As filed with the Securities and Exchange Commission on January 30, 2019
File Nos. 33-45328
811-06554
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933
Pre-Effective Amendment No.
Post-Effective Amendment No. 59 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 58 X
AB GLOBAL BOND FUND, INC.
(Exact Name of Registrant as Specified in Charter)
1345 Avenue of the Americas, New York, New York 10105
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code:
(800) 221-5672
EMILIE D. WRAPP
AllianceBernstein L.P.
1345 Avenue of the Americas
New York, New York 10105
(Name and address of agent for service)
Copies of communications to:
PAUL M. MILLER
Seward & Kissel LLP
901 K Street, NW
Suite 800
Washington, DC 20001
Approximate Date of Proposed Public Offering:
It is proposed that this filing will become effective (check appropriate box)
[_] immediately upon filing pursuant to paragraph (b)
[X] on January 31, 2019 pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
_____ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
[A/B]
[LOGO]/R/
PROSPECTUS | JANUARY 31, 2019
The AB Bond Funds
Core High Income
(Shares Offered--Exchange Ticker Symbol) (Shares Offered--Exchange Ticker Symbol)
AB Intermediate Bond Portfolio AB High Income Fund
(Class A-ABQUX; Class B-ABQBX; Class C-ABQCX; (Class A-AGDAX; Class B-AGDBX; Class C-AGDCX;
Advisor Class-ABQYX; Class R-ABQRX; Advisor Class-AGDYX; Class R-AGDRX;
Class K-ABQKX; Class I-ABQIX; Class Z-ABQZX) Class K-AGDKX; Class I-AGDIX; Class Z-AGDZX)
AB Global Bond Fund AB Limited Duration High Income Portfolio
(Class A-ANAGX; Class B-ANABX; Class C-ANACX; (Class A-ALHAX; Class C-ALHCX; Advisor Class-ALHYX)
Advisor Class-ANAYX; Class R-ANARX;
Class K-ANAKX; Class I-ANAIX; Class Z-ANAZX) AB Income Fund
(Class A-AKGAX; Class C-AKGCX; Advisor Class-ACGYX)
Absolute Return Tax-Aware
(Shares Offered--Exchange Ticker Symbol) (Shares Offered--Exchange Ticker Symbol)
AB Unconstrained Bond Fund AB Tax-Aware Fixed Income Portfolio
(Class A-AGSAX; Class B-AGSBX; Class C-AGCCX; (Class A-ATTAX; Class C-ATCCX; Advisor Class-ATTYX)
Advisor Class-AGSIX; Class R-AGSRX;
Class K-AGSKX; Class I-AGLIX; Class Z-AGSZX)
Beginning January 1, 2021, as permitted by new regulations adopted by the
Securities and Exchange Commission, each Fund's annual and semi-annual
shareholder reports will no longer be sent by mail, unless you specifically
request paper copies of the reports. Instead, the reports will be made
available on a website, and you will be notified by mail each time a report is
posted and provided with a website address to access the report.
If you already elected to receive shareholder reports electronically, you will
not be affected by this change and you need not take any action. You may elect
to receive shareholder reports and other communications from a Fund
electronically at any time by contacting your financial intermediary (such as a
broker-dealer or bank) or, if you are a direct investor, by calling the Fund at
800-221-5672.
You may elect to receive all future reports in paper form free of charge. If
you invest through a financial intermediary, you can contact your financial
intermediary to request that you continue to receive paper copies of your
shareholder reports; if you invest directly with a Fund, you can call the Fund
at 800-221-5672. Your election to receive reports in paper form will apply to
all funds held in your account with your financial intermediary or, if you
invest directly, to all AB Mutual Funds you hold.
The Securities and Exchange Commission and the Commodity Futures Trading
Commission have not approved or disapproved these securities or passed upon the
adequacy of this Prospectus. Any representation to the contrary is a criminal
offense.
INVESTMENT PRODUCTS OFFERED
ARE NOT FDIC INSURED
MAY LOSE VALUE
ARE NOT BANK GUARANTEED
TABLE OF CONTENTS
--------------------------------------------------------------------------------
Page
SUMMARY INFORMATION........................................... 4
CORE.......................................................... 4
AB INTERMEDIATE BOND PORTFOLIO.............................. 4
AB GLOBAL BOND FUND......................................... 9
ABSOLUTE RETURN............................................... 14
AB UNCONSTRAINED BOND FUND.................................. 14
HIGH INCOME................................................... 19
AB HIGH INCOME FUND......................................... 19
AB LIMITED DURATION HIGH INCOME PORTFOLIO................... 24
AB INCOME FUND.............................................. 28
TAX-AWARE..................................................... 33
AB TAX-AWARE FIXED INCOME PORTFOLIO......................... 33
ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS. 39
INVESTING IN THE FUNDS........................................ 51
How to Buy Shares........................................... 51
The Different Share Class Expenses.......................... 52
Sales Charge Reduction Programs for Class A Shares.......... 54
CDSC Waivers and Other Programs............................. 55
Choosing a Share Class...................................... 56
Payments to Financial Advisors and Their Firms.............. 56
How to Exchange Shares...................................... 58
How to Sell or Redeem Shares................................ 58
Frequent Purchases and Redemptions of Fund Shares........... 59
How the Funds Value Their Shares............................ 60
MANAGEMENT OF THE FUNDS....................................... 61
DIVIDENDS, DISTRIBUTIONS AND TAXES............................ 66
GENERAL INFORMATION........................................... 68
GLOSSARY OF INVESTMENT TERMS.................................. 69
FINANCIAL HIGHLIGHTS.......................................... 70
APPENDIX A--BOND RATINGS...................................... A-1
APPENDIX B--HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION... B-1
APPENDIX C--FINANCIAL INTERMEDIARY WAIVERS.................... C-1
SUMMARY INFORMATION
--------------------------------------------------------------------------------
CORE
--------------------------------------------------------------------------------
AB INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to generate income and price appreciation
without assuming what the Adviser considers undue risk.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Funds--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS
CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS R, K, I AND Z
SHARES TO NEW INVESTORS) SHARES SHARES SHARES
------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25% None None None None
------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption
proceeds, whichever is lower) None(a) 3.00%(b) 1.00%(c) None None
------------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
----------------------------------------------------------------------------------------------------------------------------
Management Fees .45% .45% .45% .45% .45% .45% .45% .45%
Distribution and/or Service (12b-1) Fees .25% 1.00% 1.00% None .50% .25% None None
Other Expenses:
Transfer Agent .13% .18% .13% .13% .22% .20% .09% .02%
Other Expenses .18% .17% .18% .18% .18% .18% .18% .17%
------ ------ ------ ------ ------ ------ ------ ------
Total Other Expenses .31% .35% .31% .31% .40% .38% .27% .19%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses 1.01% 1.80% 1.76% .76% 1.35% 1.08% .72% .64%
====== ====== ====== ====== ====== ====== ====== ======
Fee Waiver and/or Expense Reimbursement(d) (.24)% (.28)% (.24)% (.24)% (.33)% (.31)% (.20)% (.12)%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses After Fee Waiver
and/or Expense Reimbursement .77% 1.52% 1.52% .52% 1.02% .77% .52% .52%
====== ====== ====== ====== ====== ====== ====== ======
----------------------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge ("CDSC"), which may be subject to waiver in certain
circumstances.
(b)Class B shares automatically convert to Class A shares after six years. The
CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the third year.
(c)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(d)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Fund until January 31, 2020 to the extent necessary to
prevent total Fund operating expenses (excluding interest expense), on an
annualized basis, from exceeding .77%, 1.52%, 1.52%, .52%, 1.02%, .77%, .52%
and .52% of average daily net assets, respectively, for Class A, Class B,
Class C, Advisor Class, Class R, Class K, Class I and Class Z shares
("expense limitations"). The expense limitations will remain in effect until
January 31, 2020 and will continue thereafter from year to year unless the
Adviser provides notice of termination to the Fund at least 60 days prior to
the end of the period.
4
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver is in effect for only the first year. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
-------------------------------------------------------------------------------------
After 1 Year $ 500 $ 455 $ 255 $ 53 $ 104 $ 79 $ 53 $ 53
After 3 Years $ 710 $ 641 $ 533 $219 $ 395 $ 313 $210 $193
After 5 Years $ 937 $ 953 $ 936 $399 $ 708 $ 565 $381 $345
After 10 Years $1,588 $1,698 $2,063 $920 $1,595 $1,289 $876 $787
-------------------------------------------------------------------------------------
For the share classes listed below, you would pay the following expenses if you
did not redeem your shares at the end of the period:
CLASS B CLASS C
--------------------------------------------------------------------------------------
After 1 Year $ 155 $ 155
After 3 Years $ 541 $ 533
After 5 Years $ 953 $ 936
After 10 Years $1,698 $2,063
--------------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 195% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets in
fixed-income securities. The Fund expects to invest in readily marketable
fixed-income securities with a range of maturities from short- to long-term and
relatively attractive yields that do not involve undue risk of loss of capital.
The Fund expects to invest in fixed-income securities with a dollar-weighted
average maturity of between three to ten years and an average duration of three
to six years. The Fund may invest up to 25% of its net assets in below
investment grade bonds. The Fund may use leverage for investment purposes.
The Fund may invest without limit in U.S. Dollar-denominated foreign
fixed-income securities and may invest up to 25% of its assets in
non-U.S. Dollar-denominated foreign fixed-income securities. These investments
may include, in each case, developed and emerging market debt securities.
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risk and return characteristics as well as the securities'
impact on the overall risk and return characteristics of the Fund. In making
this assessment, the Adviser takes into account various factors, including the
credit quality and sensitivity to interest rates of the securities under
consideration and of the Fund's other holdings.
The Fund may invest in mortgage-related and other asset-backed securities, loan
participations, inflation-indexed securities, structured securities, variable,
floating, and inverse floating-rate instruments and preferred stock, and may
use other investment techniques. The Fund intends, among other things, to enter
into transactions such as reverse repurchase agreements and dollar rolls. The
Fund may invest, without limit, in derivatives, such as options, futures
contracts, forwards, or swaps.
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or
bond market fluctuates. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events that affect large portions of the market.
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
5
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (commonly known as "junk bonds") are subject
to a higher probability that an issuer will default or fail to meet its
payment obligations. These securities may be subject to greater price
volatility due to such factors as specific corporate developments and
negative perceptions of the junk bond market generally and may be more
difficult to trade or dispose of than other types of securities.
. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as
can the value of the Fund's distributions. This risk is significantly
greater if the Fund invests a significant portion of its assets in
fixed-income securities with longer maturities.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be more difficult to trade or dispose of due to
adverse market, economic, political, regulatory or other factors.
. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Fund's investments or reduce its returns.
. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Fund to a lower rate of return upon reinvestment
of principal. Mortgage-backed securities offered by non-governmental issuers
and other asset-backed securities may be subject to other risks, such as
higher rates of default in the mortgages or assets backing the securities or
risks associated with the nature and servicing of mortgages or assets
backing the securities.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net
asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Fund's investments.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes, large positions and heavy redemptions of
Fund shares. Over recent years illiquid investments 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. Illiquid investments risk
may be higher in a rising interest rate environment, when the value and
liquidity of fixed-income securities generally decline.
. ACTIVE TRADING RISK: The Fund expects to engage in active and frequent
trading of its portfolio securities and its portfolio turnover rate may
greatly exceed 100%. A higher rate of portfolio turnover increases
transaction costs, which may negatively affect the Fund's return. In
addition, a high rate of portfolio turnover may result in substantial
short-term gains, which may have adverse tax consequences for Fund
shareholders.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
6
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over ten years; and
. how the Fund's average annual returns for one, five and ten years compare to
those of a broad-based securities market index.
You may obtain updated performance information on the website at www.abfunds.com
(click on "Investments--Mutual Funds").
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART]
09 10 11 12 13 14 15 16 17 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
19.18% 9.20% 6.39% 5.57% -1.59% 6.61% -0.03% 3.92% 3.88% -0.50%
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 7.86%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.94%, 2ND QUARTER, 2013.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2018)
1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------
Class A* Return Before Taxes -4.71% 1.86% 4.66%
------------------------------------------------------------------------------------
Return After Taxes on Distributions -5.82% 0.60% 3.35%
------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -2.79% 0.85% 3.10%
---------------------------------------------------------------------------------------------------
Class B Return Before Taxes -4.14% 1.99% 4.69%
---------------------------------------------------------------------------------------------------
Class C Return Before Taxes -2.21% 2.00% 4.38%
---------------------------------------------------------------------------------------------------
Advisor Class Return Before Taxes -0.25% 3.01% 5.42%
---------------------------------------------------------------------------------------------------
Class R Return Before Taxes -0.74% 2.50% 4.89%
---------------------------------------------------------------------------------------------------
Class K Return Before Taxes -0.49% 2.76% 5.15%
---------------------------------------------------------------------------------------------------
Class I Return Before Taxes -0.25% 3.01% 5.42%
---------------------------------------------------------------------------------------------------
Class Z** Return Before Taxes -0.24% 3.03% 5.42%
---------------------------------------------------------------------------------------------------
Bloomberg Barclays U.S. Aggregate Bond Index
(reflects no deduction for fees, expenses, or taxes) 0.01% 2.52% 3.48%
---------------------------------------------------------------------------------------------------
* After-tax returns:
-Are shown for Class A shares only and will vary for the other Classes of
shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal
marginal income tax rates, and do not reflect the impact of state and local
taxes; actual after-tax returns depend on an individual investor's tax
situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
**Inception date for Class Z shares: 4/25/14. Performance information for
periods prior to the inception of Class Z shares is the performance of the
Fund's Class A shares, adjusted to reflect the net expense differences
between Class A and Class Z shares.
7
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-----------------------------------------------------------------------------
Michael Canter Since 2016 Senior Vice President of the Adviser
Shawn E. Keegan Since 2005 Senior Vice President of the Adviser
Douglas J. Peebles Since 2007 Senior Vice President of the Adviser
Janaki Rao Since January 2018 Senior Vice President of the Adviser
Greg J. Wilensky Since 2005 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
8
AB GLOBAL BOND FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to generate current income consistent with
preservation of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Funds--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS
CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS R, K, I AND Z
SHARES TO NEW INVESTORS) SHARES SHARES SHARES
------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25% None None None None
------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption
proceeds, whichever is lower) None(a) 3.00%(b) 1.00%(c) None None
------------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
-------------------------------------------------------------------------------------------------------------------------
Management Fees .45% .45% .45% .45% .45% .45% .45% .45%
Distribution and/or Service (12b-1) Fees .25% 1.00% 1.00% None .50% .25% None None
Other Expenses:
Transfer Agent .08% .13% .08% .08% .25% .19% .06% .02%
Other Expenses .04% .04% .03% .04% .03% .03% .04% .03%
------ ------ ------ ------ ------ ------ ------ ------
Total Other Expenses .12% .17% .11% .12% .28% .22% .10% .05%
------ ------ ------ ------ ------ ------ ------ ------
Acquired Fund Fees and Expenses .01% .01% .00%(e) .01% .00%(e) .00%(e) .01% .01%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses .83% 1.63% 1.56% .58% 1.23% .92% .56% .51%
====== ====== ====== ====== ====== ====== ====== ======
Fee Waiver and/or Expense Reimbursement(d) (.01)% (.01)% (.00)% (.01)% (.00)% (.00)% (.01)% (.01)%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses After
Fee Waiver and/or Expense Reimbursement .82% 1.62% 1.56% .57% 1.23% .92% .55% .50%
====== ====== ====== ====== ====== ====== ====== ======
-------------------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge ("CDSC"), which may be subject to waiver in certain
circumstances.
(b)Class B shares automatically convert to Class A shares after six years. The
CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the third year.
(c)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(d)In connection with the Fund's investments in AB Government Money Market
Portfolio (the "Money Market Portfolio"), the Adviser has contractually
agreed to waive its management fee from the Fund and/or reimburse other
expenses of the Fund in an amount equal to the Fund's pro rata share of the
Money Market Portfolio's effective management fee, as included in "Acquired
Fund Fees and Expenses".
(e)Amount is less than .01%.
9
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver is in effect for only the first year. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
-------------------------------------------------------------------------------------
After 1 Year $ 505 $ 465 $ 259 $ 58 $ 125 $ 94 $ 56 $ 51
After 3 Years $ 678 $ 613 $ 493 $185 $ 390 $ 293 $178 $163
After 5 Years $ 865 $ 886 $ 850 $323 $ 676 $ 509 $312 $284
After 10 Years $1,406 $1,521 $1,856 $725 $1,489 $1,131 $700 $640
-------------------------------------------------------------------------------------
For the share classes listed below, you would pay the following expenses if you
did not redeem your shares at the end of the period:
CLASS B CLASS C
--------------------------------------------------------------------------------------
After 1 Year $ 165 $ 159
After 3 Years $ 513 $ 493
After 5 Years $ 886 $ 850
After 10 Years $1,521 $1,856
--------------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 369% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets in
fixed-income securities. Under normal market conditions, the Fund invests
significantly in fixed-income securities of non-U.S. companies. In addition,
the Fund invests, under normal circumstances, in the fixed-income securities of
companies located in at least three countries. The Fund may invest in a broad
range of fixed-income securities in both developed and emerging markets. The
Fund may invest across all fixed-income sectors, including U.S. and non-U.S.
Government and corporate debt securities. The Fund's investments may be
denominated in local currency or U.S. Dollar-denominated. The Fund may invest
in debt securities with a range of maturities from short- to long-term. The
Fund may use borrowings or other leverage for investment purposes.
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risk and return characteristics as well as the securities'
impact on the overall risk and return characteristics of the Fund. In making
this assessment, the Adviser takes into account various factors, including the
credit quality and sensitivity to interest rates of the securities under
consideration and of the Fund's other holdings.
The Adviser will actively manage the Fund's assets in relation to market
conditions and general economic conditions and adjust the Fund's investments in
an effort to best enable the Fund to achieve its investment objective. Thus,
the percentage of the Fund's assets invested in a particular country or
denominated in a particular currency will vary in accordance with the Adviser's
assessment of the relative yield and appreciation potential of such securities
and the relationship of the country's currency to the U.S. Dollar.
Under normal circumstances, the Fund invests at least 75% of its net assets in
fixed-income securities rated investment grade at the time of investment and
may invest up to 25% of its net assets in below investment grade fixed-income
securities (commonly known as "junk bonds").
The Fund may invest in mortgage-related and other asset-backed securities, loan
participations, inflation-indexed securities, structured securities, variable,
floating, and inverse floating-rate instruments and preferred stock, and may
use other investment techniques. The Fund intends, among other things, to enter
into transactions such as reverse repurchase agreements and dollar rolls. The
Fund may invest, without limit, in derivatives, such as options, futures
contracts, forwards, or swaps.
10
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or
bond market fluctuates. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events that affect large portions of the market.
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (commonly known as "junk bonds") are subject
to a higher probability that an issuer will default or fail to meet its
payment obligations. These securities may be subject to greater price
volatility due to such factors as specific corporate developments and
negative perceptions of the junk bond market generally and may be more
difficult to trade or dispose of than other types of securities.
. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as
can the value of the Fund's distributions. This risk is significantly
greater if the Fund invests a significant portion of its assets in
fixed-income securities with longer maturities.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be more difficult to trade or dispose of due to
adverse market, economic, political, regulatory or other factors.
. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Fund's investments or reduce its returns.
. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Fund to a lower rate of return upon reinvestment
of principal. Mortgage-backed securities offered by non-governmental issuers
and other asset-backed securities may be subject to other risks, such as
higher rates of default in the mortgages or assets backing the securities or
risks associated with the nature and servicing of mortgages or assets
backing the securities.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net
asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Fund's investments.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes, large positions and heavy redemption of
Fund shares. Foreign fixed-income securities may have more illiquid
investments risk because secondary trading markets for these securities may
be smaller and less well-developed and the securities may trade less
frequently. Illiquid investments risk may be higher in a rising interest
rate environment, when the value and liquidity of fixed-income securities
generally decline.
. ACTIVE TRADING RISK: The Fund expects to engage in active and frequent
trading of its portfolio securities and its portfolio turnover rate may
greatly exceed 100%. A higher rate of portfolio turnover increases
transaction costs, which may negatively affect the Fund's return. In
addition, a high rate of portfolio turnover may result in substantial
short-term gains, which may have adverse tax consequences for Fund
shareholders.
11
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over ten years; and
. how the Fund's average annual returns for one, five and ten years compare to
those of a broad-based securities market index.
You may obtain updated performance information on the website at www.abfunds.com
(click on "Investments--Mutual Funds").
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART]
09 10 11 12 13 14 15 16 17 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
23.96% 9.53% 4.44% 7.03% -2.15% 6.92% 0.48% 5.38% 2.98% -0.08%
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 11.30%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.82%, 2ND QUARTER, 2013.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2018)
1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------
Class A* Return Before Taxes -4.29% 2.20% 5.17%
------------------------------------------------------------------------------------
Return After Taxes on Distributions -5.39% 0.80% 3.73%
------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -2.55% 1.04% 3.47%
---------------------------------------------------------------------------------------------------
Class B Return Before Taxes -3.69% 2.34% 5.20%
---------------------------------------------------------------------------------------------------
Class C Return Before Taxes -1.80% 2.36% 4.88%
---------------------------------------------------------------------------------------------------
Advisor Class Return Before Taxes 0.29% 3.40% 5.94%
---------------------------------------------------------------------------------------------------
Class R Return Before Taxes -0.37% 2.72% 5.28%
---------------------------------------------------------------------------------------------------
Class K Return Before Taxes -0.08% 3.06% 5.64%
---------------------------------------------------------------------------------------------------
Class I Return Before Taxes 0.31% 3.42% 5.98%
---------------------------------------------------------------------------------------------------
Class Z** Return Before Taxes 0.36% 3.47% 6.02%
---------------------------------------------------------------------------------------------------
Bloomberg Barclays Global Aggregate Bond Index (U.S. hedged)
(reflects no deduction for fees, expenses, or taxes) 1.76% 3.44% 3.78%
---------------------------------------------------------------------------------------------------
* After-tax returns:
-Are shown for Class A shares only and will vary for the other Classes of
shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal
marginal income tax rates, and do not reflect the impact of state and local
taxes; actual after-tax returns depend on an individual investor's tax
situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
**Inception date of Class Z shares: 10/15/13. Performance information for
periods prior to the inception of Class Z shares is the performance of the
Fund's Class A shares, adjusted to reflect the net expense differences
between Class A and Class Z shares.
12
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------------
Paul J. DeNoon* Since 2002 Senior Vice President of the Adviser
Scott A. DiMaggio Since 2005 Senior Vice President of the Adviser
Douglas J. Peebles Since 1992 Senior Vice President of the Adviser
Matthew S. Sheridan Since 2007 Senior Vice President of the Adviser
John Taylor Since February 2019 Senior Vice President of the Adviser
*Mr. DeNoon is expected to retire from the Adviser effective January 1, 2020.
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
13
ABSOLUTE RETURN
--------------------------------------------------------------------------------
AB UNCONSTRAINED BOND FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to generate current income consistent with
preservation of capital.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Funds--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS
CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS R, K, I AND Z
SHARES TO NEW INVESTORS) SHARES SHARES SHARES
------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25% None None None None
------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption
proceeds, whichever is lower) None(a) 4.00%(b) 1.00%(c) None None
------------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
----------------------------------------------------------------------------------------------------------------------------
Management Fees .50% .50% .50% .50% .50% .50% .50% .50%
Distribution and/or Service (12b-1) Fees .25% 1.00% 1.00% None .50% .25% None None
Other Expenses:
Transfer Agent .07% .09% .07% .07% .26% .20% .02% .02%
Other Expenses .25% .25% .25% .25% .25% .25% .24% .26%
------ ------ ------ ------ ------ ------ ------ ------
Total Other Expenses .32% .34% .32% .32% .51% .45% .26% .28%
------ ------ ------ ------ ------ ------ ------ ------
Acquired Fund Fees and Expenses .01% .01% .01% .01% .01% .01% .01% .01%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses 1.08% 1.85% 1.83% .83% 1.52% 1.21% .77% .79%
====== ====== ====== ====== ====== ====== ====== ======
Fee Waiver and/or Expense Reimbursement(d) (.18)% (.20)% (.18)% (.18)% (.37)% (.31)% (.12)% (.14)%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses After Fee Waiver
and/or Expense Reimbursement .90% 1.65% 1.65% .65% 1.15% .90% .65% .65%
====== ====== ====== ====== ====== ====== ====== ======
----------------------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge ("CDSC"), which may be subject to waiver in certain
circumstances.
(b)Class B shares automatically convert to Class A shares after eight years.
The CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the fourth year.
(c)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(d)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Fund until January 31, 2020 to the extent necessary to
prevent total Fund operating expenses (excluding interest expense), on an
annualized basis, from exceeding .90%, 1.65%, 1.65%, .65%, 1.15%, .90%, .65%
and .65% of average daily net assets, respectively, for Class A, Class B,
Class C, Advisor Class, Class R, Class K, Class I and Class Z shares
("expense limitations"). The expense limitations will remain in effect until
January 31, 2020 and will continue thereafter from year to year unless the
Adviser provides notice of termination to the Fund at least 60 days prior to
the end of the period. In connection with the Fund's investments in AB
Government Money Market Portfolio (the "Money Market Portfolio"), the
Adviser has contractually agreed to waive its management fee from the Fund
and/or reimburse other expenses of the Fund in an amount equal to the Fund's
pro rata share of the Money Market Portfolio's effective management fee, as
included in "Acquired Fund Fees and Expenses".
14
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver is in effect for only the first year. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
-------------------------------------------------------------------------------------
After 1 Year $ 513 $ 568 $ 268 $ 66 $ 117 $ 92 $ 66 $ 66
After 3 Years $ 737 $ 762 $ 558 $ 247 $ 444 $ 353 $234 $238
After 5 Years $ 978 $ 982 $ 974 $ 443 $ 794 $ 635 $416 $425
After 10 Years $1,671 $1,951 $2,133 $1,009 $1,781 $1,438 $943 $965
-------------------------------------------------------------------------------------
For the share classes listed below, you would pay the following expenses if you
did not redeem your shares at the end of the period:
CLASS B CLASS C
--------------------------------------------------------------------------------------
After 1 Year $ 168 $ 168
After 3 Years $ 562 $ 558
After 5 Years $ 982 $ 974
After 10 Years $1,951 $2,133
--------------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 67% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund invests, under normal circumstances, at least 80% of its net assets in
fixed-income securities and derivatives related to fixed-income securities. The
Fund employs a dynamic risk allocation, meaning that the Fund's risk profile
may vary significantly over time based upon market conditions. The Fund invests
in a portfolio that includes fixed-income securities of U.S. and non-U.S.
companies and U.S. and non-U.S. Government securities and supranational
entities, including lower-rated securities.
The Fund may invest in debt securities with a range of maturities from short-
to long-term. The Fund expects that its average portfolio duration will vary
normally from negative 3 years to positive 7 years, depending upon the
Adviser's forecast of interest rates and assessment of market risks generally.
Duration is a measure of a fixed-income security's sensitivity to changes in
interest rates. The value of a fixed-income security with positive duration
will decline if interest rates increase. Conversely, the value of a
fixed-income security with negative duration will increase as interest rates
increase. The Fund will seek to achieve negative duration through the use of
derivatives, such as futures and total return swaps.
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risk and return characteristics as well as the securities'
impact on the overall risk and return characteristics of the Fund. In making
this assessment, the Adviser takes into account various factors, including the
credit quality and sensitivity to interest rates of the securities under
consideration and of the Fund's other holdings.
The Fund typically maintains at least 50% of its net assets in investment grade
securities. The Fund may invest up to 50% of its net assets in below investment
grade securities, such as corporate high-yield fixed-income securities,
sovereign debt obligations and fixed-income securities of issuers located in
emerging markets.
The Fund may also invest in mortgage-related and other asset-backed securities,
loan participations, inflation-indexed securities, structured securities,
variable, floating, and inverse floating-rate instruments and preferred stock,
and may use other investment techniques. The Fund may make short sales of
securities or currencies or maintain a short position. The Fund may use
borrowings or other leverage for investment purposes. The Fund intends, among
other things, to enter into transactions such as reverse repurchase agreements
and dollar rolls. The Fund may utilize, without limit, derivatives, such as
options, futures contracts, forwards, or swaps, including those on fixed-income
and equity securities and foreign currencies.
15
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or
bond market fluctuates. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events that affect large portions of the market.
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (commonly known as "junk bonds") 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 and negative perceptions
of the junk bond market generally and may be more difficult to trade or
dispose of than other types of securities.
. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as
can the value of the Fund's distributions. This risk is significantly
greater if the Fund invests a significant portion of its assets in
fixed-income securities with longer maturities.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be more difficult to trade or dispose of due to
adverse market, economic, political, regulatory or other factors.
. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Fund's investments or reduce its returns.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net
asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Fund's investments.
. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Fund to a lower rate of return upon reinvestment
of principal. Mortgage-backed securities offered by non-governmental issuers
and other asset-backed securities may be subject to other risks, such as
higher rates of default in the mortgages or assets backing the securities or
risks associated with the nature and servicing of mortgages or assets
backing the securities.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes, large positions and heavy redemptions of
Fund shares. Over recent years illiquid investments 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. Illiquid investments risk
may be higher in a rising interest rate environment, when the value and
liquidity of fixed-income securities generally decline.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
16
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over ten years; and
. how the Fund's average annual returns for one, five and ten years compare to
those of a broad-based securities market index.
You may obtain updated performance information on the website at www.abfunds.com
(click on "Investments--Mutual Funds").
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
IN FEBRUARY 2011, THE FUND CHANGED ITS NAME FROM ALLIANCEBERNSTEIN DIVERSIFIED
YIELD FUND TO ALLIANCEBERNSTEIN UNCONSTRAINED BOND FUND (CURRENTLY NAMED AB
UNCONSTRAINED BOND FUND) AND ALSO CHANGED CERTAIN OF ITS INVESTMENT POLICIES.
AS A RESULT, THE PERFORMANCE SHOWN BELOW FOR PERIODS PRIOR TO FEBRUARY 2011 MAY
NOT BE REPRESENTATIVE OF THE FUND'S PERFORMANCE UNDER ITS CURRENT INVESTMENT
POLICIES.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART]
09 10 11 12 13 14 15 16 17 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
19.20% 7.38% 2.07% 9.89% 0.16% 1.49% -0.84% 4.27% 3.74% -2.49%
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 8.57%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-2.28%, 4TH QUARTER, 2018.
PERFORMANCE TABLE*
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2018)
1 YEAR 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------------
Class A** Return Before Taxes -6.61% 0.32% 3.87%
------------------------------------------------------------------------------------
Return After Taxes on Distributions -7.28% -0.62% 2.85%
------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -3.90% -0.17% 2.62%
---------------------------------------------------------------------------------------------------
Class B Return Before Taxes -7.06% 0.46% 3.76%
---------------------------------------------------------------------------------------------------
Class C Return Before Taxes -4.19% 0.46% 3.60%
---------------------------------------------------------------------------------------------------
Advisor Class Return Before Taxes -2.23% 1.48% 4.61%
---------------------------------------------------------------------------------------------------
Class R Return Before Taxes -2.78% 0.95% 4.10%
---------------------------------------------------------------------------------------------------
Class K Return Before Taxes -2.47% 1.21% 4.37%
---------------------------------------------------------------------------------------------------
Class I Return Before Taxes -2.29% 1.49% 4.65%
---------------------------------------------------------------------------------------------------
Class Z*** Return Before Taxes -2.18% 1.50% 4.63%
---------------------------------------------------------------------------------------------------
ICE BofA Merrill Lynch 3-Month T-Bill Index
(reflects no deduction for fees, expenses, or taxes) 1.87% 0.63% 0.37%
---------------------------------------------------------------------------------------------------
Bloomberg Barclays Global Aggregate Bond Index (U.S. hedged)/#/
(reflects no deduction for fees, expenses, or taxes) 1.76% 3.44% 3.78%
---------------------------------------------------------------------------------------------------
* Includes the impact of proceeds received and credited to the Fund resulting
from class action settlements, which enhanced the performance of each share
class for the year ended October 31, 2017 by 0.05%.
** After-tax returns:
-Are shown for Class A shares only and will vary for the other Classes of
shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual
federal marginal income tax rates, and do not reflect the impact of state
and local taxes; actual after-tax returns depend on an individual
investor's tax situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
***Inception date for Class Z shares: 11/4/14. Performance information for
periods prior to the inception of Class Z shares is the performance of the
Fund's Class A shares, adjusted to reflect the net expense differences
between Class A and Class Z shares.
/#/ This information shows how the Fund's performance compares with an
additional index that reflects the types of securities in which the Fund
invests.
17
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
-------------------------------------------------------------------------------
Scott A. DiMaggio Since 2016 Senior Vice President of the Adviser
Gershon M. Distenfeld Since 2016 Senior Vice President of the Adviser
Douglas J. Peebles Since 1996 Senior Vice President of the Adviser
Dimitri Silva Since 2015 Vice President of the Adviser
John Taylor Since 2016 Senior Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
18
HIGH INCOME
--------------------------------------------------------------------------------
AB HIGH INCOME FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek to maximize total returns from price
appreciation and income.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Funds--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS B SHARES CLASS
CLASS A (NOT CURRENTLY OFFERED CLASS C ADVISOR CLASS R, K, I AND Z
SHARES TO NEW INVESTORS) SHARES SHARES SHARES
------------------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25% None None None None
------------------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption
proceeds, whichever is lower) None(a) 3.00%(b) 1.00%(c) None None
------------------------------------------------------------------------------------------------------------------------
Exchange Fee None None None None None
------------------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
-------------------------------------------------------------------------------------------------------------------------------
Management Fees .45% .45% .45% .45% .45% .45% .45% .45%
Distribution and/or Service (12b-1) Fees .25% 1.00% 1.00% None .50% .25% None None
Other Expenses:
Transfer Agent .10% .12% .10% .10% .26% .16% .06% .02%
Other Expenses .03% .03% .02% .03% .03% .03% .03% .03%
------ ------ ------ ------ ------ ------ ------ ------
Total Other Expenses .13% .15% .12% .13% .29% .19% .09% .05%
------ ------ ------ ------ ------ ------ ------ ------
Acquired Fund Fees and Expenses .01% .00%(e) .00%(e) .01% .00%(e) .00%(e) .00%(e) .00%(e)
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses .84% 1.60% 1.57% .59% 1.24% .89% .54% .50%
====== ====== ====== ====== ====== ====== ====== ======
Fee Waiver and/or Expense Reimbursement(d) (.01)% (.00)% (.00)% (.01)% (.00)% (.00)% (.00)% (.00)%
------ ------ ------ ------ ------ ------ ------ ------
Total Annual Fund Operating Expenses After
Fee Waiver and/or Expense Reimbursement .83% 1.60% 1.57% .58% 1.24% .89% .54% .50%
====== ====== ====== ====== ====== ====== ====== ======
-------------------------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge ("CDSC"), which may be subject to waiver in certain
circumstances.
(b)Class B shares automatically convert to Class A shares after six years. The
CDSC decreases over time. For Class B shares, the CDSC decreases 1.00%
annually to 0% after the third year.
(c)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(d)In connection with the Fund's investments in AB Government Money Market
Portfolio (the "Money Market Portfolio"), the Adviser has contractually
agreed to waive its management fee from the Fund and/or reimburse other
expenses of the Fund in an amount equal to the Fund's pro rata share of the
Money Market Portfolio's effective management fee, as included in "Acquired
Fund Fees and Expenses".
(e)Amount is less than .01%.
19
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver is in effect for only the first year. Although
your actual costs may be higher or lower, based on these assumptions your costs
would be:
CLASS A CLASS B CLASS C ADVISOR CLASS CLASS R CLASS K CLASS I CLASS Z
-------------------------------------------------------------------------------------
After 1 Year $ 506 $ 463 $ 260 $ 59 $ 126 $ 91 $ 55 $ 51
After 3 Years $ 681 $ 605 $ 496 $188 $ 393 $ 284 $173 $160
After 5 Years $ 870 $ 871 $ 855 $328 $ 681 $ 493 $302 $280
After 10 Years $1,417 $1,509 $1,867 $737 $1,500 $1,096 $677 $628
-------------------------------------------------------------------------------------
For the share classes listed below, you would pay the following expenses if you
did not redeem your shares at the end of the period:
CLASS B CLASS C
---------------------------------------------------------------------------------------
After 1 Year $ 163 $ 160
After 3 Years $ 505 $ 496
After 5 Years $ 871 $ 855
After 10 Years $1,509 $1,867
---------------------------------------------------------------------------------------
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 35% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund pursues income opportunities from government, corporate, emerging
market and high-yield sources. It has the flexibility to invest in a broad
range of fixed-income securities in both developed and emerging market
countries. The Fund's investments may include U.S. and non-U.S. corporate debt
securities and sovereign debt securities. The Fund may invest, without
limitation, in either U.S. Dollar-denominated or non-U.S. Dollar-denominated
fixed-income securities.
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risk and return characteristics as well as the securities'
impact on the overall risk and return characteristics of the Fund. In making
this assessment, the Adviser takes into account various factors, including the
credit quality and sensitivity to interest rates of the securities under
consideration and of the Fund's other holdings.
The Fund may invest in debt securities with a range of maturities from short-
to long-term. Substantially all of the Fund's assets may be invested in
lower-rated securities, which may include securities having the lowest rating
for non-subordinated debt instruments (i.e., rated C by Moody's Investors
Service ("Moody's) or CCC+ or lower by S&P Global Ratings ("S&P") and Fitch
Ratings ("Fitch")) and unrated securities of equivalent investment quality. The
Fund also may invest in investment grade securities and unrated securities.
The Fund may invest in mortgage-related and other asset-backed securities, loan
participations, inflation-indexed securities, structured securities, variable,
floating, and inverse floating-rate instruments and preferred stock, and may
use other investment techniques. The Fund may also make short sales of
securities or maintain a short position. The Fund may use borrowings or other
leverage for investment purposes. The Fund intends, among other things, to
enter into transactions such as reverse repurchase agreements and dollar rolls.
The Fund may invest, without limit, in derivatives, such as options, futures
contracts, forwards, or swap agreements.
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the stock or
bond market fluctuates. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events that affect large portions of the market.
20
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (commonly known as "junk bonds") 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 and negative perceptions
of the junk bond market generally and may be more difficult to trade or
dispose of than other types of securities.
. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as
can the value of the Fund's distributions. This risk is significantly
greater if the Fund invests a significant portion of its assets in
fixed-income securities with longer maturities.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be more difficult to trade or dispose of due to
adverse market, economic, political, regulatory or other factors.
. EMERGING MARKET RISK: Investments in emerging market countries may have more
risk because the markets are less developed and less liquid, and because
these investments may be subject to increased economic, political,
regulatory or other uncertainties.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Fund's investments or reduce its returns.
. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Fund to a lower rate of return upon reinvestment
of principal. Mortgage-backed securities offered by non-governmental issuers
and other asset-backed securities may be subject to other risks, such as
higher rates of default in the mortgages or assets backing the securities or
risks associated with the nature and servicing of mortgages or assets
backing the securities.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net
asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Fund's investments.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes, large positions and heavy redemptions of
Fund shares. Over recent years illiquid investments 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. Illiquid investments risk
may be higher in a rising interest rate environment, when the value and
liquidity of fixed-income securities generally decline.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
21
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over ten years; and
. how the Fund's average annual returns for one, five and ten years compare to
those of a broad-based securities market index.
