
   

 

 

 

MATERIALS–2.6%

   

CHEMICALS–1.3%

   

PolyOne Corp.

    13,252       513,382  
   

 

 

 

CONSTRUCTION MATERIALS–1.3%

   

Summit Materials, Inc.–Class A(a)

    18,604       537,098  
   

 

 

 
      1,050,480  
   

 

 

 

ENERGY–2.4%

   

ENERGY EQUIPMENT & SERVICES–1.6%

   

Forum Energy Technologies, Inc.(a)

    19,788       308,693  

Oil States International, Inc.(a)

    11,881       322,569  
   

 

 

 
      631,262  
   

 

 

 

OIL, GAS & CONSUMABLE FUELS–0.8%

   

Matador Resources Co.(a)(b)

    14,845       317,237  
   

 

 

 
      948,499  
   

 

 

 

 

4


    AB Variable Products Series Fund

 

Company  

Shares

    U.S. $ Value  
   

TELECOMMUNICATION SERVICES–0.7%

   

DIVERSIFIED TELECOMMUNICATION SERVICES–0.7%

   

Vonage Holdings Corp.(a)

    46,160     $ 301,886  
   

 

 

 

Total Common Stocks
(cost $29,899,903)

      38,986,517  
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–2.1%

   

TIME DEPOSIT–2.1%

   

State Street Time Deposit 0.09%, 7/03/17 (cost $825,954)

  $ 826       825,954  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned–99.9% (cost $30,725,857)

      39,812,471  
   

 

 

 
   

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–9.8%

   

INVESTMENT COMPANIES–9.8%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(c)(d) (cost $3,895,618)

    3,895,618     $ 3,895,618  
   

 

 

 

TOTAL INVESTMENTS–109.7%
(cost $34,621,475)

      43,708,089  

Other assets less
liabilities–(9.7)%

      (3,858,008
   

 

 

 

NET ASSETS–100.0%

    $ 39,850,081  
   

 

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(d)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

 

      Glossary:

 

      ADR—American Depositary Receipt

 

      See notes to financial statements.

 

5


SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value

  

Unaffiliated issuers (cost $30,725,857)

   $ 39,812,471 (a) 

Affiliated issuers (cost $3,895,618—investment of cash collateral for securities loaned)

     3,895,618  

Receivable for investment securities sold

     315,327  

Receivable for capital stock sold

     71,531  

Dividends and interest receivable

     9,545  
  

 

 

 

Total assets

     44,104,492  
  

 

 

 

LIABILITIES

  

Payable for collateral received on securities loaned

     3,895,618  

Payable for investment securities purchased

     150,192  

Payable for capital stock redeemed

     58,348  

Advisory fee payable

     26,038  

Administrative fee payable

     12,917  

Distribution fee payable

     3,558  

Transfer Agent fee payable

     83  

Accrued expenses

     107,657  
  

 

 

 

Total liabilities

     4,254,411  
  

 

 

 

NET ASSETS

   $ 39,850,081  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 2,725  

Additional paid-in capital

     29,833,727  

Accumulated net investment loss

     (225,802

Accumulated net realized gain on investment transactions

     1,152,817  

Net unrealized appreciation on investments

     9,086,614  
  

 

 

 
   $ 39,850,081  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class      Net Assets        Shares
Outstanding
       Net Asset
Value
 
A      $   23,514,970          1,548,398        $   15.19  
B      $   16,335,111          1,176,613        $   13.88  

 

 

 

(a)   Includes securities on loan with a value of $3,810,348 (see Note E).

 

      See notes to financial statements.

 

6


SMALL CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers

   $ 71,953  

Affiliated issuers

     5,859  

Interest

     234  

Other income

     1,118  
  

 

 

 
     79,164  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     148,029  

Distribution fee—Class B

     19,874  

Transfer agency—Class A

     1,688  

Transfer agency—Class B

     1,138  

Custodian

     43,953  

Administrative

     25,021  

Audit and tax

     20,533  

Printing

     16,504  

Legal

     14,219  

Directors’ fees

     13,290  

Miscellaneous

     1,904  
  

 

 

 

Total expenses

     306,153  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (1,532
  

 

 

 

Net expenses

     304,621  
  

 

 

 

Net investment loss

     (225,457
  

 

 

 

REALIZED AND UNREALIZED GAIN ON INVESTMENT TRANSACTIONS

  

Net realized gain on investment transactions

     3,468,753  

Net change in unrealized appreciation/depreciation of investments

     2,605,454  
  

 

 

 

Net gain on investment transactions

     6,074,207  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 5,848,750  
  

 

 

 

 

 

 

See notes to financial statements.

 

7


 
SMALL CAP GROWTH PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

    

Net investment loss

   $ (225,457   $ (361,868

Net realized gain (loss) on investment transactions

     3,468,753       (1,414,916

Net change in unrealized appreciation/depreciation of investments

     2,605,454       3,789,769  
  

 

 

   

 

 

 

Net increase in net assets from operations

     5,848,750       2,012,985  

DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net realized gain on investment transactions

    

Class A

     –0 –      (6,611,826

Class B

     –0 –      (5,758,210

CAPITAL STOCK TRANSACTIONS

    

Net increase (decrease)

     (3,497,570     2,965,494  
  

 

 

   

 

 

 

Total increase (decrease)

     2,351,180       (7,391,557

NET ASSETS

    

Beginning of period

     37,498,901       44,890,458  
  

 

 

   

 

 

 

End of period (including accumulated net investment loss of ($225,802) and ($345), respectively)

   $ 39,850,081     $ 37,498,901  
  

 

 

   

 

 

 

 

 

 

 

See notes to financial statements.

 

8


SMALL CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Small Cap Growth Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

Effective February 1, 2013, the Portfolio was closed to new investments except that Contractholders of variable products with investment options that included the Portfolio as of January 31, 2013, may continue to purchase shares of the Portfolio in accordance with the procedures for the purchase of shares in the prospectus of the separate account in which they invest, including through reinvestment of dividends and capital gains distributions. Effective August 10, 2015, the Portfolio reopened to new investors.

The Portfolio may (i) make additional exceptions that, in the Adviser’s judgment, do not adversely affect the Adviser’s ability to manage the Portfolio; (ii) reject any investment or refuse any exception, including those detailed above, that the Adviser believes will adversely affect its ability to manage the Portfolio; and (iii) close and/or reopen the Portfolio to new or existing Contractholders at any time.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

In general, the market values of securities which are readily available and deemed reliable are determined as follows: securities listed on a national securities exchange (other than securities listed on the NASDAQ Stock Market, Inc. (“NASDAQ”)) or on a foreign securities exchange are valued at the last sale price at the close of the exchange or foreign securities exchange. If there has been no sale on such day, the securities are valued at the last traded price from the previous day. Securities listed on more than one exchange are valued by reference to the principal exchange on which the securities are traded; securities listed only on NASDAQ are valued in accordance with the NASDAQ Official Closing Price; listed or over the counter (“OTC”) market put or call options are valued at the mid level between the current bid and ask prices. If either a current bid or current ask price is unavailable, AllianceBernstein L.P. (the “Adviser”) will have discretion to determine the best valuation (e.g. last trade price in the case of listed options); open futures are valued using the closing settlement price or, in the absence of such a price, the most recent quoted bid price. If there are no quotations available for the day of valuation, the last available closing settlement price is used; U.S. Government securities and any other debt instruments having 60 days or less remaining until maturity are generally valued at market by an independent pricing vendor, if a market price is available. If a market price is not available, the securities are valued at amortized cost. This methodology is commonly used for short term securities that have an original maturity of 60 days or less, as well as short term securities that had an original term to maturity that exceeded 60 days. In instances when amortized cost is utilized, the Valuation Committee (the “Committee”) must reasonably conclude that the utilization of amortized cost is approximately the same as the fair value of the security. Such factors the Committee will consider include, but are not limited to, an impairment of the creditworthiness of the issuer or material changes in interest rates. Fixed-income securities, including mortgage-backed and asset-backed securities, may be valued on the basis of prices provided by a pricing service or at a price obtained from one or 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,

 

9


SMALL CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

independent pricing models using market inputs, as well as third party broker-dealers or counterparties. Open end mutual funds are valued at the closing net asset value per share, while exchange traded funds are valued at the closing market price per share.

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

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Common Stocks(a)

     $ 38,986,517      $ –0 –     $             –0 –     $ 38,986,517  

Short-Term Investments

       –0 –       825,954        –0 –       825,954  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

       3,895,618        –0 –       –0 –       3,895,618  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       42,882,135        825,954        –0 –       43,708,089  

Other Financial Instruments(b)

       –0 –       –0 –       –0 –       –0 – 
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 42,882,135      $ 825,954      $ –0 –     $ 43,708,089  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

 

10


    AB Variable Products Series Fund

 

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

11


SMALL CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,021.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $14,741, of which $12 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases      Sales  

Investment securities (excluding U.S. government securities)

     $ 12,176,755      $ 16,218,445  

U.S. government securities

       –0 –       –0 – 

 

12


    AB Variable Products Series Fund

 

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

   $ 9,750,797  

Gross unrealized depreciation

     (664,183
  

 

 

 

Net unrealized appreciation

   $ 9,086,614  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $3,810,348 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $3,895,618. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $0 and $5,859 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $1,532. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 2,326     $ 13,576     $ 12,006     $ 3,896  

 

13


SMALL CAP GROWTH PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    41,391       72,529       $ 563,064     $ 1,034,598  

Shares issued in reinvestment of distributions

    –0 –      523,917         –0 –      6,611,826  

Shares converted from Class B

    872       –0 –        42,432       –0 – 

Shares redeemed

    (208,713     (327,926       (3,010,798     (4,827,919
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (166,450     268,520       $ (2,405,302   $ 2,818,505  
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    105,031       154,832       $ 1,391,476     $ 2,038,448  

Shares issued in reinvestment of distributions

    –0 –      498,115         –0 –      5,758,210  

Shares converted to Class A

    1,274       –0 –        (42,432     –0 – 

Shares redeemed

    (191,820     (608,767       (2,441,312     (7,649,669
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (85,515     44,180       $ (1,092,268   $ 146,989  
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 81% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

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

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

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016        2015  

Distributions paid from:

         

Net long-term capital gains

     $ 12,370,036        $ 9,298,202  
    

 

 

      

 

 

 

Total taxable distributions

     $ 12,370,036        $ 9,298,202  
    

 

 

      

 

 

 

 

14


    AB Variable Products Series Fund

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed net capital gain

   $ (1,141,599 )(a) 

Accumulated capital and other losses

     5,306,481 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 4,164,882  
  

 

 

 

 

(a)   As of December 31, 2016, the fund had a net capital loss carryforward of $1,141,599.

 

(b)   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales and the tax treatment of foreign passive investment companies (PFICs).

