N-Q 1 d177457dnq.htm AB DISCOVERY GROWTH FUND, INC. AB Discovery Growth Fund, Inc.

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-00204

AB DISCOVERY GROWTH FUND, INC.

(Exact name of registrant as specified in charter)

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

(Address of principal executive offices) (Zip code)

Joseph J. Mantineo

AllianceBernstein L.P.

1345 Avenue of the Americas

New York, New York 10105

(Name and address of agent for service)

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

Date of fiscal year end: July 31, 2016

Date of reporting period: April 30, 2016

 

 

 


ITEM 1. SCHEDULE OF INVESTMENTS.


AB Discovery Growth Fund, Inc.

Portfolio of Investments

April 30, 2016 (unaudited)

 

Company

   Shares        U.S. $ Value  

COMMON STOCKS - 99.0%

       

Consumer Discretionary - 25.2%

       

Cable Television Services - 1.7%

       

AMC Networks, Inc. - Class A (a)

     513,817         $ 33,516,283   
       

 

 

 

Education Services - 3.6%

       

Bright Horizons Family Solutions, Inc. (a)

     543,088           35,637,435   

Grand Canyon Education, Inc. (a)

     772,193           33,768,000   
       

 

 

 
          69,405,435   
       

 

 

 

Entertainment - 0.8%

       

IMAX Corp. (a)

     506,430           16,205,760   
       

 

 

 

Hotel/Motel - 1.5%

       

Wyndham Worldwide Corp.

     407,997           28,947,387   
       

 

 

 

Household Furnishings - 2.6%

       

Select Comfort Corp. (a)

     1,007,436           24,863,520   

Tempur Sealy International, Inc. (a) (b)

     413,010           25,057,317   
       

 

 

 
          49,920,837   
       

 

 

 

Leisure Time - 2.8%

       

Expedia, Inc.

     166,095           19,228,818   

Norwegian Cruise Line Holdings Ltd. (a)

     503,978           24,639,485   

Vail Resorts, Inc.

     83,342           10,804,457   
       

 

 

 
          54,672,760   
       

 

 

 

Radio & TV Broadcasters - 0.6%

       

Pandora Media, Inc. (a) (b)

     1,185,726           11,774,259   
       

 

 

 

Restaurants - 4.8%

       

Buffalo Wild Wings, Inc. (a)

     138,009           18,446,283   

Dave & Buster’s Entertainment, Inc. (a)

     682,988           26,431,636   

Panera Bread Co. - Class A (a)

     117,870           25,281,936   

Texas Roadhouse, Inc. - Class A (b)

     603,170           24,561,082   
       

 

 

 
          94,720,937   
       

 

 

 

Specialty Retail - 6.7%

       

Five Below, Inc. (a) (b)

     854,082           35,615,219   

Lithia Motors, Inc. - Class A

     304,710           25,297,024   

Tractor Supply Co.

     328,102           31,058,135   

Ulta Salon Cosmetics & Fragrance, Inc. (a)

     186,455           38,834,848   
       

 

 

 
          130,805,226   
       

 

 

 

Textiles, Apparel & Shoes - 0.1%

       

Honest Co. (The) (a) (c) (d)

     42,660           1,917,140   
       

 

 

 
          491,886,024   
       

 

 

 

Technology - 19.4%

       

Communications Technology - 2.7%

       

Ciena Corp. (a) (b)

     1,100,165           18,515,777   

Finisar Corp. (a)

     910,210           14,982,057   

Harris Corp.

     243,660           19,495,236   
       

 

 

 
          52,993,070   
       

 

 

 


Company

   Shares        U.S. $ Value  

Computer Services, Software & Systems - 10.9%

       

Aspen Technology, Inc. (a)

     417,988           15,896,084   

Atlassian Corp. PLC - Class A (a) (b)

     673,841           15,612,896   

Cadence Design Systems, Inc. (a)

     1,289,409           29,901,395   

EPAM Systems, Inc. (a)

     200,190           14,599,857   

Fortinet, Inc. (a)

     490,640           15,950,706   

Guidewire Software, Inc. (a)

     396,349           22,580,002   

HubSpot, Inc. (a) (b)

     506,140           22,416,941   

Palo Alto Networks, Inc. (a)

     33,046           4,985,650   

Qlik Technologies, Inc. (a)

     532,188           16,386,068   

Ultimate Software Group, Inc. (The) (a)

     158,907           31,239,527   

VeriFone Systems, Inc. (a)

     811,359           23,091,277   
       

 

 

 
            212,660,403   
       

 

 

 

Electronic Entertainment - 1.4%

       