You may obtain updated performance information on the website at www.abfunds.com
(click on "Investments--Mutual Funds").
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART]
09 10 11 12 13 14 15 16 17 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
61.74% 16.80% 2.06% 18.55% 6.61% 3.22% -3.98% 15.17% 7.91% -5.77%
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 23.96%, 2ND QUARTER, 2009; AND WORST QUARTER WAS DOWN
-7.28%, 3RD QUARTER, 2011.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2018)
1 YEAR 5 YEARS 10 YEARS
----------------------------------------------------------------------------------------------------------------
Class A* Return Before Taxes -9.77% 2.13% 10.47%
-----------------------------------------------------------------------------------------
Return After Taxes on Distributions -11.80% -0.66% 7.38%
-----------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -5.73% 0.39% 7.09%
----------------------------------------------------------------------------------------------------------------
Class B Return Before Taxes -9.22% 2.19% 10.46%
----------------------------------------------------------------------------------------------------------------
Class C Return Before Taxes -7.52% 2.21% 10.09%
----------------------------------------------------------------------------------------------------------------
Advisor Class** Return Before Taxes -5.53% 3.30% 11.27%
----------------------------------------------------------------------------------------------------------------
Class R** Return Before Taxes -6.16% 2.63% 10.61%
----------------------------------------------------------------------------------------------------------------
Class K** Return Before Taxes -5.83% 2.99% 10.96%
----------------------------------------------------------------------------------------------------------------
Class I** Return Before Taxes -5.60% 3.34% 11.33%
----------------------------------------------------------------------------------------------------------------
Class Z** Return Before Taxes -5.45% 3.37% 11.33%
----------------------------------------------------------------------------------------------------------------
Bloomberg Barclays Global High Yield Index (USD Hedged)
(reflects no deduction for fees, expenses, or taxes) -2.72% 4.43% 11.48%
----------------------------------------------------------------------------------------------------------------
JPMorgan Emerging Markets Bond Index Global ("EMBI Global") (U.S. Dollar-denominated)
(reflects no deduction for fees, expenses, or taxes) -4.61% 4.18% 7.79%
----------------------------------------------------------------------------------------------------------------
JPMorgan Government Bond Index-Emerging Markets ("GBI-EM") (local currency-denominated)
(reflects no deduction for fees, expenses, or taxes) -6.72% -1.59% 2.59%
----------------------------------------------------------------------------------------------------------------
Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index ("BC High Yield")
(reflects no deduction for fees, expenses, or taxes) -2.08% 3.84% 11.14%
----------------------------------------------------------------------------------------------------------------
Composite Benchmark (equal weighted blend of EMBI Global, GBI-EM and BC High Yield)/#/ -4.31% 2.23% 7.26%
----------------------------------------------------------------------------------------------------------------
* After-tax returns:
-Are shown for Class A shares only and will vary for the other Classes of
shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes; actual after-tax returns depend on an individual investor's tax
situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
**Inception date for Class R, Class K, Class I and Advisor Class shares:
1/28/08, and Class Z shares: 10/15/13. Performance information for periods
prior to the inception of Class R, Class K, Class I, Class Z and Advisor
Class shares is the performance of the Fund's Class A shares, adjusted to
reflect the net expense differences between Class A and Class R, Class K,
Class I, Class Z and Advisor Class shares, respectively.
/#/ The information in the Composite Benchmark shows how the Fund's performance
compares with the returns of an index of securities similar to those in
which the Fund invests.
22
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
---------------------------------------------------------------------------------
Paul J. DeNoon* Since 2002 Senior Vice President of the Adviser
Gershon M. Distenfeld Since 2008 Senior Vice President of the Adviser
Shamaila Khan Since February 2019 Senior Vice President of the Adviser
Douglas J. Peebles Since 2002 Senior Vice President of the Adviser
Matthew S. Sheridan Since 2005 Senior Vice President of the Adviser
*Mr. DeNoon is expected to retire from the Adviser effective January 1, 2020.
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
23
AB LIMITED DURATION HIGH INCOME PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to seek the highest level of income that is
available without assuming what the Adviser considers to be undue risk to
principal.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Funds--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A CLASS C ADVISOR CLASS
SHARES SHARES SHARES
----------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25% None None
----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption proceeds, whichever is lower) None(a) 1.00%(b) None
----------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
----------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS C ADVISOR CLASS
---------------------------------------------------------------------------------------------------------------------
Management Fees .55% .55% .55%
Distribution and/or Service (12b-1) Fees .25% 1.00% None
Other Expenses:
Transfer Agent .04% .04% .04%
Other Expenses .21% .21% .20%
------ ------ ------
Total Other Expenses .25% . 25% .24%
------ ------ ------
Acquired Fund Fees and Expenses .00%(d) .00%(d) .01%
------ ------ ------
Total Annual Fund Operating Expenses 1.05% 1.80% .80%
====== ====== ======
Fee Waiver and/or Expense Reimbursement(c) (.10)% (.10)% (.10)%
------ ------ ------
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement .95% 1.70% .70%
====== ====== ======
---------------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge ("CDSC"), which may be subject to waiver in certain
circumstances.
(b)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(c)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Fund until January 31, 2020 to the extent necessary to
prevent total Fund operating expenses (excluding acquired fund fees and
expenses other than the advisory fees of any AB Mutual Funds in which the
Fund may invest, interest expense, taxes, extraordinary expenses, and
brokerage commissions and other transaction costs), on an annualized basis,
from exceeding .95%, 1.70% and .70% of average daily net assets,
respectively, for Class A, Class C and Advisor Class shares ("expense
limitations"). The expense limitations will remain in effect until
January 31, 2020 and will continue thereafter from year to year unless the
Adviser provides notice of termination to the Fund at least 60 days prior to
the end of the period. In connection with the Fund's investments in AB
Government Money Market Portfolio (the "Money Market Portfolio"), the
Adviser has contractually agreed to waive its management fee from the Fund
and/or reimburse other expenses of the Fund in an amount equal to the Fund's
pro rata share of the Money Market Portfolio's effective management fee, as
included in "Acquired Fund Fees and Expenses".
(d)Amount is less than .01%.
24
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver remains in effect for only the first year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
CLASS A CLASS C ADVISOR CLASS
------------------------------------------------------------------------------------------
After 1 Year $ 518 $ 273* $ 72
After 3 Years $ 735 $ 557 $245
After 5 Years $ 970 $ 966 $434
After 10 Years $1,644 $2,108 $980
------------------------------------------------------------------------------------------
*If you did not redeem your shares at the end of the period, your expenses
would be decreased by $100.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 39% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund invests primarily in fixed-income securities, with an emphasis on
corporate fixed-income securities rated below investment grade (commonly known
as "junk bonds"), unrated securities considered by the Adviser to be of
comparable quality, and related derivatives. Under normal circumstances, the
Fund will maintain a dollar-weighted average duration of less than four years,
although it may invest in individual fixed-income securities with durations in
excess of four years.
The Fund may also invest in investment grade fixed-income securities,
high-yield securities of governments and government-related issuers, loan
participations and, to a lesser extent, equity securities, and derivatives
related to these instruments. The Fund will not invest more than 10% of its net
assets in securities rated at or below Caa1 by Moody's Investors Service
("Moody's"), CCC+ by S&P Global Ratings ("S&P") or CCC by Fitch Ratings
("Fitch") at the time of purchase. (For the purpose of this 10% limit, the Fund
will rely on the highest rating from any of the three rating agencies, and the
notional amount of derivatives related to these instruments will be counted.)
The Fund will invest on a global basis, including securities of issuers in both
developed and emerging market countries. The Fund may invest in securities
denominated in foreign currencies, although it expects to use hedging
instruments frequently to attempt to limit the currency exposure resulting from
such investments.
In selecting securities for purchase or sale by the Fund, the Adviser will
attempt to take advantage of inefficiencies that it believes exist in the
global fixed-income markets. These inefficiencies arise from investor behavior,
market complexity, and the investment limitations to which investors are
subject. The Adviser will combine its quantitative forecasts with fundamental
economic and credit research in seeking to exploit these inefficiencies.
The Adviser will employ strategies to manage the Fund's volatility relative to
the global high-yield market. Such strategies may include shortening the
duration of the Fund, adding higher rated investments, investing in various
fixed-income sectors with relatively low correlation among them, and using
hedging strategies that seek to provide protection from substantial market
downturns. The Adviser will utilize different combinations of the above
strategies at different points in time, taking into consideration, among other
factors, the shape of the credit curve, the relative effect on yield associated
with changes in credit quality, and the cost of hedging strategies.
The Fund expects to use derivatives, such as options, futures contracts,
forwards and swaps, to a significant extent. Derivatives may provide more
efficient and economical exposure to market segments than direct investments,
and may also be a quicker and more efficient way to alter the Fund's exposure.
For example, the Fund may use credit default and interest rate swaps to gain
exposure to the fixed-income markets. In determining when and to what extent to
enter into derivative transactions, the Adviser will consider factors such as
the risks and returns of these investments relative to direct investments and
the costs of such transactions. Derivatives such as options and forwards may
also be used for hedging purposes, including to hedge against interest rate,
credit market and currency fluctuations.
25
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the stock,
bond, currency and commodity markets fluctuate. The value of its investments
may decline, sometimes rapidly and unpredictably, simply because of economic
changes or other events that affect large portions of the market.
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer, guarantor or counterparty may default, causing a
loss of the full principal amount of a security and accrued interest. The
degree of risk for a particular security may be reflected in its credit
rating. There is the possibility that the credit rating of a fixed-income
security may be downgraded after purchase, which may adversely affect the
value of the security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (commonly known as "junk bonds") are subject
to a higher probability that an issuer will default or fail to meet its
payment obligations. These securities may be subject to greater price
volatility due to such factors as specific corporate developments and
negative perceptions of the junk bond market generally and may be more
difficult to trade or dispose of than other types of securities.
. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed- income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as
can the value of the Fund's distributions. This risk is significantly
greater if the Fund invests a significant portion of its assets in
fixed-income securities with longer maturities.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be more difficult to trade or dispose of due to
adverse market, economic, political, regulatory or other factors.
. 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 and other uncertainties.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Fund's investments or reduce its returns.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes, large positions and heavy redemptions of
Fund shares. Over recent years illiquid investments 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. Illiquid investments risk
may be higher in a rising interest rate environment, when the value and
liquidity of fixed-income securities generally decline.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over the life of the
Fund; and
. how the Fund's average annual returns for one year, five years and since
inception compare to those of a broad-based securities market index.
You may obtain updated performance information on the website at www.abfunds.com
(click on "Investments--Mutual Funds").
26
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART]
09 10 11 12 13 14 15 16 17 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
n/a n/a n/a 11.87% 5.23% 0.64% -0.54% 9.05% 3.59% -0.74%
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 3.47%, 3RD QUARTER, 2012; AND WORST QUARTER WAS DOWN
-2.63%, 4TH QUARTER, 2018.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2018)
SINCE
1 YEAR 5 YEARS INCEPTION*
-----------------------------------------------------------------------------------------------------
Class A** Return Before Taxes -4.97% 1.46% 3.45%
--------------------------------------------------------------------------------------
Return After Taxes on Distributions -6.48% -0.19% 1.70%
--------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -2.93% 0.37% 1.88%
-----------------------------------------------------------------------------------------------------
Class C Return Before Taxes -2.54% 1.59% 3.32%
-----------------------------------------------------------------------------------------------------
Advisor Class Return Before Taxes -0.60% 2.59% 4.36%
-----------------------------------------------------------------------------------------------------
Bloomberg Barclays Global High Yield 1-5 Year Index (U.S. dollar hedged)
(reflects no deduction for fees, expenses, or taxes) -0.33% 4.14% 6.58%
-----------------------------------------------------------------------------------------------------
* Inception date for all Classes is 12/07/11.
**After-tax returns:
-Are shown for Class A shares only and will vary for the other Classes of
shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal
marginal income tax rates, and do not reflect the impact of state and local
taxes; actual after-tax returns depend on an individual investor's tax
situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
---------------------------------------------------------------------------------
Gershon M. Distenfeld Since 2011 Senior Vice President of the Adviser
Jacqueline Pincus Since February 2019 Vice President of the Adviser
William Smith Since February 2018 Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
27
AB INCOME FUND
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE:
The investment objective of the Fund is to seek high current income consistent
with preservation of capital.
FEES AND EXPENSES OF THE FUND:
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Fund--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A CLASS C ADVISOR CLASS
SHARES SHARES SHARES
----------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 4.25% None None
----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption proceeds, whichever is lower) None(a) 1.00%(b) None
----------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
----------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS C ADVISOR CLASS
--------------------------------------------------------------------------------------------------------------------
Management Fees .45% .45% .45%
Distribution and/or Service (12b-1) Fees .25% 1.00% None
Other Expenses:
Transfer Agent .10% .10% .10%
Interest Expense .31% .31% .31%
Other Expenses .05% .06% .05%
------ ------ ------
Total Other Expenses .46% .47% .46%
------ ------ ------
Total Annual Fund Operating Expenses 1.16% 1.92% .91%
====== ====== ======
Fee Waiver and/or Expense Reimbursement(c) (.08)% (.09)% (.08)%
------ ------ ------
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement(d) 1.08% 1.83% .83%
====== ====== ======
--------------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge, or CDSC, which may be subject to waiver in certain
circumstances.
(b)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(c)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Fund until January 31, 2020 to the extent necessary to
prevent total Fund operating expenses (excluding acquired fund fees and
expenses other than the advisory fees of any AB Mutual Funds in which the
Fund may invest, interest expense, taxes, extraordinary expenses, and
brokerage commissions and other transaction costs), on an annualized basis,
from exceeding .77%, 1.52% and .52% of average daily net assets,
respectively, for Class A, Class C and Advisor Class shares ("expense
limitations"). The expense limitations will remain in effect until
January 31, 2020 and will continue thereafter from year to year unless the
Adviser provides notice of termination to the Fund at least 60 days prior to
the end of the period. Any fees waived and expenses borne by the Adviser
through April 22, 2018 under the expense limitations in effect prior to that
date may be reimbursed by the Fund until the end of the third fiscal year
after the fiscal period in which the fee was waived or the expense was
borne, provided that no reimbursement payment will be made that would cause
the Fund's Total Annual Fund Operating Expenses to exceed the expense
limitations.
(d)If interest expense were excluded, net expenses would be as follows:
CLASS A CLASS C ADVISOR CLASS
-----------------------------
.77% 1.52% .52%
28
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver is in effect through the date indicated above.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
CLASS A CLASS C ADVISOR CLASS
------------------------------------------------------------------------------------------
After 1 Year $ 530 $ 286* $ 85
After 3 Years $ 770 $ 594 $ 282
After 5 Years $1,029 $1,028 $ 496
After 10 Years $1,767 $2,236 $1,112
------------------------------------------------------------------------------------------
*If you did not redeem your shares at the end of the period, your expenses
would be decreased by $100.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 105% of the average value of its portfolio.
PRINCIPAL STRATEGIES:
The Fund pursues its objective by investing, under normal circumstances, at
least 80% of its net assets in income-producing securities. The Fund also
normally invests at least 65% of its total assets in securities of U.S. and
foreign governments, their agencies or instrumentalities and repurchase
agreements relating to U.S. Government securities.
The Fund normally invests at least 65% of its total assets in U.S.
Dollar-denominated securities. The Fund may also invest up to 35% of its total
assets in non-government fixed-income securities, including corporate debt
securities, non-government mortgage-backed and other asset-backed securities,
certificates of deposit and commercial paper. The Fund may invest up to 35% of
its net assets in below investment grade securities (commonly known as "junk
bonds"). The Fund may invest no more than 25% of its total assets in securities
of issuers in any one country other than the U.S. The Fund's investments in
foreign securities may include investments in securities of emerging market
countries or of issuers in emerging markets.
The Adviser selects securities for purchase or sale based on its assessment of
the securities' risks and return characteristics as well as the securities'
impact on the overall risks and return characteristics of the Fund. In making
this assessment, the Adviser takes into account various factors, including the
credit quality and sensitivity to interest rates of the securities under
consideration and of the Fund's other holdings. The Fund may invest in
fixed-income securities with any maturity or duration.
The Fund utilizes derivatives, such as options, futures contracts, forwards and
swaps to a significant extent. The Fund may, for example, use credit default,
interest rate and total return swaps to establish exposure to the fixed-income
markets or particular fixed-income securities. Derivatives may provide a more
efficient and economical exposure to market segments than direct investments,
and may also be a more efficient way to alter the Fund's exposure. The Fund may
also enter into transactions such as reverse repurchase agreements that are
similar to borrowings for investment purposes. The Fund's use of derivatives
and these borrowing transactions may create aggregate exposure that is
substantially in excess of its net assets, effectively leveraging the Fund.
PRINCIPAL RISKS:
. MARKET RISK: The value of the Fund's assets will fluctuate as the bond
market fluctuates. The value of the Fund's investments may decline,
sometimes rapidly and unpredictably, simply because of economic changes or
other events that affect large portions of the market.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (often referred to as "junk bonds") are
subject to 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 and
negative perceptions of the junk bond market generally and may be more
difficult to trade or dispose of than other types of securities.
29
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
. 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 the full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline,
as can the value of the Fund's distributions. This risk is significantly
greater for fixed-income securities with longer maturities.
. FOREIGN (NON-U.S.) RISK: Investments in securities of non-U.S. issuers may
involve more risk than those of U.S. issuers. These securities may fluctuate
more widely in price and may be more difficult to trade or dispose of 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.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its net
asset value, or NAV, may be more volatile because leverage tends to
exaggerate the effect of changes in interest rates and any increase or
decrease in the value of the Fund's investments.
. CURRENCY RISK: Fluctuations in currency exchange rates may negatively affect
the value of the Fund's investments or reduce its returns.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes, large positions and heavy redemptions of
Fund shares. Over recent years, illiquid investments 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. Illiquid investments risk
may be higher in a rising interest rate environment, when the value and
liquidity of fixed-income securities generally decline.
. MORTGAGE-RELATED AND/OR OTHER ASSET-BACKED SECURITIES RISK: Investments in
mortgage-related and other asset-backed securities are subject to certain
additional risks. The value of these securities may be particularly
sensitive to changes in interest rates. These risks include "extension
risk", which is the risk that, in periods of rising interest rates, issuers
may delay the payment of principal, and "prepayment risk", which is the risk
that in periods of falling interest rates, issuers may pay principal sooner
than expected, exposing the Fund to a lower rate of return upon reinvestment
of principal. Mortgage-backed securities offered by non-governmental issuers
and other asset-backed securities may be subject to other risks, such as
higher rates of default in the mortgages or assets backing the securities or
risks associated with the nature and servicing of mortgages or assets
backing the securities.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
30
BAR CHART AND PERFORMANCE INFORMATION:
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over ten years; and
. how the Fund's average annual returns for one, five and ten years compare to
those of a broad-based securities market index.
You may obtain updated performance information on the Fund's website at
www.abfunds.com (click on "Investments--Mutual Funds").
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
THE FUND COMMENCED OPERATIONS ON APRIL 22, 2016. THE FUND ACQUIRED THE ASSETS
AND LIABILITIES OF THE ALLIANCEBERNSTEIN INCOME FUND, INC., A CLOSED-END FUND
(THE "PREDECESSOR FUND"), EFFECTIVE AT THE CLOSE OF BUSINESS ON APRIL 21, 2016
(THE "REORGANIZATION"). THE FUND HAS THE SAME INVESTMENT OBJECTIVE AND SIMILAR
INVESTMENT STRATEGIES AND POLICIES AS THOSE OF THE PREDECESSOR FUND. IN
ADDITION, THE FUND HAS HIGHER EXPENSES (INCLUDING TRANSFER AGENCY AND
SHAREHOLDER SERVICING FEES), AND A DIFFERENT ADVISORY FEE ARRANGEMENT, THAN
THOSE OF THE PREDECESSOR FUND.
PERFORMANCE INFORMATION PRIOR TO APRIL 22, 2016 SHOWN BELOW REFLECTS THE
HISTORICAL PERFORMANCE OF THE PREDECESSOR FUND BASED ON ITS NAV. SUCH
PERFORMANCE INFORMATION MAY NOT BE REPRESENTATIVE OF PERFORMANCE THE FUND WOULD
HAVE ACHIEVED AS AN OPEN-END FUND UNDER ITS CURRENT INVESTMENT STRATEGIES AND
POLICIES AND EXPENSE LEVELS.
BAR CHART
The annual returns in the bar chart are for the Fund's Advisor Class shares.
Shares of the Predecessor Fund were exchanged for Advisor Class shares of the
Fund in the Reorganization.
[CHART]
09 10 11 12 13 14 15 16 17 18
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
19.97% 11.04% 9.67% 12.15% -2.86% 8.96% 0.70% 5.68% 6.29% -1.22%
Calendar Year End (%)
BEST QUARTER WAS UP 8.21%, 3RD QUARTER, 2009; AND WORST QUARTER WAS DOWN
-4.31%, 2ND QUARTER, 2013.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the periods ended December 31, 2018)
1 YEAR 5 YEARS 10 YEARS
-----------------------------------------------------------------------------------------------------
Class A* Return Before Taxes -5.62% 2.83% 6.10%
-----------------------------------------------------------------------------------------------------
Class C* Return Before Taxes -3.15% 2.98% 5.78%
-----------------------------------------------------------------------------------------------------
Advisor Class** Return Before Taxes -1.22% 4.01% 6.84%
------------------------------------------------------------------------------------
Return After Taxes on Distributions -2.84% 1.63% 4.24%
------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -0.72% 1.97% 4.27%
-----------------------------------------------------------------------------------------------------
Bloomberg Barclays U.S. Aggregate Bond Index
(reflects no deduction for fees, expenses, or taxes) 0.01% 2.52% 3.48%
-----------------------------------------------------------------------------------------------------
* Performance information for Class A and Class C shares prior to April 22,
2016 reflects the performance of the Fund's Advisor Class shares, adjusted to
reflect the respective expense ratios of these Classes of shares.
**After-tax returns:
-Are shown for Advisor Class shares only and will vary for the other Classes
of shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal
marginal income tax rates, and do not reflect the impact of state and local
taxes; actual after-tax returns depend on an individual investor's tax
situation and are likely to differ from those shown; and
-Are not relevant to investors who hold fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
31
INVESTMENT ADVISER:
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS:
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
---------------------------------------------------------------------------------
Paul J. DeNoon* Since 2016 Senior Vice President of the Adviser
Scott A. DiMaggio Since February 2019 Senior Vice President of the Adviser
Gershon M. Distenfeld Since 2016 Senior Vice President of the Adviser
Douglas J. Peebles Since 2016 Senior Vice President of the Adviser
Matthew S. Sheridan Since 2016 Senior Vice President of the Adviser
*Mr. DeNoon is expected to retire from the Adviser effective January 1, 2020.
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
32
TAX-AWARE
--------------------------------------------------------------------------------
AB TAX-AWARE FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek to maximize after-tax return
and income.
FEES AND EXPENSES OF THE FUND
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Fund. You may qualify for sales charge reductions if you and
members of your family invest, or agree to invest in the future, at least
$100,000 in AB Mutual Funds. More information about these and other discounts
is available from your financial intermediary and in Investing in the
Funds--Sales Charge Reduction Programs for Class A Shares on page 54 of this
Prospectus, in Appendix C--Financial Intermediary Waivers of this Prospectus
and in Purchase of Shares--Sales Charge Reduction Programs for Class A Shares
on page 123 of the Fund's Statement of Additional Information ("SAI").
You may be required to pay commissions and/or other forms of compensation to a
broker for transactions in Advisor Class shares, which are not reflected in the
tables or the examples below.
SHAREHOLDER FEES (fees paid directly from your investment)
CLASS A CLASS C ADVISOR CLASS
SHARES SHARES SHARES
----------------------------------------------------------------------------------------------------------------
Maximum Sales Charge (Load) Imposed on Purchases
(as a percentage of offering price) 3.00% None None
----------------------------------------------------------------------------------------------------------------
Maximum Deferred Sales Charge (Load)
(as a percentage of offering price or redemption proceeds, whichever is lower) None(a) 1.00%(b) None
----------------------------------------------------------------------------------------------------------------
Exchange Fee None None None
----------------------------------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES (expenses that you pay each year as a percentage
of the value of your investment)
CLASS A CLASS C ADVISOR CLASS
-----------------------------------------------------------------------------------------------------------------
Management Fees .45% .45% .45%
Distribution and/or Service (12b-1) Fees .25% 1.00% None
Other Expenses:
Transfer Agent .05% .05% .05%
Other Expenses .52% .52% .52%
------ ------ ------
Total Other Expenses .57% .57% .57%
------ ------ ------
Total Annual Fund Operating Expenses 1.27% 2.02% 1.02%
====== ====== ======
Fee Waiver and/or Expense Reimbursement(c) (.52)% (.52)% (.52)%
------ ------ ------
Total Annual Fund Operating Expenses After Fee Waiver and/or Expense Reimbursement .75% 1.50% .50%
====== ====== ======
-----------------------------------------------------------------------------------------------------------------
(a)Purchases of Class A shares in amounts of $1,000,000 or more, or by certain
group retirement plans, may be subject to a 1%, 1-year contingent deferred
sales charge ("CDSC"), which may be subject to waiver in certain
circumstances.
(b)For Class C shares, the CDSC is 0% after the first year. Class C shares
automatically convert to Class A shares after ten years.
(c)The Adviser has contractually agreed to waive its management fees and/or to
bear expenses of the Fund until January 31, 2020 to the extent necessary to
prevent total Fund operating expenses (excluding expenses associated with
securities sold short, acquired fund fees and expenses other than the
advisory fees of any AB Mutual Funds in which the Fund may invest, interest
expense, taxes, extraordinary expenses, and brokerage commissions and other
transaction costs), on an annualized basis, from exceeding .75%, 1.50% and
.50% of average daily net assets, respectively, for Class A, Class C and
Advisor Class shares ("expense limitations"). The expense limitations will
remain in effect until January 31, 2020 and will continue thereafter from
year to year unless the Adviser provides notice of termination to the Fund
at least 60 days prior to the end of the period.
33
EXAMPLES
The Examples are intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Examples assume that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Examples also assume that your
investment has a 5% return each year, that the Fund's operating expenses stay
the same and that any fee waiver remains in effect for only the first year.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
CLASS A CLASS C ADVISOR CLASS
------------------------------------------------------------------------------------------
After 1 Year $ 374 $ 253* $ 51
After 3 Years $ 641 $ 583 $ 273
After 5 Years $ 928 $1,040 $ 513
After 10 Years $1,744 $2,306 $1,201
------------------------------------------------------------------------------------------
*If you did not redeem your shares at the end of the period, your expenses
would be decreased by $100.
PORTFOLIO TURNOVER
The Fund pays transaction costs, such as commissions, when it buys or sells
securities (or "turns over" its portfolio). A higher portfolio turnover rate
may indicate higher transaction costs and may result in higher taxes when Fund
shares are held in a taxable account. These transaction costs, which are not
reflected in the Annual Fund Operating Expenses or in the Examples, affect the
Fund's performance. During the most recent fiscal year, the Fund's portfolio
turnover rate was 68% of the average value of its portfolio.
PRINCIPAL STRATEGIES
The Fund pursues its objective by investing principally in a national portfolio
of both municipal and taxable fixed-income securities. The Fund invests, under
normal circumstances, at least 80% of its net assets in fixed-income
securities. The Fund also invests, under normal circumstances, at least 65% of
its total assets in municipal securities that pay interest that is exempt from
federal income tax. These securities may pay interest that is subject to the
federal alternative minimum tax ("AMT") for certain taxpayers. The income
earned and distributed to shareholders on non-municipal securities would not be
exempt from federal income tax. The Fund may invest in fixed-income securities
rated below investment grade (commonly known as "junk bonds"), although such
securities are not expected to be the Fund's primary focus.
The Adviser selects securities for the Fund based on a variety of factors,
including credit quality, maturity, diversification benefits, and the relative
expected after-tax returns of taxable and municipal securities (considering
federal tax rates and without regard to state and local income taxes). As the
objective is to increase the after-tax return of the Fund, an investor in the
Fund may incur a tax liability that will generally be greater than the same
investor would have in a fund investing exclusively in municipal securities,
and that will be higher if the investor is in a higher tax bracket. In
addition, the tax implications of the Fund's trading activity, such as
realizing taxable gains, are considered in making purchase and sale decisions
for the Fund. The Fund may invest in fixed-income securities of any maturity
from short- to long-term.
The Fund may also invest in forward commitments, zero-coupon municipal
securities and variable, floating and inverse floating-rate municipal
securities.
The Fund may use derivatives, such as swaps, options, futures contracts and
forwards, to achieve its investment strategies. For example, the Fund may enter
into tender option bonds ("TOBs") and credit default and interest rate swaps
relating to municipal and taxable fixed-income securities or securities
indices. Derivatives may provide more efficient and economical exposure to
fixed-income securities markets than direct investments.
PRINCIPAL RISKS
. MARKET RISK: The value of the Fund's assets will fluctuate as the bond
market fluctuates. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events that affect large portions of the market.
. CREDIT RISK: An issuer or guarantor of a fixed-income security, or the
counterparty to a derivatives or other contract, may be unable or unwilling
to make timely payments of interest or principal, or to otherwise honor its
obligations. The issuer or guarantor may default, causing a loss of the full
principal amount of a security and accrued interest. The degree of risk for
a particular security may be reflected in its credit rating. There is the
possibility that the credit rating of a fixed-income security may be
downgraded after purchase, which may adversely affect the value of the
security.
. BELOW INVESTMENT GRADE SECURITIES RISK: Investments in fixed-income
securities with lower ratings (commonly known as "junk bonds") are subject
to a higher probability that an issuer will default or fail to meet its
payment obligations. These securities may be subject to greater price
volatility due to such factors as specific municipal or corporate
developments and negative performance of the junk bond market generally and
may be more difficult to trade or dispose of than other types of securities.
34
. MUNICIPAL MARKET RISK: This is the risk that special factors may adversely
affect the value of municipal securities and have a significant effect on
the yield or value of the Fund's investments in municipal securities. These
factors include economic conditions, political or legislative changes,
uncertainties related to the tax status of municipal securities, or the
rights of investors in these securities. To the extent that the Fund invests
more of its assets in a particular state's municipal securities, the Fund
may be vulnerable to events adversely affecting that state, including
economic, political and regulatory occurrences, court decisions, terrorism
and catastrophic natural disasters, such as hurricanes or earthquakes. The
Fund's investments in certain municipal securities with principal and
interest payments that are made from the revenues of a specific project or
facility, and not general tax revenues, may have increased risks. Factors
affecting the project or facility, such as local business or economic
conditions, could have a significant effect on the project's ability to make
payments of principal and interest on these securities.
The Fund may invest in the municipal securities of Puerto Rico or other U.S.
territories and their governmental agencies and municipalities, which are
exempt from federal, state, and, where applicable, local income taxes. These
municipal securities may have more risks than those of other U.S. issuers of
municipal securities. Like many U.S. states and municipalities, Puerto Rico
experienced a significant downturn during the recent recession. Puerto Rico's
downturn was particularly severe, and Puerto Rico continues to face a very
challenging economic and fiscal environment. Municipal securities issued by
many Puerto Rico issuers have extremely low credit ratings and are on
"negative watch" by credit rating organizations. Several Puerto Rico issuers
are in default on principal and interest payments. These defaults cast doubts
on the ability of Puerto Rico and its government agencies to make future
payments. If the general economic situation in Puerto Rico continues to
persist or worsens, the volatility and credit quality of Puerto Rican
municipal securities could continue to be adversely affected, and the market
for such securities may experience continued volatility. In addition, Puerto
Rico's difficulties have resulted in increased volatility in portions of the
broader municipal securities market from time to time, and this may recur in
the future.
. TAX RISK: From time to time, the U.S. Government and the U.S. Congress
consider changes in federal tax law that could limit or eliminate the
federal tax exemption for municipal bond income, which would in effect
reduce the income received by shareholders from the Fund by increasing taxes
on that income. In such event, the Fund's net asset value, or NAV, could
also decline as yields on municipal bonds, which are typically lower than
those on taxable bonds, would be expected to increase to approximately the
yield of comparable taxable bonds. Actions or anticipated actions affecting
the tax exempt status of municipal bonds could also result in significant
shareholder redemptions of Fund shares as investors anticipate adverse
effects on the Fund or seek higher yields to offset the potential loss of
the tax deduction. As a result, the Fund would be required to maintain
higher levels of cash to meet the redemptions, which would negatively affect
the Fund's yield.
. INTEREST RATE RISK: Changes in interest rates will affect the value of
investments in fixed-income securities. When interest rates rise, the value
of existing investments in fixed-income securities tends to fall and this
decrease in value may not be offset by higher income from new investments.
Interest rate risk is generally greater for fixed-income securities with
longer maturities or durations.
. DURATION RISK: Duration is a measure that relates the expected price
volatility of a fixed-income security to changes in interest rates. The
duration of a fixed-income security may be shorter than or equal to full
maturity of a fixed-income security. Fixed-income securities with longer
durations have more risk and will decrease in price as interest rates rise.
. INFLATION RISK: This is the risk that the value of assets or income from
investments will be less in the future as inflation decreases the value of
money. As inflation increases, the value of the Fund's assets can decline as
can the value of the Fund's distributions. This risk is significantly
greater for fixed-income securities with longer maturities.
. ILLIQUID INVESTMENTS RISK: Illiquid investments risk exists when certain
investments become difficult to purchase or sell. Difficulty in selling such
investments may result in sales at disadvantageous prices affecting the
value of your investment in the Fund. Causes of illiquid investments risk
may include low trading volumes and large positions. Municipal securities
may have more illiquid investments risk than other fixed-income securities
because they trade less frequently and the market for municipal securities
is generally smaller than many other markets.
. LEVERAGE RISK: To the extent the Fund uses leveraging techniques, its NAV
may be more volatile because leverage tends to exaggerate the effect of
changes in interest rates and any increase or decrease in the value of the
Fund's investments.
. DERIVATIVES RISK: Derivatives may be difficult to price or unwind and
leveraged so that small changes may produce disproportionate losses for the
Fund. Derivatives may also be subject to counterparty risk to a greater
degree than more traditional investments.
. MANAGEMENT RISK: The Fund is subject to management risk because it is an
actively-managed investment fund. The Adviser will apply its investment
techniques and risk analyses in making investment decisions, but there is no
guarantee that its techniques will produce the intended results.
As with all investments, you may lose money by investing in the Fund.
35
BAR CHART AND PERFORMANCE INFORMATION
The bar chart and performance information provide an indication of the
historical risk of an investment in the Fund by showing:
. how the Fund's performance changed from year to year over the life of the
Fund; and
. how the Fund's average annual returns for one year, five years and since
inception compare to those of a broad-based securities market index.
You may obtain updated performance information on the Fund's website at
www.abfunds.com (click on "Investments--Mutual Funds").
The Fund's past performance before and after taxes, of course, does not
necessarily indicate how it will perform in the future.
BAR CHART
The annual returns in the bar chart are for the Fund's Class A shares and do
not reflect sales loads. If sales loads were reflected, returns would be less
than those shown.
[CHART]
09 10 11 12 13 14 15 16 17 18
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
n/a n/a n/a n/a n/a 7.05% 3.24% 0.10% 5.15% 0.25%
Calendar Year End (%)
During the period shown in the bar chart, the Fund's:
BEST QUARTER WAS UP 2.75%, 2ND QUARTER, 2016; AND WORST QUARTER WAS DOWN
-4.15%, 4TH QUARTER, 2016.
PERFORMANCE TABLE
AVERAGE ANNUAL TOTAL RETURNS
(For the period ended December 31, 2018)
SINCE
1 YEAR 5 YEARS INCEPTION*
-----------------------------------------------------------------------------------------------------
Class A** Return Before Taxes -2.72% 2.49% 2.47%
--------------------------------------------------------------------------------------
Return After Taxes on Distributions -2.87% 2.40% 2.38%
--------------------------------------------------------------------------------------
Return After Taxes on Distributions and Sale of Fund Shares -0.74% 2.30% 2.28%
-----------------------------------------------------------------------------------------------------
Class C Return Before Taxes -1.47% 2.36% 2.34%
-----------------------------------------------------------------------------------------------------
Advisor Class Return Before Taxes 0.50% 3.39% 3.36%
-----------------------------------------------------------------------------------------------------
Bloomberg Barclays Municipal Bond Unhedged Index
(reflects no deduction for fees, expenses or taxes) 1.28% 3.82% 3.76%
-----------------------------------------------------------------------------------------------------
* Inception date for all Classes is 12/11/13.
**After-tax returns:
-Are shown for Class A shares only and will vary for the other Classes of
shares because these Classes have different expense ratios;
-Are an estimate, which is based on the highest historical individual federal
marginal income tax rates and do not reflect the impact of state and local
taxes; actual after-tax returns depend on an individual investor's tax
situation and are likely to differ from those shown; and
-Are not relevant to investors who hold Fund shares through tax-deferred
arrangements such as 401(k) plans or individual retirement accounts.
36
INVESTMENT ADVISER
AllianceBernstein L.P. is the investment adviser for the Fund.
PORTFOLIO MANAGERS
The following table lists the persons responsible for day-to-day management of
the Fund's portfolio:
EMPLOYEE LENGTH OF SERVICE TITLE
----------------------------------------------------------------------------------------
Robert B. (Guy) Davidson, III Since 2013 Senior Vice President of the Adviser
Terrance T. Hults Since 2013 Senior Vice President of the Adviser
Shawn E. Keegan Since 2013 Senior Vice President of the Adviser
Matthew J. Norton Since 2017 Vice President of the Adviser
Andrew D. Potter Since January 2018 Vice President of the Adviser
ADDITIONAL INFORMATION
For important information about the purchase and sale of Fund shares, tax
information and financial intermediary compensation, please turn to ADDITIONAL
INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND FINANCIAL
INTERMEDIARIES, page 38 in this Prospectus.
37
ADDITIONAL INFORMATION ABOUT PURCHASE AND SALE OF FUND SHARES, TAXES AND
FINANCIAL INTERMEDIARIES
. PURCHASE AND SALE OF FUND SHARES
PURCHASE MINIMUMS
The following table describes the initial and subsequent minimum purchase
amounts for each class of shares, which are subject to waiver in certain
circumstances.
INITIAL SUBSEQUENT
---------------------------------------------------------------------------------------------------------------
Class A/Class C shares, including traditional IRAs and Roth IRAs $2,500 $50
(Class B shares are not currently offered to new investors)
---------------------------------------------------------------------------------------------------------------
Automatic Investment Program None $50
If initial minimum investment is
less than $2,500, then $200
monthly until account balance
reaches $2,500
---------------------------------------------------------------------------------------------------------------
Advisor Class shares (only available to fee-based programs or None None
through other limited arrangements and certain commission-based
brokerage arrangements)
---------------------------------------------------------------------------------------------------------------
Class A, Class R, Class K, Class I and Class Z shares are available None None
at NAV, without an initial sales charge, to 401(k) plans, 457
plans, employer-sponsored 403(b) plans, profit-sharing and money
purchase pension plans, defined benefit plans, and non-qualified
deferred compensation plans and, for Class Z shares, to persons
participating in certain fee-based programs sponsored by a
financial intermediary, where in each case plan level or omnibus
accounts are held on the books of a Fund.