For tax purposes, net capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of June 30, 2017, the Portfolio had a net short-term capital loss carryforward of $1,141,599 which may be carried forward for an indefinite period.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

15


 
SMALL CAP GROWTH PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $13.07       $17.31       $20.97       $23.47       $18.96       $17.09  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment loss (a)

    (.07 )(b)      (.12 )(b)†      (.19     (.15     (.21     (.12

Net realized and unrealized gain (loss) on investment transactions

    2.19       1.05       .18       (.30     8.30       2.69  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    2.12       .93       (.01     (.45     8.09       2.57  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Distributions

           

Distributions from net realized gain on investment transactions

    –0 –      (5.17     (3.65     (2.05     (3.58     (.70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $15.19       $13.07       $17.31       $20.97       $23.47       $18.96  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    16.22     6.46 %†      (1.25 )%      (1.81 )%      45.66     15.02
           

Ratios/Supplemental Data

           

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

    $23,515       $22,405       $25,033       $28,055       $33,510       $27,479  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (d)

    1.44 %^      1.48     1.31     1.11     1.17     1.18

Expenses, before waivers/reimbursements (d)

    1.45 %^      1.49     1.31     1.11     1.17     1.18

Net investment loss

    (1.04 )%(b)^      (.83 )%(b)†      (.92 )%      (.67 )%      (.96 )%      (.64 )% 

Portfolio turnover rate

    32     60     72     84     81     105

 

 

 

See footnote summary on page 17.

 

16


    AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.96       $16.30       $20.00       $22.54       $18.36       $16.61  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment loss (a)

    (.08 )(b)      (.15 )(b)†      (.22     (.19     (.25     (.16

Net realized and unrealized gain (loss) on investment transactions

    2.00       .98       .17       (.30     8.01       2.61  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    1.92       .83       (.05     (.49     7.76       2.45  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Distributions

           

Distributions from net realized gain on investment transactions

    –0 –      (5.17     (3.65     (2.05     (3.58     (.70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $13.88       $11.96       $16.30       $20.00       $22.54       $18.36  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    16.05     6.22 %†      (1.53 )%      (2.08 )%      45.33     14.73
           

Ratios/Supplemental Data

           

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

    $16,335       $15,094       $19,857       $59,763       $38,128       $26,450  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (d)

    1.69 %^      1.73     1.48     1.34     1.43     1.43

Expenses, before waivers/reimbursements (d)

    1.70 %^      1.74     1.48     1.34     1.43     1.43

Net investment loss

    (1.29 )%(b)^      (1.08 )%(b)†      (1.10 )%      (.89 )%      (1.21 )%      (.89 )% 

Portfolio turnover rate

    32     60     72     84     81     105

 

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

(d)   In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the six months ended June 30, 2017 and the year ended December 31, 2016, such waiver amounted to 0.01% and 0.01%, respectively, annualized for the Portfolio.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per  Share
  Net Investment
Income  Ratio
  Total Return
$.004   .03%   .03%

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and the years ended December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.01%, 0.08%, 0.02%, 0.01% and 0.23%, respectively.

 

^   Annualized.

 

17


 
SMALL CAP GROWTH PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Small Cap Growth Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors

 

18


    AB Variable Products Series Fund

 

focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors noted that the Fund may invest in shares of exchange-traded funds (“ETFs”), subject to the restrictions and limitations of the Investment Company Act of 1940 as these may be varied as a result of exemptive orders issued by the SEC. The directors also noted that ETFs pay advisory fees pursuant to their advisory contracts, and that the Adviser had provided, and they had reviewed, information about the expense ratios of the relevant ETFs. The directors concluded, based on the Adviser’s explanation of how it may use ETFs when they are the most cost-effective way to obtain desired exposures for a fund or to temporarily “equitize” cash inflows pending purchases of underlying securities, that the advisory fee for the Fund would be paid for services that would be in addition to, rather than duplicative of, the services provided under the advisory contracts of the ETFs.

 

19


SMALL CAP GROWTH PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the Fund’s expense ratio was above the medians. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

20


 

 

 

 

 

VPS-SCG-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

SMALL/MID CAP VALUE PORTFOLIO

 

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
SMALL/MID CAP VALUE PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,013.80      $   4.04        0.81

Hypothetical (5% annual return before expenses)

   $   1,000      $   1,020.78      $   4.06        0.81
           

Class B

           

Actual

   $   1,000      $   1,012.40      $   5.29        1.06

Hypothetical (5% annual return before expenses)

   $   1,000      $   1,019.54      $   5.31        1.06

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


SMALL/MID CAP VALUE PORTFOLIO
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE                 PERCENT OF NET ASSETS           

Huntington Bancshares, Inc./OH

   $ 11,347,606          1.7

Gramercy Property Trust

     11,238,936          1.7  

Zions Bancorporation

     11,103,522          1.6  

Comerica, Inc.

     10,840,985          1.6  

Amdocs Ltd.

     10,555,325          1.6  

Reinsurance Group of America, Inc.—Class A

     10,476,624          1.6  

LifePoint Health, Inc.

     10,372,996          1.5  

ICON PLC

     10,199,008          1.5  

Essent Group Ltd.

     10,167,743          1.5  

Terex Corp.

     10,146,750          1.5  
    

 

 

      

 

 

 
     $   106,449,495            15.8

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Financials

   $ 133,606,694          19.8

Information Technology

     128,213,153          19.0  

Industrials

     113,326,214          16.8  

Consumer Discretionary

     107,316,033          15.9  

Energy

     50,572,869          7.5  

Health Care

     38,731,278          5.8  

Materials

     28,191,003          4.2  

Real Estate

     26,700,021          4.0  

Utilities

     26,345,029          3.9  

Consumer Staples

     8,820,765          1.3  

Short-Term Investments

     12,050,582          1.8  
    

 

 

      

 

 

 

Total Investments

   $   673,873,641          100.0

 

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time.

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


SMALL/MID CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

COMMON STOCKS–98.4%

   
   

FINANCIALS–19.9%

   

BANKS–11.0%

   

Associated Banc-Corp.

    312,480     $ 7,874,496  

Comerica, Inc.

    148,020       10,840,985  

Fulton Financial Corp.

    407,060       7,734,140  

Huntington Bancshares, Inc./OH

    839,320       11,347,606  

Synovus Financial Corp.

    197,670       8,744,921  

Texas Capital Bancshares, Inc.(a)

    88,820       6,874,668  

Webster Financial Corp.

    178,322       9,311,975  

Zions Bancorporation

    252,870       11,103,522  
   

 

 

 
      73,832,313  
   

 

 

 

CONSUMER FINANCE–0.6%

   

OneMain Holdings, Inc.(a)

    164,620       4,048,006  
   

 

 

 

INSURANCE–6.8%

   

American Financial Group, Inc./OH

    98,950       9,832,662  

First American Financial Corp.

    183,070       8,181,398  

Hanover Insurance Group, Inc. (The)

    47,040       4,169,155  

Reinsurance Group of America, Inc.–Class A

    81,600       10,476,624  

Selective Insurance Group, Inc.

    116,800       5,845,840  

Validus Holdings Ltd.

    135,712       7,052,953  
   

 

 

 
      45,558,632  
   

 

 

 

THRIFTS & MORTGAGE FINANCE–1.5%

   

Essent Group Ltd.(a)

    273,768       10,167,743  
   

 

 

 
      133,606,694  
   

 

 

 

INFORMATION TECHNOLOGY–19.1%

   

COMMUNICATIONS EQUIPMENT–1.5%

   

Infinera Corp.(a)

    471,322       5,029,006  

NETGEAR, Inc.(a)

    113,697       4,900,340  
   

 

 

 
      9,929,346  
   

 

 

 

ELECTRONIC EQUIPMENT, INSTRUMENTS & COMPONENTS–5.9%

   

Anixter International, Inc.(a)

    118,980       9,304,236  

Avnet, Inc.

    203,120       7,897,306  

CDW Corp./DE

    137,780       8,615,383  

VeriFone Systems, Inc.(a)

    408,160       7,387,696  

Vishay Intertechnology, Inc.

    372,040       6,175,864  
   

 

 

 
      39,380,485  
   

 

 

 

IT SERVICES–5.1%

   

Amdocs Ltd.

    163,750       10,555,325  

Booz Allen Hamilton Holding Corp.

    263,345       8,569,246  

Convergys Corp.

    224,934       5,348,931  

Genpact Ltd.

    346,250       9,636,137  
   

 

 

 
      34,109,639  
   

 

 

 
   

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.9%

   

Cypress Semiconductor Corp.

    701,950     $ 9,581,618  

Integrated Device Technology, Inc.(a)

    265,570       6,849,050  

Mellanox Technologies Ltd.(a)

    91,030       3,941,599  

Qorvo, Inc.(a)

    96,510       6,111,013  
   

 

 

 
      26,483,280  
   

 

 

 

SOFTWARE–1.3%

   

Verint Systems, Inc.(a)

    210,670       8,574,269  
   

 

 

 

TECHNOLOGY HARDWARE, STORAGE & PERIPHERALS–1.4%

   

NCR Corp.(a)

    238,397       9,736,134  
   

 

 

 
      128,213,153  
   

 

 

 

INDUSTRIALS–16.8%

   

AEROSPACE & DEFENSE–1.1%

   

Esterline Technologies Corp.(a)

    76,910       7,291,068  
   

 

 

 

AIR FREIGHT & LOGISTICS–0.9%

   

Atlas Air Worldwide Holdings, Inc.(a)

    121,030       6,311,715  
   

 

 

 

AIRLINES–1.2%

   

SkyWest, Inc.

    225,280       7,907,328  
   

 

 

 

COMMERCIAL SERVICES & SUPPLIES–1.5%

   

ABM Industries, Inc.

    118,970       4,939,634  

Steelcase, Inc.–Class A

    376,584       5,272,176  
   

 

 

 
      10,211,810  
   

 

 

 

CONSTRUCTION & ENGINEERING–3.3%

   

AECOM(a)

    247,495       8,001,513  

Quanta Services, Inc.(a)

    221,095       7,278,447  

Tutor Perini Corp.(a)

    255,790       7,353,963  
   

 

 

 
      22,633,923  
   

 

 

 

ELECTRICAL EQUIPMENT–2.4%

   

EnerSys

    93,010       6,738,575  

Regal Beloit Corp.

    114,190       9,312,194  
   

 

 

 
      16,050,769  
   

 

 

 

MACHINERY–4.3%

   

Oshkosh Corp.

    142,400       9,808,512  

SPX FLOW, Inc.(a)

    239,110       8,818,377  

Terex Corp.

    270,580       10,146,750  
   

 

 

 
      28,773,639  
   

 

 

 

ROAD & RAIL–2.1%

   

Ryder System, Inc.