Take-Two Interactive Software, Inc. (a)

     781,613           26,715,532   
       

 

 

 

Semiconductors & Component - 3.6%

       

Cavium, Inc. (a)

     81,368           4,017,138   

Mellanox Technologies Ltd. (a)

     423,684           18,324,333   

Microsemi Corp. (a)

     739,980           25,003,925   

ON Semiconductor Corp. (a)

     2,498,132           23,657,310   
       

 

 

 
          71,002,706   
       

 

 

 

Telecommunications Equipment - 0.8%

       

CommScope Holding Co., Inc. (a)

     521,270           15,851,821   
       

 

 

 
          379,223,532   
       

 

 

 

Health Care - 17.7%

       

Biotechnology - 1.5%

       

Alder Biopharmaceuticals, Inc. (a) (b)

     315,107           8,366,091   

Anacor Pharmaceuticals, Inc. (a) (b)

     134,952           8,466,888   

DBV Technologies SA (Sponsored ADR) (a)

     188,783           6,412,959   

TESARO, Inc. (a) (b)

     161,402           6,688,499   
       

 

 

 
          29,934,437   
       

 

 

 

Health Care Facilities - 1.7%

       

Amsurg Corp. (a)

     413,700           33,501,426   
       

 

 

 

Health Care Management Services - 1.2%

       

ICON PLC (a)

     351,417           23,748,761   
       

 

 

 

Health Care Services - 3.1%

       

Acadia Healthcare Co., Inc. (a) (b)

     513,736           32,462,978   

Premier, Inc. - Class A (a)

     805,780           27,243,421   
       

 

 

 
          59,706,399   
       

 

 

 

Medical & Dental Instruments & Supplies - 5.4%

       

Align Technology, Inc. (a)

     511,980           36,959,836   

DENTSPLY SIRONA, Inc.

     537,903           32,059,019   

Nevro Corp. (a) (b)

     427,822           28,771,029   


Company

   Shares        U.S. $ Value  

Penumbra, Inc. (a) (b)

     139,855           7,622,098   
       

 

 

 
          105,411,982   
       

 

 

 

Medical Equipment - 1.5%

       

DexCom, Inc. (a)

     445,950           28,710,261   
       

 

 

 

Pharmaceuticals - 3.3%

       

Akorn, Inc. (a) (b)

     825,099           20,998,770   

Diplomat Pharmacy, Inc. (a) (b)

     555,614           16,829,548   

GW Pharmaceuticals PLC (ADR) (a) (b)

     96,873           7,848,650   

Medicines Co. (The) (a) (b)

     261,630           9,311,412   

Sage Therapeutics, Inc. (a) (b)

     251,741           9,488,118   
       

 

 

 
          64,476,498   
       

 

 

 
            345,489,764   
       

 

 

 

Producer Durables - 15.7%

       

Aerospace - 1.4%

       

TransDigm Group, Inc. (a)

     119,055           27,129,063   
       

 

 

 

Back Office Support, HR & Consulting - 2.6%

       

CoStar Group, Inc. (a)

     157,252           31,027,392   

Robert Half International, Inc.

     518,917           19,879,710   
       

 

 

 
          50,907,102   
       

 

 

 

Commercial Services: Rental & Leasing - 0.1%

       

United Rentals, Inc. (a)

     38,633           2,585,707   
       

 

 

 

Diversified Manufacturing Operations - 1.6%

       

Carlisle Cos., Inc.

     306,714           31,254,157   
       

 

 

 

Machinery: Industrial - 1.6%

       

Middleby Corp. (The) (a)

     215,840           23,664,698   

Nordson Corp.

     88,870           6,818,995   
       

 

 

 
          30,483,693   
       

 

 

 

Machinery: Tools - 1.4%

       

Lincoln Electric Holdings, Inc.

     443,437           27,790,197   
       

 

 

 

Railroads - 1.5%

       

Genesee & Wyoming, Inc. - Class A (a)

     436,901           28,446,624   
       

 

 

 

Scientific Instruments: Control & Filter - 1.7%

       

IDEX Corp.

     415,534           34,032,234   
       

 

 

 

Scientific Instruments: Electrical - 1.1%

       

AMETEK, Inc.

     452,299           21,751,059   
       

 

 

 

Shipping - 1.4%

       

Kirby Corp. (a)

     433,854           27,688,562   
       

 

 

 

Transportation Miscellaneous - 1.3%

       

Expeditors International of Washington, Inc.