---------------------------------------------------------------------------------------------------------------
You may sell (redeem) your shares each day the New York Stock Exchange (the
"Exchange") is open. You may sell your shares through your financial
intermediary or by mail (AllianceBernstein Investor Services, Inc., P.O. Box
786003, San Antonio, TX 78278-6003) or telephone (800-221-5672).
. TAX INFORMATION
Each Fund may pay income dividends or make capital gains distributions, which
may be subject to federal income taxes and taxable as ordinary income or
capital gains, and may also be subject to state and local taxes.
. PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES
If you purchase shares of a Fund through a broker-dealer or other financial
intermediary (such as a bank or a group retirement plan), the Fund and its
related companies may pay the intermediary for the sale of Fund shares and
related services. These payments may create a conflict of interest by
influencing the broker-dealer or other financial intermediary and your
salesperson to recommend the Fund over another investment. Ask your salesperson
or visit your financial intermediary's website for more information.
38
ADDITIONAL INFORMATION ABOUT THE FUNDS' RISKS AND INVESTMENTS
--------------------------------------------------------------------------------
This section of the Prospectus provides additional information about the Funds'
investment practices and related risks, including principal and non-principal
strategies and risks. Most of these investment practices are discretionary,
which means that the Adviser may or may not decide to use them. This Prospectus
does not describe all of a Fund's investment practices; additional information
about each Fund's risks and investments can be found in the Funds' SAI.
DERIVATIVES
Each Fund may, but is not required to, use derivatives for hedging or other
risk management purposes or as part of its investment strategies. Derivatives
are financial contracts whose value depends on, or is derived from, the value
of an underlying asset, reference rate or index. A Fund may use derivatives to
earn income and enhance returns, to hedge or adjust the risk profile of its
investments, to replace more traditional direct investments and to obtain
exposure to otherwise inaccessible markets.
There are four principal types of derivatives--options, futures contracts,
forwards and swaps--each of which is described below. Derivatives include
listed and cleared transactions where a Fund's derivatives trade counterparty
is an exchange or clearinghouse and non-cleared bilateral "over-the-counter"
transactions where a Fund's derivatives trade counterparty is a financial
institution. Exchange-traded or cleared derivatives transactions tend to be
subject to less counterparty credit risk than those that are privately
negotiated.
A Fund's use of derivatives may involve risks that are different from, or
possibly greater than, the risks associated with investing directly in
securities or other more traditional instruments. These risks include the risk
that the value of a derivative instrument may not correlate perfectly, or at
all, with the value of the assets, reference rates, or indices that they are
designed to track. Other risks include: the possible absence of a liquid
secondary market for a particular instrument and possible exchange-imposed
price fluctuation limits, either of which may make it difficult or impossible
to close out a position when desired; and the risk that the counterparty will
not perform its obligations. Certain derivatives may have a leverage component
and involve leverage risk. Adverse changes in the value or level of the
underlying asset, note or index can result in a loss substantially greater than
the Fund's investment (in some cases, the potential loss is unlimited).
The Funds' investments in derivatives may include, but are not limited to, the
following:
. FORWARD CONTRACTS. A forward contract is an agreement that obligates one
party to buy, and the other party to sell, a specific quantity of an
underlying commodity or other tangible asset for an agreed-upon price at a
future date. A forward contract generally is settled by physical delivery of
the commodity or tangible asset to an agreed-upon location (rather than
settled by cash), or is rolled forward into a new forward contract or, in
the case of a non-deliverable forward, by a cash payment at maturity. The
Funds' investments in forward contracts may include the following:
- Forward Currency Exchange Contracts. A Fund may purchase or sell forward
currency exchange contracts for hedging purposes to minimize the risk from
adverse changes in the relationship between the U.S. Dollar and other
currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies as described below under "Other
Derivatives and Strategies--Currency Transactions". A Fund, for example, may
enter into a forward contract as a transaction hedge (to "lock in" the
U.S. Dollar price of a non-U.S. Dollar security), as a position hedge (to
protect the value of securities the Fund owns that are denominated in a
foreign currency against substantial changes in the value of the foreign
currency) or as a cross-hedge (to protect the value of securities the Fund
owns that are denominated in a foreign currency against substantial changes
in the value of that foreign currency by entering into a forward contract
for a different foreign currency that is expected to change in the same
direction as the currency in which the securities are denominated).
. FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. A futures contract is a
standardized, exchange-traded agreement that obligates the buyer to buy and
the seller to sell a specified quantity of an underlying asset (or settle
for cash the value of a contract based on an underlying asset, rate or
index) at a specific price on the contract maturity date. Options on futures
contracts are options that call for the delivery of futures contracts upon
exercise. A Fund may purchase or sell futures contracts and options thereon
for investment purposes or to hedge against changes in interest rates,
securities (through index futures or options) or currencies. A Fund may also
purchase or sell futures contracts for foreign currencies or options thereon
for non-hedging purposes as a means of making direct investments in foreign
currencies, as described below under "Other Derivatives and
Strategies--Currency Transactions".
. OPTIONS. An option is an agreement that, for a premium payment or fee, gives
the option holder (the buyer) the right but not the obligation to buy (a
"call option") or sell (a "put option") the underlying asset (or settle for
cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Investments in options are considered speculative. A Fund may lose the
premium paid for them if the price of the underlying security or other asset
decreased or remained the same (in the case of a call option) or increased
or remained the same (in the case of a put option). If a put or call option
purchased by a Fund were permitted to expire without being sold or
exercised, its premium would represent a loss to the Fund. The Funds'
investments in options include the following:
- Options on Foreign Currencies--A Fund may invest in options on foreign
currencies that are privately negotiated
39
or traded on U.S. or foreign exchanges for hedging purposes to protect
against declines in the U.S. Dollar value of foreign currency denominated
securities held by a Fund and against increases in the U.S. Dollar cost of
securities to be acquired. The purchase of an option on a foreign currency
may constitute an effective hedge against fluctuations in exchange rates,
although if rates move adversely, a Fund may forfeit the entire amount of
the premium plus related transaction costs. A Fund may also invest in
options on foreign currencies for non-hedging purposes as a means of making
direct investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions".
- Options on Securities. A Fund may purchase or write a put or call option on
securities. A Fund may write covered options, which means writing an option
for securities the Fund owns, and uncovered options.
- Options on Securities Indices. An option on a securities index is similar to
an option on a security except that, rather than taking or making delivery
of a security at a specified price, an option on a securities index gives
the holder the right to receive, upon exercise of the option, an amount of
cash if the closing level of the chosen index is greater than (in the case
of a call) or less than (in the case of a put) the exercise price of the
option.
. SWAP TRANSACTIONS--A swap is an agreement that obligates two parties to
exchange a series of cash flows at specified intervals (payment dates) based
upon or calculated by reference to changes in specified prices or rates
(e.g., interest rates in the case of interest rate swaps, currency exchange
rates in the case of currency swaps) for a specified amount of an underlying
asset (the "notional" principal amount). Generally, the notional principal
amount is used solely to calculate the payment stream, but is not exchanged.
Most swaps are entered into on a net basis (i.e., the two payment streams
are netted out, with a Fund receiving or paying, as the case may be, only
the net amount of the two payments). Payments received by AB TAX-AWARE FIXED
INCOME PORTFOLIO from swap agreements will result in taxable income, either
as ordinary income or capital gains, rather than tax-exempt income, which
will increase the amount of taxable distributions received by shareholders.
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. Funds
post initial and variation margin to support their obligations under cleared
swaps by making payments to their clearing member FCMs. Central clearing is
expected to reduce counterparty credit risks and increase liquidity, but
central clearing does not make swap transactions risk free. Centralized
clearing will be required for additional categories of swaps on a phased-in
basis based on Commodity Futures Trading Commission approval of contracts
for central clearing. The Securities and Exchange Commission (the "SEC") may
adopt similar clearing requirements in respect of security-based swaps.
Bilateral swap agreements are two-party contracts entered into primarily by
institutional investors and are not cleared through a third party. The
Funds' investments in swap transactions include the following:
- Interest Rate Swaps, Swaptions, Caps and Floors. 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). Unless there is a counterparty default,
the risk of loss to the Fund from interest rate swap transactions is limited
to the net amount of interest payments that the Fund is contractually
obligated to make. If the counterparty to an interest rate swap transaction
defaults, the Fund's risk of loss consists of the net amount of interest
payments that the Fund contractually is entitled to receive.
An option on a swap agreement, also called a "swaption", is an option that
gives the buyer the right, but not the obligation, to enter into a swap on a
future date in exchange for paying a market-based "premium". A receiver
swaption gives the owner the right to receive the total return of a
specified asset, reference rate, or index. A payer swaption gives the owner
the right to pay the total return of a specified asset, reference rate, or
index. Swaptions also include options that allow an existing swap to be
terminated or extended by one of the counterparties.
The purchase of an interest rate cap entitles the purchaser, to the extent
that a specified index exceeds a predetermined interest rate, to receive
payments of interest on a contractually-based principal amount from the
party selling the interest rate cap. The purchase of an interest rate floor
entitles the purchaser, to the extent that a specified index falls below a
predetermined interest rate, to receive payments of interest on an agreed
principal amount from the party selling the interest rate floor. It may be
more difficult for a Fund to trade or close out interest rate caps and
floors in comparison to other types of swaps.
There is no limit on the amount of interest rate transactions that may be
entered into by a Fund. The value of these transactions will fluctuate based
on changes in interest rates.
Interest rate swap, swaption, cap and floor transactions may, for example,
be used to preserve a return or spread on a particular investment or a
portion of a Fund's portfolio or to protect against an increase in the price
of securities a Fund anticipates purchasing at a later date. Interest rate
swaps may also be used to leverage a Fund's investments by creating
positions that are functionally similar to purchasing a municipal or other
fixed-income security but may only require payments to a swap counterparty
under certain circumstances and allow the Fund to efficiently increase (or
decrease) its duration and income.
- Inflation (CPI) Swaps. Inflation swap agreements are contracts in which one
party agrees to pay the cumulative
40
percentage increase in a price index (the Consumer Price Index with respect
to CPI swaps) over the term of the swap (with some lag on the inflation
index), and the other pays a compounded fixed rate. Inflation swap
agreements may be used to protect the NAV of a Fund against an unexpected
change in the rate of inflation measured by an inflation index since the
value of these agreements is expected to increase if unexpected inflation
increases. A Fund will enter into inflation swaps on a net basis. The values
of inflation swap agreements are expected to change in response to changes
in real interest rates. Real interest rates are tied to the relationship
between nominal interest rates and the rate of inflation. If nominal
interest rates increase at a faster rate than inflation, real interest rates
may rise, leading to a decrease in value of an inflation swap agreement.
- Credit Default Swap Agreements. The "buyer" in a credit default swap
contract is obligated to pay the "seller" a periodic stream of payments over
the term of the contract in return for a contingent payment upon the
occurrence of a credit event with respect to an underlying reference
obligation. Generally, a credit event means bankruptcy, failure to pay,
obligation acceleration or restructuring. A Fund may be either the buyer or
seller in the transaction. If a Fund is a seller, the Fund receives a fixed
rate of income throughout the term of the contract, which typically is
between one month and ten years, provided that no credit event occurs. If a
credit event occurs, a Fund typically must pay the contingent payment to the
buyer, which will be either (i) the "par value" (face amount) of the
reference obligation, in which case the Fund will receive the reference
obligation in return or (ii) an amount equal to the difference between the
par value and the current market value of the reference obligation. The
current market value of the reference obligation is typically determined via
an auction process sponsored by the International Swaps and Derivatives
Association, Inc. The periodic payments previously received by the Fund,
coupled with the value of any reference obligation received, may be less
than the full amount it pays to the buyer, resulting in a loss to the Fund.
If a Fund is a buyer and no credit event occurs, the Fund will lose its
periodic stream of payments over the term of the contract. However, if a
credit event occurs, the buyer typically receives full notional value for a
reference obligation that may have little or no value.
Credit default swaps may involve greater risks than if a Fund had invested
in the reference obligation directly. Credit default swaps are subject to
general market risk, illiquid investments risk and credit risk.
- Currency Swaps. A Fund may invest in currency swaps for hedging purposes to
protect against adverse changes in exchange rates between the U.S. Dollar
and other currencies or for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Other
Derivatives and Strategies--Currency Transactions". Currency swaps involve
the exchange by a Fund with another party of a series of payments in
specified currencies. Currency swaps may be bilateral and privately
negotiated with the Fund expecting to achieve an acceptable degree of
correlation between its portfolio investments and its currency swaps
position. Currency swaps may involve the exchange of actual principal
amounts of currencies by the counterparties at the initiation, and again
upon the termination, of the transaction.
- Total Return Swaps. A Fund may enter into total return swaps, under which
one party agrees to pay the other the total return of a defined underlying
asset, such as a security or basket of securities, or non-asset reference,
such as a securities index, during the specified period in return for
periodic payments based on a fixed or variable interest rate or the total
return from different underlying assets or references. Total return swaps
could result in losses if the underlying asset or reference does not perform
as anticipated.
- Variance and Correlation Swaps. A Fund may enter into variance or
correlation swaps to hedge equity market risk or adjust exposure to the
equity markets. Variance swaps are contracts in which two parties agree to
exchange cash payments based on the difference between the stated level of
variance and the actual variance realized on an underlying asset or index.
"Variance" as used here is defined as the sum of the square of the returns
on the reference asset or index (which in effect is a measure of its
"volatility") over the length of the contract term. The parties to a
variance swap can be said to exchange actual volatility for a contractually
stated rate of volatility. Correlation swaps are contracts in which two
parties agree to exchange cash payments based on the differences between the
stated and the actual correlation realized on the underlying equity
securities within a given equity index. "Correlation" as used here is
defined as the weighted average of the correlations between the daily
returns of each pair of securities within a given equity index. If two
assets are said to be closely correlated, it means that their daily returns
vary in similar proportions or along similar trajectories.
. OTHER DERIVATIVES AND STRATEGIES--
- Eurodollar Instruments. Eurodollar instruments are essentially U.S.
Dollar-denominated futures contracts or options that are linked to the
London Interbank Offered Rate (LIBOR). Eurodollar futures contracts enable
purchasers to obtain a fixed rate for the lending of funds and sellers to
obtain a fixed rate for borrowings.
- Currency Transactions. A Fund may invest in non-U.S. Dollar-denominated
securities on a currency hedged or un-hedged basis. The Adviser may actively
manage a Fund's currency exposures and 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 contracts and options on futures contracts, swaps and options. The
Adviser may enter into transactions for investment opportunities when it
anticipates that a foreign currency will appreciate or depreciate in value
but securities denominated
41
in that currency are not held by a Fund and do not present attractive
investment opportunities. Such transactions may also be used when the
Adviser believes that it may be more efficient than a direct investment in a
foreign currency-denominated security. A Fund may also conduct currency
exchange contracts on a spot basis (i.e., for cash at the spot rate
prevailing in the currency exchange market for buying or selling currencies).
CONVERTIBLE SECURITIES
Prior to conversion, convertible securities have the same general
characteristics as non-convertible debt securities, which generally provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. The price of a convertible security
will normally vary with changes in the price of the underlying equity security,
although the higher yield tends to make the convertible security less volatile
than the underlying equity security. As with debt securities, the market value
of convertible securities tends to decrease as interest rates rise and increase
as interest rates decline. While convertible securities generally offer lower
interest or dividend yields than non-convertible debt securities of similar
quality, they offer investors the potential to benefit from increases in the
market prices of the underlying common stock. Convertible debt securities that
are rated Baa3 or lower by Moody's or BBB- or lower by S&P or Fitch and
comparable unrated securities may share some or all of the risks of debt
securities with those ratings.
DEPOSITARY RECEIPTS AND SECURITIES OF SUPRANATIONAL ENTITIES
A Fund, except AB TAX-AWARE FIXED INCOME PORTFOLIO, may invest in depositary
receipts. American Depositary Receipts, or ADRs, are depositary receipts
typically issued by a U.S. bank or trust company that evidence ownership of
underlying securities issued by a foreign corporation. Global Depositary
Receipts, or GDRs, European Depositary Receipts, or EDRs, and other types of
depositary receipts are typically issued by non-U.S. banks or trust companies
and evidence ownership of underlying securities issued by either a U.S. or a
non-U.S. company. Depositary receipts may not necessarily be denominated in the
same currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock underlying unsponsored depositary receipts
are not obligated to disclose material information in the United States.
Generally, depositary receipts in registered form are designed for use in the
U.S. securities markets, and depositary receipts in bearer form are designed
for use in securities markets outside of the United States. For purposes of
determining the country of issuance, investments in depositary receipts of
either type are deemed to be investments in the underlying securities.
A supranational entity is an entity designated or supported by the national
government of one or more countries to promote economic reconstruction or
development. Examples of supranational entities include the World Bank
(International Bank for Reconstruction and Development) and the European
Investment Bank. "Semi-governmental securities" are securities issued by
entities owned by either a national, state or equivalent government or are
obligations of one of such government jurisdictions that are not backed by its
full faith and credit and general taxing powers.
EVENT-LINKED SECURITIES
Event-linked securities are variable or fixed-rate fixed-income securities or
types of equity securities for which the return of principal and payment of
interest are contingent on the non-occurrence of various catastrophe exposures,
which may be specific trigger events or a diversified group of events, such as
hurricanes, typhoons, wind events or earthquakes. The most common type of
event-linked fixed-income bonds are known as "catastrophe" or "cat" bonds. If
the trigger events do not occur, a Fund will recover its principal and
interest. If a trigger event occurs, a Fund may lose a portion of or its entire
principal invested in the securities. These securities are generally illiquid
and may be rated below investment grade or the unrated equivalent and have the
same or equivalent risks as higher yield debt securities ("junk bonds").
FORWARD COMMITMENTS
Forward commitments for the purchase or sale of securities may include
purchases on a when-issued basis or purchases or sales on a delayed delivery
basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a
merger, corporate reorganization or debt restructuring or approval of a
proposed financing by appropriate authorities (i.e., a "when, as and if issued"
trade).
When forward commitments with respect to fixed-income securities are
negotiated, the price, which is generally expressed in yield terms, is fixed at
the time the commitment is made, but payment for and delivery of the securities
take place at a later date. Securities purchased or sold under a forward
commitment are subject to market fluctuation and no interest or dividends
accrue to the purchaser prior to the settlement date. There is a risk of loss
if the value of either a purchased security declines before the settlement date
or the security sold increases before the settlement date. The use of forward
commitments helps a Fund to protect against anticipated changes in interest
rates and prices.
ILLIQUID SECURITIES
The Funds limit their investments in illiquid securities to 15% of their net
assets. Under Rule 22e-4 under the Investment Company Act of 1940 (the "1940
Act"), the term "illiquid securities" for this purpose means any security or
investment that a Fund reasonably expects cannot be sold or disposed of in
current market conditions in seven calendar days or less without the sale or
disposition significantly changing the market value of the investment.
A Fund that invests in illiquid securities may not be able to sell such
securities and may not be able to realize their full value upon sale.
Restricted securities (securities subject to legal or contractual restrictions
on resale) may be illiquid. Some restricted securities (such as securities
issued pursuant to Rule 144A under the Securities Act of 1933 ("Rule 144A
Securities") or certain commercial paper) may be more difficult to trade or
dispose of than other types of securities.
42
INDEXED COMMERCIAL PAPER
Indexed commercial paper may have its principal linked to changes in foreign
currency exchange rates whereby its principal amount is adjusted upwards or
downwards (but not below zero) at maturity to reflect changes in the referenced
exchange rate. A Fund will receive interest and principal payments on such
commercial paper in the currency in which such commercial paper is denominated,
but the amount of principal payable by the issuer at maturity will change in
proportion to the change (if any) in the exchange rate between the two
specified currencies between the date the instrument is issued and the date the
instrument matures. While such commercial paper entails the risk of loss of
principal, the potential for realizing gains as a result of changes in foreign
currency exchange rates enables a Fund to hedge (or cross-hedge) against a
decline in the U.S. Dollar value of investments denominated in foreign
currencies while providing an attractive money market rate of return. A Fund
will purchase such commercial paper for hedging purposes only, not for
speculation.
INFLATION-INDEXED SECURITIES
Inflation-indexed securities are fixed-income securities whose principal value
is periodically adjusted according to the rate of inflation. If the index
measuring inflation falls, the principal value of these securities will be
adjusted downward, and consequently the interest payable on these securities
(calculated with respect to a smaller principal amount) will be reduced.
The value of inflation-indexed securities tends to react to changes in real
interest rates. In general, the price of inflation-indexed securities can fall
when real interest rates rise, and can rise when real interest rates fall. In
addition, the value of these securities can fluctuate based on fluctuations in
expectations of inflation. Interest payments on these securities can be
unpredictable and will vary as the principal and/or interest is adjusted for
inflation.
INVESTMENT IN EXCHANGE-TRADED FUNDS AND OTHER INVESTMENT COMPANIES
A Fund may invest in shares of exchange-traded funds ("ETFs"), subject to the
restrictions and limitations of the 1940 Act, or any applicable rules,
exemptive orders or regulatory guidance thereunder. ETFs are pooled investment
vehicles, which may be managed or unmanaged, that generally seek to track the
performance of a specific index. ETFs will not track their underlying indices
precisely since the ETFs have expenses and may need to hold a portion of their
assets in cash, unlike the underlying indices, and the ETFs may not invest in
all of the securities in the underlying indices in the same proportion as the
indices for varying reasons. A Fund will incur transaction costs when buying
and selling ETF shares, and indirectly bear the expenses of the ETFs. In
addition, the market value of an ETF's shares, which is based on supply and
demand in the market for the ETF's shares, may differ from its NAV.
Accordingly, there may be times when an ETF's shares trade at a discount to its
NAV.
A Fund may also invest in investment companies other than ETFs, as permitted by
the 1940 Act or the rules and regulations or exemptive orders thereunder. As
with ETF investments, if the Fund acquires shares in other investment
companies, shareholders would bear, indirectly, the expenses of such investment
companies (which may include management and advisory fees), which to the extent
not waived or reimbursed, would be in addition to the Fund's expenses. The
Funds intend to invest uninvested cash balances in an affiliated money market
fund as permitted by Rule 12d1-1 under the 1940 Act. A Fund's investment in
other investment companies, including ETFs, subjects the Fund indirectly to the
underlying risks of those investment companies.
LOAN PARTICIPATIONS
A Fund, except the AB TAX-AWARE FIXED INCOME PORTFOLIO, may invest in corporate
loans either by participating as co-lender at the time the loan is originated
or by buying an interest in the loan in the secondary market from a financial
institution or institutional investor. The financial status of an institution
interposed between a Fund and a borrower may affect the ability of the Fund to
receive principal and interest payments.
The success of a Fund may depend on the skill with which an agent bank
administers the terms of the corporate loan agreements, monitors borrower
compliance with covenants, collects principal, interest and fee payments from
borrowers and, where necessary, enforces creditor remedies against borrowers.
Agent banks typically have broad discretion in enforcing loan agreements.
MORTGAGE-RELATED SECURITIES, OTHER ASSET-BACKED SECURITIES AND STRUCTURED
SECURITIES
A Fund may invest in mortgage-related or other asset-backed securities.
Mortgage-related securities include mortgage pass-through securities,
collateralized mortgage obligations ("CMOs"), commercial mortgage-backed
securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed
securities ("SMBS") and other securities that directly or indirectly represent
a participation in or are secured by and payable from mortgage loans on real
property. These securities may be issued or guaranteed by the U.S. Government
or one of its sponsored entities or may be issued by private organizations.
The value of mortgage-related or other 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 a Fund to a lower rate of return
upon reinvestment of principal. Early payments associated with mortgage-related
securities cause these securities to experience significantly greater price and
yield volatility than is experienced by traditional fixed-income securities.
During periods of rising interest rates, a reduction in prepayments may
increase the effective life of mortgage-related securities, subjecting them to
greater risk of decline in market value in response to rising interest rates.
If the life of a mortgage-related security is inaccurately predicted, a Fund
may not be able to realize the rate of return it expected.
One type of SMBS has one class receiving all of the interest from the mortgage
assets (the interest-only, or "IO" class), while the other class will receive
all of the principal (the principal-only, or "PO" class). The yield to maturity
on an IO class is extremely
43
sensitive to the rate of principal payments (including prepayments) on the
underlying mortgage assets, and a rapid rate of principal payments may have a
material adverse effect on a Fund's yield to maturity from these securities.
Another type of mortgage-related security, known as a Government Sponsored
Enterprise ("GSE") Risk-Sharing Bond or Credit Risk Transfer Security ("CRT"),
is issued by GSEs (and sometimes banks or mortgage insurers) and structured
without any government or GSE guarantee in respect of borrower defaults or
underlying collateral. The risks associated with an investment in CRTs differ
from the risks associated with an investment in mortgage-backed securities
issued by GSEs because, in CRTs, some or all of the credit risk associated with
the underlying mortgage loans is transferred to the end-investor.
A Fund may invest in collateralized debt obligations ("CDOs"), which include
collateralized bond obligations ("CBOs"), collateralized loan obligations
("CLOs"), and other similarly structured securities. CBOs and CLOs are types of
asset-backed securities. A CBO is a trust that is backed by a diversified pool
of high-risk, below investment grade fixed-income securities. A CLO is a trust
typically collateralized by a pool of loans, which may include, among others,
domestic and foreign senior secured loans, senior unsecured loans, and
subordinate corporate loans, including loans that may be rated below investment
grade or equivalent unrated loans. A Fund may invest in other types of
asset-backed securities that have been offered to investors.
The securitization techniques used to develop mortgage-related securities are
being applied to a broad range of financial assets. Through the use of trusts
and special purpose corporations, various types of assets, including automobile
loans and leases, credit card receivables, home equity loans, equipment leases
and trade receivables, are being securitized in structures similar to the
structures used in mortgage securitizations.
A Fund may also invest in various types of structured securities and basket
securities. Structured securities are securities issued in structured financing
transactions, which generally involve aggregating types of debt assets in a
pool or special purpose entity and then issuing new securities. Types of
structured financings include securities described elsewhere in this
Prospectus, such as mortgage-related and other asset-backed securities. A
Fund's investments include investments in structured securities that represent
interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of particular debt obligations.
This type of restructuring involves the deposit with or purchase by an entity,
such as a corporation or trust, of specified instruments (such as commercial
bank loans or high-yield bonds) and the issuance by that entity of one or more
classes of structured securities backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued structured securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to structured securities is dependent on the extent of the cash
flow from the underlying instruments. Structured securities of a given class
may be either subordinated or un-subordinated to the payment of another class.
Subordinated structured securities typically have higher yields and present
greater risks than unsubordinated structured securities.
Basket securities in which a Fund may invest may consist of entities organized
and operated for the purpose of holding a basket of other securities. Baskets
involving debt obligations may be designed to represent the characteristics of
some portion of the debt securities market or the entire debt securities market.
MUNICIPAL SECURITIES
The two principal classifications of municipal securities are bonds and notes.
Municipal bonds are intended to meet longer-term capital needs while municipal
notes are intended to fulfill short-term capital needs. Municipal notes
generally have original maturities not exceeding one year. Municipal notes
include tax anticipation notes, revenue anticipation notes, bond anticipation
notes, variable rate demand obligations, and tax-exempt commercial paper.
Municipal bonds are typically classified as "general obligation" or "revenue"
or "special obligation" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit, and taxing power for the payment of
principal and interest. Revenue or special obligation bonds are payable only
from the revenues derived from a particular facility or class of facilities or,
in some cases, from the proceeds of a special excise or other tax, but not from
general tax revenues. The AB TAX-AWARE FIXED INCOME PORTFOLIO may invest in
revenue bonds, which generally do not have the pledge of the credit of the
issuer. The payment of the principal and interest on revenue bonds is dependent
solely on the ability of the user of the facilities financed by the bonds to
meet its financial obligations and the pledge, if any, of real and personal
property financed as security for such payment. The AB TAX-AWARE FIXED INCOME
PORTFOLIO may invest more than 25% of its total assets in securities or
obligations that are related in such a way that business or political
developments or changes affecting one such security could also affect the
others (for example, securities with interest that is paid from projects of a
similar type).
The AB TAX-AWARE FIXED INCOME PORTFOLIO may invest in municipal lease
obligations. A municipal lease obligation is not backed by the full faith and
credit of the issuing municipality, but is usually backed by the municipality's
pledge to make annual appropriations for lease payments. Thus, it is possible
that a municipality will not appropriate money for lease payments.
Additionally, some municipal lease obligations may allow for lease cancellation
prior to the maturity date of the security. Municipal lease obligations may be
less readily marketable than other municipal securities and some may be
illiquid.
Current federal tax law distinguishes between municipal securities issued to
finance certain private activities ("private activity bonds") and other
municipal securities. Private activity bonds, most of which are AMT-Subject
bonds and are also revenue bonds, include bonds issued to finance such projects
as airports, housing projects, resource recovery programs, solid waste disposal
facilities, and student loan programs. Bonds of certain
44
sectors have special risks. For example, the health-care industry can be
affected by federal or state legislation, electric utilities are subject to
governmental regulation, and private activity bonds are not government-backed.
Attempts to restructure the tax system may have adverse effects on the value of
municipal securities or make them less attractive to investors relative to
taxable treatments.
The AB TAX-AWARE FIXED INCOME PORTFOLIO may purchase municipal securities that
are insured as to the payment of principal and interest under policies issued
by certain insurance companies. Historically, insured municipal securities
typically received a higher credit rating, which meant that the issuer of the
securities paid a lower interest rate. As a result of declines in the credit
quality and associated downgrades of most insurers, insurance has less value
than it did in the past. The market now values insured municipal securities
primarily based on the credit quality of the issuer of the security with little
value given to the insurance feature. In purchasing such insured municipal
securities, the Adviser evaluates the risk and return of municipal securities
through its own research.
If an insurance company's rating is downgraded or the company becomes
insolvent, the prices of municipal securities insured by the insurance company
may decline. The Adviser believes that downgrades in insurance company ratings
or insurance company insolvencies will present limited risk to the Fund. The
underlying credit quality of the issuers of the insured municipal securities
(generally investment grade) reduces the risk of a significant reduction in the
value of the insured municipal security.
PREFERRED STOCK
A Fund may invest in preferred stock. Preferred stock is a class of capital
stock that typically pays dividends at a specified rate. Preferred stock is
generally senior to common stock, but is subordinated to any debt the issuer
has outstanding. Accordingly, preferred stock dividends are not paid until all
debt obligations are first met. Preferred stock may be subject to more
fluctuations in market value, due to changes in market participants'
perceptions of the issuer's ability to continue to pay dividends, than debt of
the same issuer. These investments include convertible preferred stock, which
includes an option for the holder to convert the preferred stock into the
issuer's common stock under certain conditions, among which may be the
specification of a future date when the conversion must begin, a certain number
of shares of common stock per share of preferred stock, or a certain price per
share for the common stock. Convertible preferred stock tends to be more
volatile than non-convertible preferred stock, because its value is related to
the price of the issuer's common stock as well as the dividends payable on the
preferred stock.
REAL ESTATE INVESTMENT TRUSTS (REITS)
REITs are pooled investment vehicles that invest primarily in income-producing
real estate or real estate related loans or interests. REITs are generally
classified as equity REITs, mortgage REITs or a combination of equity and
mortgage REITs. Equity REITs invest the majority of their assets directly in
real property and derive income primarily from the collection of rents. Equity
REITs can also realize capital gains by selling properties that have
appreciated in value. Mortgage REITs invest the majority of their assets in
real estate mortgages and derive income from the collection of interest and
principal payments. Similar to investment companies such as the Funds, REITs
are not taxed on income distributed to shareholders provided they comply with
several requirements of the Internal Revenue Code of 1986, as amended (the
"Code"). A Fund will indirectly bear its proportionate share of expenses
incurred by REITs in which the Fund invests in addition to the expenses
incurred directly by the Fund.
REPURCHASE AGREEMENTS AND BUY/SELL BACK TRANSACTIONS
Each Fund may enter into repurchase agreements. In a repurchase agreement
transaction the Fund buys a security and simultaneously agrees to sell it back
to the counterparty at a specified price in the future. However, a repurchase
agreement is economically similar to a secured loan, in that the Fund lends
cash to a counterparty for a specific term, normally a day or a few days, and
is given acceptable collateral (the purchased securities) to hold in case the
counterparty does not repay the loan. The difference between the purchase price
and the repurchase price of the securities reflects an agreed-upon "interest
rate". Given that the price at which a Fund will sell the collateral back is
specified in advance, a Fund is not exposed to price movements on the
collateral unless the counterparty defaults. If the counterparty defaults on
its obligation to buy back the securities at the maturity date and the
liquidation value of the collateral is less than the outstanding loan amount, a
Fund would suffer a loss. In order to further mitigate any potential credit
exposure to the counterparty, if the value of the securities falls below a
specified level that is linked to the loan amount during the life of the
agreement, the counterparty must provide additional collateral to support the
loan.
A Fund may enter into buy/sell back transactions, which are similar to
repurchase agreements. In this type of transaction, a Fund enters a trade to
buy securities at one price and simultaneously enters a trade to sell the same
securities at another price on a specified date. Similar to a repurchase
agreement, the repurchase price is higher than the sale price and reflects
current interest rates. Unlike a repurchase agreement, however, the buy/sell
back transaction is considered two separate transactions.
REVERSE REPURCHASE AGREEMENTS AND DOLLAR ROLLS
A Fund may enter into reverse repurchase agreements and dollar rolls, subject
to the Fund's limitations on borrowings. The terms of reverse repurchase
agreements are essentially the reverse of "repurchase agreements" described
above. In a reverse repurchase agreement transaction, the Fund sells a security
and simultaneously agrees to repurchase it at a specified time and price. The
economic effect of a reverse repurchase agreement is that of the Fund borrowing
money on a secured basis, and reverse repurchase agreements may be considered a
form of borrowing for some purposes. Even though the Fund posts securities as
collateral, the Fund maintains exposure to price declines on these securities
since it has agreed to repurchase the securities at a fixed price. Accordingly,
reverse repurchase agreements create leverage risk for the Fund because the Fund
45
maintains exposure to price declines of both the securities it sells in the
reverse repurchase agreement and any securities it purchases with the cash it
receives under the reverse repurchase agreement. If the value of the posted
collateral declines, the counterparty would require the Fund to post additional
collateral. If the value of the collateral increases, the Fund may ask for some
of its collateral back. If the counterparty defaults and fails to sell the
securities back to the Fund at a time when the market purchase price of the
securities exceeds the agreed-upon repurchase price, the Fund would suffer a
loss.
Dollar rolls involve sales by a Fund of securities for delivery in the current
month and the Fund's simultaneously contracting to repurchase substantially
similar (same type and coupon) securities on a specified future date. During
the roll period, a Fund forgoes principal and interest paid on the securities.
A Fund 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.
Reverse repurchase agreements and dollar rolls involve the risk that the market
value of the securities a Fund is obligated to repurchase under the agreement
may decline below the repurchase price. In the event the buyer of securities
under a reverse repurchase agreement or dollar roll files for bankruptcy or
becomes insolvent, a Fund's use of the proceeds of the agreement may be
restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
RIGHTS AND WARRANTS
Rights and warrants are option securities permitting their holders to subscribe
for other securities. Rights are similar to warrants except that they have a
substantially shorter duration. Rights and warrants do not carry with them
dividend or voting rights with respect to the underlying securities, or any
rights in the assets of the issuer. As a result, an investment in rights and
warrants may be considered more speculative than certain other types of
investments. In addition, the value of a right or a warrant does not
necessarily change with the value of the underlying securities, and a right or
a warrant ceases to have value if it is not exercised prior to its expiration
date.
SHORT SALES
A Fund may make short sales as a part of overall portfolio management or to
offset a potential decline in the value of a security. A short sale involves
the sale of a security that a Fund does not own, or if the Fund owns the
security, is not to be delivered upon consummation of the sale. When the Fund
makes a short sale of a security that it does not own, it must borrow from a
broker-dealer the security sold short and deliver the security to the
broker-dealer upon conclusion of the short sale.
If the price of the security sold short increases between the time of the short
sale and the time a Fund replaces the borrowed security, the Fund will incur a
loss; conversely, if the price declines, the Fund will realize a short-term
capital gain. The potential for the price of a fixed-income security sold short
to rise is a function of the combination of the remaining maturity of the
obligation, its creditworthiness and its yield. Unlike short sales of equities
or other instruments, potential for the price of a fixed-income security to
rise may be limited due to the fact that the security will be no more than par
at maturity. However, the short sale of other instruments or securities
generally, including fixed-income securities convertible into equities or other
instruments, a fixed-income security trading at a deep discount from par or
that pays a coupon that is high in relative and/or absolute terms, or that is
denominated in a currency other than the U.S. Dollar, involves the possibility
of a theoretically unlimited loss since there is a theoretically unlimited
potential for the market price of the security sold short to increase.
STANDBY COMMITMENT AGREEMENTS
Standby commitment agreements are similar to put options that commit a Fund,
for a stated period of time, to purchase a stated amount of a security that may
be issued and sold to the Fund at the option of the issuer. The price and
coupon of the security are fixed at the time of the commitment. At the time of
entering into the agreement, the Fund is paid a commitment fee, regardless of
whether the security ultimately is issued. A Fund will enter into such
agreements only for the purpose of investing in the security underlying the
commitment at a yield and price considered advantageous to the Fund and
unavailable on a firm commitment basis.
There is no guarantee that a security subject to a standby commitment will be
issued. In addition, the value of the security, if issued, on the delivery date
may be more or less than its purchase price. Since the issuance of the security
is at the option of the issuer, a Fund will bear the risk of capital loss in
the event the value of the security declines and may not benefit from an
appreciation in the value of the security during the commitment period if the
issuer decides not to issue and sell the security to the Fund.
SOVEREIGN DEBT OBLIGATIONS
No established secondary markets may exist for many sovereign debt obligations.
Reduced secondary market liquidity may have an adverse effect on the market
price and a Fund's ability to dispose of particular instruments when necessary
to meet its liquidity requirements or in response to specific economic events
such as a deterioration in the creditworthiness of the issuer. Reduced
secondary market liquidity for certain sovereign debt obligations may also make
it more difficult for a Fund to obtain accurate market quotations for the
purpose of valuing its portfolio. Market quotations are generally available on
many sovereign debt obligations only from a limited number of dealers and may
not necessarily represent firm bids of those dealers or prices for actual sales.
By investing in sovereign debt obligations, the Funds will be exposed to the
direct or indirect consequences of political, social, and economic changes in
various countries. Political changes in a country may affect the willingness of
a foreign government to make or provide for timely payments of its obligations.
The country's economic status, as reflected in, among other things, its
inflation rate, the amount of its external debt and its gross domestic product,
will also affect the government's ability to honor its obligations.
46
The Funds are permitted to invest in sovereign debt obligations that are not
current in the payment of interest or principal or are in default so long as
the Adviser believes it to be consistent with the Funds' investment objectives.