    91,314       6,572,782  

Werner Enterprises, Inc.

    258,030       7,573,180  
   

 

 

 
      14,145,962  
   

 

 

 
      113,326,214  
   

 

 

 

 

3


SMALL/MID CAP VALUE PORTFOLIO
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

CONSUMER DISCRETIONARY–15.9%

   

AUTO COMPONENTS–3.6%

   

Cooper-Standard Holdings, Inc.(a)

    40,389     $ 4,074,039  

Dana, Inc.

    385,880       8,616,700  

Lear Corp.

    41,047       5,831,958  

Tenneco, Inc.

    102,580       5,932,201  
   

 

 

 
      24,454,898  
   

 

 

 

DIVERSIFIED CONSUMER SERVICES–1.4%

   

Sotheby’s(a)

    179,660       9,642,352  
   

 

 

 

HOTELS, RESTAURANTS & LEISURE–2.3%

   

Bloomin’ Brands, Inc.

    390,449       8,289,232  

Brinker International, Inc.

    192,062       7,317,562  
   

 

 

 
      15,606,794  
   

 

 

 

HOUSEHOLD DURABLES–2.1%

   

CalAtlantic Group, Inc.

    241,690       8,543,741  

PulteGroup, Inc.

    230,490       5,653,920  
   

 

 

 
      14,197,661  
   

 

 

 

MEDIA–2.3%

   

Regal Entertainment Group–Class A(b)

    469,840       9,612,926  

Scholastic Corp.

    132,150       5,760,419  
   

 

 

 
      15,373,345  
   

 

 

 

SPECIALTY RETAIL–3.5%

   

Burlington Stores, Inc.(a)

    48,507       4,462,159  

Caleres, Inc.

    242,270       6,730,261  

Children’s Place, Inc. (The)(b)

    44,472       4,540,591  

Michaels Cos., Inc. (The)(a)

    402,200       7,448,744  
   

 

 

 
      23,181,755  
   

 

 

 

TEXTILES, APPAREL & LUXURY GOODS–0.7%

   

Crocs, Inc.(a)

    630,250       4,859,228  
   

 

 

 
      107,316,033  
   

 

 

 

ENERGY–7.5%

   

ENERGY EQUIPMENT & SERVICES–3.1%

   

Helix Energy Solutions Group, Inc.(a)

    260,700       1,470,348  

Helmerich & Payne, Inc.(b)

    99,550       5,409,547  

Oil States International, Inc.(a)

    167,940       4,559,571  

RPC, Inc.(b)

    467,410       9,446,356  
   

 

 

 
      20,885,822  
   

 

 

 

OIL, GAS & CONSUMABLE FUELS–4.4%

   

HollyFrontier Corp.

    222,740       6,118,668  

Oasis Petroleum, Inc.(a)

    531,530       4,278,816  

QEP Resources, Inc.(a)

    698,190       7,051,719  

SM Energy Co.

    342,620       5,663,509  
   

SRC Energy, Inc.(a)

    976,870     $ 6,574,335  
   

 

 

 
      29,687,047  
   

 

 

 
      50,572,869  
   

 

 

 

HEALTH CARE–5.8%

   

HEALTH CARE PROVIDERS & SERVICES–4.3%

   

LifePoint Health, Inc.(a)

    154,475       10,372,996  

Molina Healthcare, Inc.(a)

    126,720       8,766,490  

WellCare Health Plans, Inc.(a)

    52,310       9,392,784  
   

 

 

 
      28,532,270  
   

 

 

 

LIFE SCIENCES TOOLS & SERVICES–1.5%

   

ICON PLC(a)

    104,295       10,199,008  
   

 

 

 
      38,731,278  
   

 

 

 

MATERIALS–4.2%

   

CHEMICALS–2.7%

   

Huntsman Corp.

    221,730       5,729,503  

Ingevity Corp.(a)

    70,890       4,069,086  

Trinseo SA

    123,470       8,482,389  
   

 

 

 
      18,280,978  
   

 

 

 

CONTAINERS & PACKAGING–1.5%

   

Graphic Packaging Holding Co.

    719,160       9,910,025  
   

 

 

 
      28,191,003  
   

 

 

 

REAL ESTATE–4.0%

   

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITS)–4.0%

   

Education Realty Trust, Inc.

    229,780       8,903,975  

Empire State Realty Trust, Inc.–Class A

    315,701       6,557,110  

Gramercy Property Trust

    378,288       11,238,936  
   

 

 

 
      26,700,021  
   

 

 

 

UTILITIES–3.9%

   

ELECTRIC UTILITIES–2.4%

   

PNM Resources, Inc.

    234,740       8,978,805  

Portland General Electric Co.

    161,960       7,399,952  
   

 

 

 
      16,378,757  
   

 

 

 

GAS UTILITIES–0.6%

   

Southwest Gas Holdings, Inc.

    52,850       3,861,221  
   

 

 

 

MULTI-UTILITIES–0.9%

   

NorthWestern Corp.

    100,050       6,105,051  
   

 

 

 
      26,345,029  
   

 

 

 

CONSUMER STAPLES–1.3%

   

BEVERAGES–0.6%

   

Cott Corp.

    281,419       4,063,690  
   

 

 

 

FOOD PRODUCTS–0.7%

   

Ingredion, Inc.

    39,905       4,757,075  
   

 

 

 
      8,820,765  
   

 

 

 

Total Common Stocks
(cost $528,418,596)

      661,823,059  
   

 

 

 

 

4


    AB Variable Products Series Fund

 

    
    
    
Company
  Principal
Amount
(000)
    U.S. $ Value  
   

SHORT-TERM INVESTMENTS–1.8%

   

TIME DEPOSIT–1.8%

   

State Street Time Deposit
0.09%, 7/03/17
(cost $12,050,582)

  $   12,051     $ 12,050,582  
   

 

 

 

Total Investments Before Security Lending Collateral for Securities
Loaned–100.2%
(cost $540,469,178)

      673,873,641  
   

 

 

 
    Shares        

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES
LOANED–4.2%

   

INVESTMENT
COMPANIES–4.2%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(c)(d)
(cost $28,591,597)

    28,591,597       28,591,597  
   

 

 

 

TOTAL
INVESTMENTS–104.4%
(cost $569,060,775)

      702,465,238  

Other assets less
liabilities–(4.4)%

      (29,677,506
   

 

 

 

NET ASSETS–100.0%

    $ 672,787,732  
   

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(d)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

See notes to financial statements.

    

 

5


SMALL/MID CAP VALUE PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

 

Investments in securities, at value

  

Unaffiliated issuers (cost $540,469,178)

   $ 673,873,641 (a) 

Affiliated issuers (cost $28,591,597—investment of cash collateral for securities loaned)

     28,591,597  

Dividends and interest receivable

     766,243  

Receivable for capital stock sold

     124,328  
  

 

 

 

Total assets

     703,355,809  
  

 

 

 

LIABILITIES

 

Payable for collateral received on securities loaned

     28,591,597  

Payable for capital stock redeemed

     868,291  

Advisory fee payable

     438,969  

Payable for investment securities purchased

     390,830  

Distribution fee payable

     99,070  

Administrative fee payable

     12,917  

Transfer Agent fee payable

     81  

Accrued expenses

     166,322  
  

 

 

 

Total liabilities

     30,568,077  
  

 

 

 

NET ASSETS

   $ 672,787,732  
  

 

 

 

COMPOSITION OF NET ASSETS

 

Capital stock, at par

   $ 32,926  

Additional paid-in capital

     486,913,492  

Undistributed net investment income

     3,275,077  

Accumulated net realized gain on investment transactions

     49,161,774  

Net unrealized appreciation on investments

     133,404,463  
  

 

 

 
   $ 672,787,732  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class    Net Assets        Shares
Outstanding
       Net Asset
Value
 
A    $   220,245,665          10,706,204        $   20.57  
B    $   452,542,067          22,219,831        $   20.37  

 

 

 

(a)   Includes securities on loan with a value of $27,892,485 (see Note E).

See notes to financial statements.

 

6


SMALL/MID CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS  
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $103)

   $ 4,302,200  

Affiliated issuers

     36,624  

Interest

     5,206  

Securities lending income

     9,266  

Other income

     12,094  
  

 

 

 
     4,365,390  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     2,563,410  

Distribution fee—Class B

     572,734  

Transfer agency—Class A

     1,330  

Transfer agency—Class B

     2,706  

Custodian

     64,511  

Printing

     49,677  

Administrative

     25,021  

Legal

     24,426  

Audit and tax

     22,597  

Directors’ fees

     13,372  

Miscellaneous

     11,014  
  

 

 

 

Total expenses

     3,350,798  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (9,353
  

 

 

 

Net expenses

     3,341,445  
  

 

 

 

Net investment income

     1,023,945  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT TRANSACTIONS

  

Net realized gain on investment transactions

     16,673,857  

Net change in unrealized appreciation/depreciation of investments

     (8,931,085
  

 

 

 

Net gain on investment transactions

     7,742,772  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 8,766,717  
  

 

 

 

 

 

 

See notes to financial statements.

 

7


 
SMALL/MID CAP VALUE PORTFOLIO
STATEMENT OF CHANGES IN NET  ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 1,023,945     $ 2,177,202  

Net realized gain on investment transactions

     16,673,857       33,828,949  

Net change in unrealized appreciation/depreciation of investments

     (8,931,085     100,194,268  
  

 

 

   

 

 

 

Net increase in net assets from operations

     8,766,717       136,200,419  

DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0 –      (1,217,914

Class B

     –0 –      (1,419,838

Net realized gain on investment transactions

    

Class A

     –0 –      (11,442,879

Class B

     –0 –      (23,345,088

CAPITAL STOCK TRANSACTIONS

    

Net increase (decrease)

     (22,597,715     9,581,222  
  

 

 

   

 

 

 

Total increase (decrease)

     (13,830,998     108,355,922  

NET ASSETS

    

Beginning of period

     686,618,730       578,262,808  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $3,275,077 and $2,251,132, respectively)

   $ 672,787,732     $ 686,618,730  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

8


SMALL/MID CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Small/Mid Cap Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded

 

9


SMALL/MID CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
(continued)   AB Variable Products Series Fund

 

in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Common Stocks(a)

     $ 661,823,059      $ –0 –     $ –0 –     $ 661,823,059  

Short-Term Investments

       –0 –       12,050,582        –0 –       12,050,582  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

       28,591,597        –0 –       –0 –       28,591,597  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       690,414,656        12,050,582        –0 –       702,465,238  

Other Financial Instruments(b)

       –0 –       –0 –       –0 –       –0 – 
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 690,414,656      $ 12,050,582      $             –0 –     $ 702,465,238  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

10


    AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific

 