     494,447           24,529,516   
       

 

 

 
          306,597,914   
       

 

 

 


Company

   Shares        U.S. $ Value  

Financial Services - 10.0%

       

Asset Management & Custodian - 1.4%

       

Affiliated Managers Group, Inc. (a)

     163,948           27,923,623   
       

 

 

 

Banks: Diversified - 4.9%

       

First Republic Bank/CA

     385,687           27,121,510   

IBERIABANK Corp.

     97,015           5,722,915   

Signature Bank/New York NY (a)

     240,271           33,116,552   

SVB Financial Group (a)

     274,470           28,621,731   
       

 

 

 
          94,582,708   
       

 

 

 

Diversified Financial Services - 2.0%

       

Lazard Ltd. - Class A

     696,043           25,092,350   

Stifel Financial Corp. (a)

     422,453           13,902,928   
       

 

 

 
          38,995,278   
       

 

 

 

Financial Data & Systems - 1.7%

       

Vantiv, Inc. - Class A (a)

     619,877           33,808,092   
       

 

 

 
          195,309,701   
       

 

 

 

Materials & Processing - 7.7%

       

Building Materials - 2.9%

       

Martin Marietta Materials, Inc.

     155,499           26,315,096   

Watsco, Inc.

     217,992           29,313,384   
       

 

 

 
          55,628,480   
       

 

 

 

Building: Climate Control - 1.5%

       

Lennox International, Inc.

     222,830           30,070,908   
       

 

 

 

Chemicals: Diversified - 1.6%

       

PolyOne Corp.

     852,024           30,655,824   
       

 

 

 

Diversified Materials & Processing - 1.7%

       

Hexcel Corp.

     749,711           33,939,417   
       

 

 

 
          150,294,629   
       

 

 

 

Energy - 2.5%

       

Oil Well Equipment & Services - 1.3%

       

FMC Technologies, Inc. (a)

     243,910           7,436,816   

Oceaneering International, Inc.

     462,707           16,958,212   
       

 

 

 
          24,395,028   
       

 

 

 

Oil: Crude Producers - 1.2%

       

Concho Resources, Inc. (a)

     148,503           17,251,593   

PDC Energy, Inc. (a)

     101,640           6,381,976   
       

 

 

 
          23,633,569   
       

 

 

 
          48,028,597   
       

 

 

 

Consumer Staples - 0.8%

       

Foods - 0.8%

       

Blue Buffalo Pet Products, Inc. (a) (b)

     610,200           15,108,552   
       

 

 

 

Total Common Stocks
(cost $1,728,533,456)

            1,931,938,713   
       

 

 

 


Company

   Shares        U.S. $ Value  

SHORT-TERM INVESTMENTS - 1.7%

       

Investment Companies - 1.7%

       

AB Fixed Income Shares, Inc. - Government STIF Portfolio, 0.36% (e) (f)
(cost $33,784,963)

     33,784,963           33,784,963   
       

 

 

 

Total Investments Before Security Lending Collateral for Securities Loaned - 100.7%
(cost $1,762,318,419)

   

       1,965,723,676   
       

 

 

 

INVESTMENTS OF CASH COLLATERAL FOR SECURITIES LOANED - 6.9%

  

    

Investment Companies - 6.9%

       

AB Exchange Reserves - Class I, 0.32% (e) (f)
(cost $134,834,674)

     134,834,674           134,834,674   
       

 

 

 

Total Investments - 107.6%
(cost $1,897,153,093) (g)

          2,100,558,350   

Other assets less liabilities - (7.6)%

          (148,670,198
       

 

 

 

Net Assets - 100.0%

        $ 1,951,888,152   
       

 

 

 

 

(a) Non-income producing security.
(b) Represents entire or partial securities out on loan.
(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 financial statements, please go to the Securities and Exchange Commission’s website at www.sec.gov, or call AB at (800) 227-4618.
(g) As of April 30, 2016, the cost basis of investment securities owned was substantially identical for both book and tax purposes. Gross unrealized appreciation of investments was $270,782,329 and gross unrealized depreciation of investments was $(67,377,072), resulting in net unrealized appreciation of $203,405,257.

Please note: The sector classifications presented herein are based on the Russell sector classification scheme which was developed by Russell Investments. Russell classifies index members into industries that most closely describe the nature of its business and its primary economic orientation.

Glossary:

 

ADR    -    American Depositary Receipt


AB Discovery Growth Fund, Inc.