The Funds may have limited legal recourse in the event of a default with
respect to certain sovereign debt obligations they hold. For example, remedies
from defaults on certain sovereign debt obligations, unlike those on private
debt, must, in some cases, be pursued in the courts of the defaulting party
itself. Legal recourse therefore may be significantly diminished. Bankruptcy,
moratorium, and other similar laws applicable to issuers of sovereign debt
obligations may be substantially different from those applicable to issuers of
private debt obligations. The political context, expressed as the willingness
of an issuer of sovereign debt obligations to meet the terms of the debt
obligation, for example, is of considerable importance. In addition, no
assurance can be given that the holders of commercial bank debt will not
contest payments to the holders of securities issued by foreign governments in
the event of default under commercial bank loan agreements.
STRUCTURED PRODUCTS
A Fund may invest in certain hybrid derivatives-type instruments that combine
features of a traditional stock or bond with those of, for example, a futures
contract or an option. These instruments include structured notes and indexed
securities, commodity-linked notes and commodity index-linked notes and
credit-linked securities. The performance of the structured product, which is
generally a fixed-income security, is tied (positively or negatively) to the
price or prices of an unrelated reference indicator such as a security or
basket of securities, currencies, commodities, a securities or commodities
index or a credit default swap or other kinds of swaps. The structured product
may not pay interest or protect the principal invested. The structured product
or its interest rate may be a multiple of the reference indicator and, as a
result, may be leveraged and move (up or down) more rapidly than the reference
indicator. Investments in structured products may provide a more efficient and
less expensive means of obtaining exposure to underlying securities,
commodities or other derivatives, but may potentially be more volatile and
carry greater trading and market risk than investments in traditional
securities. The purchase of a structured product also exposes a Fund to the
credit risk of the issuer of the structured product.
Structured notes are derivative debt instruments. The interest rate or
principal of these notes is determined by reference to an unrelated indicator
(for example, a currency, security, or index thereof) unlike a typical note
where the borrower agrees to make fixed or floating interest payments and to
pay a fixed sum at maturity. Indexed securities may include structured notes as
well as securities other than debt securities, the interest or principal of
which is determined by an unrelated indicator.
Commodity-linked notes and commodity index-linked notes provide exposure to the
commodities markets. These are derivative securities with one or more
commodity-linked components that have payment features similar to commodity
futures contracts, commodity options, commodity indices or similar instruments.
Commodity-linked products may be either equity or debt securities, leveraged or
unleveraged, and have both security- and commodity-like characteristics. A
portion of the value of these instruments may be derived from the value of a
commodity, futures contract, index or other economic variable.
A Fund may also invest in certain hybrid derivatives-type investments that
combine features of a traditional bond with those of certain derivatives such
as a credit default swap, an interest rate swap or other securities. These
investments include credit-linked securities. The issuers of these securities
frequently are limited purpose trusts or other special purpose vehicles that
invest in a derivative instrument or basket of derivative instruments in order
to provide exposure to certain fixed-income markets. For instance, a Fund may
invest in credit-linked securities as a cash management tool to gain exposure
to a certain market or to remain fully invested when more traditional
income-producing securities are not available. The performance of the
structured product, which is generally a fixed-income security, is linked to
the receipt of payments from the counterparties to the derivative instruments
or other securities. A Fund's investments in credit-linked securities are
indirectly subject to the risks associated with derivative instruments,
including among others, credit risk, default risk, counterparty risk, interest
rate risk and leverage risk. These securities are generally structured as Rule
144A securities so that they may be freely traded among qualified institutional
buyers. However, changes in the market for credit-linked securities or the
availability of willing buyers may result in reduced liquidity for the
securities.
TENDER OPTION BOND TRANSACTIONS
The AB TAX-AWARE FIXED INCOME PORTFOLIO may enter into tender option bonds
("TOBs") in which the Fund may sell a municipal security to a broker or other
intermediary, which, in turn deposits the bond into a special purpose vehicle,
which is generally organized as a trust, sponsored by the broker or
intermediary (the "Trust"). The Fund receives cash and a residual interest
security (sometimes referred to as "inverse floaters") issued by the Trust in
return. The Trust simultaneously issues securities, which pay an interest rate
that is reset each week based on an index of high-grade short-term demand
notes. These securities (sometimes referred to as "floaters") are bought by
third parties, including tax-exempt money market funds, and can be tendered by
these holders to a liquidity provider at par, unless certain events occur.
Under certain circumstances, the Trust may be terminated or collapsed, either
by the Fund or upon the occurrence of certain events, such as a downgrade in
the credit quality of the underlying bond or in the event holders of the
floaters tender their securities to the liquidity provider. The Fund continues
to earn all the interest from the transferred bond less the amount of interest
paid on the floaters and the expenses of the Trust, which include payments to
the trustee and the liquidity provider and organizational costs. The Fund uses
the cash received from the transaction for investment purposes, which involves
leverage risk. For a discussion of the risks of TOBs, see "Borrowing and
Leverage" below.
VARIABLE, FLOATING AND INVERSE FLOATING-RATE INSTRUMENTS
Variable and floating-rate securities pay interest at rates that are adjusted
periodically, according to a specified formula. A "variable" interest rate
adjusts at predetermined intervals (e.g., daily, weekly or monthly), while a
"floating" interest rate adjusts whenever a specified benchmark rate (such as
the bank prime lending rate) changes.
47
A Fund may also invest in inverse floating-rate debt instruments ("inverse
floaters"). The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may have greater volatility in market value, in
that, during periods of rising interest rates, the market values of inverse
floaters will tend to decrease more rapidly than those of fixed-rate securities.
ZERO-COUPON AND PRINCIPAL-ONLY SECURITIES
Zero-coupon securities and principal-only (PO) securities are debt securities
that have been issued without interest coupons or stripped of their unmatured
interest coupons, and include receipts or certificates representing interests
in such stripped debt obligations and coupons. Such a security pays no interest
to its holder during its life. Its value to an investor consists of the
difference between its face value at the time of maturity and the price for
which it was acquired, which is generally an amount significantly less than its
face value. Such securities usually trade at a deep discount from their face or
par value and are subject to greater fluctuations in market value in response
to changing interest rates than debt obligations of comparable maturities and
credit quality that make current distributions of interest. On the other hand,
because there are no periodic interest payments to be reinvested prior to
maturity, these securities eliminate reinvestment risk and "lock in" a rate of
return to maturity.
ADDITIONAL RISK AND OTHER CONSIDERATIONS
Investments in the Funds involve the risk considerations described below.
BORROWINGS AND LEVERAGE
A Fund may use borrowings for investment purposes subject to applicable
statutory or regulatory requirements. Borrowings by a Fund result in leveraging
of the Fund's shares. Each of the Funds may also use leverage for investment
purposes by entering into transactions such as reverse repurchase agreements,
forward contracts and dollar rolls and, with respect to AB TAX-AWARE FIXED
INCOME PORTFOLIO, TOB transactions. This means that the Fund uses cash made
available during the term of these transactions to make investments in other
securities.
Utilization of leverage, which is usually considered speculative, involves
certain risks to a Fund's shareholders. These include a higher volatility of
the NAV of the Fund's shares of common stock and the relatively greater effect
of changes in the value of the Fund's portfolio on the NAV of the shares caused
by favorable or adverse changes in market conditions or interest rates. In the
case of borrowings for investment purposes, so long as the Fund is able to
realize a net return on the leveraged portion of its investment portfolio that
is higher than the interest expense paid on borrowings, the effect of leverage
will be to cause the Fund's shareholders to realize a higher net return than if
the Fund were not leveraged. If the interest expense on borrowings or other
costs of leverage approach the net return on the Fund's investment portfolio or
investments made through leverage, as applicable, the benefit of leverage to
the Fund's shareholders will be reduced. If the interest expense on borrowings
or other costs of leverage were to exceed the net return to the Fund, the
Fund's use of leverage could result in a lower rate of net return than if the
Fund were not leveraged. Similarly, the effect of leverage in a declining
market could normally be a greater decrease in NAV than if the Fund were not
leveraged.
During periods of rising short-term interest rates, the interest paid on
floaters in TOBs would increase, which may adversely affect the AB TAX-AWARE
FIXED INCOME PORTFOLIO's net return. If rising short-term rates coincide with a
period of rising long-term rates, the value of the long-term municipal bonds
purchased with the proceeds of leverage would decline, adversely affecting the
Fund's NAV. In certain circumstances, adverse changes in interest rates or
other events could cause a TOB Trust to terminate or collapse, potentially
requiring the Fund to liquidate longer-term municipal securities at unfavorable
prices to meet the Trust's outstanding obligations.
FOREIGN (NON-U.S.) SECURITIES
Investing in foreign securities involves special risks and considerations not
typically associated with investing in U.S. securities. The securities markets
of many foreign countries are relatively small, with the majority of market
capitalization and trading volume concentrated in a limited number of companies
representing a small number of industries. A Fund that invests in foreign
fixed-income securities may experience greater price volatility and
significantly lower liquidity than a portfolio invested solely in securities of
U.S. companies. These markets may be subject to greater influence by adverse
events generally affecting the market, and by large investors trading
significant blocks of securities, than is usual in the United States.
Securities registration, custody, and settlement may in some instances be
subject to delays and legal and administrative uncertainties. Foreign
investment in the securities markets of certain foreign countries is restricted
or controlled to varying degrees. These restrictions or controls may at times
limit or preclude investment in certain securities and may increase the costs
and expenses of a Fund. In addition, the repatriation of investment income,
capital or the proceeds of sales of securities from certain of the countries is
controlled under regulations, including in some cases the need for certain
advance government notification or authority, and if a deterioration occurs in
a country's balance of payments, the country could impose temporary
restrictions on foreign capital remittances.
A Fund also could be adversely affected by delays in, or a refusal to grant,
any required governmental approval for repatriation, as well as by the
application to it of other restrictions on investment. Investing in local
markets may require a Fund to adopt special procedures or seek local
governmental approvals or other actions, any of which may involve additional
costs to a Fund. These factors may affect the liquidity of a Fund's investments
in any country and the Adviser will monitor the effect of any such factor or
factors on a Fund's investments. Transaction costs, including brokerage
commissions for transactions both on and off the securities exchanges, in many
foreign countries are generally higher than in the United States.
Issuers of securities in foreign jurisdictions are generally not subject to the
same degree of regulation as are U.S. issuers with respect to such matters as
insider trading rules, restrictions on market manipulation, shareholder proxy
requirements, and
48
timely disclosure of information. The reporting, accounting, and auditing
standards of foreign countries may differ, in some cases significantly, from
U.S. standards in important respects, and less information may be available to
investors in foreign securities than to investors in U.S. securities.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about most U.S. issuers.
The economies of individual foreign countries may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic
product or gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency, and balance of payments position. Nationalization,
expropriation or confiscatory taxation, currency blockage, political changes,
government regulation, political or social instability, revolutions, wars or
diplomatic developments could affect adversely the economy of a foreign
country. In the event of nationalization, expropriation, or other confiscation,
a Fund could lose its entire investment in securities in the country involved.
In addition, laws in foreign countries governing business organizations,
bankruptcy and insolvency may provide less protection to security holders such
as the Funds than that provided by U.S. laws.
In June 2016, the United Kingdom ("UK") voted in a referendum to leave the
European Union ("EU"). On March 29, 2017, the UK notified the European Council
of its intention to withdraw from the EU. It is expected that the UK's
withdrawal will be completed within two years of such notification. There is
considerable uncertainty relating to the potential consequences of the
withdrawal. During this period and beyond, the impact on the UK and European
economies and the broader global economy could be significant, resulting in
increased volatility and illiquidity, currency fluctuations, impacts on
arrangements for trading and on other existing cross-border cooperation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise),
and in potentially lower growth for companies in the UK, Europe and globally,
which could have an adverse effect on the value of a Fund's investments.
Investments in securities of companies in emerging markets involve special
risks. There are approximately 100 countries identified by the World Bank as
Low Income, Lower Middle Income and Upper Middle Income countries that are
generally regarded as emerging markets. Emerging market countries that the
Adviser currently considers for investment include:
Argentina Hungary Peru
Bangladesh India Philippines
Belarus Indonesia Poland
Belize Iraq Russia
Brazil Ivory Coast Senegal
Bulgaria Jamaica Serbia
Chile Jordan South Africa
China Kazakhstan South Korea
Colombia Lebanon Sri Lanka
Croatia Lithuania Taiwan
Dominican Republic Malaysia Thailand
Ecuador Mexico Turkey
Egypt Mongolia Ukraine
El Salvador Nigeria Uruguay
Gabon Pakistan Venezuela
Georgia Panama Vietnam
Ghana
Countries may be added to or removed from this list at any time.
Investing in emerging market securities imposes risks different from, or
greater than, risks of investing in domestic securities or in foreign,
developed countries. These risks include: smaller market capitalization of
securities markets, which may suffer periods of relative illiquidity;
significant price volatility; restrictions on foreign investment; and possible
repatriation of investment income and capital. In addition, foreign investors
may be required to register the proceeds of sales and future economic or
political crises could lead to price controls, forced mergers, expropriation or
confiscatory taxation, seizure, nationalization, or creation of government
monopolies. The currencies of emerging market countries may experience
significant declines against the U.S. Dollar, and devaluation may occur
subsequent to investments in these currencies by a Fund. Inflation and rapid
fluctuations in inflation rates have had, and may continue to have, negative
effects on the economies and securities markets of certain emerging market
countries.
Additional risks of emerging market securities may include: greater social,
economic and political uncertainty and instability; more substantial
governmental involvement in the economy; less governmental supervision and
regulation; unavailability of currency hedging techniques; companies that are
newly organized and small; differences in auditing and financial reporting
standards, which may result in unavailability of material information about
issuers; and less developed legal systems. In addition, emerging securities
markets may have different clearance and settlement procedures, which may be
unable to keep pace with the volume of securities transactions or otherwise
make it difficult to engage in such transactions. Settlement problems may cause
a Fund to miss attractive investment opportunities, hold a portion of its
assets in cash pending investment, or be delayed in disposing of a portfolio
security. Such a delay could result in possible liability to a purchaser of the
security.
A Fund may invest in securities of frontier market countries. Frontier market
countries generally have smaller, less diverse economies and even less
developed capital markets and legal, regulatory, and political systems than
traditional emerging markets. As a result, the risks of investing in emerging
market countries are magnified in frontier market countries. Frontier market
risks include the potential for extreme price volatility and
illiquidity--economic or political instability may cause larger price changes
in frontier market securities than in securities of issuers located in more
developed markets. The risks of investing in frontier market countries may also
be magnified by: government ownership or control of parts of the private sector
and of certain companies; trade barriers, exchange controls, managed
adjustments in relative currency values, impaired or limited access to issuer
information and other protectionist measures imposed or negotiated by the
countries with which frontier market countries trade; and the relatively new
and unsettled securities laws in many frontier market countries. The actions of
a relatively few major investors in these markets are more likely to result in
significant changes in local stock prices and the value of fund shares. The
risk also exists that an emergency situation may arise in one or more frontier
market countries as a result of which trading of securities may cease or may be
substantially curtailed and prices for investments in such markets may not be
readily available. All of these factors can make investing in frontier markets
riskier than investing in more developed emerging markets or other foreign
markets.
49
FOREIGN (NON-U.S.) CURRENCIES
Investing in and exposure to foreign currencies involve special risks and
considerations. A Fund that invests some portion of its assets in securities
denominated in, and receives revenues in, foreign currencies will be adversely
affected by reductions in the value of those currencies relative to the
U.S. Dollar. Foreign currency exchange rates may fluctuate significantly. They
are determined by supply and demand in the foreign exchange markets, the
relative merits of investments in different countries, actual or perceived
changes in interest rates, and other complex factors. Currency exchange rates
also can be affected unpredictably by intervention (or the failure to
intervene) by U.S. or foreign governments or central banks or by currency
controls or political developments. In light of these risks, a Fund may engage
in certain currency hedging transactions, as described above, which involve
certain special risks.
A Fund may also invest directly in foreign currencies for non-hedging purposes
on a spot basis (i.e., cash) or through derivatives transactions, such as
forward currency exchange contracts, futures contracts and options thereon,
swaps and options as described above. These investments will be subject to the
same risks. In addition, currency exchange rates may fluctuate significantly
over short periods of time, causing a Fund's NAV to fluctuate.
INVESTMENT IN BELOW INVESTMENT GRADE FIXED-INCOME SECURITIES
Investments in securities rated below investment grade (commonly known as "junk
bonds") are subject to greater risk of loss of principal and interest than
higher-rated securities. These securities are also generally considered to be
subject to greater market risk than higher-rated securities. The capacity of
issuers of these securities to pay interest and repay principal is more likely
to weaken than is that of issuers of higher-rated securities in times of
deteriorating economic conditions or rising interest rates. In addition, below
investment grade securities may be more susceptible to real or perceived
adverse economic conditions than investment grade securities.
The market for these securities may be thinner and less active than that for
higher-rated securities, which can adversely affect the prices at which these
securities can be sold. To the extent that there is no established secondary
market for these securities, a Fund may experience difficulty in valuing such
securities and, in turn, the Fund's assets.
UNRATED SECURITIES
A Fund may invest in unrated securities when the Adviser believes that the
financial condition of the issuers of such securities, or the protection
afforded by the terms of the securities themselves, limits the risk to the Fund
to a degree comparable to that of rated securities that are consistent with the
Fund's objective and policies.
FUTURE DEVELOPMENTS
A Fund may take advantage of other investment practices that are not currently
contemplated for use by the Fund, or are not available but may yet be
developed, to the extent such investment practices are consistent with the
Fund's investment objective and legally permissible for the Fund. Such
investment practices, if they arise, may involve risks that exceed those
involved in the activities described above.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
A Fund's Board of Directors (the "Board") may change the Fund's investment
objective without shareholder approval. The Fund will provide shareholders with
60 days' prior written notice of any change to the Fund's investment objective.
Funds that have a policy to invest at least 80% of their net assets in
securities indicated by their name will not change their policies without 60
days' prior written notice to shareholders. Unless otherwise noted, all other
investment policies of a Fund may be changed without shareholder approval.
TEMPORARY DEFENSIVE POSITION
For temporary defensive purposes in an attempt to respond to adverse market,
economic, political or other conditions, each Fund may invest in certain types
of short-term, liquid, investment grade or high-quality (depending on the Fund)
debt securities or, with respect to AB TAX-AWARE FIXED INCOME PORTFOLIO and AB
INCOME FUND, high-quality municipal notes or variable-rate demand obligations,
or in taxable cash equivalents. While a Fund is investing for temporary
defensive purposes, it may not meet its investment objective.
PORTFOLIO HOLDINGS
A description of the Funds' policies and procedures with respect to the
disclosure of the Funds' portfolio securities is available in the Funds' SAI.
CYBER SECURITY RISK
Mutual funds, including the Funds, are susceptible to cyber security
risk. Cyber security breaches may allow an unauthorized party to gain access to
Fund assets, shareholder data, or proprietary information, or cause a Fund
and/or its service providers to suffer data corruption or lose operational
functionality. In addition, cyber security breaches at issuers in which a Fund
invests may affect the value of your investment in the Fund.
50
INVESTING IN THE FUNDS
--------------------------------------------------------------------------------
This section discusses how to buy, sell or redeem, or exchange different
classes of shares of a Fund that are offered through this Prospectus. The Funds
offer eight classes of shares through this Prospectus, except for AB LIMITED
DURATION HIGH INCOME PORTFOLIO, AB INCOME FUND and AB TAX-AWARE FIXED INCOME
PORTFOLIO, which offer three classes of shares.
Each share class represents an investment in the same portfolio of securities,
but the classes may have different sales charges and bear different ongoing
distribution expenses. For additional information on the differences between
the different classes of shares and factors to consider when choosing among
them, please see "The Different Share Class Expenses" and "Choosing a Share
Class" below. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS ON SALES CHARGES, as
described below.
HOW TO BUY SHARES
The purchase of a Fund's shares is priced at the next-determined NAV after your
order is received in proper form.
CLASS A, CLASS B AND CLASS C SHARES - SHARES AVAILABLE TO RETAIL INVESTORS
EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF THE FUNDS TO NEW
INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING
CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B
SHARES FROM ANOTHER AB MUTUAL FUND, OR (III) AS OTHERWISE DESCRIBED BELOW.
You may purchase a Fund's Class A, Class B, or Class C shares through financial
intermediaries, such as broker-dealers or banks. You also may purchase shares
directly from the Funds' principal underwriter, AllianceBernstein Investments,
Inc., or ABI. These purchases may be subject to an initial sales charge, an
asset-based sales charge or CDSC as described below.
PURCHASE MINIMUMS AND MAXIMUMS
------------------------------
MINIMUMS:*
--Initial: $2,500
--Subsequent: $ 50
*Purchase minimums may not apply to some accounts established in connection
with the Automatic Investment Program and to some retirement-related
investment programs. These investment minimums also do not apply to persons
participating in a fee-based program or "Mutual Fund Only" brokerage program
which is sponsored and maintained by a registered broker-dealer or other
financial intermediary with omnibus account or "network level" account
arrangements with a Fund.
MAXIMUM INDIVIDUAL PURCHASE AMOUNT:
--Class A shares None
--Class B shares $ 100,000
--Class C shares $1,000,000
CLASS Z SHARES - SHARES AVAILABLE TO PERSONS PARTICIPATING IN CERTAIN FEE-BASED
PROGRAMS
Class Z shares are available to persons participating in certain fee-based
programs sponsored and maintained by registered broker-dealers or other
financial intermediaries with omnibus account arrangements with a Fund.
OTHER PURCHASE INFORMATION
Your broker or financial intermediary must receive your purchase request by the
Fund Closing Time, which is the close of regular trading on any day the
Exchange is open (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier,
as in the case of scheduled half-day trading or unscheduled suspensions of
trading), and submit it to the Fund by a pre-arranged time for you to receive
the next-determined NAV, less any applicable initial sales charge.
If you are an existing Fund shareholder and you have completed the appropriate
section of the Mutual Fund Application, you may purchase additional shares by
telephone with payment by electronic funds transfer in amounts not exceeding
$500,000. AllianceBernstein Investor Services, Inc., or ABIS, must receive and
confirm telephone requests before the Fund Closing Time, to receive that day's
public offering price. Call 800-221-5672 to arrange a transfer from your bank
account.
Shares of the Funds are generally available for purchase in the United States,
Puerto Rico, Guam, American Samoa and the U.S. Virgin Islands. Except to the
extent otherwise permitted by the Funds, the Funds will only accept purchase
orders directly from U.S. citizens with a U.S. address (including an APO or FPO
address) or resident aliens with a U.S. address (including an APO or FPO
address) and a U.S. taxpayer identification number (i.e., W-9 tax status).
Subject to the requirements of local law applicable to the offering of Fund
shares, U.S. citizens (i.e., W-9 tax status) residing in foreign countries are
permitted to purchase shares of the Funds through their accounts at U.S.
registered broker-dealers and other similar U.S. financial intermediaries,
provided the broker-dealer or intermediary has an agreement with the Funds'
distributor permitting it to accept orders for the purchase and sale of Fund
shares.
The Funds will not accept purchase orders (including orders for the purchase of
additional shares) from foreign persons or entities or from resident aliens
who, to the knowledge of a Fund, have reverted to non-resident status (e.g., a
resident alien who has a non-U.S. address at time of purchase).
TAX-DEFERRED ACCOUNTS
Class A shares are also available to the following tax-deferred arrangements:
. Traditional and Roth IRAs (minimums listed in the table above apply);
. SEPs, SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans (no investment
minimum); and
. AllianceBernstein-sponsored Coverdell Education Savings Accounts ($2,000
initial investment minimum, $150 Automatic Investment Program monthly
minimum).
Class C shares are available to AllianceBernstein Link, AllianceBernstein
Individual 401(k), AllianceBernstein SIMPLE IRA plans with less than $250,000
in plan assets and 100 employees, and to group retirement plans.
51
ADVISOR CLASS SHARES
You may purchase Advisor Class shares through your financial advisor at NAV.
Advisor Class shares may be purchased and held solely:
. through accounts established under a fee-based program, sponsored and
maintained by a registered broker-dealer or other financial intermediary and
approved by ABI;
. through a defined contribution employee benefit plan (e.g., a 401(k) plan)
that purchases shares directly without the involvement of a financial
intermediary;
. by investment advisory clients of, and certain other persons associated
with, the Adviser and its affiliates or the Funds; and
. with respect to AB INCOME FUND, through certain special arrangements
approved by the Adviser, such as purchases by shareholders of the
Predecessor Fund.
Advisor Class shares may also be available on brokerage platforms of firms that
have agreements with ABI to offer such shares when acting solely on an agency
basis for the purchase or sale of such shares. If you transact in Advisor
Class shares through one of these programs, you may be required to pay a
commission and/or other forms of compensation to the broker. Shares of the
Funds are available in other share classes that have different fees and
expenses.
The Funds' SAI has more detailed information about who may purchase and hold
Advisor Class shares.
CLASS A, CLASS R, CLASS K, CLASS I AND CLASS Z SHARES - SHARES AVAILABLE TO
GROUP RETIREMENT PLANS
Class A, Class R, Class K, Class I and Class Z shares are available at NAV,
without an initial sales charge, to 401(k) plans, 457 plans, employer-sponsored
403(b) plans, profit-sharing and money purchase pension plans, defined benefit
plans, and non-qualified deferred compensation plans where plan level or
omnibus accounts are held on the books of a Fund ("group retirement plans").
Class A shares are also available at NAV to the AllianceBernstein Link,
AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans but
only if such plans have at least $250,000 in plan assets or 100 employees, and
to certain defined contribution retirement plans that do not have plan level or
omnibus accounts on the books of the Fund.
Class R, Class K and Class I shares generally are not available to retail
non-retirement accounts, and Class R, Class K, Class I and Class Z shares
generally are not available to traditional and Roth IRAs, Coverdell Education
Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs and individual 403(b) plans.
Class I shares are not currently available to group retirement plans in the
AllianceBernstein-sponsored programs known as the "Informed Choice" programs.
Class I and Class Z shares are also available to certain institutional clients
of the Adviser that invest at least $2,000,000 in a Fund.
REQUIRED INFORMATION
Each Fund is required by law to obtain, verify, and record certain personal
information from you or persons authorized to act on your behalf in order to
establish an account. Required information includes name, date of birth,
physical address and taxpayer identification number (for most investors, your
social security number). A Fund may also ask to see other identifying
documents. If you do not provide the information, the Fund will not be able to
open your account. If a Fund is unable to verify your identity, or that of
another person(s) authorized to act on your behalf, or, if the Fund believes it
has identified potentially criminal activity, the Fund reserves the right to
take action it deems appropriate or as required by law, which may include
closing your account. If you are not a U.S. citizen or resident alien, your
account must be affiliated with a Financial Industry Regulatory Authority, or
FINRA, member firm.
A Fund is required to withhold 24% of taxable dividends, capital gains
distributions, and redemptions paid to any shareholder who has not provided the
Fund with his or her correct taxpayer identification number. To avoid this, you
must provide your correct taxpayer identification number on your Mutual Fund
Application.
GENERAL
IRA custodians, plan sponsors, plan fiduciaries, plan recordkeepers, and other
financial intermediaries may establish their own eligibility requirements as to
the purchase, sale or exchange of Fund shares, including minimum and maximum
investment requirements. A Fund is not responsible for, and has no control
over, the decisions of any plan sponsor, fiduciary or other financial
intermediary to impose such differing requirements.
ABI may refuse any order to purchase shares. Each Fund reserves the right to
suspend the sale of its shares to the public in response to conditions in the
securities markets or for other reasons.
THE DIFFERENT SHARE CLASS EXPENSES
This section describes the different expenses of investing in each class and
explains factors to consider when choosing a class of shares. The expenses can
include distribution and/or service (Rule 12b-1) fees, initial sales charges
and/or CDSCs. ONLY CLASS A SHARES OFFER QUANTITY DISCOUNTS as described below.
ASSET-BASED SALES CHARGES OR DISTRIBUTION AND/OR SERVICE (RULE 12b-1) FEES
WHAT IS A RULE 12b-1 FEE?
A Rule 12b-1 fee is a fee deducted from a Fund's assets that is used to pay
for personal service, maintenance of shareholder accounts and distribution
costs, such as advertising and compensation of financial intermediaries. Each
Fund has adopted a plan under SEC Rule 12b-1 that allows the Fund to pay
asset-based sales charges or distribution and/or service (Rule 12b-1) fees
for the distribution and sale of its shares. The amount of each share class's
Rule 12b-1 fee, if any, is disclosed below and in a Fund's fee table included
in the Summary Information section above.
52
The amount of these fees for each class of a Fund's shares is:
DISTRIBUTION AND/OR SERVICE
(RULE 12b-1) FEE (AS A
PERCENTAGE OF AGGREGATE
AVERAGE DAILY NET ASSETS)
------------------------------------------
Class A 0.25%*
Class B 1.00%
Class C 1.00%
Advisor Class None
Class R 0.50%
Class K 0.25%
Class I None
Class Z None
*The maximum fee allowed under any Rule 12b-1 Plan for the Class A shares is
.30% of the aggregate average daily net assets. The Board currently limits the
payments to .25%.
Because these fees are paid out of a Fund's assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more
than paying other types of sales fees. Class B, Class C, and Class R shares are
subject to higher Rule 12b-1 fees than Class A or Class K shares. Class B
shares are subject to these higher fees for a period of six years, after which
they convert to Class A shares (except for AB UNCONSTRAINED BOND FUND Class B
shares, which convert to Class A shares after eight years). Class C shares are
subject to these higher fees for a period of ten years, after which they
convert to Class A shares. Share classes with higher Rule 12b-1 fees will have
a higher expense ratio, pay correspondingly lower dividends and may have a
lower NAV (and returns). All or some of these fees may be paid to financial
intermediaries, including your financial intermediary's firm.
SALES CHARGES
CLASS A SHARES. You can purchase Class A shares at their public offering price
(or cost), which is NAV plus an initial sales charge of up to 4.25% of the
offering price for all Funds except AB TAX-AWARE FIXED INCOME PORTFOLIO and
3.00% of the offering price for AB TAX-AWARE FIXED INCOME PORTFOLIO. Any
applicable sales charge will be deducted directly from your investment.
The initial sales charge you pay each time you buy Class A shares differs
depending on the amount you invest and may be reduced or eliminated for larger
purchases as indicated below. These discounts, which are also known as
BREAKPOINTS OR QUANTITY DISCOUNTS, can reduce or, in some cases, eliminate the
initial sales charges that would otherwise apply to your investment in Class A
shares.
The sales charge schedule of Class A share QUANTITY DISCOUNTS is as follows:
AB TAX-AWARE FIXED INCOME PORTFOLIO:
INITIAL SALES CHARGE
------------------
AS % OF AS % OF
NET AMOUNT OFFERING
AMOUNT PURCHASED INVESTED PRICE
---------------------------------------------
Up to $100,000 3.09% 3.00%
$100,000 up to $250,000 2.04 2.00
$250,000 up to $500,000 1.01 1.00
$500,000 and above 0.00 0.00
ALL OTHER FUNDS:
INITIAL SALES CHARGE
------------------
AS % OF AS % OF
NET AMOUNT OFFERING
AMOUNT PURCHASED INVESTED PRICE
-----------------------------------------------
Up to $100,000 4.44% 4.25%
$100,000 up to $250,000 3.36 3.25
$250,000 up to $500,000 2.30 2.25
$500,000 up to $1,000,000 1.78 1.75
$1,000,000 and above 0.00 0.00
Except as noted below, purchases of Class A shares in the amount of $1,000,000
or more for all Funds except AB TAX-AWARE FIXED INCOME PORTFOLIO and in the
amount of $500,000 or more for AB TAX-AWARE FIXED INCOME PORTFOLIO, or by
AllianceBernstein or non-AllianceBernstein sponsored group retirement plans are
not subject to an initial sales charge, but may be subject to a 1% CDSC if
redeemed or terminated within one year.
CLASS A SHARE PURCHASES NOT SUBJECT TO SALES CHARGES. The Funds may sell their
Class A shares at NAV without an initial sales charge or CDSC to some
categories of investors, including:
- persons participating in a fee-based program, sponsored and maintained by a
registered broker-dealer or other financial intermediary, under which
persons pay an asset-based fee for services in the nature of investment
advisory or administrative services or clients of broker-dealers or other
financial intermediaries who purchase Class A shares for their own accounts
through self-directed and/or non-discretionary brokerage accounts with the
broker-dealers or other financial intermediaries that may or may not charge
a transaction fee to its customers;
- plan participants who roll over amounts distributed from employer maintained
retirement plans to AllianceBernstein-sponsored IRAs where the plan is a
client of or serviced by the Adviser's Institutional Investment Management
Division or Bernstein Global Wealth Management Division, including
subsequent contributions to those IRAs;
- certain other investors, such as investment management clients of the
Adviser or its affiliates, including clients and prospective clients of the
Adviser's Institutional Investment Management Division, employees of
selected dealers authorized to sell a Fund's shares, and employees of the
Adviser; or
- persons participating in a "Mutual Fund Only" brokerage program, sponsored
and maintained by a registered broker-dealer or other financial intermediary.
The availability of certain sales charge waivers and discounts will depend on
whether you purchase your shares directly from a Fund or through a financial
intermediary. Intermediaries may have different policies and procedures
regarding the availability of front-end sales load waivers and discounts or
CDSC waivers. In all instances, it is the purchaser's responsibility to notify
a Fund or the purchaser's financial intermediary at the time of
53
purchase of any relationship or other facts qualifying the purchaser for sales
charge waivers or discounts. For waivers and discounts not available through a
particular intermediary, shareholders will have to purchase Fund shares
directly from the Fund or through another intermediary to receive these waivers
or discounts.
Please see the Funds' SAI for more information about purchases of Class A
shares without sales charges.
Certain intermediaries impose different eligibility criteria for sales load
waivers and discounts, which are described in Appendix C--Financial
Intermediary Waivers.
CLASS B SHARES - DEFERRED SALES CHARGE ALTERNATIVE
EFFECTIVE JANUARY 31, 2009, SALES OF CLASS B SHARES OF THE FUNDS TO NEW
INVESTORS WERE SUSPENDED. CLASS B SHARES MAY ONLY BE PURCHASED (I) BY EXISTING
CLASS B SHAREHOLDERS AS OF JANUARY 31, 2009, (II) THROUGH EXCHANGE OF CLASS B
SHARES FROM ANOTHER AB MUTUAL FUND, OR (III) AS OTHERWISE DESCRIBED BELOW.
You can purchase Class B shares at NAV without an initial sales charge. This
means that the full amount of your purchase is invested in the Fund. Your
investment is subject to a CDSC if you redeem shares within three years (four
years in the case of AB UNCONSTRAINED BOND FUND) of purchase.
The CDSC varies depending on the number of years you hold the shares. The CDSC
amounts for Class B shares are:
AB UNCONSTRAINED BOND FUND:
YEAR SINCE PURCHASE CDSC
---------------------------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
ALL OTHER FUNDS:
YEAR SINCE PURCHASE CDSC
----------------------------
First 3.00%
Second 2.00%
Third 1.00%
Fourth and thereafter None
If you exchange your shares for the Class B shares of another AB Mutual Fund,
the CDSC also will apply to the Class B shares received. The CDSC period begins
with the date of your original purchase, not the date of exchange for the other
Class B shares.
Class B shares purchased for cash automatically convert to Class A shares six
years after the end of the month of your purchase (except for Class B shares of
AB UNCONSTRAINED BOND FUND, which automatically convert to Class A shares eight
years after the end of the month of your purchase). If you purchase shares by
exchange for the Class B shares of another AB Mutual Fund, the conversion
period runs from the date of your original purchase.
CLASS C SHARES. You can purchase Class C shares at NAV without an initial sales
charge. This means that the full amount of your purchase is invested in the
Fund. Your investment is subject to a 1% CDSC if you redeem your shares within
one year. If you exchange your shares for the Class C shares of another AB
Mutual Fund, the 1% CDSC also will apply to the Class C shares received. The
1-year period for the CDSC begins with the date of your original purchase, not
the date of the exchange for the other Class C shares.
Class C shares purchased for cash automatically convert to Class A shares ten
years after the end of the month of your purchase. If you purchase shares by
exchange for the Class C shares of another AB Mutual Fund, the conversion
period runs from the date of your original purchase.
HOW IS THE CDSC CALCULATED?
The CDSC is applied to the lesser of NAV at the time of redemption or the
original cost of shares being redeemed (or, as to Fund shares acquired
through an exchange, the cost of the AB Mutual Fund shares originally
purchased for cash). This means that no sales charge is assessed on increases
in NAV above the initial purchase price. Shares obtained from dividend or
distribution reinvestment are not subject to the CDSC. In determining the
CDSC, it will be assumed that the redemption is, first, of any shares not
subject to a CDSC and, second, of shares held the longest.
ADVISOR CLASS, CLASS R, CLASS K, CLASS I AND CLASS Z SHARES. These classes of
shares are not subject to any initial sales charge or CDSC, although your
financial advisor may charge a fee.
SALES CHARGE REDUCTION PROGRAMS FOR CLASS A SHARES
THIS SECTION INCLUDES IMPORTANT INFORMATION ABOUT SALES CHARGE REDUCTION
PROGRAMS AVAILABLE TO INVESTORS IN CLASS A SHARES AND DESCRIBES INFORMATION OR
RECORDS YOU MAY NEED TO PROVIDE TO A FUND OR YOUR FINANCIAL INTERMEDIARY IN
ORDER TO BE ELIGIBLE FOR SALES CHARGE REDUCTION PROGRAMS. YOUR FINANCIAL
INTERMEDIARY MAY HAVE DIFFERENT POLICIES AND PROCEDURES REGARDING ELIGIBILITY
FOR SALES CHARGE REDUCTION PROGRAMS. SEE APPENDIX C--FINANCIAL INTERMEDIARY
WAIVERS.
Information about Quantity Discounts and sales charge reduction programs also is
available free of charge and in a clear and prominent format on our website at
www.abfunds.com (click on "Investments--Mutual Funds", select the Fund, then
click on "More Literature-Understanding Sales Charges & Expenses").
RIGHTS OF ACCUMULATION
To determine if a new investment in Class A shares is eligible for a QUANTITY
DISCOUNT, a shareholder can combine the value of the new investment in a Fund
with the higher of cost or NAV of existing investments in the Fund, any other
AB Mutual Fund and AB Institutional Funds. The AB Mutual Funds use the higher
of cost or current NAV of your existing investments when combining them with
your new investment.
54
COMBINED PURCHASE PRIVILEGES
A shareholder may qualify for a QUANTITY DISCOUNT by combining purchases of
shares of a Fund into a single "purchase". A "purchase" means a single purchase
or concurrent purchases of shares of a Fund or any other AB Mutual Fund,
including AB Institutional Funds, by:
. an individual, his or her spouse or domestic partner, or the individual's
children under the age of 21 purchasing shares for his, her or their own
account(s);
. a trustee or other fiduciary purchasing shares for a single trust, estate or
single fiduciary account with one or more beneficiaries involved;
. the employee benefit plans of a single employer; or
. any company that has been in existence for at least six months or has a
purpose other than the purchase of shares of the Fund.