11


SMALL/MID CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .75% of the first $2.5 billion, .65% of the next $2.5 billion and .60% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the six months ended June 30, 2017, there were no expenses waived by the Adviser.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,021.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $139,035, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

     Purchases     Sales  

Investment securities (excluding U.S. government securities)

   $ 103,527,422     $ 116,425,987  

U.S. government securities

     –0 –      –0 – 

 

12


    AB Variable Products Series Fund

 

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

   $ 158,614,192  

Gross unrealized depreciation

     (25,209,729
  

 

 

 

Net unrealized appreciation

   $ 133,404,463  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $27,892,485 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $28,591,597. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $9,266 and $36,624 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $9,353. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

 

13


SMALL/MID CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value

12/31/16

(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 13,941     $ 108,232     $ 93,581     $ 28,592  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    832,958       1,402,219       $ 17,066,264     $ 25,871,037  

Shares issued in reinvestment of dividends and distributions

    –0 –      699,491         –0 –      12,660,794  

Shares redeemed

    (1,518,777     (1,778,375       (31,214,469     (32,173,563
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (685,819     323,335       $ (14,148,205   $ 6,358,268  
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    1,628,958       2,989,902       $ 33,149,479     $ 55,494,983  

Shares issued in reinvestment of dividends and distributions

    –0 –      1,378,894         –0 –      24,764,927  

Shares redeemed

    (2,047,127     (4,293,372       (41,598,989     (77,036,956
 

 

 

   

 

 

     

 

 

   

 

 

 

Net increase (decrease)

    (418,169     75,424       $ (8,449,510   $ 3,222,954  
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 69% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

Capitalization Risk—Investments in small- and mid-capitalization companies may be more volatile than investments in large-capitalization companies. Investments in small-capitalization companies may have additional risks because these companies have limited product lines, markets or financial resources.

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

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

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

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

 

14


    AB Variable Products Series Fund

 

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016        2015  

Distributions paid from:

         

Ordinary income

     $ 3,624,690        $ 9,743,708  

Net long-term capital gains

       33,801,029          94,692,647  
    

 

 

      

 

 

 

Total taxable distributions

     $ 37,425,719        $ 104,436,355  
    

 

 

      

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 2,251,134  

Undistributed net capital gain

     33,581,136  

Unrealized appreciation/(depreciation)

     141,242,329 (a) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 177,074,599  
  

 

 

 

 

(a)   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses for an indefinite period, and such losses will retain their character as either short-term or long-term capital losses. As of December 31, 2016, the Portfolio did not have any capital loss carryforwards.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

15


 
SMALL/MID CAP VALUE PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $20.29       $17.29       $21.95       $22.89       $17.67       $15.46  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .05 (b)      .10 (b)†      .11       .17       .16       .13  

Net realized and unrealized gain (loss) on investment transactions

    .23       4.09       (1.11     1.82       6.41       2.72  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .28       4.19       (1.00     1.99       6.57       2.85  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.11     (.17     (.17     (.13     (.10

Distributions from net realized gain on investment transactions

    –0 –      (1.08     (3.49     (2.76     (1.22     (.54
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (1.19     (3.66     (2.93     (1.35     (.64
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $20.57       $20.29       $17.29       $21.95       $22.89       $17.67  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    1.38     25.09 %†      (5.49 )%      9.20     38.06     18.75
           

Ratios/Supplemental Data

           

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

    $220,246       $231,197       $191,388       $211,680       $217,146       $156,832  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (d)

    .81 %^      .82     .82     .82     .81     .82

Expenses, before waivers/reimbursements (d)

    .81 %^      .83     .82     .82     .81     .82

Net investment income

    .46 %(b)^      .53 %(b)†      .56     .75     .77     .75

Portfolio turnover rate

    16     57     42     45     56     50

 

 

See footnote summary on page 18.

 

16


    AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS B  
    Six Months
Ended
June 30, 2017

(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $20.12       $17.15       $21.79       $22.74       $17.58       $15.38  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .02 (b)      .05 (b)†      .06       .11       .11       .08  

Net realized and unrealized gain (loss) on investment transactions

    .23       4.06       (1.09     1.81       6.36       2.71  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .25       4.11       (1.03     1.92       6.47       2.79  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends and Distributions

           

Dividends from net investment income

    –0 –      (.06     (.12     (.11     (.09     (.05

Distributions from net realized gain on investment transactions

    –0 –      (1.08     (3.49     (2.76     (1.22     (.54
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total dividends and distributions

    –0 –      (1.14     (3.61     (2.87     (1.31     (.59
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $20.37       $20.12       $17.15       $21.79       $22.74       $17.58  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (c)*

    1.24     24.79 %†      (5.69 )%      8.95     37.63     18.47
           

Ratios/Supplemental Data

           

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

    $452,542       $455,422       $386,875       $447,378       $472,677       $347,784  

Ratio to average net assets of:

           

Expenses, net of waivers/
reimbursements (d)

    1.06 %^      1.07     1.07     1.07     1.06     1.07

Expenses, before waivers/ reimbursements (d)

    1.06 %^      1.08     1.07     1.07     1.06     1.07

Net investment income

    .22 %(b)^      .28 %(b)†      .31     .49     .51     .51

Portfolio turnover rate.

    16     57     42     45     56     50

 

 

See footnote summary on page 18.

 

17


SMALL/MID CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

(d)   In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for year ended December 31, 2016, such waiver amounted to 0.01% annualized for the Portfolio.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per Share
  Net Investment
Income Ratio
  Total Return
$.001   .003%   .003%

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and year ended December 31, 2013 by 0.09% and 0.01%, respectively.

 

^   Annualized.

See notes to financial statements.

 

18


 
SMALL/MID CAP VALUE PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Small/Mid Cap Value Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts

 

19


SMALL/MID CAP VALUE PORTFOLIO
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

for unaffiliated funds because comparative information is not generally publicly available and is affected by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. Based on their review, the directors concluded that the Fund’s expense ratio was acceptable.

 

20


    AB Variable Products Series Fund

 

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

21


 

 

 

 

VPS-SMCV-0152-0617


JUN    06.30.17

 

LOGO

 

SEMI-ANNUAL REPORT

AB VARIABLE PRODUCTS

SERIES FUND, INC.

 

+  

VALUE PORTFOLIO

LOGO


 

 

 

Investment Products Offered

 

  Ø  

Are Not FDIC Insured

  Ø  

May Lose Value

  Ø  

Are Not Bank Guaranteed

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

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

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

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


 
VALUE PORTFOLIO  
EXPENSE EXAMPLE (unaudited)   AB Variable Products Series Fund

 

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, contingent deferred sales charges on redemptions and (2) ongoing costs, including management fees; distribution (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

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

Actual Expenses

The table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

Hypothetical Example for Comparison Purposes

The table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed annual rate of return of 5% before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds by comparing this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The estimate of expenses does not include fees or other expenses of any variable insurance product. If such expenses were included, the estimate of expenses you paid during the period would be higher and your ending account value would be lower.

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

 

      Beginning
Account Value
January 1, 2017
     Ending
Account Value
June 30, 2017
     Expenses Paid
During Period*
     Annualized
Expense Ratio*
 

Class A

           

Actual

   $   1,000      $   1,029.70      $   4.48        0.89

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,020.38      $ 4.46        0.89
           

Class B

           

Actual

   $ 1,000      $ 1,028.60      $ 5.73        1.14

Hypothetical (5% annual return before expenses)

   $ 1,000      $ 1,019.14      $ 5.71        1.14

 

 

 

*   Expenses are equal to each classes’ annualized expense ratios, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period).

 

1


VALUE PORTFOLIO  
TEN LARGEST HOLDINGS(1)  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

 

COMPANY    U.S. $ VALUE        PERCENT OF NET ASSETS  

Oracle Corp.

   $ 3,639,663          4.9

Bank of America Corp.

     3,605,448          4.8  

Wells Fargo & Co.

     3,539,037          4.7  

American International Group, Inc.

     2,727,310          3.7  

Intel Corp.

     2,281,499          3.1  

EOG Resources, Inc.

     2,215,839          3.0  

Philip Morris International, Inc.

     2,179,989          2.9  

Cigna Corp.

     2,001,148          2.7  

Allstate Corp. (The)

     1,990,608          2.7  

Raytheon Co.

     1,885,925          2.5  
    

 

 

      

 

 

 
     $   26,066,466          35.0

SECTOR BREAKDOWN(2)

June 30, 2017 (unaudited)

 

 

SECTOR    U.S. $ VALUE        PERCENT OF TOTAL INVESTMENTS  

Financials

   $ 19,373,272          26.0

Information Technology

     12,118,539          16.3  

Health Care

     8,728,661          11.7  

Energy

     8,238,323          11.0  

Consumer Discretionary

     6,684,090          9.0  

Industrials

     5,573,547          7.5  

Consumer Staples

     5,003,219          6.7  

Utilities

     4,521,197          6.1  

Telecommunication Services

     1,432,754          1.9  

Materials

     1,108,083          1.5  

Real Estate

     818,802          1.1  

Short-Term Investments

     920,685          1.2  
    

 

 

      

 

 

 

Total Investments

   $   74,521,172          100.0

 

 

(1)   Long-term investments.

 

(2)   The Portfolio’s sector breakdown is expressed as a percentage of total investments (excluding security lending collateral) and may vary over time.

Please note: The sector classifications presented herein are based on the Global Industry Classification Standard (GICS) which was developed by Morgan Stanley Capital International and Standard & Poor’s. The components are divided into sector, industry group, and industry sub-indices as classified by the GICS for each of the market capitalization indices in the broad market. These sector classifications are broadly defined. The “Portfolio of Investments” section of the report reflects more specific industry information and is consistent with the investment restrictions discussed in the Portfolio’s prospectus.

 

2


VALUE PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

COMMON STOCKS–98.9%

   

FINANCIALS–26.0%

   

BANKS–11.4%

   

Bank of America Corp.

    148,617     $ 3,605,448  

Comerica, Inc.

    17,981       1,316,929  

Wells Fargo & Co.

    63,870       3,539,037  
   

 

 

 
      8,461,414  
   

 

 

 

CONSUMER FINANCE–4.9%

   

Capital One Financial Corp.

    15,003       1,239,548  

OneMain Holdings, Inc.(a)

    23,895       587,578  

Synchrony Financial

    62,653       1,868,312  
   

 

 

 
      3,695,438  
   

 

 

 

INSURANCE–9.7%

   

Allstate Corp. (The)

    22,508       1,990,608  

American International Group, Inc.

    43,623       2,727,310  

First American Financial Corp.