April 30, 2016 (unaudited)

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

 

   

Level 1—quoted prices in active markets for identical investments

   

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

   

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

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, by pricing vendors, 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 Fund’s investments by the above fair value hierarchy levels as of April 30, 2016:

 

Investments in Securities:

   Level 1     Level 2     Level 3     Total  

Assets:

        

Common Stocks:

        

Consumer Discretionary

   $ 489,968,884      $ – 0  –    $ 1,917,140      $ 491,886,024   

Technology

     379,223,532        – 0  –      – 0  –      379,223,532   

Health Care

     345,489,764        – 0  –      – 0  –      345,489,764   

Producer Durables

     306,597,914        – 0  –      – 0  –      306,597,914   

Financial Services

     195,309,701        – 0  –      – 0  –      195,309,701   

Materials & Processing

     150,294,629        – 0  –      – 0  –      150,294,629   

Energy

     48,028,597        – 0  –      – 0  –      48,028,597   

Consumer Staples

     15,108,552        – 0  –      – 0  –      15,108,552   

Short-Term Investments

     33,784,963        – 0  –      – 0  –      33,784,963   
Investments of Cash Collateral for Securities Loaned in Affiliated Money Market Fund      134,834,674        – 0  –      – 0  –      134,834,674   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total Investments in Securities

     2,098,641,210        – 0  –      1,917,140        2,100,558,350   

Other Financial Instruments (a)

     – 0  –      – 0  –      – 0  –      – 0  – 
  

 

 

   

 

 

   

 

 

   

 

 

 

Total (b)

   $     2,098,641,210      $                     – 0  –    $     1,917,140      $     2,100,558,350   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(a) Other financial instruments are derivative instruments, such as futures, forwards and swaps, which are valued at the unrealized appreciation/depreciation on the instrument.
(b) There were no transfers between any levels during the reporting period.

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


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

 

     Common Stocks     Total  

Balance as of 7/31/15

   $ – 0  –    $ – 0  – 

Accrued discounts/(premiums)

     – 0  –      – 0  – 

Realized gain (loss)

     (34,300     (34,300

Change in unrealized appreciation/depreciation

     (34,769     (34,769

Purchases

     2,243,871        2,243,871   

Sales

     (257,662     (257,662

Transfers in to Level 3

     – 0  –      – 0  – 

Transfers out of Level 3

     – 0  –      – 0  – 
  

 

 

   

 

 

 

Balance as of 4/30/16

   $     1,917,140      $     1,917,140   
  

 

 

   

 

 

 

Net change in unrealized appreciation/depreciation from investments held as of 4/30/16

   $ (34,769   $ (34,769
  

 

 

   

 

 

 

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

The Committee is also responsible for monitoring the implementation of the pricing policies by the Adviser’s Pricing Group (the “Pricing Group”) and a third party which performs certain pricing functions in accordance with the pricing policies. The Pricing Group is responsible for the oversight of the third party on a day-to-day basis. The Committee and the Pricing Group perform a series of activities to provide reasonable assurance of the accuracy of prices including: 1) periodic vendor due diligence meetings, review of methodologies, new developments and process at vendors, 2) daily compare 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).

A Summary of the Fund’s transactions of investments in affiliated issuers for the quarter ended April 30, 2016 is as follows:

 

                                               Distributions  

Affiliated Issuer

   Market Value
July 31, 2015
(000)
     Purchases
at Cost
(000)
     Sales
Proceeds
(000)
     Realized
Gain  (Loss)
(000)
     Change in
Unrealized
Appr./(Depr.)
(000)
     Market Value
April 30,  2016
(000)
     Income
(000)
     Realized
Gains
(000)
 

AB Fixed Income Shares, Inc. - Government STIF Portfolio

   $ 48,121       $ 377,082       $ 391,418       $ 0       $ 0       $ 33,785       $ 77       $ 0   

AB Exchange Reserves - Class I

     126,999         933,639         925,803         0         0         134,835         0         0   


ITEM 2. CONTROLS AND PROCEDURES.

(a) The registrant’s principal executive officer and principal financial officer have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended) are effective at the reasonable assurance level based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this document.

(b) There were no significant changes in the registrant’s internal control over financial reporting that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

ITEM 3. EXHIBITS.

The following exhibits are attached to this Form N-Q:

 

EXHIBIT NO.

 

DESCRIPTION OF EXHIBIT

3 (a) (1)   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
3 (a) (2)   Certification of Principal Financial Officer Pursuant to Section 302 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 Discovery Growth Fund, Inc.

 

By:   /s/    Robert M. Keith
  Robert M. Keith
  President
Date:   June 24, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By:   /s/    Robert M. Keith
  Robert M. Keith
  President
Date:   June 24, 2016
By:   /s/    Joseph J. Mantineo
  Joseph J. Mantineo
  Treasurer and Chief Financial Officer
Date:   June 24, 2016