LETTER OF INTENT
An investor may not immediately invest a sufficient amount to reach a QUANTITY
DISCOUNT, but may plan to make one or more additional investments over a period
of time that, in the end, would qualify for a QUANTITY DISCOUNT. For these
situations, the Funds offer a LETTER OF INTENT, which permits new investors to
express the intention, in writing, to invest at least $100,000 in Class A
shares of a Fund or any other AB Mutual Fund within 13 months. The Fund will
then apply the QUANTITY DISCOUNT to each of the investor's purchases of Class A
shares that would apply to the total amount stated in the LETTER OF INTENT. In
the event an existing investor chooses to initiate a LETTER OF INTENT, the AB
Mutual Funds will use the higher of cost or current NAV of the investor's
existing investments and of those accounts with which investments are combined
via COMBINED PURCHASE PRIVILEGES toward the fulfillment of the LETTER OF
INTENT. For example, if the combined cost of purchases totaled $80,000 and the
current NAV of all applicable accounts is $85,000 at the time a $100,000 LETTER
OF INTENT is initiated, the subsequent investment of an additional $15,000
would fulfill the LETTER OF INTENT. If an investor fails to invest the total
amount stated in the LETTER OF INTENT, the Funds will retroactively collect the
sales charge otherwise applicable by redeeming shares in the investor's account
at their then current NAV. Investors qualifying for COMBINED PURCHASE
PRIVILEGES may purchase shares under a single LETTER OF INTENT.
REQUIRED SHAREHOLDER INFORMATION AND RECORDS
In order for shareholders to take advantage of sales charge reductions, a
shareholder or his or her financial intermediary must notify the Fund that the
shareholder qualifies for a reduction. Without notification, the Fund is unable
to ensure that the reduction is applied to the shareholder's account. A
shareholder may have to provide information or records to his or her financial
intermediary or a Fund to verify eligibility for breakpoint privileges or other
sales charge waivers. This may include information or records, including
account statements, regarding shares of the Fund or other AB Mutual Funds held
in:
. all of the shareholder's accounts at the Funds or a financial intermediary;
and
. accounts of related parties of the shareholder, such as members of the same
family, at any financial intermediary.
CDSC WAIVERS AND OTHER PROGRAMS
Here Are Some Ways To Avoid Or
Minimize Charges On Redemption.
CDSC WAIVERS
The Funds will waive the CDSCs on redemptions of shares in the following
circumstances, among others:
. permitted exchanges of shares;
. following the death or disability of a shareholder;
. if the redemption represents a minimum required distribution from an IRA or
other retirement plan to a shareholder who has attained the age of 70 1/2; or
. a group retirement plan or to accommodate a plan participant's or
beneficiary's direction to reallocate his or her plan account among other
investment alternatives available under a group retirement plan.
Please see the Funds' SAI for a list of additional circumstances in which a
Fund will waive the CDSCs on redemptions of shares.
Your financial intermediary may have different policies and procedures
regarding eligibility for CDSC waivers. See Appendix C--Financial Intermediary
Waivers.
OTHER PROGRAMS
DIVIDEND REINVESTMENT PROGRAM
Unless you specifically have elected to receive dividends or distributions in
cash, they will automatically be reinvested, without an initial sales charge or
CDSC, in the same class of additional shares of a Fund. If you elect to receive
distributions in cash, you will only receive a check if the amount of the
distribution is equal to or exceeds $25.00. Distributions of less than $25.00
will automatically be reinvested in shares of the Fund. To receive
distributions of less than $25.00 in cash, you must have bank instructions
associated to your account so that distributions can be delivered to you
electronically via Electronic Funds Transfer using the Automated Clearing House
or "ACH". In addition, the Fund may reinvest your distribution check (and
future checks) in additional shares of the Fund if your check (i) is returned
as undeliverable or (ii) remains uncashed for nine months.
DIVIDEND DIRECTION PLAN
A shareholder who already maintains accounts in more than one AB Mutual Fund
may direct the automatic investment of income dividends and/or capital gains by
one Fund, in any amount, without the payment of any sales charges, in shares of
any eligible class of one or more other AB Mutual Fund(s) in which the
shareholder maintains an account.
AUTOMATIC INVESTMENT PROGRAM
The Automatic Investment Program allows investors to purchase shares of a Fund
through pre-authorized transfers of funds from the investor's bank account.
Under the Automatic
55
Investment Program, an investor may (i) make an initial purchase of at least
$2,500 and invest at least $50 monthly or (ii) make an initial purchase of less
than $2,500 and commit to a monthly investment of $200 or more until the
investor's account balance is $2,500 or more. As of January 31, 2009, the
Automatic Investment Program is available for purchase of Class B shares only
if a shareholder was enrolled in the Program prior to January 31, 2009. Please
see the Funds' SAI for more details.
REINSTATEMENT PRIVILEGE
A shareholder who has redeemed all or any portion of his or her Class A shares
may reinvest all or any portion of the proceeds from the redemption in Class A
shares of any AB Mutual Fund at NAV without any sales charge, if the
reinvestment is made within 120 calendar days after the redemption date.
SYSTEMATIC WITHDRAWAL PLAN
The Funds offer a systematic withdrawal plan that permits the redemption of
Class A, Class B or Class C shares without payment of a CDSC. Under this plan,
redemptions equal to 1% a month, 2% every two months or 3% a quarter of the
value of a Fund account would be free of a CDSC. Shares would be redeemed so
that Class B shares not subject to a CDSC (such as shares acquired with
reinvested dividends or distributions) would be redeemed first and Class B
shares that are held the longest would be redeemed next. For Class A and
Class C shares, shares held the longest would be redeemed first.
CHOOSING A SHARE CLASS
Each share class represents an interest in the same portfolio of securities,
but each class has its own sales charge and expense structure allowing you to
choose the class that best fits your situation. In choosing a class of shares,
you should consider:
. the amount you intend to invest;
. how long you expect to own shares;
. expenses associated with owning a particular class of shares;
. whether you qualify for any reduction or waiver of sales charges (for
example, if you are making a large investment that qualifies for a QUANTITY
DISCOUNT, you might consider purchasing Class A shares); and
. whether a share class is available for purchase (Class R, K and I shares are
only offered to group retirement plans, not individuals).
Among other things, Class A shares, with their lower Rule 12b-1 fees, are
designed for investors with a long-term investing time frame. Class C shares
should not be considered as a long-term investment because they are subject to
a higher distribution fee for ten years. Class C shares do not, however, have
an initial sales charge or a CDSC so long as the shares are held for one year
or more. Class C shares are designed for investors with a short-term investing
time frame.
A transaction, service, administrative or other similar fee may be charged by
your broker-dealer, agent or other financial intermediary, with respect to the
purchase, sale or exchange of Class A, Class B, Class C, Advisor Class or
Class Z shares made through your financial advisor, or in connection with
participation on the intermediary's platform. Financial intermediaries, a
fee-based program, or, for group retirement plans, a plan sponsor or plan
fiduciary, also may impose requirements on the purchase, sale or exchange of
shares that are different from, or in addition to, those described in this
Prospectus and the Funds' SAI, including requirements as to the minimum initial
and subsequent investment amounts. In addition, group retirement plans may not
offer all classes of shares of a Fund. A Fund is not responsible for, and has
no control over, the decision of any financial intermediary, plan sponsor or
fiduciary to impose such differing requirements.
YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR FOR ASSISTANCE IN CHOOSING A CLASS OF
FUND SHARES.
PAYMENTS TO FINANCIAL ADVISORS AND THEIR FIRMS
Financial intermediaries market and sell shares of the Funds. These financial
intermediaries employ financial advisors and receive compensation for selling
shares of the Funds. This compensation is paid from various sources, including
any sales charge, CDSC, and/or Rule 12b-1 fee that you or the Funds may pay.
Your individual financial advisor may receive some or all of the amounts paid
to the financial intermediary that employs him or her.
WHAT IS A FINANCIAL INTERMEDIARY?
A financial intermediary is a firm that receives compensation for selling
shares of the Funds offered in this Prospectus and/or provides services to
the Funds' shareholders. Financial intermediaries may include, among others,
your broker, your financial planner or advisor, banks and insurance
companies. Financial intermediaries may employ financial advisors who deal
with you and other investors on an individual basis.
All or a portion of the initial sales charge that you pay may be paid by ABI to
financial intermediaries selling Class A shares. ABI may also pay financial
intermediaries a fee of up to 1% on purchases of Class A shares that are sold
without an initial sales charge.
ABI may pay, at the time of your purchase, a commission to financial
intermediaries selling Class B shares in an amount equal to 3% of your
investment for sales of Class B shares (4% with respect to the sales of Class B
shares of AB UNCONSTRAINED BOND FUND) and an amount equal to 1% of your
investment for sales of Class C shares.
For Class A, Class C, Class R and Class K shares, up to 100% and, for Class B
shares, up to 30% of the Rule 12b-1 fees applicable to these classes of shares
each year may be paid to financial intermediaries.
56
Your financial advisor's firm receives compensation from the Funds, ABI
and/or the Adviser in several ways from various sources, which include some
or all of the following:
- upfront sales commissions;
- Rule 12b-1 fees;
- additional distribution support;
- defrayal of costs for educational seminars and training; and
- payments related to providing shareholder recordkeeping and/or transfer
agency services.
Please read this Prospectus carefully for information on this compensation.
OTHER PAYMENTS FOR DISTRIBUTION SERVICES AND EDUCATIONAL SUPPORT
In addition to the commissions paid to or charged by financial intermediaries
at the time of sale and Rule 12b-1 fees, some or all of which may be paid to
financial intermediaries (and, in turn, to your financial advisor), ABI, at its
expense, currently provides additional payments to firms that sell shares of
the AB Mutual Funds. Although the individual components may be higher and the
total amount of payments made to each qualifying firm in any given year may
vary, the total amount paid to a financial intermediary in connection with the
sale of shares of the AB Mutual Funds will generally not exceed the sum of
(a) 0.25% of the current year's fund sales by that firm and (b) 0.10% of
average daily net assets attributable to that firm over the year. These sums
include payments for distribution analytical data regarding AB Mutual Fund
sales by financial advisors of these firms and to reimburse directly or
indirectly the costs incurred by these firms and their employees in connection
with educational seminars and training efforts about the AB Mutual Funds for
the firms' employees and/or their clients and potential clients. The costs and
expenses associated with these efforts may include travel, lodging,
entertainment and meals. ABI may pay a portion of "ticket" or other
transactional charges.
For 2019, ABI's additional payments to these firms for distribution services
and educational support related to the AB Mutual Funds are expected to be
approximately 0.05% of the average monthly assets of the AB Mutual Funds, or
approximately $22 million. In 2018, ABI is expected to pay approximately 0.05%
of the average monthly assets of the AB Mutual Funds, or approximately
$20 million, for distribution services and educational support related to the
AB Mutual Funds.
A number of factors are considered in determining the additional payments,
including each firm's AB Mutual Fund sales, assets and redemption rates, and
the willingness and ability of the firm to give ABI access to its financial
advisors for educational and marketing purposes. In some cases, firms will
include the AB Mutual Funds on a "preferred list". ABI's goal is to make the
financial advisors who interact with current and prospective investors and
shareholders more knowledgeable about the AB Mutual Funds so that they can
provide suitable information and advice about the funds and related investor
services.
The Funds and ABI also make payments for recordkeeping and other transfer
agency services to financial intermediaries that sell AB Mutual Fund shares.
Please see "Management of the Funds--Transfer Agency and Retirement Plan
Services" below. If paid by the Funds, these expenses are included in "Other
Expenses" under "Fees and Expenses of the Fund--Annual Fund Operating Expenses"
in the Summary Information at the beginning of this Prospectus.
IF ONE MUTUAL FUND SPONSOR MAKES GREATER DISTRIBUTION ASSISTANCE PAYMENTS
THAN ANOTHER, YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM MAY HAVE AN
INCENTIVE TO RECOMMEND ONE FUND COMPLEX OVER ANOTHER. SIMILARLY, IF YOUR
FINANCIAL ADVISOR OR HIS OR HER FIRM RECEIVES MORE DISTRIBUTION ASSISTANCE
FOR ONE SHARE CLASS VERSUS ANOTHER, THEN THEY MAY HAVE AN INCENTIVE TO
RECOMMEND THAT CLASS.
PLEASE SPEAK WITH YOUR FINANCIAL ADVISOR TO LEARN MORE ABOUT THE TOTAL
AMOUNTS PAID TO YOUR FINANCIAL ADVISOR AND HIS OR HER FIRM BY THE FUNDS, THE
ADVISER, ABI AND BY SPONSORS OF OTHER MUTUAL FUNDS HE OR SHE MAY RECOMMEND TO
YOU. YOU SHOULD ALSO CONSULT DISCLOSURES MADE BY YOUR FINANCIAL ADVISOR AT
THE TIME OF PURCHASE.
As of the date of this Prospectus, ABI anticipates that the firms that will
receive additional payments for distribution services and/or educational
support include:
AIG Advisor Group
American Enterprise Investment Services
AXA Advisors
Cadaret, Grant & Co.
Citigroup Global Markets
Citizens Securities
Commonwealth Financial Network
Donegal Securities
Great-West Life & Annuity Insurance Co.
Institutional Cash Distributors (ICD)
JP Morgan Securities
Lincoln Financial Advisors Corp.
Lincoln Financial Securities Corp.
LPL Financial
Merrill Lynch
Morgan Stanley
Northwestern Mutual Investment Services
PNC Investments
Raymond James
RBC Wealth Management
Robert W. Baird
UBS Financial Services
US Bancorp Investments
Voya Financial Partners
Waddell & Reed, Inc.
Wells Fargo Advisors
Although the Funds may use brokers and dealers that sell shares of the Funds to
effect portfolio transactions, the Funds do not
57
consider the sale of AB Mutual Fund shares as a factor when selecting brokers
or dealers to effect portfolio transactions.
HOW TO EXCHANGE SHARES
You may exchange your Fund shares for shares of the same class of other AB
Mutual Funds provided that the other fund offers the same class of shares and,
in the case of retirement plans, is an investment option under the plan.
Exchanges of shares are made at the next-determined NAV, without sales or
service charges, after your order is received in proper form. All exchanges are
subject to the minimum investment restrictions set forth in the prospectus for
the AB Mutual Fund whose shares are being acquired. You may request an exchange
either directly or through your financial intermediary or, in the case of
retirement plan participants, by following the procedures specified by your
plan sponsor or plan recordkeeper. In order to receive a day's NAV, ABIS must
receive and confirm your telephone exchange request by the Fund Closing Time on
that day. The Funds may modify, restrict, or terminate the exchange privilege
on 60 days' written notice.
HOW TO SELL OR REDEEM SHARES
You may "redeem" your shares (i.e., sell your shares to a Fund) on any day the
Exchange is open, either directly or through your financial intermediary or, in
the case of retirement plan participants, by following the procedures specified
by your plan sponsor or plan recordkeeper. For Advisor Class and Class Z
shares, if you are in doubt about what procedures or documents are required by
your fee-based program or employee benefit plan to sell your shares, you should
contact your financial intermediary.
Your sale price will be the next-determined NAV, less any applicable CDSC,
after a Fund receives your redemption request in proper form. Each Fund expects
that it will typically take one to three business days following the receipt of
your redemption request in proper form to pay out redemption proceeds. However,
while not expected, payment of redemption proceeds may take up to seven days
from the day your request is received in proper form by the Fund by the Fund
Closing Time. If you recently purchased your shares by check or electronic
funds transfer, your redemption payment may be delayed until the Fund is
reasonably satisfied that the check or electronic funds transfer has been
collected (which may take up to 10 days).
Each Fund expects, under normal circumstances, to use cash or cash equivalents
held by the Fund to satisfy redemption requests. A Fund may also determine to
sell portfolio assets to meet such requests. Under certain circumstances,
including stressed market conditions, a Fund may determine to pay a redemption
request by accessing a bank line of credit or by distributing wholly or partly
in kind securities from its portfolio, instead of cash.
SALE IN-KIND. Each Fund normally pays proceeds of a sale of Fund shares in
cash. However, each Fund has reserved the right to pay the sale price in whole
or in part by a distribution in-kind of securities in lieu of cash. If the
redemption payment is made in-kind, the securities received will be subject to
market risk and may decline in value. In addition, you may incur brokerage
commissions if you elect to sell the securities for cash.
SELLING SHARES THROUGH YOUR FINANCIAL INTERMEDIARY OR RETIREMENT PLAN
Your broker or financial advisor must receive your sales request by the Fund
Closing Time, and submit it to the Fund by a pre-arranged time for you to
receive that day's NAV, less any applicable CDSC. Your financial intermediary,
plan sponsor or plan recordkeeper is responsible for submitting all necessary
documentation to the Fund and may charge you a fee for this service.
SELLING SHARES DIRECTLY TO THE FUND
BY MAIL:
. Send a signed letter of instruction or stock power, along with certificates,
to:
AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
. For certified or overnight deliveries, send to:
AllianceBernstein Investor Services, Inc.
8000 IH 10 W, 13th floor
San Antonio, TX 78230
. For your protection, a bank, a member firm of a national stock exchange or
another eligible guarantor institution must guarantee signatures. Stock
power forms are available from your financial intermediary, ABIS and many
commercial banks. Additional documentation is required for the sale of
shares by corporations, intermediaries, fiduciaries and surviving joint
owners. If you have any questions about these procedures, contact ABIS.
BY TELEPHONE:
. You may redeem your shares for which no stock certificates have been issued
by telephone request. Call ABIS at 800-221-5672 with instructions on how you
wish to receive your sale proceeds.
. ABIS must receive and confirm a telephone redemption request by the Fund
Closing Time, for you to receive that day's NAV, less any applicable CDSC.
. For your protection, ABIS will request personal or other information from
you to verify your identity and will generally record the calls. Neither the
Fund nor the Adviser, ABIS, ABI or other Fund agent will be liable for any
loss, injury, damage or expense as a result of acting upon telephone
instructions purporting to be on your behalf that ABIS reasonably believes
to be genuine.
. If you have selected electronic funds transfer in your Mutual Fund
Application, the redemption proceeds will be sent directly to your bank.
Otherwise, the proceeds will be mailed to you.
. Redemption requests by electronic funds transfer or check may not exceed
$100,000 per Fund account per day.
58
. Telephone redemption is not available for shares held in nominee or "street
name" accounts, retirement plan accounts, or shares held by a shareholder
who has changed his or her address of record within the previous 30 calendar
days.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
Each Fund's Board has adopted policies and procedures designed to detect and
deter frequent purchases and redemptions of Fund shares or excessive or
short-term trading that may disadvantage long-term Fund shareholders. These
policies are described below. There is no guarantee that the Funds will be able
to detect excessive or short-term trading activity or to identify shareholders
engaged in such practices, particularly with respect to transactions in omnibus
accounts. Shareholders should be aware that application of these policies may
have adverse consequences, as described below, and should avoid frequent
trading in Fund shares through purchases, sales and exchanges of shares. Each
Fund reserves the right to restrict, reject, or cancel, without any prior
notice, any purchase or exchange order for any reason, including any purchase
or exchange order accepted by any shareholder's financial intermediary.
RISKS ASSOCIATED WITH EXCESSIVE OR SHORT-TERM TRADING GENERALLY. While the
Funds will try to prevent market timing by utilizing the procedures described
below, these procedures may not be successful in identifying or stopping
excessive or short-term trading in all circumstances. By realizing profits
through short-term trading, shareholders that engage in rapid purchases and
sales or exchanges of a Fund's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Fund shares, especially involving large dollar amounts, may
disrupt efficient portfolio management and cause a Fund to sell portfolio
securities at inopportune times to raise cash to accommodate redemptions
relating to short-term trading activity. In particular, a Fund may have
difficulty implementing its long-term investment strategies if it is forced to
maintain a higher level of its assets in cash to accommodate significant
short-term trading activity. In addition, a Fund may incur increased
administrative and other expenses due to excessive or short-term trading,
including increased brokerage costs and realization of taxable capital gains.
Funds that may invest significantly in securities of foreign issuers may be
particularly susceptible to short-term trading strategies. This is because
securities of foreign issuers are typically traded on markets that close well
before the time a Fund calculates its NAV (ordinarily at 4:00 p.m., Eastern
time), which gives rise to the possibility that developments may have occurred
in the interim that would affect the value of these securities. The time zone
differences among international stock markets can allow a shareholder engaging
in a short-term trading strategy to exploit differences in Fund share prices
that are based on closing prices of securities of foreign issuers established
some time before the Fund calculates its own share price (referred to as "time
zone arbitrage"). Each Fund has procedures, referred to as fair value pricing,
designed to adjust closing market prices of securities of foreign issuers to
reflect what is believed to be the fair value of those securities at the time
the Fund calculates its NAV. While there is no assurance, the Funds expect that
the use of fair value pricing, in addition to the short-term trading policies
discussed below, will significantly reduce a shareholder's ability to engage in
time zone arbitrage to the detriment of other Fund shareholders.
A shareholder engaging in a short-term trading strategy may also target a Fund
irrespective of its investments in securities of foreign issuers. Any Fund that
invests in securities that are, among other things, thinly traded, traded
infrequently or that have limited capacity has the risk that the current market
price for the securities may not accurately reflect current market values. A
shareholder may seek to engage in short-term trading to take advantage of these
pricing differences (referred to as "price arbitrage"). All Funds may be
adversely affected by price arbitrage.
POLICY REGARDING SHORT-TERM TRADING. Purchases and exchanges of shares of the
Funds should be made for investment purposes only. The Funds seek to prevent
patterns of excessive purchases and sales of Fund shares to the extent they are
detected by the procedures described below, subject to each Fund's ability to
monitor purchase, sale and exchange activity. The Funds reserve the right to
modify this policy, including any surveillance or account blocking procedures
established from time to time to effectuate this policy, at any time without
notice.
. TRANSACTION SURVEILLANCE PROCEDURES. The Funds, through their agents, ABI
and ABIS, maintain surveillance procedures to detect excessive or short-term
trading in Fund shares. This surveillance process involves several factors,
which include scrutinizing transactions in Fund shares that exceed certain
monetary thresholds or numerical limits within a specified period of time.
Generally, more than two exchanges of Fund shares during any 60-day period
or purchases of shares followed by a sale within 60 days will be identified
by these surveillance procedures. For purposes of these transaction
surveillance procedures, the Funds may consider trading activity in multiple
accounts under common ownership, control, or influence. Trading activity
identified by either, or a combination, of these factors, or as a result of
any other information available at the time, will be evaluated to determine
whether such activity might constitute excessive or short-term trading. With
respect to managed or discretionary accounts for which the account owner
gives his/her broker, investment adviser or other third party authority to
buy and sell Fund shares, the Funds may consider trades initiated by the
account owner, such as trades initiated in connection with bona fide cash
management purposes, separately in their analysis. These surveillance
procedures may be modified from time to time, as necessary or appropriate to
improve the detection of excessive or short-term trading or to address
specific circumstances.
. ACCOUNT BLOCKING PROCEDURES. If the Funds determine, in their sole
discretion, that a particular transaction or pattern of transactions
identified by the transaction surveillance procedures described above is
excessive or short-term trading in nature, the Funds will take remedial
actions that may
59
include issuing a warning, revoking certain account-related activities (such
as the ability to place purchase, sale and exchange orders over the internet
or by phone) or prohibiting or "blocking" future purchase or exchange
activity. However, sales of Fund shares back to a Fund or redemptions will
continue to be permitted in accordance with the terms of the Fund's current
Prospectus. As a result, unless the shareholder redeems his or her shares,
which may have consequences if the shares have declined in value, a CDSC is
applicable or adverse tax consequences may result, the shareholder may be
"locked" into an unsuitable investment. A blocked account will generally
remain blocked for 90 days. Subsequent detections of excessive or short-term
trading may result in an indefinite account block, or an account block until
the account holder or the associated broker, dealer or other financial
intermediary provides evidence or assurance acceptable to the Fund that the
account holder did not or will not in the future engage in excessive or
short-term trading.
. APPLICATIONS OF SURVEILLANCE PROCEDURES AND RESTRICTIONS TO OMNIBUS
ACCOUNTS. Omnibus account arrangements are common forms of holding shares of
the Funds, particularly among certain brokers, dealers and other financial
intermediaries, including sponsors of retirement plans. The Funds apply
their surveillance procedures to these omnibus account arrangements. As
required by SEC rules, the Funds have entered into agreements with all of
their financial intermediaries that require the financial intermediaries to
provide the Funds, upon the request of the Funds or their agents, with
individual account level information about their transactions. If the Funds
detect excessive trading through their monitoring of omnibus accounts,
including trading at the individual account level, the financial
intermediaries will also execute instructions from the Funds to take actions
to curtail the activity, which may include applying blocks to accounts to
prohibit future purchases and exchanges of Fund shares. For certain
retirement plan accounts, the Funds may request that the retirement plan or
other intermediary revoke the relevant participant's privilege to effect
transactions in Fund shares via the internet or telephone, in which case the
relevant participant must submit future transaction orders via the U.S.
Postal Service (i.e., regular mail).
HOW THE FUNDS VALUE THEIR SHARES
Each Fund's NAV is calculated on any day the Exchange is open at the close of
regular trading (ordinarily, 4:00 p.m., Eastern time, but sometimes earlier, as
in the case of scheduled half-day trading or unscheduled suspensions of
trading). To calculate NAV, a Fund's assets are valued and totaled, liabilities
are subtracted, and the balance, called net assets, is divided by the number of
shares outstanding. If a Fund invests in securities that are primarily traded
on foreign exchanges that trade on weekends or other days when the Fund does
not price its shares, the NAV of the Fund's shares may change on days when
shareholders will not be able to purchase or redeem their shares in the Fund.
The Funds value their securities at their current market value determined on
the basis of market quotations or, if market quotations are not readily
available or are unreliable, at "fair value" as determined in accordance with
procedures established by and under the general supervision of each Board. When
a Fund uses fair value pricing, it may take into account any factors it deems
appropriate. A Fund may determine fair value based upon developments related to
a specific security, current valuations of foreign stock indices (as reflected
in U.S. futures markets) and/or U.S. sector or broader stock market indices.
The prices of securities used by the Fund to calculate its NAV may differ from
quoted or published prices for the same securities. Fair value pricing involves
subjective judgments and it is possible that the fair value determined for a
security is materially different than the value that could be realized upon the
sale of that security.
The Funds expect to use fair value pricing for securities primarily traded on
U.S. exchanges only under very limited circumstances, such as the early closing
of the exchange on which a security is traded or suspension of trading in the
security, or for securities for which market prices are not readily available
or deemed unreliable (including restricted securities). The Funds may use fair
value pricing more frequently for securities primarily traded in non-U.S.
markets because, among other things, most foreign markets close well before a
Fund ordinarily 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. Factors
considered in fair value pricing may include, but are not limited to,
information obtained by contacting the issuer or analysts, or by analysis of
the issuers' financial statements. The Funds may value their securities using
fair value prices based on independent pricing services.
Subject to its oversight, each Fund's Board has delegated responsibility for
valuing a Fund's assets to the Adviser. The Adviser has established a Valuation
Committee, which operates under the policies and procedures approved by the
Board, to value the Fund's assets on behalf of the Fund. The Valuation
Committee values Fund assets as described above. More information about the
valuation of the Funds' assets is available in the Funds' SAI.
60
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's investment adviser is AllianceBernstein L.P., 1345 Avenue of the
Americas, New York, New York 10105. The Adviser is a leading global investment
adviser supervising client accounts with assets as of September 30, 2018,
totaling approximately $550 billion (of which approximately $113 billion
represented assets of investment companies sponsored by the Adviser). As of
September 30, 2018, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 15 of the nation's
FORTUNE 100 companies), for public employee retirement funds in 30 states, for
investment companies, and for foundations, endowments, banks and insurance
companies worldwide. The 29 registered investment companies managed by the
Adviser, comprising approximately 113 separate investment portfolios, had as of
September 30, 2018 approximately 2.5 million accounts.
During 2017, AXA S.A. ("AXA"), a French holding company for the AXA Group, a
worldwide leader in life, property and casualty and health insurance and asset
management, announced its intention to pursue the sale of a minority stake in
its subsidiary, AXA Equitable Holdings, Inc. ("AXA Equitable"), the holding
company for a diversified financial services organization, through an initial
public offering ("IPO"). AXA Equitable is the holding company for a diverse
group of financial services companies, including the Adviser. During the second
quarter of 2018, AXA Equitable completed the IPO, and, as a result, AXA held
approximately 72.2% of the outstanding common stock of AXA Equitable as of
September 30, 2018. Contemporaneously with the IPO, AXA sold $862.5 million
aggregate principal amount of its 7.25% mandatorily exchangeable notes (the
"MxB Notes") due May 15, 2021 and exchangeable into up to 43,125,000 shares of
common stock (or approximately 7% of the outstanding shares of common stock of
AXA Equitable). AXA retains ownership (including voting rights) of such shares
of common stock until the MxB Notes are exchanged, which may be on a date that
is earlier than the maturity date at AXA's option upon the occurrence of
certain events.
In March 2018, AXA announced its intention to sell its entire interest in AXA
Equitable over time, subject to market conditions and other factors (the
"Plan"). It is anticipated that one or more of the transactions contemplated by
the Plan may ultimately result in the indirect transfer of a "controlling
block" of voting securities of the Adviser (a "Change of Control Event") and
therefore may be deemed an "assignment" causing a termination of each Fund's
current investment advisory agreement. In order to ensure that the existing
investment advisory services could continue uninterrupted, at meetings held in
late July through early August 2018, the Board approved new investment advisory
agreements with the Adviser, in connection with the Plan. The Board also agreed
to call and hold a joint meeting of shareholders on October 11, 2018 for
shareholders of each Fund to (1) approve the new investment advisory agreement
with the Adviser that would be effective after the first Change of Control
Event and (2) approve any future advisory agreement approved by the Board and
that has terms not materially different from the current agreement, in the
event there are subsequent Change of Control Events arising from completion of
the Plan that terminate the advisory agreement after the first Change of
Control Event. Approval of a future advisory agreement means that shareholders
may not have another opportunity to vote on a new agreement with the Adviser
even upon a change of control, as long as no single person or group of persons
acting together gains "control" (as defined in the 1940 Act) of AXA Equitable.
At the October 11, 2018 meeting (or at a related adjourned meeting, for certain
Funds), shareholders of each of the Funds approved the new and future
investment advisory agreements.
Currently, the Adviser and its affiliates do not anticipate that the Plan will
have a material impact on the Adviser or any affiliates of the Adviser that
provides services to the Funds, including with respect to the following:
operations, personnel, organizational structure, capitalization, or financial
and other resources. The Adviser's current leadership and key investment teams
are expected to stay in place, and no change in senior management's strategy
for the Adviser is anticipated as a result of the implementation of the Plan.
Notwithstanding the foregoing, it is possible that the completion of the Plan,
whether implemented through public offerings or other means, could create the
potential for disruption to the businesses of AXA Equitable and its
subsidiaries. AXA Equitable, today and in the future as a stand-alone entity is
a publicly held U.S. company subject to the reporting requirements of the
Securities Exchange Act of 1934 as well as other U.S. Government and state
regulations applicable to public companies that it was not subject to prior to
the IPO. The Plan may be implemented in phases. During the time that AXA
retains a controlling interest in AXA Equitable, circumstances affecting AXA,
including restrictions or requirements imposed on AXA by European and other
authorities, may also affect AXA Equitable. A failure to implement the Plan
could create uncertainty about the nature of the relationship between AXA
Equitable and AXA, and could adversely affect AXA Equitable and its
subsidiaries including the Adviser. If the Plan is completed, AXA Equitable
will no longer be a subsidiary of AXA. AXA Equitable is expected to remain the
indirect parent of AllianceBernstein Corporation, the general partner of the
Adviser.
On November 20, 2018 AXA completed a public offering of 60,000,000 shares of
AXA Equitable's common stock and simultaneously sold 30,000,000 of such shares
to AXA Equitable pursuant to a separate agreement with it. As a result AXA
currently owns approximately 59.2% of the shares of common stock of AXA
Equitable.
The Adviser provides investment advisory services and order placement
facilities for each of the Funds. For these advisory
61
services, each Fund paid the Adviser during its most recent fiscal year a
management fee as a percentage of average daily net assets as follows:
FEE AS A PERCENTAGE OF
AVERAGE DAILY NET FISCAL
FUND ASSETS YEAR ENDED
----------------------------------------------------------------------------
AB Intermediate Bond Portfolio .45%* 10/31/18
AB Global Bond Fund .45%* 9/30/18
AB Unconstrained Bond Fund .34%* 10/31/18
AB High Income Fund .45%* 10/31/18
AB Limited Duration High Income Portfolio .45%* 9/30/18
AB Income Fund .37%* 10/31/18
AB Tax-Aware Fixed Income Portfolio .00%* 10/31/18
--------
*Fee stated net of any waivers and/or reimbursements.
A discussion regarding the basis for the Board's approval of each Fund's
investment advisory agreement is available in the Fund's most recent annual
report to shareholders as follows:
ANNUAL REPORT
FUND PERIOD
--------------------------------------------------------
AB Intermediate Bond Portfolio 10/31/18
AB Global Bond Fund 9/30/18
AB Unconstrained Bond Fund 10/31/18
AB High Income Fund 10/31/18
AB Limited Duration High Income Portfolio 9/30/18
AB Income Fund 10/31/18
AB Tax-Aware Fixed Income Portfolio 10/31/18
The Adviser may act as an investment adviser to other persons, firms, or
corporations, including investment companies, hedge funds, pension funds, and
other institutional investors. The Adviser may receive management fees,
including performance fees, that may be higher or lower than the advisory fees
it receives from the Funds. Certain other clients of the Adviser may have
investment objectives and policies similar to those of a Fund. The Adviser may,
from time to time, make recommendations that result in the purchase or sale of
a particular security by its other clients simultaneously with a Fund. If
transactions on behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. It is the policy of
the Adviser to allocate advisory recommendations and the placing of orders in a
manner that is deemed equitable by the Adviser to the accounts involved,
including the Funds. When two or more of the clients of the Adviser (including
a Fund) are purchasing or selling the same security on a given day from the
same broker-dealer, such transactions may be averaged as to price.
PORTFOLIO MANAGERS
The management of, and investment decisions for, the Funds' portfolios are made
by certain Investment Policy Teams. Each Investment Policy Team relies heavily
on the fundamental analysis and research of the Adviser's large internal
research staff. No one person is principally responsible for coordinating each
Fund's investments.
The following table lists the Investment Policy Teams, the person within each
Investment Policy Team with the most significant responsibility for day-to-day
management of each Fund's portfolio, the length of time that each person has
been jointly and primarily responsible for the Fund, and each person's
principal occupation during the past five years:
FUND AND PRINCIPAL
RESPONSIBLE OCCUPATION(S) DURING THE
TEAM EMPLOYEE; YEAR; TITLE PAST FIVE (5) YEARS
-----------------------------------------------------------------------------
AB Intermediate Bond Michael Canter; since Senior Vice President of
Portfolio 2016; Senior Vice the Adviser, with which
U.S. Investment Grade President of the Adviser he has been associated
Core Fixed Income Team in a substantially
similar capacity to his
current position since
prior to 2014.
Shawn E. Keegan; since Senior Vice President of
2005; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2014.
Douglas J. Peebles; Senior Vice President of
since 2007; Senior Vice the Adviser, with which
President of the he has been associated
Adviser, and Chief in a substantially
Investment Officer of similar capacity to his
Fixed Income current position since
prior to 2014.
Janaki Rao; since Senior Vice President of
January 2018; Senior the Adviser, with which
Vice President of he has been associated
the Adviser in a substantially similar
capacity to his current
position since prior
to 2014.
Greg J. Wilensky; since Senior Vice President of
2005; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2014.
62
FUND AND PRINCIPAL
RESPONSIBLE OCCUPATION(S) DURING THE
TEAM EMPLOYEE; YEAR; TITLE PAST FIVE (5) YEARS
-----------------------------------------------------------------------------
AB Global Bond Fund Paul J. DeNoon; since Senior Vice President of
Global Fixed Income 2002; Senior Vice the Adviser, with which
Investment Team President of the Adviser* he has been associated
in a substantially
similar capacity to his
current position since
prior to 2014.
Scott A. DiMaggio; since Senior Vice President of
2005; Senior Vice the Adviser, with which
President of the Adviser, he has been associated
and Co-Head of Fixed in a substantially
Income similar capacity to his
current position since
prior to 2014.
Douglas J. Peebles; (see above)
since 1992; (see above)
Matthew S. Sheridan; Senior Vice President of
since 2007; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2014.
John Taylor; since Senior Vice President of
February 2019; Senior the Adviser, with which
Vice President of the he has been associated
Adviser in a substantially
similar capacity to his
current position since
prior to 2014.
--------
*Mr. DeNoon is expected to retire from the Adviser effective January 1, 2020.
AB Unconstrained Bond Scott A. DiMaggio; since (see above)
Fund 2016; (see above)
Global Fixed Income
Investment Team and
Global Credit Investment
Team
Gershon M. Distenfeld; Senior Vice President of
since 2016; Senior Vice the Adviser, with which
President of the Adviser, he has been associated
and Co-Head of Fixed in a substantially
Income similar capacity to his
current position since
prior to 2014.
Douglas J. Peebles; (see above)
since 1996; (see above)
Dimitri Silva; since Vice President of the
2015, Vice President of Adviser, with which he
the Adviser has been associated
since prior to 2014.
John Taylor; since 2016; Senior Vice President of
Senior Vice President of the Adviser, with which
the Adviser he has been associated
in a substantially
similar capacity to his
current position since
prior to 2014.
AB High Income Fund Paul J. DeNoon; since (see above)
Global High Income 2002; (see above)*
Investment Team
Gershon M. Distenfeld; (see above)
since 2008; (see above)
Shamaila Khan; since Senior Vice President of
February 2019; Senior the Adviser, with which
Vice President of the she has been associated
Adviser in a substantially
similar capacity to her
current position since
prior to 2014.
Douglas J. Peebles; (see above)
since 2002; (see above)
Matthew S. Sheridan; (see above)
since 2005; (see above)
--------
*Mr. DeNoon is expected to retire from the Adviser effective January 1, 2020.
AB Limited Duration High Gershon M. Distenfeld; (see above)
Income Portfolio since 2011; (see above)
Limited Duration High
Income Investment Team
Jacqueline Pincus; since Vice President of the
February 2019; Vice Adviser, with which she
President of the Adviser has been associated in a
substantially similar
capacity to her current
position since prior to
2014.
William Smith; since Vice President of the
February 2018; Vice Adviser, with which he
President of the Adviser has been associated in a
substantially similar
capacity to his current
position since prior to
2014.
AB Income Fund Paul J. DeNoon; since (see above)
U.S. Investment Grade: 2016; (see above)*
Core Fixed Income
Investment Team Scott A. DiMaggio; since (see above)
February 2019; (see
above)
Gershon M. Distenfeld; (see above)
since 2016; (see above)
Douglas J. Peebles; (see above)
since 2016; (see above)
Matthew S. Sheridan; (see above)
since 2016; (see above)
--------
*Mr. DeNoon is expected to retire from the Adviser effective January 1, 2020.