    17,990       803,973  

FNF Group

    37,799       1,694,529  
   

 

 

 
      7,216,420  
   

 

 

 
      19,373,272  
   

 

 

 

INFORMATION TECHNOLOGY–16.3%

   

COMMUNICATIONS EQUIPMENT–2.5%

   

Nokia Oyj (Sponsored ADR)–Class A

    302,378       1,862,648  
   

 

 

 

IT SERVICES–0.9%

   

Booz Allen Hamilton Holding Corp.

    21,417       696,909  
   

 

 

 

SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT–3.1%

   

Intel Corp.

    67,620       2,281,499  
   

 

 

 

SOFTWARE–4.9%

   

Oracle Corp.

    72,590       3,639,663  
   

 

 

 

TECHNOLOGY
HARDWARE, STORAGE & PERIPHERALS–4.9%

   

Hewlett Packard Enterprise Co.

    48,878       810,886  

HP, Inc.

    80,448       1,406,231  

NCR Corp.(a)

    8,152       332,928  

Xerox Corp.

    37,862       1,087,775  
   

 

 

 
      3,637,820  
   

 

 

 
      12,118,539  
   

 

 

 

HEALTH CARE–11.7%

   

BIOTECHNOLOGY–1.9%

   

Gilead Sciences, Inc.

    19,816       1,402,576  
   

 

 

 

HEALTH CARE PROVIDERS & SERVICES–5.9%

   

Aetna, Inc.

    6,572       997,827  

Cigna Corp.

    11,955       2,001,148  

McKesson Corp.

    8,673       1,427,055  
   

 

 

 
      4,426,030  
   

 

 

 
   

PHARMACEUTICALS–3.9%

   

Mallinckrodt PLC(a)

    32,886     $ 1,473,622  

Teva Pharmaceutical Industries Ltd. (Sponsored ADR)

    42,939       1,426,433  
   

 

 

 
      2,900,055  
   

 

 

 
      8,728,661  
   

 

 

 

ENERGY–11.1%

   

ENERGY EQUIPMENT & SERVICES–1.6%

   

RPC, Inc.(b)

    60,017       1,212,944  
   

 

 

 

OIL, GAS & CONSUMABLE FUELS–9.5%

   

Canadian Natural Resources Ltd.

    36,597       1,055,457  

Devon Energy Corp.

    31,879       1,019,172  

EOG Resources, Inc.

    24,479       2,215,839  

Hess Corp.

    26,587       1,166,372  

Marathon Petroleum Corp.

    29,974       1,568,539  
   

 

 

 
      7,025,379  
   

 

 

 
      8,238,323  
   

 

 

 

CONSUMER DISCRETIONARY–9.0%

   

AUTO COMPONENTS–3.4%

   

Lear Corp.

    8,408       1,194,609  

Magna International, Inc. (New York)–Class A

    29,610       1,371,831  
   

 

 

 
      2,566,440  
   

 

 

 

MEDIA–4.6%

   

Comcast Corp.–Class A

    43,784       1,704,073  

Regal Entertainment Group–Class A(b)

    25,943       530,794  

Scripps Networks Interactive, Inc.–Class A

    17,043       1,164,207  
   

 

 

 
      3,399,074  
   

 

 

 

SPECIALTY RETAIL–1.0%

   

Michaels Cos., Inc. (The)(a)

    38,800       718,576  
   

 

 

 
      6,684,090  
   

 

 

 

INDUSTRIALS–7.5%

   

AEROSPACE & DEFENSE–2.5%

   

Raytheon Co.

    11,679       1,885,925  
   

 

 

 

AIRLINES–1.4%

   

JetBlue Airways Corp.(a)

    44,443       1,014,634  
   

 

 

 

ELECTRICAL EQUIPMENT–2.4%

   

Eaton Corp. PLC

    22,807       1,775,069  
   

 

 

 

MACHINERY–1.2%

   

Oshkosh Corp.

    13,036       897,919  
   

 

 

 
      5,573,547  
   

 

 

 

CONSUMER STAPLES–6.7%

   

BEVERAGES–2.0%

   

PepsiCo, Inc.

    12,975       1,498,483  
   

 

 

 

TOBACCO–4.7%

   

Altria Group, Inc.

    17,789       1,324,747  

Philip Morris International, Inc.

    18,561       2,179,989  
   

 

 

 
      3,504,736  
   

 

 

 
      5,003,219  
   

 

 

 

 

3


VALUE PORTFOLIO  
PORTFOLIO OF INVESTMENTS  
(continued)   AB Variable Products Series Fund

 

    
    
    
Company
  Shares     U.S. $ Value  
   

UTILITIES–6.1%

   

ELECTRIC UTILITIES–4.5%

   

American Electric Power Co., Inc.

    20,167     $ 1,401,001  

Edison International

    14,272       1,115,928  

Portland General Electric Co.

    17,774       812,094  
   

 

 

 
      3,329,023  
   

 

 

 

MULTI-UTILITIES–1.6%

   

NiSource, Inc.

    47,010       1,192,174  
   

 

 

 
      4,521,197  
   

 

 

 

TELECOMMUNICATION SERVICES–1.9%

   

WIRELESS TELECOMMUNICATION SERVICES–1.9%

   

T-Mobile US, Inc.(a)

    23,635       1,432,754  
   

 

 

 

MATERIALS–1.5%

   

CHEMICALS–1.5%

   

CF Industries Holdings, Inc.

    39,631       1,108,083  
   

 

 

 

REAL ESTATE–1.1%

   

EQUITY REAL ESTATE INVESTMENT TRUSTS (REITs)–1.1%

   

Mid-America Apartment Communities, Inc.

    7,770       818,802  
   

 

 

 

Total Common Stocks
(cost $63,760,582)

      73,600,487  
   

 

 

 
    Principal
Amount
(000)
       

SHORT-TERM INVESTMENTS–1.2%

   

TIME DEPOSIT–1.2%

   

State Street Time Deposit 0.09%, 7/03/17 (cost $920,685)

  $ 921       920,685  
   

 

 

 
   

Total Investments Before Security Lending Collateral for Securities Loaned–100.1%
(cost $64,681,267)

    $ 74,521,172  
   

 

 

 

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED–1.4%

   

INVESTMENT COMPANIES–1.4%

   

AB Fixed Income Shares, Inc.–Government Money Market Portfolio–Class AB, 0.79%(c)(d) (cost $1,059,963)

    1,059,963       1,059,963  
   

 

 

 

TOTAL INVESTMENTS–101.5%
(cost $65,741,230)

      75,581,135  

Other assets less
liabilities–(1.5)%

      (1,121,789
   

 

 

 

NET ASSETS–100.0%

    $ 74,459,346  
   

 

 

 

 

 

(a)   Non-income producing security.

 

(b)   Represents entire or partial securities out on loan. See Note E for securities lending information.

 

(c)   Investment in affiliated money market mutual fund. The rate shown represents the 7-day yield as of period end.

 

(d)   To obtain a copy of the fund’s shareholder report, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.

Glossary:

ADR—American Depositary Receipt

See notes to financial statements.

 

4


VALUE PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

ASSETS

  

Investments in securities, at value

  

Unaffiliated issuers (cost $64,681,267)

   $ 74,521,172 (a) 

Affiliated issuers (cost $1,059,963—investment of cash collateral for securities loaned)

     1,059,963  

Receivable for investment securities sold

     120,872  

Dividends and interest receivable

     116,928  

Receivable for capital stock sold

     21,329  
  

 

 

 

Total assets

     75,840,264  
  

 

 

 

LIABILITIES

  

Payable for collateral received on securities loaned

     1,059,963  

Payable for investment securities purchased

     114,136  

Payable for capital stock redeemed

     36,784  

Advisory fee payable

     35,918  

Distribution fee payable

     16,146  

Administrative fee payable

     12,917  

Transfer Agent fee payable

     83  

Accrued expenses

     104,971  
  

 

 

 

Total liabilities

     1,380,918  
  

 

 

 

NET ASSETS

   $ 74,459,346  
  

 

 

 

COMPOSITION OF NET ASSETS

  

Capital stock, at par

   $ 4,713  

Additional paid-in capital

     69,820,066  

Undistributed net investment income

     1,250,071  

Accumulated net realized loss on investment and foreign currency transactions

     (6,455,529

Net unrealized appreciation on investments and foreign currency denominated assets and liabilities

     9,840,025  
  

 

 

 
   $ 74,459,346  
  

 

 

 

Net Asset Value Per Share—1 billion shares of capital stock authorized, $.001 par value

 

Class    Net Assets       

Shares

Outstanding

      

Net Asset

Value

 
A    $ 1,140,424          71,584        $   15.93  
B    $   73,318,922          4,640,955        $ 15.80  

 

 

 

(a)   Includes securities on loan with a value of $1,032,547 (see Note E).

See notes to financial statements.

 

5


VALUE PORTFOLIO
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

INVESTMENT INCOME

  

Dividends

  

Unaffiliated issuers (net of foreign taxes withheld of $17,716)

   $ 830,841  

Affiliated issuers

     2,045  

Interest

     141  

Securities lending income

     3,814  

Other income

     1,477  
  

 

 

 
     838,318  
  

 

 

 

EXPENSES

  

Advisory fee (see Note B)

     213,254  

Distribution fee—Class B

     95,296  

Transfer agency—Class A

     46  

Transfer agency—Class B

     2,699  

Custodian

     35,231  

Administrative

     25,021  

Audit and tax

     20,533  

Printing

     19,248  

Legal

     15,024  

Directors’ fees

     13,372  

Miscellaneous

     2,542  
  

 

 

 

Total expenses

     442,266  

Less: expenses waived and reimbursed by the Adviser (see Note E)

     (547
  

 

 

 

Net expenses

     441,719  
  

 

 

 

Net investment income

     396,599  
  

 

 

 

REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENT AND FOREIGN CURRENCY TRANSACTIONS

  

Net realized gain on:

  

Investment transactions

     2,312,277  

Foreign currency transactions

     26  

Net change in unrealized appreciation/depreciation of:

  

Investments

     (477,858

Foreign currency denominated assets and liabilities

     120  
  

 

 

 

Net gain on investment and foreign currency transactions

     1,834,565  
  

 

 

 

Contributions from Affiliates (see Note B)

     16,161  
  

 

 

 

NET INCREASE IN NET ASSETS FROM OPERATIONS

   $ 2,247,325  
  

 

 

 

 

 

See notes to financial statements.