AB Tax-Aware Fixed Robert B. (Guy) Senior Vice President of
Income Portfolio Davidson, III; since the Adviser, with which
Tax-Aware Investment Team 2013; Senior Vice he has been associated
President of the Adviser in a substantially
similar capacity since
prior to 2014.
Terrance T. Hults; since Senior Vice President of
2013; Senior Vice the Adviser, with which
President of the Adviser he has been associated
in a substantially
similar capacity since
prior to 2014.
Shawn E. Keegan; since (see above)
2013; (see above)
Matthew J. Norton; since Vice President of the
2017; Vice President of Adviser, with which he
the Adviser has been associated in a
substantially similar
capacity since prior to
2014.
Andrew D. Potter; since Vice President of the
January 2018; Vice Adviser, with which he
President of the Adviser has been associated in a
substantially similar
capacity to his current
position as a portfolio
manager since prior to
2014.
63
The Funds' SAI provides additional information about the Portfolio Managers'
compensation, other accounts managed by the Portfolio Managers, and the
Portfolio Managers' ownership of securities in the Funds.
PERFORMANCE OF SIMILARLY MANAGED ACCOUNTS
The investment team employed by the Adviser to manage AB TAX-AWARE FIXED INCOME
PORTFOLIO has substantial experience in managing discretionary accounts of
institutional clients, pooled investment vehicles and/or other registered
investment companies and portions thereof (the "Similarly Managed Accounts")
that have substantially the same investment objectives and policies and are
managed in accordance with essentially the same investment strategies as the
Fund. The Similarly Managed Accounts that are not registered investment
companies are not subject to certain limitations, diversification requirements
and other restrictions imposed under the 1940 Act and the Code to which the
Fund, as a registered investment company, is subject and which, if applicable
to the Similarly Managed Accounts, may have adversely affected the performance
of the Similarly Managed Accounts.
Set forth below is performance data provided by the Adviser relating to the
Similarly Managed Accounts managed by the investment team that manages AB
Tax-Aware Fixed Income Portfolio's assets. Performance data is shown for the
period during which the investment teams of the Adviser managed the Similarly
Managed Accounts through December 31, 2018. The aggregate assets for the
Similarly Managed Accounts managed by the Tax-Aware investment team as of
September 30, 2018 were approximately $4.03 billion. The investment team's
Similarly Managed Accounts have a nearly identical composition of
representative investment holdings and related percentage weightings. The
performance data is net of all fees (including any portfolio transaction costs)
charged to the Similarly Managed Accounts, calculated on a monthly basis. The
highest fee payable for the Similarly Managed Accounts is 1.50% for AB
TAX-AWARE FIXED INCOME PORTFOLIO, annually. Net-of-fee performance figures
reflect the compounding effect of such fees.
The data has not been adjusted to reflect any fees that will be payable by the
Funds, which may be higher than the fees imposed on the Similarly Managed
Accounts, and will reduce the returns of the Funds. Expenses associated with
the distribution of Class A, Class B, Class C, Class R and Class K shares of
the Funds in accordance with the plans adopted by the Boards of the Funds under
SEC Rule 12b-1 are also excluded. Except as noted, the performance data has
also not been adjusted for corporate or individual taxes, if any, payable by
account owners.
The Adviser has calculated the investment performance of the Similarly Managed
Accounts on a trade-date basis. Income has been accrued daily and cash flows
weighted daily. Composite investment performance for the Funds has been
determined on an asset-weighted basis. New accounts are included in the
composite investment performance computations at the beginning of the quarter
following the initial contribution. The total returns set forth below are
calculated using a method that links the monthly return amounts for the
disclosed periods, resulting in a time-weighted rate of return. Other methods
of computing the investment performance of the Similarly Managed Accounts may
produce different results, and the results for different periods may vary.
The Bloomberg Barclays Municipal Bond Index is used by the AB TAX-AWARE FIXED
INCOME PORTFOLIO and its Similarly Managed Accounts for purposes of this
example as a benchmark to measure their relative performance. The Bloomberg
Barclays Municipal Bond Index is an unmanaged index comprising a broad range of
investment-grade municipal bonds having remaining maturities of greater than
one year.
To the extent the investment teams utilize investment techniques such as swaps,
futures or options, the performance of the Bloomberg Barclays Municipal Bond
Index may not be substantially comparable to the performance of the investment
team's Similarly Managed Accounts. The Bloomberg Barclays Municipal Bond Index
does not reflect the deduction of any fees or expenses associated with the
active management of a mutual fund.
The performance data below is provided solely to illustrate the investment
team's performance in managing the Similarly Managed Accounts as measured
against a broad based securities market index. The performance of the Fund will
be affected by the performance of the investment team managing the Fund's
assets. If the investment teams were to perform relatively poorly, the
performance of the Fund would suffer. Investors should not rely on the
performance data of the Similarly Managed Accounts as an indication of future
performance of the Fund.
The investment performance for the periods presented may not be indicative of
future rates of return. The performance was not calculated pursuant to the
methodology established by the SEC that is used to calculate the Fund's
performance. The use of methodology different from that used to calculate
performance could result in different performance data.
SCHEDULE OF HISTORICAL PERFORMANCE - SIMILARLY MANAGED ACCOUNTS*
TAX-AWARE FIXED INCOME
SIMILARLY MANAGED BLOOMBERG
ACCOUNTS BARCLAYS MUNICIPAL
TOTAL RETURN** BOND INDEX
--------------------------------------------------------------------------
Year Ended December 31:
2018 -0.23% 1.28%
2017 3.78% 5.45%
2016 -1.10% 0.25%
2015 2.22% 3.30%
2014 6.35% 9.05%
2013 -3.90% -2.55%
2012 6.43% 6.78%
2011 8.19% 10.70%
October 2010--December 2010 -2.87% -4.17%
Cumulative total return for the
period October 1, 2010
(inception of Similarly
Managed Accounts) to
December 31, 2018 19.67% 33.14%
--------
* Total return is a measure of investment performance that is based upon the
change in value of an investment from the beginning to the end of a specified
period and assumes reinvestment of all dividends and other distributions. The
basis of presentation of this data is described in the preceding discussion.
**Net of all fees.
64
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 2018
SINCE
1 YEAR 3 YEARS 5 YEARS INCEPTION
------------------------------------------------------------------------------
Tax-Aware Fixed Income Similarly Managed
Accounts -0.23% 0.79% 2.17% 2.20%*
Bloomberg Barclays Municipal Bond Index 1.28% 2.30% 3.82% 3.53%*
--------
*Inception date of Similarly Managed Accounts is October 1, 2010.
TRANSFER AGENCY AND RETIREMENT PLAN SERVICES
ABIS acts as the transfer agent for the Funds. ABIS, an indirect wholly-owned
subsidiary of the Adviser, registers the transfer, issuance, and redemption of
Fund shares and disburses dividends and other distributions to Fund
shareholders.
Many Fund shares are owned by financial intermediaries for the benefit of their
customers. Retirement plans may also hold Fund shares in the name of the plan,
rather than the participant. In those cases, the Funds often do not maintain an
account for you. Thus, some or all of the transfer agency functions for these
and certain other accounts are performed by the financial intermediaries and
plan recordkeepers. Financial intermediaries and recordkeepers, which may have
affiliated financial intermediaries that sell shares of the AB Mutual Funds,
may be paid by a Fund, the Adviser, ABI and ABIS (i) account fees in amounts up
to $19 per account per annum, (ii) asset-based fees of up to 0.25% (except in
respect of a limited number of intermediaries) per annum of the average daily
assets held through the intermediary, or (iii) a combination of both. These
amounts include fees for shareholder servicing, sub-transfer agency,
sub-accounting and recordkeeping services. These amounts do not include fees
for shareholder servicing that may be paid separately by the Fund pursuant to
its Rule 12b-1 plan. Amounts paid by the Funds for these services are included
in "Other Expenses" under "Fees and Expenses of the Fund" in the Summary
Information section of this Prospectus. In addition, financial intermediaries
may be affiliates of entities that receive compensation from the Adviser or ABI
for maintaining retirement plan "platforms" that facilitate trading by
affiliated and non-affiliated financial intermediaries and recordkeeping for
retirement plans.
Because financial intermediaries and plan recordkeepers may be paid varying
amounts per class for sub-transfer agency and related recordkeeping services,
the service requirements of which may also vary by class, this may create an
additional incentive for financial intermediaries and their financial advisors
to favor one fund complex over another or one class of shares over another.
For more information, please refer to the Funds' SAI, call your financial
advisor or visit our website at www.abfunds.com.
65
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
DIVIDENDS AND DISTRIBUTIONS
Income dividends and capital gains distributions, if any, declared by a Fund on
its outstanding shares will, at the election of each shareholder, be paid in
cash or in additional shares of the same class of shares of that Fund. If paid
in additional shares, the shares will have an aggregate NAV as of the close of
business on the declaration date of the dividend or distribution equal to the
cash amount of the dividend or distribution.
Income dividends generally are declared daily and paid monthly, except with
respect to AB UNCONSTRAINED BOND FUND, which generally declares and pays
monthly.
You may make an election to receive dividends and distributions in cash or in
shares at the time you purchase shares. Your election can be changed at any
time prior to a record date for a dividend. There is no sales or other charge
in connection with the reinvestment of dividends or capital gains
distributions. Cash dividends may be paid by check, or, at your election,
electronically via the ACH network.
If you receive an income dividend or capital gains distribution in cash you
may, within 120 days following the date of its payment, reinvest the dividend
or distribution in additional shares of that Fund without charge by returning
to the Adviser, with appropriate instructions, the check representing the
dividend or distribution. Thereafter, unless you otherwise specify, you will be
deemed to have elected to reinvest all subsequent dividends and distributions
in shares of that Fund.
TAXES
While it is the intention of each Fund to distribute to its shareholders
substantially all of each fiscal year's net income and net realized capital
gains, if any, the amount and timing of any dividend or distribution will
depend on the realization by the Fund of income and capital gains from
investments. There is no fixed dividend rate and there can be no assurance that
a Fund will pay any dividends or realize any capital gains. The final
determination of the amount of a Fund's return of capital distributions for the
period will be made after the end of each calendar year.
You will normally have to pay federal income tax, and any state or local income
taxes, on the distributions you receive from a Fund, whether you take the
distributions in cash or reinvest them in additional shares. Distributions of
net capital gains from the sale of investments that a Fund owned for more than
one year and that are properly designated as capital gains distributions are
taxable as long-term capital gains. Distributions of dividends to a Fund's
non-corporate shareholders may be treated as "qualified dividend income", which
is taxed at reduced rates, if such distributions are derived from, and
designated by a Fund as, "qualified dividend income" and provided that holding
period and other requirements are met by both the shareholder and the Fund.
"Qualified dividend income" generally is income derived from dividends from
U.S. corporations and "qualified foreign corporations". Other distributions by
a Fund are generally taxable to you as ordinary income. Dividends declared in
October, November, or December and paid in January of the following year are
taxable as if they had been paid the previous December. A Fund will notify you
as to how much of the Fund's distributions, if any, qualify for these reduced
tax rates.
Investment income received by a Fund from sources within foreign countries may
be subject to foreign income taxes withheld at the source. To the extent that
any Fund is liable for foreign income taxes withheld at the source, the Fund
intends, if possible, to operate so as to meet the requirements of the Code to
"pass through" to the Fund's shareholders credits for foreign income taxes paid
(or to permit shareholders to claim a deduction for such foreign taxes), but
there can be no assurance that any Fund will be able to do so, and Funds that
invest primarily in U.S. securities will not do so. Furthermore, a
shareholder's ability to claim a foreign tax credit or deduction for foreign
taxes paid by a Fund may be subject to certain limitations imposed by the Code,
as a result of which a shareholder may not be permitted to claim a credit or
deduction for all or a portion of the amount of such taxes.
Under certain circumstances, if a Fund realizes losses (e.g., from fluctuations
in currency exchange rates) after paying a dividend, all or a portion of the
dividend may subsequently be characterized as a return of capital. Returns of
capital are generally nontaxable, but will reduce a shareholder's basis in
shares of the Fund. If that basis is reduced to zero (which could happen if the
shareholder does not reinvest distributions and returns of capital are
significant), any further returns of capital will be taxable as a capital gain.
AB TAX-AWARE FIXED INCOME PORTFOLIO
Distributions to shareholders out of tax-exempt interest income earned by the
Fund are not subject to federal income tax. Under current tax law, some
individuals may be subject to the AMT on distributions to shareholders out of
income from the AMT-Subject bonds in which the Fund invests. Distributions out
of taxable interest, other investment income, and net realized short-term
capital gains are taxable to shareholders as ordinary income. Any distributions
of long-term capital gains generally will be taxable to you as long-term
capital gains regardless of how long you have held your shares. Since the
Fund's investment income is derived from interest rather than dividends, no
portion of its distributions will be eligible for the dividends-received
deduction available to corporations, and for non-corporate shareholders no
portion of such distributions will be treated as "qualified dividend income"
taxable at the same potential tax rates applicable to long-term capital gains.
The Fund anticipates that a substantial portion of its dividends will be exempt
from regular federal income taxes. Shareholders may be subject to state and
local taxes on distributions from the Fund, including distributions that are
exempt from federal income taxes.
66
Interest on indebtedness incurred by shareholders to purchase or carry shares
of the Fund is not deductible for federal income tax purposes. Further, persons
who are "substantial users" (or related persons) of facilities financed by
AMT-Subject bonds should consult their tax advisers before purchasing shares of
the Fund.
GENERAL
If you buy shares just before the Fund deducts a distribution from its NAV, you
will pay the full price for the shares and then receive a portion of the price
back as a distribution, which may be taxable.
For tax purposes, an exchange is treated as a sale of Fund shares. The sale or
exchange of Fund shares is a taxable transaction for federal income tax
purposes.
Each year shortly after December 31, a Fund will send you tax information
stating the amount and type of all its distributions for the year. You are
encouraged to consult your tax adviser about the federal, state, and local tax
consequences in your particular circumstances, as well as about any possible
foreign tax consequences.
NON-U.S. SHAREHOLDERS
If you are a nonresident alien individual or a foreign corporation for federal
income tax purposes, please see the Funds' SAI for information on how you will
be taxed as a result of holding shares in the Funds.
67
GENERAL INFORMATION
--------------------------------------------------------------------------------
Under unusual circumstances, a Fund may suspend redemptions or postpone payment
for up to seven days or longer, as permitted by federal securities law. The
Funds reserve the right to close an account that has remained below $1,000 for
90 days.
During drastic economic or market developments, you might have difficulty in
reaching ABIS by telephone, in which event you should issue written
instructions to ABIS. ABIS is not responsible for the authenticity of telephone
requests to purchase, sell, or exchange shares. ABIS will employ reasonable
procedures to verify that telephone requests are genuine, and could be liable
for losses resulting from unauthorized transactions if it failed to do so.
Dealers and agents may charge a commission for handling telephone requests. The
telephone service may be suspended or terminated at any time without notice.
Shareholder Services. ABIS offers a variety of shareholder services. For more
information about these services or your account, call ABIS's toll-free number,
800-221-5672. Some services are described in the Mutual Fund Application.
Householding. Many shareholders of the AB Mutual Funds have family members
living in the same home who also own shares of the same Funds. In order to
reduce the amount of duplicative mail that is sent to homes with more than one
fund account and to reduce expenses of the funds, all AB Mutual Funds will,
until notified otherwise, send only one copy of each prospectus, shareholder
report and proxy statement to each household address. This process, known as
"householding", does not apply to account statements, confirmations, or
personal tax information. If you do not wish to participate in householding, or
wish to discontinue householding at any time, call ABIS at 1-800-221-5672. We
will resume separate mailings for your account within 30 days of your request.
68
GLOSSARY OF INVESTMENT TERMS
--------------------------------------------------------------------------------
AMT is the federal alternative minimum tax.
AMT-SUBJECT BONDS are municipal securities paying interest that is an item of
"tax preference" and thus subject to the AMT when received by a person in a tax
year during which the person is subject to the AMT. These securities are
primarily private activity bonds, including revenue bonds.
BONDS are interest-bearing or discounted government or corporate securities
that obligate the issuer to pay the bond holder a specified sum of money,
usually at specified intervals, and to repay the principal amount of the loan
at maturity.
FIXED-INCOME SECURITIES are investments, such as bonds, that pay a fixed rate
of return.
MUNICIPAL SECURITIES are debt obligations issued by states, territories and
possessions of the United States and the District of Columbia, and their
political subdivisions, duly constituted authorities and corporations.
Municipal securities include municipal bonds, which are intended to meet
longer-term capital needs and municipal notes, which are intended to fulfill
short-term capital needs.
NON-U.S. COMPANY OR NON-U.S. ISSUER is an entity that (i) is organized under
the laws of a foreign country and conducts business in a foreign country,
(ii) derives 50% or more of its total revenues from business in foreign
countries, or (iii) issues equity or debt securities that are traded
principally on a stock exchange in a foreign country.
U.S. GOVERNMENT SECURITIES are securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, including obligations that are
issued by private issuers that are guaranteed as to principal or interest by
the U.S. Government, its agencies or instrumentalities, or by certain
government-sponsored entities (entities chartered by or sponsored by Act of
Congress). These securities include securities backed by the full faith and
credit of the United States, those supported by the right of the issuer to
borrow from the U.S. Treasury, and those backed only by the credit of the
issuing agency or entity itself. The first category includes U.S. Treasury
securities (which are U.S. Treasury bills, notes, and bonds) and certificates
issued by the Government National Mortgage Association. U.S. Government
securities not backed by the full faith and credit of the United States or a
right to borrow from the U.S. Treasury include certificates issued by the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation.
THE ICE BOFA MERRILL LYNCH 3-MONTH T-BILL INDEX is an unmanaged index that
measures returns of three-month Treasury bills.
THE BLOOMBERG BARCLAYS U.S. AGGREGATE BOND INDEX is a broad-based bond index
comprised of government, corporate, mortgage and asset-backed issues, rated
investment grade or higher, and having at least one year to maturity.
THE BLOOMBERG BARCLAYS GLOBAL AGGREGATE BOND INDEX is a macro index of global
government and corporate bond markets, and is composed of various indices
calculated by Bloomberg, including the U.S. Aggregate Index, the Pan-European
Aggregate Index, the Global Treasury Index, the Asian-Pacific Aggregate Index,
the Eurodollar Index and the U.S. Investment-Grade 144A Index.
THE BLOOMBERG BARCLAYS GLOBAL HIGH YIELD 1-5 YEAR INDEX represents the
performance of non-investment-grade fixed-income securities in the U.S.,
developed and emerging markets with more than one year and less than five years
remaining until maturity, hedged to the U.S. Dollar.
THE BLOOMBERG BARCLAYS GLOBAL HIGH YIELD INDEX (USD HEDGED) is an unmanaged
index considered representative of non-investment grade fixed-income securities
of companies in the U.S., developed markets and emerging markets.
THE BLOOMBERG BARCLAYS MUNICIPAL BOND INDEX is an unmanaged index comprising a
broad range of investment-grade municipal bonds having remaining maturities of
greater than one year.
THE BLOOMBERG BARCLAYS U.S. CORPORATE HIGH YIELD 2% ISSUER CAPPED INDEX is an
issuer-constrained version of the U.S. Corporate High Yield Index, which
measures the USD-denominated, high yield, fixed-rate corporate bond market, but
limits the exposure of each issuer to 2% of the total market value and
redistributes any excess market value index-wide on a pro rata basis.
THE JPMORGAN EMERGING MARKETS BOND INDEX GLOBAL is a broad-based, unmanaged
index that tracks total return for external currency denominated debt in
emerging markets.
THE JPMORGAN GOVERNMENT BOND INDEX-EMERGING MARKETS is a definitive local
emerging markets debt benchmark that tracks local currency government bonds
issued by emerging market countries.
69
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
The financial highlights table is intended to help you understand each Fund's
financial performance for the past five years (or, if shorter, the period of
the Fund's operations). Certain information reflects financial results for a
single share of a class of each Fund. The total returns in the table represent
the rate that an investor would have earned (or lost) on an investment in the
Fund (assuming reinvestment of all dividends and distributions). Each Fund's
financial statements have been audited by Ernst & Young LLP, independent
registered public accounting firm. The report of the independent registered
public accounting firm, along with each Fund's financial statements, are
included in each Fund's annual report, which is available upon request.
70
AB INTERMEDIATE BOND PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
CLASS A
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.11 $ 11.23 $ 11.06 $ 11.24 $ 11.00
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .25 .24+ .26 .28 .35
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.44) (.06) .27 (.12) .23
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations (.19) .18 .53 .16 .58
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.27) (.23) (.36) (.34) (.34)
Distributions from net realized gain on investment
transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.03) - 0 - - 0 - - 0 -
-------- -------- -------- -------- --------
Total dividends and distributions (.27) (.30) (.36) (.34) (.34)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.65 $ 11.11 $ 11.23 $ 11.06 $ 11.24
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* (1.75)% 1.68%+ 4.93% 1.45% 5.34%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $216,950 $240,386 $245,683 $252,965 $273,962
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .77% .79% .85% .88% .90%
Expenses, before waivers/reimbursements 1.01% 1.03% 1.03% 1.06% 1.06%
Net investment income(b) 2.29% 2.16%+ 2.35% 2.51% 3.15%
Portfolio turnover rate** 195% 209% 128% 198% 221%
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.11 $11.23 $11.06 $11.24 $11.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .17 .15+ .18 .20 .28
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.44) (.05) .27 (.12) .22
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.27) .10 .45 .08 .50
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.19) (.16) (.28) (.26) (.26)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.02) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.19) (.22) (.28) (.26) (.26)
------ ------ ------ ------ ------
Net asset value, end of period $10.65 $11.11 $11.23 $11.06 $11.24
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)* (2.48)% .92%+ 4.15% .72% 4.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 511 $ 743 $1,106 $1,692 $3,017
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.52% 1.54% 1.60% 1.60% 1.60%
Expenses, before waivers/reimbursements 1.80% 1.81% 1.81% 1.80% 1.78%
Net investment income(b) 1.53% 1.38%+ 1.59% 1.77% 2.48%
Portfolio turnover rate** 195% 209% 128% 198% 221%
-----------------------------------------------------------------------------------------------------------------
See footnotes on page 75.
71
----------------------------------------------------------------------------------------------------------------------
CLASS C
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.08 $ 11.21 $ 11.04 $ 11.22 $ 10.98
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .17 .15+ .18 .20 .27
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.43) (.06) .27 (.12) .23
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.26) .09 .45 .08 .50
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.19) (.16) (.28) (.26) (.26)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.02) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.19) (.22) (.28) (.26) (.26)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.63 $ 11.08 $ 11.21 $ 11.04 $ 11.22
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* (2.40)% .83%+ 4.16% .73% 4.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $11,334 $15,676 $41,886 $40,928 $42,690
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.52% 1.55% 1.60% 1.60% 1.60%
Expenses, before waivers/reimbursements 1.76% 1.78% 1.78% 1.78% 1.77%
Net investment income(b) 1.54% 1.38%+ 1.60% 1.79% 2.46%
Portfolio turnover rate** 195% 209% 128% 198% 221%
----------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.11 $ 11.24 $ 11.06 $ 11.24 $ 11.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .28 .27+ .29 .31 .39
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.44) (.07) .28 (.12) .22
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.16) .20 .57 .19 .61
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.30) (.25) (.39) (.37) (.37)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.04) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.30) (.33) (.39) (.37) (.37)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.65 $ 11.11 $ 11.24 $ 11.06 $ 11.24
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* (1.50)% 1.84%+ 5.29% 1.73% 5.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $76,406 $67,357 $56,068 $22,705 $26,352
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .52% .54% .60% .60% .60%
Expenses, before waivers/reimbursements .76% .78% .78% .77% .75%
Net investment income(b) 2.55% 2.41%+ 2.60% 2.78% 3.51%
Portfolio turnover rate** 195% 209% 128% 198% 221%
----------------------------------------------------------------------------------------------------------------------
See footnotes on page 75.
72
-----------------------------------------------------------------------------------------------------------------
CLASS R
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.10 $11.23 $11.06 $11.24 $11.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .23 .21+ .23 .26 .33
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.44) (.06) .28 (.12) .23
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.21) .15 .51 .14 .56
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.24) (.21) (.34) (.32) (.32)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.03) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.24) (.28) (.34) (.32) (.32)
------ ------ ------ ------ ------
Net asset value, end of period $10.65 $11.10 $11.23 $11.06 $11.24
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)* (1.90)% 1.34%+ 4.67% 1.23% 5.13%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,814 $2,699 $3,023 $2,936 $2,368
Ratio to average net assets of:
Expenses, net of waivers/reimbursements 1.02% 1.04% 1.10% 1.10% 1.10%
Expenses, before waivers/reimbursements 1.35% 1.39% 1.38% 1.38% 1.36%
Net investment income(b) 2.07% 1.91%+ 2.10% 2.29% 2.94%
Portfolio turnover rate** 195% 209% 128% 198% 221%
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
CLASS K
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.11 $11.24 $11.07 $11.24 $11.01
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .25 .24+ .26 .28 .35
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.43) (.07) .27 (.10) .22
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.18) .17 .53 .18 .57
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.27) (.23) (.36) (.35) (.34)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.03) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.27) (.30) (.36) (.35) (.34)
------ ------ ------ ------ ------
Net asset value, end of period $10.66 $11.11 $11.24 $11.07 $11.24
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)* (1.66)% 1.59%+ 4.93% 1.57% 5.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,863 $5,876 $5,706 $3,922 $4,515
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .77% .79% .85% .85% .85%
Expenses, before waivers/reimbursements 1.08% 1.09% 1.09% 1.08% 1.03%
Net investment income(b) 2.32% 2.15%+ 2.34% 2.53% 3.17%
Portfolio turnover rate** 195% 209% 128% 198% 221%
-----------------------------------------------------------------------------------------------------------------
See footnotes on page 75.
73
-----------------------------------------------------------------------------------------------------------------
CLASS I
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.12 $11.24 $11.07 $11.25 $11.01
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .28 .27+ .28 .31 .36
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.44) (.06) .28 (.12) .25
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.16) .21 .56 .19 .61
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.30) (.25) (.39) (.37) (.37)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.04) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.30) (.33) (.39) (.37) (.37)
------ ------ ------ ------ ------
Net asset value, end of period $10.66 $11.12 $11.24 $11.07 $11.25
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)* (1.50)% 1.93%+ 5.20% 1.73% 5.65%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,894 $2,729 $2,613 $ 511 $ 107
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .52% .54% .60% .60% .60%
Expenses, before waivers/reimbursements .72% .75% .76% .75% .75%
Net investment income(b) 2.57% 2.41%+ 2.56% 2.74% 3.22%
Portfolio turnover rate** 195% 209% 128% 198% 221%
-----------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
CLASS Z
APRIL 28,
2014(e) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $11.13 $ 11.26 $ 11.08 $11.26 $11.15
------ ------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .27 .27+ .28 .32 .19
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.43) (.07) .29 (.13) .10
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------ ------- ------- ------ ------
Net increase (decrease) in net asset value from operations (.16) .20 .57 .19 .29
------ ------- ------- ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.30) (.25) (.39) (.37) (.18)
Distributions from net realized gain on investment transactions - 0 - (.04) - 0 - - 0 - - 0 -
Tax return of capital - 0 - (.04) - 0 - - 0 - - 0 -
------ ------- ------- ------ ------
Total dividends and distributions (.30) (.33) (.39) (.37) (.18)
------ ------- ------- ------ ------
Net asset value, end of period $10.67 $ 11.13 $ 11.26 $11.08 $11.26
====== ======= ======= ====== ======
TOTAL RETURN
Total investment return based on net asset value(d) (1.49)% 1.84%+ 5.28% 1.72% 2.61%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,274 $24,653 $18,134 $4,851 $ 10
Ratio to average net assets of:
Expenses, net of waivers/reimbursements .52% .54% .60% .60% .60%^
Expenses, before waivers/reimbursements .64% .66% .66% .71% .66%^
Net investment income(b) 2.48% 2.42%+ 2.52% 2.91% 3.29%^
Portfolio turnover rate** 195% 209% 128% 198% 221%
-----------------------------------------------------------------------------------------------------------------
See footnotes on page 75.
74
(a)Based on average shares outstanding.
(b)Net of fees and expenses waived/reimbursed by the Adviser.
(c)Amount is less than $.005.
(d)Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total return does not reflect the deduction 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)Commencement of operations.
+ For the year ended October 31, 2017, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT NET INVESTMENT TOTAL
INCOME PER SHARE INCOME RATIO RETURN
------------------------ ------------------------ ------------------------
$.002 .02% .02%
* Includes the impact of proceeds received and credited to the Fund resulting
from class action settlements, which enhanced the Fund's performance for the
year ended October 31, 2014 by .01%.
** The Fund accounts for dollar roll transactions as purchases and sales.
^ Annualized.
75
AB GLOBAL BOND FUND
--------------------------------------------------------------------------------------------------------------------------
CLASS A
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.43 $ 8.59 $ 8.34 $ 8.52 $ 8.26
-------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .18(b) .18(b) .17(b) .18 .23
Net realized and unrealized gain (loss) on
investment and foreign currency transactions (.22) (.09) .39 (.02) .25
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
-------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value from
operations (.04) .09 .56 .16 .48
-------- ---------- ---------- ---------- ----------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.20) (.18) (.30) (.34) (.22)
Distributions from net realized gain on investment
and foreign currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
-------- ---------- ---------- ---------- ----------
Total dividends and distributions (.20) (.25) (.31) (.34) (.22)
-------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.19 $ 8.43 $ 8.59 $ 8.34 $ 8.52
======== ========== ========== ========== ==========
TOTAL RETURN
Total investment return based on net asset value(d)* (0.50)% 1.10% 6.92% 1.95% 5.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $810,782 $1,002,880 $1,293,750 $1,060,976 $1,076,697
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .81% .82% .85% .90% .93%
Expenses, before waivers/reimbursements(e)(f) .82% .83% .85% .90% .93%
Net investment income 2.16%(b) 2.09%(b) 2.05%(b) 2.09% 2.69%
Portfolio turnover rate 369% 107% 113% 167% 157%
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.43 $ 8.59 $ 8.34 $ 8.52 $ 8.26
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .11(b) .11(b) .10(b) .11 .16
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.22) (.09) .40 (.01) .26
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.11) .02 .50 .10 .42
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.13) (.11) (.24) (.28) (.16)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.13) (.18) (.25) (.28) (.16)
------ ------ ------ ------ ------
Net asset value, end of period $ 8.19 $ 8.43 $ 8.59 $ 8.34 $ 8.52
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)* (1.30)% 0.29% 6.11% 1.21% 5.08%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 519 $1,065 $1,668 $3,410 $7,321
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) 1.61% 1.62% 1.61% 1.63% 1.64%
Expenses, before waivers/reimbursements(e)(f) 1.62% 1.62% 1.61% 1.63% 1.64%
Net investment income 1.28%(b) 1.29%(b) 1.25%(b) 1.36% 1.97%
Portfolio turnover rate 369% 107% 113% 167% 157%
--------------------------------------------------------------------------------------------------------------------------
See footnotes on page 80.
76
--------------------------------------------------------------------------------------------------------------------------
CLASS C
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.46 $ 8.62 $ 8.36 $ 8.54 $ 8.28
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .12(b) .11(b) .11(b) .12 .17
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.23) (.08) .40 (.01) .25
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations (.11) .03 .51 .11 .42
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.14) (.12) (.24) (.29) (.16)
Distributions from net realized gain on investment and
foreign currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
-------- -------- -------- -------- --------
Total dividends and distributions (.14) (.19) (.25) (.29) (.16)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.21 $ 8.46 $ 8.62 $ 8.36 $ 8.54
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* (1.36)% 0.34% 6.24% 1.23% 5.07%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $146,309 $219,785 $349,965 $356,483 $395,728
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) 1.56% 1.57% 1.58% 1.60% 1.63%
Expenses, before waivers/reimbursements(e)(f) 1.56% 1.57% 1.58% 1.60% 1.63%
Net investment income 1.38%(b) 1.34%(b) 1.30%(b) 1.38% 1.98%
Portfolio turnover rate 369% 107% 113% 167% 157%
--------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.42 $ 8.58 $ 8.33 $ 8.51 $ 8.25
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .20(b) .20(b) .20(b) .20 .25
Net realized and unrealized gain (loss) on
investment and foreign currency transactions (.22) (.09) .38 (.01) .25
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value from
operations (.02) .11 .58 .19 .50
---------- ---------- ---------- ---------- ----------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.22) (.20) (.32) (.37) (.24)
Distributions from net realized gain on investment
and foreign currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.22) (.27) (.33) (.37) (.24)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.18 $ 8.42 $ 8.58 $ 8.33 $ 8.51
========== ========== ========== ========== ==========
TOTAL RETURN
Total investment return based on net asset value(d)* (0.25)% 1.35% 7.21% 2.26% 6.14%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,570,491 $4,372,280 $3,275,362 $2,247,582 $1,504,432
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .56% .58% .58% .60% .63%
Expenses, before waivers/reimbursements(e)(f) .57% .58% .58% .60% .63%
Net investment income 2.44%(b) 2.34%(b) 2.33%(b) 2.39% 2.98%
Portfolio turnover rate 369% 107% 113% 167% 157%
-----------------------------------------------------------------------------------------------------------------------------
See footnotes on page 80.
77
--------------------------------------------------------------------------------------------------------------------------
CLASS R
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.42 $ 8.59 $ 8.33 $ 8.51 $ 8.25
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .15(b) .14(b) .14(b) .15 .20
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.23) (.09) .40 (.02) .25
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.08) .05 .54 .13 .45
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.16) (.15) (.27) (.31) (.19)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.16) (.22) (.28) (.31) (.19)
------- ------- ------- ------- -------
Net asset value, end of period $ 8.18 $ 8.42 $ 8.59 $ 8.33 $ 8.51
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* (0.91)% 0.57% 6.63% 1.57% 5.48%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $75,138 $83,901 $80,625 $60,300 $54,550
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) 1.23% 1.22% 1.25% 1.27% 1.26%
Expenses, before waivers/reimbursements(e)(f) 1.23% 1.23% 1.25% 1.27% 1.26%
Net investment income 1.75%(b) 1.70%(b) 1.66%(b) 1.72% 2.36%
Portfolio turnover rate 369% 107% 113% 167% 157%
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
CLASS K
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.42 $ 8.59 $ 8.33 $ 8.51 $ 8.25
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .17(b) .17(b) .17(b) .17 .23
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.22) (.10) .40 (.01) .25
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.05) .07 .57 .16 .48
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.19) (.17) (.30) (.34) (.22)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.19) (.24) (.31) (.34) (.22)
------- ------- ------- ------- -------
Net asset value, end of period $ 8.18 $ 8.42 $ 8.59 $ 8.33 $ 8.51
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)* (0.60)% 0.90% 6.97% 1.90% 5.83%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $16,642 $36,288 $31,361 $23,625 $19,039
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .92% .89% .93% .95% .93%
Expenses, before waivers/reimbursements(e)(f) .92% .90% .93% .95% .93%
Net investment income 2.09%(b) 2.03%(b) 1.98%(b) 2.04% 2.69%
Portfolio turnover rate 369% 107% 113% 167% 157%
--------------------------------------------------------------------------------------------------------------------------
See footnotes on page 80.
78
------------------------------------------------------------------------------------------------------------------------
CLASS I
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.42 $ 8.58 $ 8.33 $ 8.51 $ 8.25
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .20(b) .20(b) .20(b) .20 .26
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.22) (.09) .38 (.01) .24
Contributions from Affiliates - 0 - - 0 - .00(c) .00(c) - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations (.02) .11 .58 .19 .50
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.22) (.20) (.32) (.37) (.24)
Distributions from net realized gain on investment and
foreign currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
-------- -------- -------- -------- --------
Total dividends and distributions (.22) (.27) (.33) (.37) (.24)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.18 $ 8.42 $ 8.58 $ 8.33 $ 8.51
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)* (0.23)% 1.36% 7.22% 2.27% 6.19%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $773,149 $748,238 $715,514 $536,411 $546,550
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .54% .56% .57% .59% .59%
Expenses, before waivers/reimbursements(e)(f) .55% .56% .58% .59% .59%
Net investment income 2.46%(b) 2.36%(b) 2.33%(b) 2.40% 3.04%
Portfolio turnover rate 369% 107% 113% 167% 157%
------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
CLASS Z
OCTOBER 15,
2013(g) TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.42 $ 8.59 $ 8.33 $ 8.51 $ 8.23
-------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .21(b) .20(b) .20(b) .21 .25
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.22) (.09) .40 (.02) .27
Contributions from Affiliates - 0 - - 0 - .00(c) - 0 - - 0 -
Capital Contributions .00(c) - 0 - .00(c) - 0 - - 0 -
-------- -------- -------- -------- -------
Net increase (decrease) in net asset value from operations (.01) .11 .60 .19 .52
-------- -------- -------- -------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.23) (.21) (.33) (.37) (.24)
Distributions from net realized gain on investment and
foreign currency transactions - 0 - (.07) (.01) (.00)(c) - 0 -
-------- -------- -------- -------- -------
Total dividends and distributions (.23) (.28) (.34) (.37) (.24)
-------- -------- -------- -------- -------
Net asset value, end of period $ 8.18 $ 8.42 $ 8.59 $ 8.33 $ 8.51
======== ======== ======== ======== =======
TOTAL RETURN
Total investment return based on net asset value(d)* (0.18)% 1.29% 7.39% 2.32% 6.38%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $489,921 $350,625 $200,617 $167,830 $11,472
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .49% .51% .52% .53% .55%(h)
Expenses, before waivers/reimbursements(e)(f) .50% .52% .53% .53% .55%(h)
Net investment income 2.54%(b) 2.41%(b) 2.38%(b) 2.47% 3.05%(h)
Portfolio turnover rate 369% 107% 113% 167% 157%
-------------------------------------------------------------------------------------------------------------------------------
See footnotes on page 80.
79
(a)Based on average shares outstanding.
(b)Net of expenses waived/reimbursed by the Adviser.
(c)Amount is less than $0.005.
(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. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return. Total investment return does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Total investment return for a period of less than one year
is not annualized.
(e)In connection with the Fund's investments in affiliated underlying
portfolios, the Fund incurs no direct expenses but bears proportionate
shares of the fees and expenses (i.e. operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Fund in an
amount equal to the Fund's pro rata share of certain acquired fund fees and
expenses, and for the year ended September 30, 2018 and for the year ended
September 30, 2017, such waiver amounted to less than 0.005%.
(f)The expense ratios presented below exclude interest expense:
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------
CLASS A
Net of waivers/reimbursements .81% .82% .85% .90% .93%
Before waivers/reimbursements .82% .83% .85% .90% .93%
CLASS B
Net of waivers/reimbursements 1.61% 1.62% 1.61% 1.63% 1.64%
Before waivers/reimbursements 1.62% 1.62% 1.61% 1.63% 1.64%
CLASS C
Net of waivers/reimbursements 1.56% 1.57% 1.58% 1.60% 1.63%
Before waivers/reimbursements 1.56% 1.57% 1.58% 1.60% 1.63%
ADVISOR CLASS
Net of waivers/reimbursements .56% .58% .58% .60% .63%
Before waivers/reimbursements .57% .58% .58% .60% .63%
CLASS R
Net of waivers/reimbursements 1.23% 1.22% 1.25% 1.27% 1.26%
Before waivers/reimbursements 1.23% 1.23% 1.25% 1.27% 1.26%
CLASS K
Net of waivers/reimbursements .92% .89% .93% .95% .93%
Before waivers/reimbursements .92% .90% .93% .95% .93%
CLASS I
Net of waivers/reimbursements .54% .56% .57% .59% .58%
Before waivers/reimbursements .55% .56% .58% .59% .58%
OCTOBER 15,
2013(g) TO
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2018 2017 2016 2015 2014(h)
--------------------------------------------------------------------------
CLASS Z
Net of waivers/reimbursements .49% .51% .52% .53% .55%
Before waivers/reimbursements .50% .52% .53% .53% .55%
(g)Commencement of distribution.