 

6


 
VALUE PORTFOLIO  
STATEMENT OF CHANGES IN NET ASSETS   AB Variable Products Series Fund

 

     Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS

    

Net investment income

   $ 396,599     $ 855,120  

Net realized gain on investment and foreign currency transactions

     2,312,303       2,281,421  

Net change in unrealized appreciation/depreciation of investments and foreign currency denominated assets and liabilities

     (477,738     5,303,897  

Contributions from Affiliates (see Note B)

     16,161       –0 – 
  

 

 

   

 

 

 

Net increase in net assets from operations

     2,247,325       8,440,438  

DIVIDENDS TO SHAREHOLDERS FROM

    

Net investment income

    

Class A

     –0     (26,317

Class B

     –0 –      (1,126,104

CAPITAL STOCK TRANSACTIONS

    

Net decrease

     (8,996,553     (12,516,691
  

 

 

   

 

 

 

Total decrease

     (6,749,228     (5,228,674

NET ASSETS

    

Beginning of period

     81,208,574       86,437,248  
  

 

 

   

 

 

 

End of period (including undistributed net investment income of $1,250,071 and $853,472, respectively)

   $ 74,459,346     $ 81,208,574  
  

 

 

   

 

 

 

 

 

 

See notes to financial statements.

 

7


VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
June 30, 2017 (unaudited)   AB Variable Products Series Fund

 

NOTE A: Significant Accounting Policies

The AB Value Portfolio (the “Portfolio”) is a series of AB Variable Products Series Fund, Inc. (the “Fund”). The Portfolio’s investment objective is long-term growth of capital. The Portfolio is diversified as defined under the Investment Company Act of 1940. The Fund was incorporated in the State of Maryland on November 17, 1987, as an open-end series investment company. The Fund offers fifteen separately managed pools of assets which have differing investment objectives and policies. The Portfolio offers Class A and Class B shares. Both classes of shares have identical voting, dividend, liquidating and other rights, except that Class B shares bear a distribution expense and have exclusive voting rights with respect to the Class B distribution plan.

The Portfolio offers and sells its shares only to separate accounts of certain life insurance companies for the purpose of funding variable annuity contracts and variable life insurance policies. Sales are made without a sales charge at the Portfolio’s net asset value per share.

The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) which require management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements and amounts of income and expenses during the reporting period. Actual results could differ from those estimates. The Portfolio is an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. The following is a summary of significant accounting policies followed by the Portfolio.

1. Security Valuation

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

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

Securities for which market quotations are not readily available (including restricted securities) or are deemed unreliable are valued at fair value as deemed appropriate by the Adviser. Factors considered in making this determination may include, but are not limited to, information obtained by contacting the issuer, analysts, analysis of the issuer’s financial statements or other available documents. In addition, the Portfolio may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Portfolio values its securities at 4:00 p.m., Eastern Time. The

 

8


    AB Variable Products Series Fund

 

earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. To account for this, the Portfolio may frequently value many of its foreign equity securities using fair value prices based on third party vendor modeling tools to the extent available.

2. Fair Value Measurements

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

Where readily available market prices or relevant bid prices are not available for certain equity investments, such investments may be valued based on similar publicly traded investments, movements in relevant indices since last available prices or based upon underlying company fundamentals and comparable company data (such as multiples to earnings or other multiples to equity). Where an investment is valued using an observable input, such as another publicly traded security, the investment will be classified as Level 2. If management determines that an adjustment is appropriate based on restrictions on resale, illiquidity or uncertainty, and such adjustment is a significant component of the valuation, the investment will be classified as Level 3. An investment will also be classified as Level 3 where management uses company fundamentals and other significant inputs to determine the valuation.

The following table summarizes the valuation of the Portfolio’s investments by the above fair value hierarchy levels as of June 30, 2017:

 

       Level 1      Level 2      Level 3      Total  

Investments in Securities:

             

Assets:

             

Common Stocks(a)

     $ 73,600,487      $ –0 –     $             –0 –     $ 73,600,487  

Short-Term Investments

       –0 –       920,685        –0 –       920,685  

Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund

       1,059,963        –0 –       –0 –       1,059,963  
    

 

 

    

 

 

    

 

 

    

 

 

 

Total Investments in Securities

       74,660,450        920,685        –0 –       75,581,135  

Other Financial Instruments(b)

       –0 –       –0 –       –0 –       –0 – 
    

 

 

    

 

 

    

 

 

    

 

 

 

Total(c)

     $ 74,660,450      $ 920,685      $ –0 –     $ 75,581,135  
    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a)   See Portfolio of Investments for sector classifications.

 

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

 

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

The Portfolio recognizes all transfers between levels of the fair value hierarchy assuming the financial instruments were transferred at the beginning of the reporting period.

 

9


VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

The Adviser established the Committee to oversee the pricing and valuation of all securities held in the Portfolio. The Committee operates under pricing and valuation policies and procedures established by the Adviser and approved by the Board, including pricing policies which set forth the mechanisms and processes to be employed on a daily basis to implement these policies and procedures. In particular, the pricing policies describe how to determine market quotations for securities and other instruments. The Committee’s responsibilities include: 1) fair value and liquidity determinations (and oversight of any third parties to whom any responsibility for fair value and liquidity determinations is delegated), and 2) regular monitoring of the Adviser’s pricing and valuation policies and procedures and modification or enhancement of these policies and procedures (or recommendation of the modification of these policies and procedures) as the Committee believes appropriate.

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

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

3. Currency Translation

Assets and liabilities denominated in foreign currencies and commitments under forward currency exchange contracts are translated into U.S. dollars at the mean of the quoted bid and ask prices of such currencies against the U.S. dollar. Purchases and sales of portfolio securities are translated into U.S. dollars at the rates of exchange prevailing when such securities were acquired or sold. Income and expenses are translated into U.S. dollars at rates of exchange prevailing when accrued.

Net realized gain or loss on foreign currency transactions represents foreign exchange gains and losses from sales and maturities of foreign fixed income investments, foreign currency exchange contracts, holding of foreign currencies, currency gains or losses realized between the trade and settlement dates on foreign investment transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded on the Portfolio’s books and the U.S. dollar equivalent amounts actually received or paid. Net unrealized currency gains and losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation or depreciation of foreign currency denominated assets and liabilities.

4. Taxes

It is the Portfolio’s policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its investment company taxable income and net realized gains, if any, to shareholders. Therefore, no provisions for federal income or excise taxes are required. The Portfolio may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued and applied to net investment income, net realized gains and net unrealized appreciation/depreciation as such income and/or gains are earned.

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

5. Investment Income and Investment Transactions

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

 

10


    AB Variable Products Series Fund

 

6. Class Allocations

All income earned and expenses incurred by the Portfolio are borne on a pro-rata basis by each outstanding class of shares, based on the proportionate interest in the Portfolio represented by the net assets of such class, except for class specific expenses which are allocated to the respective class. Expenses of the Fund are charged proportionately to each portfolio or based on other appropriate methods. Realized and unrealized gains and losses are allocated among the various share classes based on respective net assets.

7. Dividends and Distributions

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

NOTE B: Advisory Fee and Other Transactions with Affiliates

Under the terms of the investment advisory agreement, the Portfolio pays the Adviser an advisory fee at an annual rate of .55% of the first $2.5 billion, .45% of the next $2.5 billion and .40% in excess of $5 billion, of the Portfolio’s average daily net assets. The fee is accrued daily and paid monthly. The Adviser has agreed to waive its fees and bear certain expenses to the extent necessary to limit total operating expenses on an annual basis (the “Expense Caps”) to 1.20% and 1.45% of daily average net assets for Class A and Class B shares, respectively. For the six months ended June 30, 2017, there were no expenses waived by the Adviser.

Pursuant to the investment advisory agreement, the Portfolio may reimburse the Adviser for certain legal and accounting services provided to the Portfolio by the Adviser. For the six months ended June 30, 2017, the reimbursement for such services amounted to $25,021.

The Portfolio compensates AllianceBernstein Investor Services, Inc. (“ABIS”), a wholly-owned subsidiary of the Adviser, under a Transfer Agency Agreement for providing personnel and facilities to perform transfer agency services for the Portfolio. Such compensation retained by ABIS amounted to $563 for the six months ended June 30, 2017.

Brokerage commissions paid on investment transactions for the six months ended June 30, 2017 amounted to $17,526, of which $0 and $0, respectively, was paid to Sanford C. Bernstein & Co. LLC and Sanford C. Bernstein Limited, affiliates of the Adviser.

NOTE C: Distribution Plan

The Portfolio has adopted a Distribution Plan (the “Plan”) for Class B shares pursuant to Rule 12b-1 under the Investment Company Act of 1940. Under the Plan, the Portfolio pays distribution and servicing fees to AllianceBernstein Investments, Inc. (the “Distributor”), a wholly-owned subsidiary of the Adviser, at an annual rate of up to .50% of the Portfolio’s average daily net assets attributable to Class B shares. The fees are accrued daily and paid monthly. The Board currently limits payments under the Plan to .25% of the Portfolio’s average daily net assets attributable to Class B shares. The Plan provides that the Distributor will use such payments in their entirety for distribution assistance and promotional activities.    

The Portfolio is not obligated under the Plan to pay any distribution and servicing fees in excess of the amounts set forth above. The purpose of the payments to the Distributor under the Plan is to compensate the Distributor for its distribution services with respect to the sale of the Portfolio’s Class B shares. Since the Distributor’s compensation is not directly tied to its expenses, the amount of compensation received by it under the Plan during any year may be more or less than its actual expenses. For this reason, the Plan is characterized by the staff of the Securities and Exchange Commission as being of the “compensation” variety.

In the event that the Plan is terminated or not continued, no distribution or servicing fees (other than current amounts accrued but not yet paid) would be owed by the Portfolio to the Distributor.

The Plan also provides that the Adviser may use its own resources to finance the distribution of the Portfolio’s shares.

 

11


VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

NOTE D: Investment Transactions

Purchases and sales of investment securities (excluding short-term investments) for the six months ended June 30, 2017 were as follows:

 

       Purchases      Sales  

Investment securities (excluding U.S. government securities)

     $ 18,246,586      $ 27,536,254  

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

   $ 12,273,498  

Gross unrealized depreciation

     (2,433,593
  

 

 

 

Net unrealized appreciation

   $ 9,839,905  
  

 

 

 

1. Derivative Financial Instruments

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

The Portfolio did not engage in derivatives transactions for the six months ended June 30, 2017.

2. Currency Transactions

The Portfolio may invest in non-U.S. Dollar-denominated securities on a currency hedged or unhedged basis. The Portfolio may seek investment opportunities by taking long or short positions in currencies through the use of currency-related derivatives, including forward currency exchange contracts, futures and options on futures, swaps, and other options. The Portfolio may enter into transactions for investment opportunities when it anticipates that a foreign currency will appreciate or depreciate in value but securities denominated in that currency are not held by the Portfolio and do not present attractive investment opportunities. Such transactions may also be used when the Adviser believes that it may be more efficient than a direct investment in a foreign currency-denominated security. The Portfolio may also conduct currency exchange contracts on a spot basis (i.e., for cash at the spot rate prevailing in the currency exchange market for buying or selling currencies).

NOTE E: Securities Lending

The Portfolio may enter into securities lending transactions. Under the Portfolio’s securities lending program, all loans of securities will be collateralized continually by cash. The Portfolio will be compensated for the loan from a portion of the net return from the income earned on cash collateral after a rebate is paid to the borrower (in some cases, this rebate may be a “negative rebate” or fee paid by the borrower to the Portfolio in connection with the loan), and payments are made for fees of the securities lending agent and for certain other administrative expenses. It is the policy of the Portfolio to receive collateral consisting of cash in an amount exceeding the value of the securities loaned. The Portfolio will have the right to call a loan and obtain the securities loaned at any time on notice to the borrower within the normal and customary settlement time for the securities. While the securities are on loan, the borrower is obligated to pay the Portfolio amounts equal to any income or other distributions from the securities. The Portfolio will not be able to exercise voting rights with respect to any securities during the existence of a loan, but will have the right to regain ownership of loaned securities in order to exercise voting or other ownership rights. The lending agent has agreed to indemnify the Portfolio in the case of default of any securities borrower. Collateral received and securities loaned are marked to market daily to ensure that the securities loaned are secured by collateral. The lending agent currently invests the cash collateral received in AB Government Money Market Portfolio, an eligible money market vehicle, in accordance with the investment restrictions of the Portfolio, and as approved by the Board. The collateral received on securities loaned is recorded as an asset as well as a corresponding liability in the statement of assets and liabilities. When the Portfolio lends securities, its investment performance will continue to reflect changes in the value of the securities loaned. At June 30, 2017, the Portfolio had securities on loan with a value of $1,032,547 and had received cash collateral which has been invested into AB Government Money Market Portfolio of $1,059,963. The cash collateral will be adjusted on the next business day to maintain the required collateral amount. The Portfolio earned securities lending income of $3,814 and $2,045 from the borrowers and AB Government Money Market Portfolio, respectively, for the six months ended June 30, 2017; these amounts are reflected in the statement of operations. In connection with the cash collateral investment by the Portfolio in the AB Government Money Market Portfolio, the Adviser

 

12


    AB Variable Products Series Fund

 

has agreed to waive a portion of the Portfolio’s share of the advisory fees of AB Government Money Market Portfolio, as borne indirectly by the Portfolio as an acquired fund fee and expense. For the six months ended June 30, 2017, such waiver amounted to $547. A principal risk of lending portfolio securities is that the borrower may fail to return the loaned securities upon termination of the loan and that the collateral will not be sufficient to replace the loaned securities.

A summary of the Portfolio’s transactions in shares of AB Government Money Market Portfolio for the six months ended June 30, 2017 is as follows:

 

Market Value
12/31/16
(000)

   

Purchases

at Cost

(000)

   

Sales

Proceeds

(000)

   

Market Value

6/30/17

(000)

 
$ 0     $ 15,359     $ 14,299     $ 1,060  

NOTE F: Capital Stock

Each class consists of 500,000,000 authorized shares. Transactions in capital shares for each class were as follows:

 

    SHARES           AMOUNT  
    Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
          Six Months Ended
June 30, 2017
(unaudited)
    Year Ended
December 31,
2016
 

Class A

         

Shares sold

    1,687       20,996       $ 26,919     $ 289,276  

Shares issued in reinvestment of dividends

    –0 –      1,819         –0 –      26,317  

Shares redeemed

    (24,625     (25,654       (386,763     (367,008
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (22,938     (2,839     $ (359,844   $ (51,415
 

 

 

   

 

 

     

 

 

   

 

 

 

Class B

         

Shares sold

    126,676       204,676       $ 1,974,323     $ 2,867,293  

Shares issued in reinvestment of dividends

    –0 –      78,310         –0 –      1,126,104  

Shares redeemed

    (676,766     (1,169,102       (10,611,032     (16,458,673
 

 

 

   

 

 

     

 

 

   

 

 

 

Net decrease

    (550,090     (886,116     $ (8,636,709   $ (12,465,276
 

 

 

   

 

 

     

 

 

   

 

 

 

At June 30, 2017, certain shareholders of the Portfolio owned 77% in aggregate of the Portfolio’s outstanding shares. Significant transactions by such shareholders, if any, may impact the Portfolio’s performance.

NOTE G: Risks Involved in Investing in the Portfolio

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

Currency Risk—Fluctuations in currency exchange rates may negatively affect the value of the Portfolio’s investments or reduce its returns.

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

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

NOTE H: Joint Credit Facility

A number of open-end mutual funds managed by the Adviser, including the Portfolio, participate in a $280 million revolving credit facility (the “Facility”) intended to provide short-term financing, if necessary, subject to certain restrictions in connection with abnormal redemption activity. Commitment fees related to the Facility are paid by the participating funds and

 

13


VALUE PORTFOLIO  
NOTES TO FINANCIAL STATEMENTS  
(continued)   AB Variable Products Series Fund

 

are included in miscellaneous expenses in the statement of operations. The Portfolio did not utilize the Facility during the six months ended June 30, 2017.

NOTE I: Distributions to Shareholders

The tax character of distributions to be paid for the year ending December 31, 2017 will be determined at the end of the current fiscal year. The tax character of distributions paid during the fiscal years ended December 31, 2016 and December 31, 2015 were as follows:

 

       2016        2015  

Distributions paid from:

         

Ordinary income

     $ 1,152,421        $ 1,858,154  
    

 

 

      

 

 

 

Total taxable distributions paid

     $ 1,152,421        $ 1,858,154  
    

 

 

      

 

 

 

As of December 31, 2016, the components of accumulated earnings/(deficit) on a tax basis were as follows:

 

Undistributed ordinary income

   $ 853,472  

Accumulated capital and other losses

     (8,334,234 )(a) 

Unrealized appreciation/(depreciation)

     9,884,165 (b) 
  

 

 

 

Total accumulated earnings/(deficit)

   $ 2,403,403  
  

 

 

 

 

(a)   On December 31, 2016, the Portfolio had a net capital loss carryforward of $8,334,234. During the fiscal year, the Portfolio utilized $1,062,621 of capital loss carryforwards to offset current year net realized gains.

 

(b)   The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable primarily to the tax deferral of losses on wash sales.

For tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. Funds are permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an indefinite period. These post-December 22, 2010 capital losses must be utilized prior to the earlier capital losses, which are subject to expiration. Post-December 22, 2010 capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered short-term as under previous regulation. As of December 31, 2016, the Portfolio had a net capital loss carryforward of $8,334,234 which will expire in 2017.

NOTE J: 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 has evaluated the impact of the amendments and expects the adoption of final rules will be limited to additional financial statement disclosures.

NOTE K: Subsequent Events

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

 

14


 
VALUE PORTFOLIO  
FINANCIAL HIGHLIGHTS   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    CLASS A  
    Six Months
Ended
June 30,  2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $15.47       $14.11       $15.50       $14.22       $10.63       $9.37  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .10 (b)      .19 (b)†      .21       .26       .19       .20  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .36       1.42       (1.26     1.31       3.70       1.26  

Contributions from Affiliates

    .00 (c)      –0 –      –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .46       1.61       (1.05     1.57       3.89       1.46  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends

           

Dividends from net investment income

    –0 –      (.25     (.34     (.29     (.30     (.20
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $15.93       $15.47       $14.11       $15.50       $14.22       $10.63  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    2.97 %*      11.55 %*†      (6.95 )%*      11.10 %*      36.85 %*      15.73
           

Ratios/Supplemental Data

           

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

    $1,140       $1,463       $1,373       $2,050       $2,205       $1,533  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (e)

    .89 %^      .88     .81     .79     .73     .72

Expenses, before waivers/reimbursements (e)

    .89 %^      .89     .81     .79     .73     .72

Net investment income

    1.24 %(b)^      1.30 %(b)†      1.38     1.74     1.51     1.98

Portfolio turnover rate

    24     68     83     42     44     40

 

 

 

See footnote summary on page 17.

 

15


VALUE PORTFOLIO  
FINANCIAL HIGHLIGHTS  
(continued)   AB Variable Products Series Fund

 

Selected Data For A Share Of Capital Stock Outstanding Throughout Each Period

 

    Class B  
    Six Months
Ended
June 30,  2017
(unaudited)
    Year Ended December 31,  
      2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $15.36       $14.00       $15.37       $14.10       $10.54       $9.28  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Income From Investment Operations

           

Net investment income (a)

    .08 (b)      .15 (b)†      .17       .22       .16       .17  

Net realized and unrealized gain (loss) on investment and foreign currency transactions

    .36       1.42       (1.25     1.29       3.66       1.26  

Contributions from Affiliates

    .00 (c)      –0 –      –0 –      –0 –      –0 –      –0 – 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net asset value from operations

    .44       1.57       (1.08     1.51       3.82       1.43  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Less: Dividends

           

Dividends from net investment income

    –0 –      (.21     (.29     (.24     (.26     (.17
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net asset value, end of period

    $15.80       $15.36       $14.00       $15.37       $14.10       $10.54  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
           

Total Return

           

Total investment return based on net asset value (d)

    2.86 %*      11.29 %*†      (7.17 )%*      10.77 %*      36.49 %*      15.54
           

Ratios/Supplemental Data

           

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

    $73,319       $79,746       $85,064       $112,143       $132,271       $157,920  

Ratio to average net assets of:

           

Expenses, net of waivers/reimbursements (e)

    1.14 %^      1.13     1.06     1.04     .98     .97

Expenses, before waivers/reimbursements (e)

    1.14 %^      1.14     1.06     1.04     .98     .97

Net investment income

    1.02 %(b)^      1.06 %(b)†      1.14     1.51     1.28     1.72

Portfolio turnover rate

    24     68     83     42     44     40

 

 

 

See footnote summary on page 17.

 

16


 
 
    AB Variable Products Series Fund

 

(a)   Based on average shares outstanding.

 

(b)   Net of expenses waived and reimbursed by the Adviser.

 

(c)   Amount is less than $0.0005.

 

(d)   Total investment return is calculated assuming an initial investment made at the net asset value at the beginning of the period, reinvestment of all dividends and distributions at net asset value during the period, and redemption on the last day of the period. Total return does not reflect (i) insurance company’s separate account related expense charges and (ii) the deductions of taxes that a shareholder would pay on Portfolio distributions or the redemption of Portfolio shares. Total investment return calculated for a period of less than one year is not annualized.

 

(e)   In connection with the Portfolio’s investments in affiliated underlying portfolios, the Portfolio incurs no direct expenses, but bear proportionate shares of the acquired fund fees and expenses (i.e., operating, administrative and investment advisory fees) of the affiliated underlying portfolios. The Adviser has contractually agreed to waive its fees from the Portfolio in an amount equal to the Portfolio’s pro rata share of certain acquired fund fees and expenses, and for the year ended December 31, 2016, such waiver amounted to less than .005%, respectively, annualized for the Portfolio.