(h)Annualized.
* Includes the impact of proceeds received and credited to the Fund in
connection with a residual distribution relating to regulatory settlements,
which enhanced the Fund's performance for the year ended September 30, 2016
by 0.01%.
80
AB UNCONSTRAINED BOND FUND
-------------------------------------------------------------------------------------------------------------------
CLASS A
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.69 $ 8.62 $ 8.47 $ 8.67 $ 8.68
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .20 .22 .24 .22 .16
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.29) .14 .06 (.19) (.06)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.09) .36 .31 .04 .10
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.14) (.28) (.16) (.24) (.11)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.15) (.29) (.16) (.24) (.11)
------- ------- ------- ------- -------
Net asset value, end of period $ 8.45 $ 8.69 $ 8.62 $ 8.47 $ 8.67
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)+* (1.01)% 4.24%^ 3.74%^ 0.49% 1.11%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $23,445 $36,136 $41,061 $50,031 $62,396
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .89% .92% .91% .90% .90%
Expenses, before waivers/reimbursements(e)(f) 1.07% 1.08% 1.07% 1.06% 1.06%
Net investment income(b) 2.35% 2.57% 2.80% 2.51% 1.81%
Portfolio turnover rate 67% 66% 137% 149% 161%
-------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.70 $ 8.62 $ 8.48 $ 8.68 $ 8.68
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .16 .16 .15 .15 .10
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.30) .14 .08 (.18) (.05)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.14) .30 .24 (.02) .05
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.08) (.21) (.10) (.18) (.05)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.09) (.22) (.10) (.18) (.05)
------ ------ ------ ------ ------
Net asset value, end of period $ 8.47 $ 8.70 $ 8.62 $ 8.48 $ 8.68
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)+* (1.65)% 3.52% 2.85% (0.23)% 0.52%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 115 $ 151 $ 232 $ 442 $ 828
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) 1.64% 1.66% 1.65% 1.60% 1.60%
Expenses, before waivers/reimbursements(e)(f) 1.84% 1.86% 1.81% 1.76% 1.77%
Net investment income(b) 1.87% 1.82% 1.82% 1.71% 1.11%
Portfolio turnover rate 67% 66% 137% 149% 161%
-------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
-------------------------------------------------------------------------------------------------------------------
See footnotes on page 85.
81
-----------------------------------------------------------------------------------------------------------------------
CLASS C
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.69 $ 8.62 $ 8.47 $ 8.67 $ 8.68
------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .14 .16 .18 .17 .10
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.28) .13 .06 (.19) (.06)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
------ ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.14) .29 .25 (.01) .04
------ ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.08) (.21) (.10) (.19) (.05)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
------ ------- ------- ------- -------
Total dividends and distributions (.09) (.22) (.10) (.19) (.05)
------ ------- ------- ------- -------
Net asset value, end of period $ 8.46 $ 8.69 $ 8.62 $ 8.47 $ 8.67
====== ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)+* (1.64)% 3.43%^ 2.98% (0.19)% 0.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $9,164 $13,908 $21,247 $26,119 $20,681
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) 1.64% 1.66% 1.65% 1.60% 1.60%
Expenses, before waivers/reimbursements(e)(f) 1.82% 1.83% 1.81% 1.77% 1.77%
Net investment income(b) 1.68% 1.85% 2.08% 1.95% 1.14%
Portfolio turnover rate 67% 66% 137% 149% 161%
-----------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.67 $ 8.61 $ 8.46 $ 8.66 $ 8.67
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .27 .24 .25 .25 .19
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.33) .13 .07 (.19) (.07)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations (.06) .37 .33 .07 .12
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.16) (.30) (.18) (.27) (.13)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
-------- -------- -------- -------- --------
Total dividends and distributions (.17) (.31) (.18) (.27) (.13)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.44 $ 8.67 $ 8.61 $ 8.46 $ 8.66
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d)+* (0.64)% 4.39%^ 4.02%^ 0.80% 1.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $208,884 $195,764 $162,255 $220,195 $248,510
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .64% .67% .65% .60% .60%
Expenses, before waivers/reimbursements(e)(f) .82% .83% .81% .76% .77%
Net investment income(b) 3.20% 2.79% 3.02% 2.89% 2.14%
Portfolio turnover rate 67% 66% 137% 149% 161%
-----------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
-----------------------------------------------------------------------------------------------------------------------
See footnotes on page 85.
82
-------------------------------------------------------------------------------------------------------------------
CLASS R
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.71 $ 8.62 $ 8.46 $ 8.65 $ 8.65
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .19 .20 .21 .21 .14
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.29) .14 .07 (.20) (.06)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.10) .34 .29 .02 .08
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.11) (.24) (.13) (.21) (.08)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.12) (.25) (.13) (.21) (.08)
------ ------ ------ ------ ------
Net asset value, end of period $ 8.49 $ 8.71 $ 8.62 $ 8.46 $ 8.65
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)+* (1.21)% 4.02% 3.43%^ 0.35% 0.98%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 937 $1,378 $ 911 $1,126 $ 801
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) 1.14% 1.16% 1.15% 1.10% 1.10%
Expenses, before waivers/reimbursements(e)(f) 1.51% 1.52% 1.48% 1.46% 1.46%
Net investment income(b) 2.26% 2.33% 2.53% 2.48% 1.66%
Portfolio turnover rate 67% 66% 137% 149% 161%
-------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
-------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
CLASS K
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.72 $ 8.64 $ 8.49 $ 8.68 $ 8.68
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .24 .22 .25 .22 .16
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.32) .14 .04 (.18) (.05)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.08) .36 .30 .05 .11
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.13) (.27) (.15) (.24) (.11)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.14) (.28) (.15) (.24) (.11)
------ ------ ------ ------ ------
Net asset value, end of period $ 8.50 $ 8.72 $ 8.64 $ 8.49 $ 8.68
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)+* (0.89)% 4.23% 3.63% 0.55% 1.24%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 285 $ 248 $ 221 $ 181 $ 245
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .89% .92% .90% .85% .85%
Expenses, before waivers/reimbursements(e)(f) 1.20% 1.20% 1.17% 1.12% 1.14%
Net investment income(b) 2.80% 2.54% 2.94% 2.55% 1.87%
Portfolio turnover rate 67% 66% 137% 149% 161%
------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
------------------------------------------------------------------------------------------------------------------
See footnotes on page 85.
83
------------------------------------------------------------------------------------------------------------------
CLASS I
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.66 $ 8.60 $ 8.45 $ 8.65 $ 8.66
------ ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .20 .25 .27 .25 .18
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.25) .12 .06 (.19) (.06)
Contributions from Affiliates .00(c) .00(c) .01 .01 - 0 -
------ ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.05) .37 .34 .07 .12
------ ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.17) (.30) (.19) (.27) (.13)
Return of capital (.01) (.01) - 0 - - 0 - - 0 -
------ ------- ------- ------- -------
Total dividends and distributions (.18) (.31) (.19) (.27) (.13)
------ ------- ------- ------- -------
Net asset value, end of period $ 8.43 $ 8.66 $ 8.60 $ 8.45 $ 8.65
====== ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d)+* (0.59)%^ 4.44%^ 4.07%^ 0.78% 1.42%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $7,640 $47,915 $45,629 $44,242 $39,782
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .64% .67% .65% .60% .60%
Expenses, before waivers/reimbursements(e)(f) .76% .80% .77% .78% .74%
Net investment income(b) 2.32% 2.84% 3.17% 2.93% 2.10%
Portfolio turnover rate 67% 66% 137% 149% 161%
------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00% .00%
------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
CLASS Z
NOVEMBER 4,
2014(g) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016 2015
-----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.66 $ 8.59 $ 8.45 $ 8.65
------- ------- ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .26 .25 .28 .31
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.32) .13 .04 (.25)
Contributions from Affiliates .00(c) .00(c) .01 .01
------- ------- ------ ------
Net increase (decrease) in net asset value from operations (.06) .38 .33 .07
------- ------- ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.17) (.30) (.19) (.27)
Return of capital (.01) (.01) - 0 - - 0 -
------- ------- ------ ------
Total dividends and distributions (.18) (.31) (.19) (.27)
------- ------- ------ ------
Net asset value, end of period $ 8.42 $ 8.66 $ 8.59 $ 8.45
======= ======= ====== ======
TOTAL RETURN
Total investment return based on net asset value(d)+* (0.70)% 4.57% 3.94% 0.85%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $13,237 $11,238 $9,587 $2,031
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)(f) .64% .67% .65% .60%(h)
Expenses, before waivers/reimbursements(e)(f) .78% .80% .78% .80%(h)
Net investment income(b) 3.10% 2.86% 3.31% 3.68%(h)
Portfolio turnover rate 67% 66% 137% 149%
-----------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of
affiliated/unaffiliated underlying portfolios .01% .02% .01% .00%
-----------------------------------------------------------------------------------------------------------------
See footnotes on page 85.
84
(a)Based on average shares outstanding.
(b)Net of expenses waived/reimbursed by the Adviser.
(c)Amount is less than $0.005.
(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. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return. Total investment return does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Total investment return for a period of less than one year
is not annualized.
(e)In connection with the Fund's investments in affiliated underlying
portfolios, the Fund incurs no direct expenses but bears proportionate share
of the fees and expenses (i.e. operating, administrative and investment
advisory fees) of the affiliated underlying portfolios. The Adviser has
contractually agreed to waive its fees from the Fund in an amount equal to
the Fund's pro rata share of certain acquired fund fees and expenses, and
for the years ended October 31, 2018, October 31, 2017 and October 31, 2016,
such waiver amounted to 0.01%, 0.02% and 0.01%, respectively.
(f)The expense ratios presented below exclude non-operating expense:
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------
CLASS A
Net of waivers/reimbursements .89% .88% .89% .90% .90%
Before waivers/reimbursements 1.07% 1.04% 1.05% 1.06% 1.06%
CLASS B
Net of waivers/reimbursements 1.64% 1.63% 1.63% 1.60% 1.60%
Before waivers/reimbursements 1.84% 1.83% 1.78% 1.76% 1.77%
CLASS C
Net of waivers/reimbursements 1.64% 1.63% 1.63% 1.60% 1.60%
Before waivers/reimbursements 1.82% 1.80% 1.79% 1.77% 1.77%
ADVISOR CLASS
Net of waivers/reimbursements .64% .63% .63% .60% .60%
Before waivers/reimbursements .82% .79% .78% .76% .77%
CLASS R
Net of waivers/reimbursements 1.14% 1.13% 1.13% 1.10% 1.10%
Before waivers/reimbursements 1.51% 1.49% 1.46% 1.46% 1.46%
CLASS K
Net of waivers/reimbursements .89% .88% .88% .85% .85%
Before waivers/reimbursements 1.20% 1.16% 1.15% 1.12% 1.14%
CLASS I
Net of waivers/reimbursements .64% .63% .63% .60% .60%
Before waivers/reimbursements .76% .76% .75% .78% .74%
NOVEMBER 4,
2014(g) TO
OCTOBER 31,
2018 2017 2016 2015
--------------------------------------------------------------
CLASS Z
Net of waivers/reimbursements .64% .63% .63% .60%(h)
Before waivers/reimbursements .78% .76% .76% .80%(h)
(g)Commencement of distribution.
(h)Annualized.
^ The net asset value and total return include adjustments in accordance with
accounting principles generally accepted in the United States of America for
financial reporting purposes. As such, the net asset value and total return
for shareholder transactions may differ from financial statements.
* Includes the impact of proceeds received and credited to the Fund resulting
from class action settlements, which enhanced the performance of each share
class for the years ended October 31, 2017 and October 31, 2016, by 0.05%
and 0.01%, respectively.
+ Includes the impact of reimbursements from the Adviser which enhanced the
Fund's performance for the years ended October 31, 2016 and October 31, 2015
by 0.08% and 0.08%, respectively.
85
AB HIGH INCOME FUND
------------------------------------------------------------------------------------------------------------------------
CLASS A
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.91 $ 8.65 $ 8.50 $ 9.40 $ 9.53
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .50(b) .45(b) .48(b) .51 .55
Net realized and unrealized gain (loss) on
investment and foreign currency transactions (.71) .34 .27 (.69) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value from
operations (.21) .79 .75 (.18) .52
---------- ---------- ---------- ---------- ----------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.49) (.53) (.60) (.64) (.60)
Distributions from net realized gain on
investment and foreign currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.07) - 0 - - 0 - - 0 - - 0 -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.56) (.53) (.60) (.72) (.65)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.14 $ 8.91 $ 8.65 $ 8.50 $ 9.40
========== ========== ========== ========== ==========
TOTAL RETURN
Total investment return based on net asset
value(d) (2.51)% 9.30% 9.41%* (1.98)% 5.62%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,350,517 $1,869,052 $2,061,177 $2,059,111 $2,320,748
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ .84% .81% .84% .90% .89%
Expenses, before waivers/reimbursements(e)+ .85% .82% .85% .90% .89%
Net investment income 5.86%(b) 5.15%(b) 5.75%(b) 5.77% 5.80%
Portfolio turnover rate 35% 51% 45% 53% 38%
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
CLASS B
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.99 $ 8.72 $ 8.57 $ 9.49 $ 9.62
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .43(b) .38(b) .42(b) .45 .48
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.71) .34 .26 (.71) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.28) .72 .68 (.26) .45
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.45) (.53) (.58) (.53)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.06) - 0 - - 0 - - 0 - - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.49) (.45) (.53) (.66) (.58)
------ ------ ------ ------ ------
Net asset value, end of period $ 8.22 $ 8.99 $ 8.72 $ 8.57 $ 9.49
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d) (3.24)% 8.49% 8.48%* (2.89)% 4.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,153 $1,817 $2,357 $3,551 $7,526
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ 1.61% 1.59% 1.63% 1.63% 1.60%
Expenses, before waivers/reimbursements(e)+ 1.61% 1.60% 1.63% 1.63% 1.60%
Net investment income 5.01%(b) 4.31%(b) 5.01%(b) 4.95% 5.05%
Portfolio turnover rate 35% 51% 45% 53% 38%
------------------------------------------------------------------------------------------------------------------------
See footnotes on page 90.
86
----------------------------------------------------------------------------------------------------------------------
CLASS C
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.01 $ 8.75 $ 8.60 $ 9.51 $ 9.64
-------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .44(b) .39(b) .42(b) .45 .48
Net realized and unrealized gain (loss) on
investment and foreign currency transactions (.72) .33 .27 (.70) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
-------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value from
operations (.28) .72 .69 (.25) .45
-------- ---------- ---------- ---------- ----------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.43) (.46) (.54) (.58) (.53)
Distributions from net realized gain on
investment and foreign currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.06) - 0 - - 0 - - 0 - - 0 -
-------- ---------- ---------- ---------- ----------
Total dividends and distributions (.49) (.46) (.54) (.66) (.58)
-------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.24 $ 9.01 $ 8.75 $ 8.60 $ 9.51
======== ========== ========== ========== ==========
TOTAL RETURN
Total investment return based on net asset
value(d) (3.21)% 8.37% 8.50%* (2.74)% 4.82%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $842,095 $1,139,390 $1,298,312 $1,283,192 $1,504,398
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ 1.59% 1.56% 1.58% 1.60% 1.58%
Expenses, before waivers/reimbursements(e)+ 1.59% 1.56% 1.58% 1.60% 1.58%
Net investment income 5.04%(b) 4.33%(b) 4.94%(b) 5.00% 5.03%
Portfolio turnover rate 35% 51% 45% 53% 38%
----------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.92 $ 8.66 $ 8.51 $ 9.42 $ 9.55
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .52(b) .48(b) .49(b) .54 .58
Net realized and unrealized gain (loss) on
investment and foreign currency transactions (.71) .33 .28 (.70) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in net asset value from
operations (.19) .81 .77 (.16) .55
---------- ---------- ---------- ---------- ----------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.55) (.62) (.67) (.63)
Distributions from net realized gain on
investment and foreign currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.08) - 0 - - 0 - - 0 - - 0 -
---------- ---------- ---------- ---------- ----------
Total dividends and distributions (.58) (.55) (.62) (.75) (.68)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 8.15 $ 8.92 $ 8.66 $ 8.51 $ 9.42
========== ========== ========== ========== ==========
TOTAL RETURN
Total investment return based on net asset
value(d) (2.26)% 9.56% 9.69%* (1.78)% 5.93%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,185,833 $4,351,171 $3,828,042 $2,362,066 $2,473,475
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ .59% .56% .58% .60% .58%
Expenses, before waivers/reimbursements(e)+ .60% .57% .58% .60% .58%
Net investment income 6.10%(b) 5.38%(b) 5.87%(b) 6.05% 6.06%
Portfolio turnover rate 35% 51% 45% 53% 38%
------------------------------------------------------------------------------------------------------------------------
See footnotes on page 90.
87
-----------------------------------------------------------------------------------------------------------------------------
CLASS R
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.90 $ 8.64 $ 8.49 $ 9.40 $ 9.53
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .47(b) .42(b) .45(b) .48 .52
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.71) .33 .27 (.70) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.24) .75 .72 (.22) .49
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.45) (.49) (.57) (.61) (.57)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.07) - 0 - - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.52) (.49) (.57) (.69) (.62)
------- ------- ------- ------- -------
Net asset value, end of period $ 8.14 $ 8.90 $ 8.64 $ 8.49 $ 9.40
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) (2.80)%^ 8.88%^ 9.01%* (2.44)% 5.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $69,442 $87,602 $86,059 $76,876 $77,706
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ 1.26% 1.20% 1.22% 1.27% 1.23%
Expenses, before waivers/reimbursements(e)+ 1.26% 1.21% 1.22% 1.27% 1.23%
Net investment income 5.47%(b) 4.77%(b) 5.39%(b) 5.41% 5.46%
Portfolio turnover rate 35% 51% 45% 53% 38%
-----------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
CLASS K
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.91 $ 8.65 $ 8.50 $ 9.41 $ 9.54
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .50(b) .45(b) .48(b) .51 .55
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.72) .33 .27 (.70) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
-------- -------- -------- ------- -------
Net increase (decrease) in net asset value from operations (.22) .78 .75 (.19) .52
-------- -------- -------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.48) (.52) (.60) (.64) (.60)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.07) - 0 - - 0 - - 0 - - 0 -
-------- -------- -------- ------- -------
Total dividends and distributions (.55) (.52) (.60) (.72) (.65)
-------- -------- -------- ------- -------
Net asset value, end of period $ 8.14 $ 8.91 $ 8.65 $ 8.50 $ 9.41
======== ======== ======== ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) (2.58)% 9.22% 9.41%* (2.12)% 5.63%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $122,030 $126,399 $106,841 $95,294 $83,634
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ .91% .89% .85% .94% .88%
Expenses, before waivers/reimbursements(e)+ .91% .89% .85% .94% .88%
Net investment income 5.83%(b) 5.08%(b) 5.75%(b) 5.74% 5.79%
Portfolio turnover rate 35% 51% 45% 53% 38%
--------------------------------------------------------------------------------------------------------------------------------
See footnotes on page 90.
88
-----------------------------------------------------------------------------------------------------------------------------
CLASS I
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.92 $ 8.66 $ 8.51 $ 9.42 $ 9.55
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .53(b) .48(b) .50(b) .54 .58
Net realized and unrealized gain (loss) on investment and
foreign currency transactions (.72) .33 .28 (.70) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
-------- -------- -------- -------- --------
Net increase (decrease) in net asset value from operations (.19) .81 .78 (.16) .55
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.55) (.63) (.67) (.63)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.08) - 0 - - 0 - - 0 - - 0 -
-------- -------- -------- -------- --------
Total dividends and distributions (.58) (.55) (.63) (.75) (.68)
-------- -------- -------- -------- --------
Net asset value, end of period $ 8.15 $ 8.92 $ 8.66 $ 8.51 $ 9.42
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d) (2.23)% 9.60% 9.74%* (1.74)% 5.97%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $192,941 $276,909 $294,693 $277,654 $114,598
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ .56% .52% .53% .54% .54%
Expenses, before waivers/reimbursements(e)+ .56% .53% .53% .54% .54%
Net investment income 6.15%(b) 5.43%(b) 6.06%(b) 6.11% 6.08%
Portfolio turnover rate 35% 51% 45% 53% 38%
-----------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------
CLASS Z
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
--------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.92 $ 8.66 $ 8.51 $ 9.42 $ 9.55
-------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) .54(b) .49(b) .50(b) .55 .58
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.73) .32 .28 (.71) (.03)
Contributions from Affiliates .00(c) - 0 - .00(c) - 0 - - 0 -
Capital Contributions - 0 - - 0 - .00(c) - 0 - - 0 -
-------- -------- -------- ------- -------
Net increase (decrease) in net asset value from operations (.19) .81 .78 (.16) .55
-------- -------- -------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.50) (.55) (.63) (.67) (.63)
Distributions from net realized gain on investment and foreign
currency transactions - 0 - - 0 - - 0 - (.08) (.05)
Return of capital (.08) - 0 - - 0 - - 0 - - 0 -
-------- -------- -------- ------- -------
Total dividends and distributions (.58) (.55) (.63) (.75) (.68)
-------- -------- -------- ------- -------
Net asset value, end of period $ 8.15 $ 8.92 $ 8.66 $ 8.51 $ 9.42
======== ======== ======== ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) (2.18)% 9.62% 9.76% (1.72)% 6.00%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $359,903 $236,247 $112,852 $77,916 $47,059
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e)+ .52% .50% .51% .53% .52%
Expenses, before waivers/reimbursements(e)+ .52% .50% .51% .53% .52%
Net investment income 6.27%(b) 5.47%(b) 6.07%(b) 6.15% 6.13%
Portfolio turnover rate 35% 51% 45% 53% 38%
--------------------------------------------------------------------------------------------------------------------------------
See footnotes on page 90.
89
(a)Based on average shares outstanding.
(b)Net of expenses waived/reimbursed by the Adviser.
(c)Amount is less than $0.005.
(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. Initial sales charge or contingent
deferred sales charge is not reflected in the calculation of total
investment return. Total investment return does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Total investment return for a period of less than one year
is not annualized.
(e)In connection with the Fund's investments in affiliated underlying
portfolios, the Fund incurs no direct expenses but bears 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
Fund in an amount equal to the Fund's pro rata share of certain acquired
fund fees and expenses, and for the six months ended, such waiver amounted
to 0.00% annualized for the Fund.
(+)The expense ratios presented below exclude interest expense:
YEAR ENDED OCTOBER 31,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------
CLASS A
Net of waivers/reimbursements .82% .81% .84% .88% .88%
Before waivers/reimbursements .83% .82% .85% .88% .88%
CLASS B
Net of waivers/reimbursements 1.60% 1.59% 1.63% 1.61% 1.60%
Before waivers/reimbursements 1.60% 1.60% 1.63% 1.61% 1.60%
CLASS C
Net of waivers/reimbursements 1.57% 1.56% 1.58% 1.58% 1.58%
Before waivers/reimbursements 1.57% 1.56% 1.58% 1.58% 1.58%
ADVISOR CLASS
Net of waivers/reimbursements .57% .56% .58% .58% .58%
Before waivers/reimbursements .58% .57% .58% .58% .58%
CLASS R
Net of waivers/reimbursements 1.24% 1.20% 1.22% 1.25% 1.23%
Before waivers/reimbursements 1.24% 1.21% 1.22% 1.25% 1.23%
CLASS K
Net of waivers/reimbursements .89% .89% .85% .92% .88%
Before waivers/reimbursements .89% .89% .85% .92% .88%
CLASS I
Net of waivers/reimbursements .54% .52% .53% .52% .54%
Before waivers/reimbursements .54% .53% .53% .52% .54%
CLASS Z
Net of waivers/reimbursements .50% .50% .51% .51% .51%
Before waivers/reimbursements .50% .50% .51% .51% .51%
* Includes the impact of proceeds received and credited to the Fund in
connection with a residual distribution relating to regulatory settlements,
which enhanced the Fund's performance for the year ended October 31, 2016 by
0.01%.
^ The net asset value and total return include adjustments in accordance with
accounting principles generally accepted in the United States of America for
financial reporting purposes. As such, the net asset value and total return
for shareholder transactions may differ from financial statements.
90
AB LIMITED DURATION HIGH INCOME PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------
CLASS A
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.40 $ 10.31 $ 9.97 $ 10.49 $ 10.60
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .38 .33 .34 .39 .38
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.16) .12 .37 (.39) (.06)
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Net increase in net asset value from operations .22 .45 .71 - 0 - .32
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.36) (.36) (.37) (.48) (.41)
Distributions from net realized gain on investment transactions - 0 - - 0 - - 0 - - 0 - (.02)
Return of capital (.02) - 0 - - 0 - (.04) - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.38) (.36) (.37) (.52) (.43)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.24 $ 10.40 $ 10.31 $ 9.97 $ 10.49
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) 2.23% 4.44% 7.29%+ (.09)% 2.99%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $17,897 $23,596 $27,656 $32,515 $56,628
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) .95% .95% 1.04% 1.05% 1.05%
Expenses, before waivers/reimbursements(e) 1.05% 1.04% 1.11% 1.13% 1.13%
Net investment income(b) 3.69% 3.18% 3.42% 3.77% 3.57%
Portfolio turnover rate 39% 46% 57% 40% 40%
-----------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of the
affiliated/unaffiliated underlying portfolios: .01% .02% .01% - 0 - - 0 -
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
CLASS C
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
-----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.40 $ 10.30 $ 9.96 $ 10.48 $ 10.59
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .30 .25 .27 .32 .31
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.16) .13 .37 (.40) (.07)
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations .14 .38 .64 (.08) .24
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.30) (.28) (.30) (.40) (.33)
Distributions from net realized gain on investment transactions - 0 - - 0 - - 0 - - 0 - (.02)
Return of capital (.01) - 0 - - 0 - (.04) - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.31) (.28) (.30) (.44) (.35)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.23 $ 10.40 $ 10.30 $ 9.96 $ 10.48
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) 1.37% 3.76% 6.52%+ (.79)% 2.27%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $21,412 $27,083 $30,478 $29,336 $32,323
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) 1.70% 1.70% 1.77% 1.75% 1.75%
Expenses, before waivers/reimbursements(e) 1.80% 1.79% 1.85% 1.84% 1.84%
Net investment income(b) 2.95% 2.43% 2.68% 3.07% 2.87%
Portfolio turnover rate 39% 46% 57% 40% 40%
-----------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of the
affiliated/unaffiliated underlying portfolios: .01% .02% .01% - 0 - - 0 -
-----------------------------------------------------------------------------------------------------------------------
See footnotes on page 92.
91
---------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
YEAR ENDED SEPTEMBER 30,
2018 2017 2016 2015 2014
---------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.39 $ 10.30 $ 9.95 $ 10.48 $ 10.59
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a)(b) .41 .36 .37 .42 .41
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.17) .12 .38 (.40) (.06)
Contributions from Affiliates - 0 - .00(c) - 0 - - 0 - - 0 -
-------- -------- -------- -------- --------
Net increase in net asset value from operations .24 .48 .75 .02 .35
-------- -------- -------- -------- --------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.39) (.39) (.40) (.50) (.44)
Distributions from net realized gain on investment transactions - 0 - - 0 - - 0 - - 0 - (.02)
Return of capital (.02) - 0 - - 0 - (.05) - 0 -
-------- -------- -------- -------- --------
Total dividends and distributions (.41) (.39) (.40) (.55) (.46)
-------- -------- -------- -------- --------
Net asset value, end of period $ 10.22 $ 10.39 $ 10.30 $ 9.95 $ 10.48
======== ======== ======== ======== ========
TOTAL RETURN
Total investment return based on net asset value(d) 2.38% 4.80% 7.69%+ .11% 3.30%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $225,703 $283,856 $268,421 $217,429 $296,386
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) .69% .70% .77% .75% .75%
Expenses, before waivers/reimbursements(e) .80% .79% .84% .84% .84%
Net investment income(b) 3.94% 3.45% 3.66% 4.07% 3.86%
Portfolio turnover rate 39% 46% 57% 40% 40%
---------------------------------------------------------------------------------------------------------------------------
+ Expense ratios exclude the estimated acquired fund fees of the
affiliated/unaffiliated underlying portfolios: .01% .02% .01% - 0 - - 0 -
---------------------------------------------------------------------------------------------------------------------------
(a)Based on average shares outstanding.
(b)Net of fees and expenses waived/reimbursed by the Adviser.
(c)Amount is less than $.005.
(d)Total investment return is calculated assuming an initial investment made at
the net asset value at the beginning of the period, reinvestment of all
dividends and distributions at net asset value during the period, and
redemption on the last day of the period. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total return does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Total investment return calculated for a period of less than
one year is not annualized.
(e)In connection with the Fund's investments in affiliated underlying
portfolios, the Fund incurs no direct expenses, but bears proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Fund in an
amount equal to the Fund's pro rata share of certain acquired fund fees and
expenses, and for the year ended September 30, 2018 and year ended
September 30, 2017, such waiver amounted to .01% and .02%, respectively.
+ The net asset value and total return include adjustments in accordance with
accounting principles generally accepted in the United States of America for
financial reporting purposes. As such, the net asset value and total return
for shareholder transactions may differ from financial statements.
92
AB INCOME FUND
----------------------------------------------------------------------------------------------------------
CLASS A
APRIL 21,
2016(a) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016
----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.09 $ 8.08 $ 7.99
-------- -------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .29 .36 .17+
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.50) .05 .08
Contributions from Affiliates .00(d) .00(d) - 0 -
-------- -------- ------
Net increase (decrease) in net asset value from operations (.21) .41 .25
-------- -------- ------
LESS: DIVIDENDS
Dividends from net investment income (.36) (.40) (.16)
Return of capital (.03) - 0 - - 0 -
-------- -------- ------
Net asset value, end of period $ 7.49 $ 8.09 $ 8.08
======== ======== ======
TOTAL RETURN
Total investment return based on net asset value(e) (2.71)% 5.17% 3.14%+
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $232,931 $165,294 $2,104
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(f) 1.08% 1.03% 1.16%^
Expenses, before waivers/reimbursements(f) 1.16% 1.11% 1.37%^
Net investment income(c) 3.73% 4.42% 4.06%^+
Portfolio turnover rate 105% 42% 14%
----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
CLASS C
APRIL 21,
2016(a) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016
---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.10 $ 8.09 $ 7.99
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .23 .30 .14+
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.50) .05 .09
Contributions from Affiliates .00(d) .00(d) - 0 -
------- ------- ------
Net increase (decrease) in net asset value from operations (.27) .35 .23
------- ------- ------
LESS: DIVIDENDS
Dividends from net investment income (.30) (.34) (.13)
Return of capital (.03) - 0 - - 0 -
------- ------- ------
Net asset value, end of period $ 7.50 $ 8.10 $ 8.09
======= ======= ======
TOTAL RETURN
Total investment return based on net asset value(e) (3.43)% 4.37% 2.85%+
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $82,283 $62,121 $1,133
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(f) 1.83% 1.78% 1.90%^
Expenses, before waivers/reimbursements(f) 1.92% 1.87% 2.15%^
Net investment income(c) 2.98% 3.68% 3.34%^+
Portfolio turnover rate 105% 42% 14%
---------------------------------------------------------------------------------------------------------
See footnotes on pages 94 through 95.
93
---------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
2018 2017
----------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.10 $ 8.09
------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b) .31(c) .41(c)
Net realized and unrealized gain (loss) on investment and foreign
currency transactions (.50) .02
Contributions from Affiliates .00(d) .00(d)
------ ------
Net increase (decrease) in net asset value from operations (.19) .43
------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.38) (.42)
Distributions from net realized gain on investment transactions - 0 - - 0 -
Return of capital (.03) - 0 -
------ ------
Total dividends and distributions (.41) (.42)
------ ------
Redemption fee - 0 - - 0 -
Anti-Dilutive Effect of Share Repurchase Program - 0 - - 0 -
------ ------
Net asset value, end of period $ 7.50 $ 8.10
====== ======
Market value, end of period N/A N/A
------ ------
Discount, end of period N/A N/A
====== ======
TOTAL RETURN
Total investment return based on:
Market value N/A N/A
Net asset value (2.46)%(e) 5.44%(e)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000,000's omitted) $2,222 $1,806
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(f) .83% .81%
Expenses, before waivers/reimbursements(f) .91% .93%
Net investment income 3.98%(c) 5.11%(c)
Portfolio turnover rate 105% 42%
----------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
JANUARY 1,
2016 TO
OCTOBER 31, YEAR ENDED DECEMBER 31,
2016(g) 2015 2014 2013
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 7.86 $ 8.34 $ 8.13 $ 8.89
------ ------ ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b) .29(c)+ .38 .42 .40
Net realized and unrealized gain (loss) on investment and foreign
currency transactions .22 (.41) .19 (.71)
Contributions from Affiliates - 0 - - 0 - - 0 - - 0 -
------ ------ ------- -------
Net increase (decrease) in net asset value from operations .51 (.03) .61 (.31)
------ ------ ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.28) (.46) (.45) (.41)
Distributions from net realized gain on investment transactions - 0 - (.05) - 0 - (.04)
Return of capital - 0 - - 0 - - 0 - - 0 -
------ ------ ------- -------
Total dividends and distributions (.28) (.51) (.45) (.45)
------ ------ ------- -------
Redemption fee .00(d) - 0 - - 0 - - 0 -
Anti-Dilutive Effect of Share Repurchase Program - 0 - .06 .05 - 0 -
------ ------ ------- -------
Net asset value, end of period $ 8.09 $ 7.86 $ 8.34 $ 8.13
====== ====== ======= =======
Market value, end of period N/A $ 7.67 $ 7.47 $ 7.13
------ ------ ------- -------
Discount, end of period N/A (2.42)% (10.43)% (12.30)%
====== ====== ======= =======
TOTAL RETURN
Total investment return based on:
Market value N/A 9.71%(h) 11.28%(h) (6.50)%(h)
Net asset value 6.66%(e)+ .70%(h) 8.96%(h) (2.86)%(h)
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000,000's omitted) $ 916 $1,696 $ 1,902 $ 1,976
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(f) .88%^ .75% .67% .63%
Expenses, before waivers/reimbursements(f) .96%^ .75% .67% .63%
Net investment income 4.29%(c)^+ 4.57% 5.02% 4.74%
Portfolio turnover rate 14% 34% 32% 107%
-------------------------------------------------------------------------------------------------------------------------
(a)Inception date.
(b)Based on average shares outstanding.
(c)Net of fees and expenses waived 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. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total return does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Total investment return calculated for a period of less than
one year is not annualized.
(f)The expense ratios, excluding interest expense are:
JANUARY 1,
2016 TO
YEAR ENDED OCTOBER 31, OCTOBER 31, YEAR ENDED DECEMBER 31,
2018 2017 2016(g) 2015 2014 2013
--------------------------------------------------------------------------------------------
CLASS A
Net of waivers/reimbursements .77% .77% .88%^ N/A N/A N/A
Before waivers/reimbursements .85% .85% 1.09%^ N/A N/A N/A
CLASS C
Net of waivers/reimbursements 1.52% 1.52% 1.63%^ N/A N/A N/A
Before waivers/reimbursements 1.60% 1.61% 1.87%^ N/A N/A N/A
ADVISOR CLASS
Net of waivers/reimbursements .52% .54% .61%^ .61% .61% .57%
Before waivers/reimbursements .60% .65% .69%^ .61% .61% .57%
(g)The Predecessor Fund's fiscal year end was December 31 and the Fund's fiscal
year end is October 31.
(h)Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based
on net asset value will be higher than total investment return based on
market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such periods. Total investment return calculated for
a period of less than one year is not annualized.
94
+ For the year ended October 31, 2016, the amount includes a refund for
overbilling of prior years' custody out of pocket fees as follows:
NET INVESTMENT NET INVESTMENT TOTAL
INCOME PER SHARE INCOME RATIO RETURN
------------------------ ------------------------ ------------------------
$.003 .04% .03%
^ Annualized.
95
AB TAX-AWARE FIXED INCOME PORTFOLIO
---------------------------------------------------------------------------------------------------------------------
CLASS A
DECEMBER 11,
2013(a) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016 2015 2014
---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.77 $10.87 $10.59 $10.51 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .24 .21 .22 .18 .14
Net realized and unrealized gain (loss) on investment transactions (.30) (.10)+ .28 .09 .50
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.06) .11 .50 .27 .64
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.25) (.21) (.22) (.18) (.13)
Distributions from net realized gain on investment transactions - 0 - - 0 - - 0 - (.01) - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.25) (.21) (.22) (.19) (.13)
------ ------ ------ ------ ------
Net asset value, end of period $10.46 $10.77 $10.87 $10.59 $10.51
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d) (.55)% 1.09% 4.69% 2.64% 6.44%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,666 $8,065 $6,385 $4,783 $1,954
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) .75% .75% .80% .81% .85%^
Expenses, before waivers/reimbursements(e) 1.27% 1.40% 1.72% 2.19% 3.59%^
Net investment income(c) 2.26% 2.01% 1.98% 1.75% 1.57%^
Portfolio turnover rate 68% 34% 36% 35% 42%
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
CLASS C
DECEMBER 11,
2013(a) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016 2015 2014
---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $10.77 $10.87 $10.59 $10.52 $10.00
------ ------ ------ ------ ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .16 .13 .13 .10 .07
Net realized and unrealized gain (loss) on investment transactions (.30) (.10)+ .28 .09 .52
------ ------ ------ ------ ------
Net increase (decrease) in net asset value from operations (.14) .03 .41 .19 .59
------ ------ ------ ------ ------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.17) (.13) (.13) (.11) (.07)
Distributions from net realized gain on investment transactions - 0 - - 0 - - 0 - (.01) - 0 -
------ ------ ------ ------ ------
Total dividends and distributions (.17) (.13) (.13) (.12) (.07)
------ ------ ------ ------ ------
Net asset value, end of period $10.46 $10.77 $10.87 $10.59 $10.52
====== ====== ====== ====== ======
TOTAL RETURN
Total investment return based on net asset value(d) (1.29)% .33% 3.91% 1.78% 5.92%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 769 $1,056 $2,022 $1,518 $ 369
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) 1.50% 1.50% 1.55% 1.55% 1.55%^
Expenses, before waivers/reimbursements(e) 2.02% 2.18% 2.47% 2.85% 4.33%^
Net investment income(c) 1.52% 1.25% 1.23% .99% .82%^
Portfolio turnover rate 68% 34% 36% 35% 42%
---------------------------------------------------------------------------------------------------------------------
See footnotes on page 97.