 

  For the year ended December 31, 2016 the amount includes a refund for overbilling of prior years’ custody out of pocket fees as follows:

 

Net Investment
Income Per Share

   

Net Investment
Income Ratio

   

Total
Return

 
$ .003       .02     .02

 

*   Includes the impact of proceeds received and credited to the Portfolio resulting from class action settlements, which enhanced the Portfolio’s performance for the six months ended June 30, 2017 and years ended December 31, 2016, December 31, 2015, December 31, 2014 and December 31, 2013 by 0.09%, 0.02%, 0.17%, 0.04% and 0.07%, respectively.

 

^   Annualized.

 

 

 

 

 

 

See notes to financial statements.

 

17


 
VALUE PORTFOLIO  
CONTINUANCE DISCLOSURE   AB Variable Products Series Fund

 

INFORMATION REGARDING THE REVIEW AND APPROVAL OF THE FUND’S ADVISORY AGREEMENT

The disinterested directors (the “directors”) of AB Variable Products Series Fund, Inc. (the “Company”) unanimously approved the continuance of the Company’s Advisory Agreement with the Adviser in respect of AB Value Portfolio (the “Fund”) at a meeting held on May 2-4, 2017 (the “Meeting”).

Prior to approval of the continuance of the Advisory Agreement, the directors had requested from the Adviser, and received and evaluated, extensive materials. They reviewed the proposed continuance of the Advisory Agreement with the Adviser and with experienced counsel who are independent of the Adviser, who advised on the relevant legal standards. The directors also reviewed an independent evaluation prepared by the Company’s Senior Officer (who is also the Company’s Independent Compliance Officer), who acted as their independent fee consultant, of the reasonableness of the advisory fee, in which the Senior Officer concluded that the contractual fee for the Fund was reasonable. The directors also discussed the proposed continuance in private sessions with counsel and the Company’s Senior Officer.

The directors considered their knowledge of the nature and quality of the services provided by the Adviser to the Fund gained from their experience as directors or trustees of most of the registered investment companies advised by the Adviser, their overall confidence in the Adviser’s integrity and competence they have gained from that experience, the Adviser’s initiative in identifying and raising potential issues with the directors and its responsiveness, frankness and attention to concerns raised by the directors in the past, including the Adviser’s willingness to consider and implement organizational and operational changes designed to improve investment results and the services provided to the AB Funds. The directors noted that they have four regular meetings each year, at each of which they review extensive materials and information from the Adviser, including information on the investment performance of the Fund.

The directors also considered all factors they believed relevant, including the specific matters discussed below. During the course of their deliberations, the directors evaluated, among other things, the reasonableness of the advisory fee. The directors did not identify any particular information that was all-important or controlling, and different directors may have attributed different weights to the various factors. The directors determined that the selection of the Adviser to manage the Fund and the overall arrangements between the Fund and the Adviser, as provided in the Advisory Agreement, including the advisory fee, were fair and reasonable in light of the services performed, expenses incurred and such other matters as the directors considered relevant in the exercise of their business judgment. The material factors and conclusions that formed the basis for the directors’ determinations included the following:

Nature, Extent and Quality of Services Provided

The directors considered the scope and quality of services provided by the Adviser under the Advisory Agreement, including the quality of the investment research capabilities of the Adviser and the other resources it has dedicated to performing services for the Fund. They also noted the professional experience and qualifications of the Fund’s portfolio management team and other senior personnel of the Adviser. The directors also considered that the Advisory Agreement provides that the Fund will reimburse the Adviser for the cost to it of providing certain clerical, accounting, administrative and other services to the Fund by employees of the Adviser or its affiliates. Requests for these reimbursements are made on a quarterly basis and subject to approval by the directors. Reimbursements, to the extent requested and paid, result in a higher rate of total compensation from the Fund to the Adviser than the fee rate stated in the Advisory Agreement. The directors noted that the methodology used to determine the reimbursement amounts had been reviewed by an independent consultant retained by the Company’s Senior Officer. The quality of administrative and other services, including the Adviser’s role in coordinating the activities of the Fund’s other service providers, also was considered. The directors concluded that, overall, they were satisfied with the nature, extent and quality of services provided to the Fund under the Advisory Agreement.

Costs of Services Provided and Profitability

The directors reviewed a schedule of the revenues and expenses and related notes indicating the profitability of the Fund to the Adviser for calendar years 2015 and 2016 that had been prepared with an expense allocation methodology arrived at in consultation with an independent consultant retained by the Company’s Senior Officer. The directors noted the assumptions and methods of allocation used by the Adviser in preparing fund-specific profitability data and understood that there are a number of potentially acceptable allocation methodologies for information of this type. The directors noted that the profitability information reflected all revenues and expenses of the Adviser’s relationship with the Fund, including those relating to its subsidiaries that provide transfer agency, distribution and brokerage services to the Fund. The directors recognized that it is difficult to make comparisons of the profitability of the Advisory Agreement with the profitability of advisory contracts for unaffiliated funds because comparative information is not generally publicly available and is affected

 

18


    AB Variable Products Series Fund

 

by numerous factors. The directors focused on the profitability of the Adviser’s relationship with the Fund before taxes and distribution expenses. The directors concluded that the Adviser’s level of profitability from its relationship with the Fund was not unreasonable.

Fall-Out Benefits

The directors considered the other benefits to the Adviser and its affiliates from their relationships with the Fund, including, but not limited to, benefits relating to soft dollar arrangements (whereby investment advisers receive brokerage and research services from brokers that execute agency transactions for their clients); 12b-1 fees and sales charges received by the Fund’s principal underwriter (which is a wholly owned subsidiary of the Adviser) in respect of the Fund’s Class B shares; brokerage commissions paid by the Fund to brokers affiliated with the Adviser; and transfer agency fees paid by the Fund to a wholly owned subsidiary of the Adviser. The directors recognized that the Adviser’s profitability would be somewhat lower without these benefits. The directors understood that the Adviser also might derive reputational and other benefits from its association with the Fund.

Investment Results

In addition to the information reviewed by the directors in connection with the Meeting, the directors receive detailed performance information for the Fund at each regular Board meeting during the year.

At the Meeting, the directors reviewed information prepared by an analytical service that is not affiliated with the Adviser (the “15(c) service provider”), showing the performance of the Class A Shares of the Fund against a peer group and a peer universe, and information prepared by the Adviser showing performance of the Class A Shares against a broad-based securities market index, in each case for the 1-, 3-, 5- and 10-year periods ended February 28, 2017 and (in the case of comparisons with the broad-based securities market index) for the period from inception. Based on their review, and their discussion with the Adviser of the reasons for the Fund’s underperformance in certain periods, the directors concluded that the Fund’s investment performance was acceptable.

Advisory Fees and Other Expenses

The directors considered the advisory fee rate paid by the Fund to the Adviser and information prepared by the 15(c) service provider concerning advisory fee rates paid by other funds in the same category as the Fund at a common asset level. The directors recognized that it is difficult to make comparisons of advisory fees because there are variations in the services that are included in the fees paid by other funds. The directors compared the Fund’s contractual effective advisory fee rate with a peer group median and took into account the impact on the advisory fee rate of the administrative expense reimbursement paid to the Adviser in the latest fiscal year.

The directors also considered the Adviser’s fee schedule for institutional clients pursuing a similar investment style. For this purpose, they reviewed the relevant advisory fee information from the Adviser’s Form ADV and the evaluation from the Company’s Senior Officer and noted the differences between the Fund’s fee schedule, on the one hand, and the institutional fee schedule and the schedule of fees charged to any offshore funds and any sub-advised funds, on the other. The directors noted that the Adviser may, in some cases, agree to fee rates with large institutional clients that are lower than those reviewed by the directors and that they had previously discussed with the Adviser its policies in respect of such arrangements. The directors also compared the advisory fee rate for the Fund with that for another AB Fund with a similar investment style.

The Adviser reviewed with the directors the significantly greater scope of the services it provides to the Fund relative to institutional, offshore fund and sub-advised fund clients. In light of the substantial differences in services rendered by the Adviser to institutional, offshore fund and sub-advised fund clients as compared to funds such as the Fund, the directors considered these fee comparisons inapt and did not place significant weight on them in their deliberations.

The directors also considered the total expense ratio of the Class A shares of the Fund in comparison to a peer group and a peer universe selected by the 15(c) service provider. The Class A expense ratio of the Fund was based on the Fund’s latest fiscal year and the directors considered the effects of any fee waivers and/or expense reimbursements as a result of the Adviser’s expense cap. The directors noted that it was likely that the expense ratios of some of the other funds in the Fund’s category were lowered by waivers or reimbursements by those funds’ investment advisers, which in some cases might be voluntary or temporary. The directors view expense ratio information as relevant to their evaluation of the Adviser’s services because the Adviser is responsible for coordinating services provided to the Fund by others. The directors noted that the

 

19


VALUE PORTFOLIO  
CONTINUANCE DISCLOSURE  
(continued)   AB Variable Products Series Fund

 

Fund’s expense ratio was above the peer group median. After reviewing and discussing the Adviser’s explanations of the reasons for this, the directors concluded that the Fund’s expense ratio was acceptable.

Economies of Scale

The directors noted that the advisory fee schedule for the Fund contains breakpoints that reduce the fee rates on assets above specified levels. The directors took into consideration prior presentations by an independent consultant on economies of scale in the mutual fund industry and for the AB Funds, and by the Adviser concerning certain of its views on economies of scale. The directors also had requested and received from the Adviser certain updates on economies of scale in advance of the Meeting. The directors believe that economies of scale may be realized (if at all) by the Adviser across a variety of products and services, and not only in respect of a single fund. The directors noted that there is no established methodology for setting breakpoints that give effect to the fund-specific services provided by a fund’s adviser and to the economies of scale that an adviser may realize in its overall mutual fund business or those components of it which directly or indirectly affect a fund’s operations. The directors observed that in the mutual fund industry as a whole, as well as among funds similar to the Fund, there is no uniformity or pattern in the fees and asset levels at which breakpoints (if any) apply. The directors also noted that the advisory agreements for many funds do not have breakpoints at all. Having taken these factors into account, the directors concluded that the Fund’s shareholders would benefit from a sharing of economies of scale in the event the Fund’s net assets exceed a breakpoint in the future.

 

20


 

 

 

 

VPS-VAL-0152-0617


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 Variable Products Series Fund, Inc.

 

By:  

/s/ Robert M. Keith

  Robert M. Keith
  President
Date:   August 11, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:  

/s/ Robert M. Keith

  Robert M. Keith
  President
Date:   August 11, 2017
By:  

/s/ Joseph J. Mantineo

  Joseph J. Mantineo
  Treasurer and Chief Financial Officer
Date:   August 11, 2017