96
-------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS
DECEMBER 11,
2013(a) TO
YEAR ENDED OCTOBER 31, OCTOBER 31,
2018 2017 2016 2015 2014
-------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.77 $ 10.87 $ 10.59 $ 10.52 $ 10.00
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(b)(c) .27 .24 .24 .21 .16
Net realized and unrealized gain (loss) on investment transactions (.30) (.10)+ .28 .08 .52
------- ------- ------- ------- -------
Net increase (decrease) in net asset value from operations (.03) .14 .52 .29 .68
------- ------- ------- ------- -------
LESS: DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income (.28) (.24) (.24) (.21) (.16)
Distributions from net realized gain on investment transactions - 0 - - 0 - - 0 - (.01) - 0 -
------- ------- ------- ------- -------
Total dividends and distributions (.28) (.24) (.24) (.22) (.16)
------- ------- ------- ------- -------
Net asset value, end of period $ 10.46 $ 10.77 $ 10.87 $ 10.59 $ 10.52
======= ======= ======= ======= =======
TOTAL RETURN
Total investment return based on net asset value(d) (.30)% 1.34% 4.96% 2.81% 6.84%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $57,432 $59,782 $33,667 $26,333 $14,584
Ratio to average net assets of:
Expenses, net of waivers/reimbursements(e) .50% .50% .55% .55% .55%^
Expenses, before waivers/reimbursements(e) 1.02% 1.15% 1.47% 1.92% 3.82%^
Net investment income(c) 2.52% 2.26% 2.24% 1.99% 1.76%^
Portfolio turnover rate 68% 34% 36% 35% 42%
-------------------------------------------------------------------------------------------------------------------------
(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. Initial sales charges or
contingent deferred sales charges are not reflected in the calculation of
total investment return. Total return does not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption
of fund shares. Total investment return calculated for a period of less than
one year is not annualized.
(e)In connection with the Fund's investments in affiliated underlying
portfolios, the Fund incurs no direct expenses, but bears proportionate
shares of the fees and expenses (i.e., operating, administrative and
investment advisory fees) of the affiliated underlying portfolios. The
Adviser has contractually agreed to waive its fees from the Fund in an
amount equal to the Fund's pro rata share of certain acquired fund fees and
expenses, and for the year ended October 31, 2017, such waiver amounted to
.01%.
+ Due to timing of sales and repurchase of capital shares, the net realized
and unrealized gain (loss) per share is not in accordance with the Fund's
change in net realized and unrealized gain (loss) on investment transactions
for the period.
^ Annualized.
97
APPENDIX A
--------------------------------------------------------------------------------
BOND RATINGS
MOODY'S INVESTORS SERVICE, INC. ("MOODY'S")
Aaa--Bonds which are rated Aaa are judged to be of the highest quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality and are subject
to very low credit risk. Together with the Aaa group they comprise what are
generally known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than the Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations and are subject to low
credit risk. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba--Bonds which are rated Ba are judged to be speculative and are subject to
substantial credit risk; their future cannot be considered as well-assured.
Often the protection of interest and principal payments may be very moderate
and thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B--Bonds which are rated B are considered speculative and are subject to high
credit risk.
Caa--Bonds which are rated Caa are judged to be speculative of poor standing
and are subject to very high credit risk.
Ca--Bonds which are rated Ca are highly speculative and are likely in, or very
near, default, with some prospect of recovery of principal and interest.
C--Bonds which are rated C are the lowest rated class of bonds and are
typically in default, with little prospect for recovery of principal or
interest.
Absence of Rating--Where no rating has been assigned or where a rating has been
withdrawn, it may be for reasons unrelated to the quality of the issue.
Should no rating be assigned, the reason may be one of the following:
1. An application for rating was not received or accepted.
2. The issue or issuer belongs to a group of securities or companies that are
unrated as a matter of policy.
3. There is a lack of essential data pertaining to the issue or issuer.
4. The issue was privately placed, in which case the rating is not published in
Moody's publications.
Suspension may occur if new and material circumstances arise, the effects of
which preclude satisfactory analysis; if there is no longer available
reasonable up-to-date data to permit a judgment to be formed; if a bond is
called for redemption; or for other reasons.
Note--Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through Caa in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issue ranks in the lower end of its generic
rating category. Additionally, a "(hyb)" indicator is appended to all ratings
of hybrid securities issued by banks, insurers, finance companies, and
securities firms.
S&P GLOBAL RATINGS ("S&P")
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB normally exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for debt in this
category than in higher rated categories.
BB, B, CCC, CC, C--Debt rated BB, B, CCC, CC or C is regarded as having
significant speculative characteristics. BB indicates the lowest degree of
speculation and C the highest. While such debt will likely have some quality
and protective characteristics, these may be outweighed by large uncertainties
or major exposures to adverse conditions.
BB--Debt rated BB is less vulnerable to nonpayment than other speculative debt.
However, it faces major ongoing uncertainties or exposure to adverse business,
financial or economic conditions which could lead to an inadequate capacity to
pay interest and repay principal.
A-1
B--Debt rated B is more vulnerable to nonpayment than debt rated BB, but there
is capacity to pay interest and repay principal. Adverse business, financial or
economic conditions will likely impair the capacity or willingness to pay
principal or repay interest.
CCC--Debt rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial and economic conditions to pay interest and
repay principal. In the event of adverse business, financial or economic
conditions, there is not likely to be capacity to pay interest or repay
principal.
CC--Debt rated CC is currently highly vulnerable to nonpayment. The CC rating
is used when a default has not yet occurred but S&P expects default to be a
virtual certainty, regardless of the anticipated time to default.
C--Debt rated C is currently highly vulnerable to nonpayment, and the
obligation is expected to have lower relative seniority or lower ultimate
recovery compared with obligations that are rated higher.
D--Debt rated 'D' is in default or in breach of an imputed promise. For
non-hybrid capital instruments, the 'D' rating category is used when payments
on an obligation are not made on the date due, unless S&P believes that such
payments will be made within five business days in the absence of a stated
grace period or within the earlier of the stated grace period or 30 calendar
days. The 'D' rating also will be used upon the filing of a bankruptcy petition
or the taking of similar action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions. An obligation's rating
is lowered to 'D' if it is subject to a distressed exchange offer.
Plus (+) or Minus (-)--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
NR--Debt designated NR is not rated.
FITCH RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the AAA
and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse business or economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued
timely payment of principal and interest reflects the obligor's limited margin
of safety and the need for reasonable business and economic activity throughout
the life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied,
may lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are in imminent default in payment of interest or principal.
Defaulted obligations are typically rated in the 'CCC' to 'C' rating
categories, depending upon their recovery prospects and other relevant
characteristics. This approach better aligns obligations that have comparable
overall expected loss but varying vulnerability to default and loss.
Plus (+) Minus (-)--Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category or in categories below
CCC.
A-2
APPENDIX B
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
--------------------------------------------------------------------------------
The following supplemental hypothetical investment information provides
additional information calculated and presented in a manner different from
expense information found under "Fees and Expenses of the Fund" in the Summary
Information at the beginning of this Prospectus about the effect of a Fund's
expenses, including investment advisory fees and other Fund costs, on each
Fund's returns over a 10-year period. The chart shows the estimated expenses
that would be charged on a hypothetical investment of $10,000 in Class A shares
of each Fund assuming a 5% return each year, including an initial sales charge
of 4.25% for all Funds except AB TAX-AWARE FIXED INCOME PORTFOLIO and an initial
sales charge of 3.00% for AB TAX-AWARE FIXED INCOME PORTFOLIO. Except as
otherwise indicated, the chart also assumes that the current annual expense
ratio stays the same throughout the 10-year period. The current annual expense
ratio for each Fund is the same as stated under "Fees and Expenses of the Fund".
Additional information concerning the fees and expenses incurred by the Funds
may be found at FINRA's Fund Analyzer web page (available at
http://apps.finra.org/fundanalyzer/1/fa.aspx). Your actual expenses may be
higher or lower.
AB INTERMEDIATE BOND PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 478.75 $10,053.75 $ 502.41 $ 9,976.34
2 9,976.34 498.82 10,475.16 105.80 10,369.36
3 10,369.36 518.47 10,887.83 109.97 10,777.86
4 10,777.86 538.89 11,316.75 114.30 11,202.45
5 11,202.45 560.12 11,762.57 118.80 11,643.77
6 11,643.77 582.19 12,225.96 123.48 12,102.48
7 12,102.48 605.12 12,707.60 128.35 12,579.25
8 12,579.25 628.96 13,208.21 133.40 13,074.81
9 13,074.81 653.74 13,728.55 138.66 13,589.89
10 13,589.89 679.49 14,269.38 144.12 14,125.26
--------------------------------------------------------------------------
Cumulative $5,744.55 $1,619.29
AB GLOBAL BOND FUND
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 478.75 $10,053.75 $ 507.44 $ 9,971.31
2 9,971.31 498.57 10,469.88 86.90 10,382.98
3 10,382.98 519.15 10,902.13 90.49 10,811.64
4 10,811.64 540.58 11,352.22 94.22 11,258.00
5 11,258.00 562.90 11,820.90 98.11 11,722.79
6 11,722.79 586.14 12,308.93 102.16 12,206.77
7 12,206.77 610.34 12,817.11 106.38 12,710.73
8 12,710.73 635.54 13,346.27 110.77 13,235.50
9 12,235.50 661.78 13,897.28 115.35 13,781.93
10 13,781.93 689.10 14,471.03 120.11 14,350.92
--------------------------------------------------------------------------
Cumulative $5,782.85 $1,431.93
AB UNCONSTRAINED BOND FUND
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 478.75 $10,053.75 $ 515.48 $ 9,963.27
2 9,963.27 498.16 10,461.43 112.98 10,348.45
3 10,348.45 517.42 10,865.87 117.35 10,748.52
4 10,748.52 537.43 11,285.95 121.89 11,164.06
5 11,164.06 558.20 11,722.26 126.60 11,595.66
6 11,596.66 579.78 12,175.44 131.49 12,043.95
7 12,043.95 602.20 12,646.15 136.58 12,509.57
8 12,509.57 625.48 13,135.05 141.86 12,993.19
9 12,993.19 649.66 13,642.85 147.34 13,495.51
10 13,495.51 674.78 14,170.29 153.04 14,017.25
--------------------------------------------------------------------------
Cumulative $5,721.86 $1,704.61
B-1
AB HIGH INCOME FUND
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 478.75 $10,053.75 $ 508.45 $ 9,970.30
2 9,970.30 498.52 10,468.82 87.94 10,380.88
3 10,380.88 519.04 10,899.92 91.56 10,808.36
4 10,808.36 540.42 11,348.78 95.33 11,253.45
5 11,253.45 562.67 11,816.12 99.26 11,716.86
6 11,716.86 585.84 12,302.70 103.34 12,199.36
7 12,199.36 609.97 12,809.33 107.60 12,701.73
8 12,701.73 635.09 13,336.82 112.03 13,224.79
9 13,224.79 661.24 13,886.03 116.64 13,769.39
10 13,769.39 688.47 14,457.86 121.45 14,336.41
--------------------------------------------------------------------------
Cumulative $5,780.01 $1,443.60
AB LIMITED DURATION HIGH INCOME PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 478.75 $10,053.75 $ 521.52 $ 9,957.23
2 9,957.23 497.86 10,455.09 110.82 10,344.27
3 10,344.27 517.21 10,861.48 115.13 10,746.35
4 10,746.35 537.32 11,283.67 119.61 11,164.06
5 11,164.06 558.20 11,722.26 124.26 11,598.00
6 11,598.00 579.90 12,177.90 129.09 12,048.81
7 12,048.81 602.44 12,651.25 134.10 12,517.15
8 12,517.15 625.86 13,143.01 139.32 13,003.69
9 13,003.69 650.18 13,653.87 144.73 13,509.14
10 13,509.14 675.46 14,184.60 150.36 14,034.24
--------------------------------------------------------------------------
Cumulative $5,723.18 $1,688.94
AB INCOME FUND
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 478.75 $10,053.75 $ 533.58 $ 9,945.17
2 9,945.17 497.26 10,442.43 121.13 10,321.30
3 10,321.30 516.07 10,837.37 125.71 10,711.66
4 10,711.66 535.58 11,247.24 130.47 11,116.77
5 11,116.77 555.84 11,672.61 135.40 11,537.21
6 11,537.21 576.86 12,114.07 140.52 11,973.55
7 11,973.55 598.68 12,572.23 145.84 12,426.39
8 12,426.39 621.32 13,047.71 151.35 12,896.36
9 12,896.36 644.82 13,541.18 157.08 13,384.10
10 13,384.10 669.21 14,053.31 163.02 13,890.29
--------------------------------------------------------------------------
Cumulative $5,694.39 $1,804.10
AB TAX-AWARE FIXED INCOME PORTFOLIO
--------------------------------------------------------------------------------
HYPOTHETICAL INVESTMENT HYPOTHETICAL
HYPOTHETICAL PERFORMANCE AFTER HYPOTHETICAL ENDING
YEAR INVESTMENT EARNINGS RETURNS EXPENSES* INVESTMENT
--------------------------------------------------------------------------
1 $10,000.00 $ 485.00 $10,185.00 $ 376.39 $10,108.61
2 10,108.61 505.43 10,614.04 134.80 10,479.24
3 10,479.24 523.96 11,003.20 139.74 10,863.46
4 10,863.46 543.17 11,406.63 144.86 11,261.77
5 11,261.77 563.09 11,824.86 150.18 11,674.66
6 11,674.68 583.73 12,258.41 155.68 12,102.73
7 12,102.73 605.14 12,707.87 161.39 12,546.48
8 12,546.48 627.32 13,173.80 167.31 13,006.49
9 13,006.49 650.32 13,656.81 173.44 13,483.37
10 13,483.37 674.17 14,157.54 179.80 13,977.74
--------------------------------------------------------------------------
Cumulative $5,761.33 $1,783.59
--------
* Expenses are net of any fee waiver or expense waiver for the first year.
Thereafter, the expense ratio reflects the Fund's operating expenses as
reflected under "Fees and Expenses of the Fund" before fee waiver in the
Summary Information at the beginning of this Prospectus.
B-2
APPENDIX C--FINANCIAL INTERMEDIARY WAIVERS
--------------------------------------------------------------------------------
WAIVER SPECIFIC TO MERRILL LYNCH
--------------------------------------------------------------------------------
Effective April 10, 2017, shareholders purchasing Fund shares through a Merrill
Lynch platform or account will be eligible only for the following load waivers
(front-end sales charge waivers and contingent deferred, or back-end, sales
charge waivers) and discounts, which may differ from those disclosed elsewhere
in the Funds' prospectus or SAI:
FRONT-END SALES LOAD WAIVERS ON CLASS A SHARES AVAILABLE AT MERRILL LYNCH
. Employer-sponsored retirement, deferred compensation and employee benefit
plans (including health savings accounts) and trusts used to fund those
plans, provided that the shares are not held in a commission-based brokerage
account and shares are held for the benefit of the plan
. Shares purchased by or through a 529 Plan
. Shares purchased through a Merrill Lynch affiliated investment advisory
program
. Shares purchased by third party investment advisors on behalf of their
advisory clients through Merrill Lynch's platform
. Shares of funds purchased through the Merrill Edge Self-Directed platform
(if applicable)
. Shares purchased through reinvestment of capital gains distributions and
dividend reinvestment when purchasing shares of the same fund (but not any
other fund within the fund family)
. Shares exchanged from Class C (i.e., level-load) shares of the same fund in
the month of or following the 10-year anniversary of the purchase date
. Employees and registered representatives of Merrill Lynch or its affiliates
and their family members
. Directors or Trustees of the Fund, and employees of the Fund's investment
adviser or any of its affiliates, as described in this prospectus
. Shares purchased from the proceeds of redemptions within the same fund
family, provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same account, and
(3) redeemed shares were subject to a front-end or deferred sales load
(known as Rights of Reinstatement)
CDSC WAIVERS ON A AND C SHARES AVAILABLE AT MERRILL LYNCH
. Death or disability of the shareholder
. Shares sold as part of a systematic withdrawal plan as described in the
Fund's prospectus
. Return of excess contributions from an IRA Account
. Shares sold as part of a required minimum distribution for IRA and
retirement accounts due to the shareholder reaching age 70 1/2
. Shares sold to pay Merrill Lynch fees but only if the transaction is
initiated by Merrill Lynch
. Shares acquired through a right of reinstatement
. Shares held in retirement brokerage accounts, that are exchanged for a lower
cost share class due to transfer to a fee based account or platform
FRONT-END LOAD DISCOUNTS AVAILABLE AT MERRILL LYNCH: BREAKPOINTS, RIGHTS OF
ACCUMULATION & LETTERS OF INTENT
. Breakpoints as described in this prospectus
. Rights of Accumulation (ROA) which entitle shareholders to breakpoint
discounts will be automatically calculated based on the aggregated holding
of fund family assets held by accounts within the purchaser's household at
Merrill Lynch. Eligible fund family assets not held at Merrill Lynch may be
included in the ROA calculation only if the shareholder notifies his or her
financial advisor about such assets
. Letters of Intent (LOI) which allow for breakpoint discounts based on
anticipated purchases within a fund family, through Merrill Lynch, over a
13-month period of time (if applicable)
C-1
WAIVERS SPECIFIC TO MORGAN STANLEY
--------------------------------------------------------------------------------
Effective July 1, 2018, shareholders purchasing Fund shares through a Morgan
Stanley Wealth Management transactional brokerage account will be eligible only
for the following front-end sales charge waivers with respect to Class A
shares, which may differ from and may be more limited than those disclosed
elsewhere in this Fund's Prospectus or SAI.
. Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans,
employer-sponsored 403(b) plans, profit sharing and money purchase
pension plans and defined benefit plans). For purposes of this
provision, employer-sponsored retirement plans do not include SEP IRAs,
Simple IRAs, SAR-SEPs or Keogh plans
. Morgan Stanley employee and employee-related accounts according to
Morgan Stanley's account linking rules
. Shares purchased through reinvestment of dividends and capital gains
distributions when purchasing shares of the same fund
. Shares purchased through a Morgan Stanley self-directed brokerage account
. Class C (i.e., level-load) shares that are no longer subject to a
contingent deferred sales charge and are converted to Class A shares of
the same fund pursuant to Morgan Stanley Wealth Management's share class
conversion program
. Shares purchased from the proceeds of redemptions within the same fund
family, provided (i) the repurchase occurs within 90 days following the
redemption, (ii) the redemption and purchase occur in the same account,
and (iii) redeemed shares were subject to a front-end or deferred sales
charge
WAIVERS SPECIFIC TO AMERIPRISE FINANCIAL
--------------------------------------------------------------------------------
The following information applies to Class A shares purchases if you have an
account with or otherwise purchase Fund shares through Ameriprise Financial:
Effective June 1, 2018, shareholders purchasing Fund shares through an
Ameriprise Financial platform or account will be eligible for the
following front-end sales charge waivers and discounts, which may differ from
those disclosed elsewhere in this Fund's Prospectus or SAI:
. Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans,
employer-sponsored 403(b) plans, profit sharing and money purchase
pension plans and defined benefit plans). For purposes of this
provision, employer-sponsored retirement plans do not include SEP IRAs,
Simple IRAs or SAR-SEPs
. Shares purchased through an Ameriprise Financial investment advisory
program (if an advisory or similar share class for such investment
advisory program is not available)
. Shares purchased by third-party investment advisors on behalf of their
advisory clients through Ameriprise Financial's platform (if an advisory
or similar share class for such investment advisory program is not
available)
. Shares purchased through reinvestment of distributions and dividend
reinvestment when purchasing shares of the same fund (but not any other
fund within same fund family)
. Shares exchanged from Class C shares of the same fund in the month of or
following the 10-year anniversary of the purchase date. To the extent
that this Prospectus elsewhere provides for a waiver with respect to
such shares following a shorter holding period, that waiver will apply
to exchanges following such shorter period. To the extent that this
Prospectus elsewhere provides for a waiver with respect to exchanges of
Class C shares for load waived shares, that waiver will also apply to
such exchanges
. Employees and registered representatives of Ameriprise Financial or its
affiliates and their immediate family members
. Shares purchased by or through qualified accounts (including IRAs,
Coverdell Education Savings Accounts, 401(k)s, 403(b) TSCAs subject to
ERISA and defined benefit plans) that are held by a covered family
member, defined as an Ameriprise financial advisor and/or the advisor's
spouse, advisor's lineal ascendant (mother, father, grandmother,
grandfather, great grandmother, great grandfather), advisor's lineal
descendant (son, step-son, daughter, step-daughter, grandson,
granddaughter, great grandson, great granddaughter) or any spouse of a
covered family member who is a lineal descendant
. Shares purchased from the proceeds of redemptions within the same fund
family, provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same account,
and (3) redeemed shares were subject to a front-end or deferred sales
load (i.e., Rights of Reinstatement)
C-2
WAIVERS SPECIFIC TO RAYMOND JAMES & ASSOCIATES, INC., RAYMOND JAMES FINANCIAL
SERVICES & RAYMOND JAMES AFFILIATES ("RAYMOND JAMES")
--------------------------------------------------------------------------------
Effective March 1, 2019, shareholders purchasing Fund shares through a Raymond
James platform or account will be eligible only for the following load waivers
(front-end sales charge waivers and contingent deferred, or back-end, sales
charge waivers) and discounts, which may differ from those disclosed elsewhere
in this Fund's Prospectus or SAI.
FRONT-END SALES LOAD WAIVERS ON CLASS A SHARES AVAILABLE AT RAYMOND JAMES
. Shares purchased in an investment advisory program
. Shares purchased through reinvestment of capital gains distributions and
dividend reinvestment when purchasing shares of the same fund (but not any
other fund within the fund family)
. Employees and registered representatives of Raymond James or its affiliates
and their family members as designated by Raymond James
. Shares purchased from the proceeds of redemptions within the same fund
family, provided (1) the repurchase occurs within 90 days following the
redemption, (2) the redemption and purchase occur in the same account, and
(3) redeemed shares were subject to a front-end or deferred sales load
(known as Rights of Reinstatement)
. A shareholder in the Fund's Class C shares will have their shares converted
at net asset value to Class A shares (or the appropriate share class) of the
Fund if the shares are no longer subject to a CDSC and the conversion is in
line with the policies and procedures of Raymond James
CDSC WAIVERS ON CLASS A AND C SHARES AVAILABLE AT RAYMOND JAMES
. Death or disability of the shareholder
. Shares sold as part of a systematic withdrawal plan as described in the
Fund's Prospectus
. Return of excess contributions from an IRA Account
. Shares sold as part of a required minimum distribution for IRA and
retirement accounts due to the shareholder reaching age 70 1/2 as described
in this Fund's Prospectus
. Shares sold to pay Raymond James fees but only if the transaction is
initiated by Raymond James
. Shares acquired through a right of reinstatement
FRONT-END LOAD DISCOUNTS AVAILABLE AT RAYMOND JAMES: BREAKPOINTS, AND/OR RIGHTS
OF ACCUMULATION
. Breakpoints as described in this Prospectus
. Rights of Accumulation (ROA) which entitle shareholders to breakpoint
discounts will be automatically calculated based on the aggregated holding
of fund family assets held by accounts within the purchaser's household at
Raymond James. Eligible fund family assets not held at Raymond James may be
included in the ROA calculation only if the shareholder notifies his or her
financial advisor about such assets
C-3
For more information about the Funds, the following documents are available
upon request:
. ANNUAL/SEMI-ANNUAL REPORTS TO SHAREHOLDERS
The Funds' annual and semi-annual reports to shareholders contain additional
information on the Funds' investments. In the annual report, you will find a
discussion of the market conditions and investment strategies that
significantly affected a Fund's performance during its last fiscal year.
. STATEMENT OF ADDITIONAL INFORMATION (SAI)
The Funds have an SAI, which contains more detailed information about the
Funds, including their operations and investment policies. The Funds' SAI and
the independent registered public accounting firm's reports and financial
statements in each Fund's most recent annual report to shareholders are
incorporated by reference into (and are legally part of) this Prospectus.
You may request a free copy of the current annual/semi-annual report or the
SAI, or make inquiries concerning the Funds, by contacting your broker or other
financial intermediary, or by contacting the Adviser:
BY MAIL: c/o AllianceBernstein Investor Services, Inc.
P.O. Box 786003
San Antonio, TX 78278-6003
BY PHONE: For Information: (800) 221-5672
For Literature: (800) 227-4618
ON THE INTERNET: www.abfunds.com
Or you may view or obtain these documents from the Securities and Exchange
Commission ("SEC"):
. Call the SEC at 1-202-551-8090 for information on the operation of the
Public Reference Room.
. Reports and other information about the Funds are available on the EDGAR
Database on the SEC's Internet site at http://www.sec.gov.
. Copies of the information may be obtained, after paying a duplicating fee,
by electronic request at [email protected], or by writing the SEC's Public
Reference Section, Washington, DC 20549-1520.
You also may find these documents and more information about the Adviser and
the Funds on the Internet at: www.abfunds.com.
The [A/B] Logo is a service mark of AllianceBernstein and AllianceBernstein(R)
is a registered trademark used by permission of the owner, AllianceBernstein
L.P.
FUND SEC FILE NO.
-------------------------------------------------------
AB Intermediate Bond Portfolio 811-02383
AB Global Bond Fund 811-06554
AB Unconstrained Bond Fund 811-07391
AB High Income Fund 811-08188
AB Limited Duration High Income Portfolio 811-02383
AB Income Fund 811-02383
AB Tax-Aware Fixed Income Portfolio 811-02383
PRO-0115-0119
[GRAPHIC]
[A/B] /R/
[LOGO]
AB BOND FUND, INC.
-AB Intermediate Bond Portfolio
(Class A-ABQUX; Class B-ABQBX; Class C-ABQCX; Advisor
Class-ABQYX; Class R-ABQRX; Class K-ABQKX; Class I-ABQIX;
Class Z-ABQZX)
-AB Limited Duration High Income Portfolio
(Class A-ALHAX; Class C-ALHCX; Advisor Class-ALHYX)
-AB Income Fund
(Class A-AKGAX; Class C-AKGCX; Advisor Class-ACGYX)
-AB Tax-Aware Fixed Income Portfolio
(Class A-ATTAX; Class C-ATCCX; Advisor Class-ATTYX)
AB UNCONSTRAINED BOND FUND, INC.
(Class A-AGSAX; Class B-AGSBX; Class C-AGCCX;
Advisor Class-AGSIX; Class R-AGSRX; Class K-AGSKX;
Class I-AGLIX; Class Z-AGSZX)
AB HIGH INCOME FUND, INC.
(Class A-AGDAX; Class B-AGDBX; Class C-AGDCX;
Advisor Class-AGDYX; Class R-AGDRX; Class K- AGDKX;
Class I-AGDIX; Class Z-AGDZX)
AB GLOBAL BOND FUND, INC.
(Class A-ANAGX; Class B-ANABX; Class C-ANACX;
Advisor Class-ANAYX; Class R-ANARX; Class K-ANAKX;
Class I-ANAIX; Class Z-ANAZX)
--------------------------------------------------------------------------------
c/o AllianceBernstein Investor Services, Inc.
P. O. Box 786003, San Antonio, Texas 78278-6003
Toll Free: (800) 221-5672
For Literature: Toll Free (800) 227-4618
--------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
January 31, 2019
--------------------------------------------------------------------------------
This Statement of Additional Information ("SAI") is not a prospectus
but supplements and should be read in conjunction with the current prospectus,
dated January 31, 2019, for the AB Intermediate Bond Portfolio ("Intermediate
Bond"), AB Limited Duration High Income Portfolio ("Limited Duration"), AB
Income Fund ("Income Fund") and AB Tax-Aware Fixed Income Portfolio
("Tax-Aware") of AB Bond Fund, Inc., AB Unconstrained Bond Fund, Inc.
("Unconstrained Bond"), AB Global Bond Fund, Inc. ("Global Bond") and AB High
Income Fund, Inc. ("High Income") (each a "Fund", and collectively, the "Funds")
that offers Class A, Class B, Class C, Advisor Class, Class R, Class K, Class I
and Class Z shares of the Funds (except Limited Duration, Income Fund and
Tax-Aware, which offer Class A, Class C and Advisor Class Shares in the
prospectus) (the "Prospectus").
Financial statements for Intermediate Bond, Income Fund, Tax-Aware,
Unconstrained Bond and High Income for the year ended October 31, 2018, and
financial statements for Global Bond and Limited Duration for the year ended
September 30, 2018 are included in each Fund's annual report to shareholders and
are incorporated into the SAI by reference. Copies of the Prospectus and each
Fund's annual report may be obtained by contacting AllianceBernstein Investor
Services, Inc. ("ABIS") at the address or the "For Literature" telephone number
shown above or on the Internet at www.abfunds.com.
INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENTS..............................1
INVESTMENT RESTRICTIONS.......................................................52
MANAGEMENT OF THE FUNDS.......................................................54
EXPENSES OF THE FUNDS.........................................................92
PURCHASE OF SHARES...........................................................104
REDEMPTION AND REPURCHASE OF SHARES..........................................132
SHAREHOLDER SERVICES.........................................................134
NET ASSET VALUE..............................................................138
DIVIDENDS, DISTRIBUTIONS AND TAXES...........................................142
PORTFOLIO TRANSACTIONS.......................................................152
GENERAL INFORMATION..........................................................158
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM........................................................188
APPENDIX A: PROXY VOTING AND GOVERNANCE POLICY STATEMENT.....................A-1
--------
The [A/B] Logo is a service mark of AllianceBernstein and AllianceBernstein(R)
is a registered trademark used by permission of the owner, AllianceBernstein
L.P.
--------------------------------------------------------------------------------
INFORMATION ABOUT THE FUNDS AND THEIR INVESTMENTS
--------------------------------------------------------------------------------
Introduction to the Funds
-------------------------
Except as otherwise noted, each Fund's investment objectives and
policies described below are not "fundamental policies" within the meaning of
the Investment Company Act of 1940, as amended (the "1940 Act"), and may,
therefore, be changed by the Fund's Board of Directors (the "Board") without
shareholder approval. However, no Fund will change its investment objective
without at least 60 days' prior written notice to shareholders. There is no
guarantee that a Fund will achieve its investment objective. Whenever any
investment policy or restriction states a percentage of a Fund's assets that may
be invested in any security or other asset, it is intended that such percentage
limitation be determined immediately after and as a result of a Fund's
acquisition of such securities or other assets. Accordingly, except with respect
to borrowing, any later increases or decreases in percentage beyond the
specified limitations resulting from a change in values or net assets will not
be considered a violation of this percentage limitation.
Income Fund commenced operations on April 22, 2016. Income Fund
acquired the assets and liabilities of the AllianceBernstein Income Fund, Inc.,
a closed-end fund, effective at the close of business on April 21, 2016.
Additional Investment Policies and Practices
--------------------------------------------
The following information about the Funds' investment policies and
practices supplements the information set forth in the Prospectus.
Derivatives
-----------
A Fund may, but is not required to, use derivatives for hedging or
other risk management purposes or as part of its investment strategies.
Derivatives are financial contracts whose value depends on, or is derived from,
the value of an underlying asset, reference rate or index. These assets, rates,
and indices may include bonds, stocks, mortgages, commodities, interest rates,
currency exchange rates, bond indices and stock indices.
There are four principal types of derivatives - options, futures
contracts, forwards and swaps. These principal types of derivative instruments,
as well as the methods in which they may be used by a Fund are described below.
Derivatives include listed and cleared transactions where the Fund's derivative
trade counterparty is an exchange or clearinghouse, and non-cleared bilateral
"over-the-counter" ("OTC") transactions where the Fund's derivative trade
counterparty is a financial institution. Exchange-traded or cleared derivatives
transactions tend to be subject to less counterparty credit risk than those that
are privately negotiated. The Funds may use derivatives to earn income and
enhance returns, to hedge or adjust the risk profile of a portfolio and either
to replace more traditional direct investments or to obtain exposure to
otherwise inaccessible markets.
Forward Contracts. A forward contract, which may be standardized and
exchange-traded or customized and privately negotiated, is an agreement for one
party to buy, and the other party to sell, a specific quantity of an underlying
security, currency, commodity or other asset for an agreed-upon price at a
future date. A forward contract generally is settled by physical delivery of the
security, commodity or other tangible asset underlying the forward contract to
an agreed-upon location at a future date (rather than settled by cash) or will
be rolled forward into a new forward contract. Non-deliverable forwards ("NDFs")
specify a cash payment upon maturity.
Futures Contracts and Options on Futures Contracts. A futures
contract is an agreement that obligates the buyer to buy and the seller to sell
a specified quantity of an underlying asset (or settle for cash the value of a
contract based on an underlying asset, rate or index) at a specific price on the
contract maturity date. Options on futures contracts are options that call for
the delivery of futures contracts upon exercise. Futures contracts are
standardized, exchange-traded instruments and are fungible (i.e., considered to
be perfect substitutes for each other). This fungibility allows futures
contracts to be readily offset or canceled through the acquisition of equal but
opposite positions, which is the primary method in which futures contracts are
liquidated. A cash-settled futures contract does not require physical delivery
of the underlying asset but instead is settled for cash equal to the difference
between the values of the contract on the date it is entered into and its
maturity date.
Options. An option, which may be standardized and exchange-traded,
or customized and privately negotiated, is an agreement that, for a premium
payment or fee, gives the option holder (the buyer) the right but not the
obligation to buy (a "call") or sell (a "put") the underlying asset (or settle
for cash an amount based on an underlying asset, rate or index) at a specified
price (the exercise price) during a period of time or on a specified date.
Likewise, when an option is exercised the writer of the option is obligated to
sell (in the case of a call option) or to purchase (in the case of a put option)
the underlying asset (or settle for cash an amount based on an underlying asset,
rate or index).
Swaps. A swap is an agreement that obligates two parties to exchange
a series of cash flows at specified intervals (payment dates) based upon or
calculated by reference to changes in specified prices or rates (e.g., interest
rates in the case of interest rate swaps, currency exchange rates in the case of
currency swaps) for a specified amount of an underlying asset (the "notional"
principal amount). Most swaps are entered into on a net basis (i.e., the two
payment streams are netted out, with the Funds receiving or paying, as the case
may be, only the net amount of the two payments). Generally, the notional
principal amount is used solely to calculate the payment streams but is not
exchanged. Certain standardized swaps, including certain interest rate swaps and
credit default swaps, are 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. Funds post initial and variation
margin to support their obligations under cleared swaps by making payments to
their clearing member FCMs. Central clearing is expected to reduce counterparty
credit risks and increase liquidity, but central clearing does not make swap
transactions risk free. Centralized clearing will be required for additional
categories of swaps on a phased-in basis based on Commodity Futures Trading
Commission ("CFTC") approval of contracts for central clearing. The Securities
and Exchange Commission ("SEC") may adopt similar clearing requirements with
respect to security-based swaps. Bilateral swap agreements are two-party
contracts entered into primarily by institutional investors and are not cleared
through a third party.
Risks of Derivatives and Other Regulatory Issues. Investment
techniques employing such derivatives involve risks different from, and, in
certain cases, greater than, the risks presented by more traditional
investments. Following is a general discussion of important risk factors and
issues concerning the use of derivatives.
-- Market Risk. This is the general risk attendant to all
investments that the value of a particular investment will
change in a way detrimental to a Fund's interest.
-- Management Risk. Derivative products are highly specialized
instruments that require investment techniques and risk
analyses different from those associated with stocks and
bonds. The use of a derivative requires an understanding not
only of the underlying instrument but also of the derivative
itself, without the benefit of observing the performance of
the derivative under all possible market conditions. In
particular, the use and complexity of derivatives require the
maintenance of adequate controls to monitor the transactions
entered into, the ability to assess the risk that a derivative
adds to a Fund's investment portfolio, and the ability to
forecast price, interest rate or currency exchange rate
movements correctly.
-- Credit Risk. This is the risk that a loss may be sustained
by a Fund as a result of the failure of another party to a
derivative (usually referred to as a "counterparty") to comply
with the terms of the derivative contract. The credit risk for
derivatives traded on an exchange or through a clearinghouse
is generally less than for uncleared OTC derivatives, since
the exchange or clearinghouse, which is the issuer or
counterparty to each derivative, provides a guarantee of
performance. This guarantee is supported by a daily payment
system (i.e., margin requirements) operated by the
clearinghouse in order to reduce overall credit risk. For
uncleared OTC derivatives, there is no similar clearing agency
guarantee. Therefore, a Fund considers the creditworthiness of
each counterparty to an uncleared OTC derivative in evaluating
potential credit risk.
-- Counterparty Risk. The value of an OTC derivative will
depend on the ability and willingness of a Fund's counterparty
to perform its obligations under the transaction. If the
counterparty defaults, a Fund will have contractual remedies
but may choose not to enforce them to avoid the cost and
unpredictability of legal proceedings. In addition, if a
counterparty fails to meet its contractual obligations, a Fund
could miss investment opportunities or otherwise be required
to retain investments it would prefer to sell, resulting in
losses for the Fund. Participants in OTC derivatives markets
generally are not subject to the same level of credit
evaluation and regulatory oversight as are exchanges or
clearinghouses. As a result, OTC derivatives generally expose
a Fund to greater counterparty risk than derivatives traded on
an exchange or through a clearinghouse.
New regulations affecting derivatives transactions require
certain standardized derivatives, including many types of
swaps, to be subject to mandatory central clearing. Under
these new requirements, a central clearing organization is
substituted as the counterparty to each side of the
derivatives transaction. Each party to derivatives
transactions is required to maintain its positions with a
clearing organization through one or more clearing brokers.
Central clearing is intended to reduce, but not eliminate,
counterparty risk. A Fund is subject to the risk that its
clearing member or clearing organization will itself be unable
to perform its obligations.
-- Illiquid Investments Risk. Illiquid investments risk exists
when a particular instrument is difficult to purchase or sell.
If a derivative transaction is particularly large or if the
relevant market is illiquid (as is the case with many
privately negotiated derivatives), it may not be possible to
initiate a transaction or liquidate a position at an
advantageous price.
-- Leverage Risk. Since many derivatives have a leverage
component, adverse changes in the value or level of the
underlying asset, rate or index can result in a loss
substantially greater than the amount invested in the
derivative itself. In the case of swaps, the risk of loss
generally is related to a notional principal amount, even if
the parties have not made any initial investment. Certain
derivatives have the potential for unlimited loss, regardless
of the size of the initial investment.
-- Regulatory Risk. Various U.S. Government entities,
including the CFTC and the SEC, are in the process of adopting
and implementing additional regulations governing derivatives
markets required by, among other things, the Dodd-Frank Act,
including clearing, as discussed above, margin, reporting and
registration requirements. In December 2015, the SEC proposed
a new rule regarding derivatives imposing, among other things,
limits on the amount of leverage a fund could be exposed to
through derivatives and other senior securities transactions.
While the full extent and cost of these regulations is
unclear, and proposed regulations may be revised before
adoption or may never be adopted, these regulations could,
among other things, restrict a Fund's ability to engage in
derivatives transactions and/or increase the cost of such
derivatives transactions (through increased margin or capital
requirements). In addition, Congress, various exchanges and
regulatory and self-regulatory authorities have undertaken
reviews of options and futures trading in light of market
volatility. Among the actions that have been taken or proposed
to be taken are new limits and reporting requirements for
speculative positions, new or more stringent daily price
fluctuation limits for futures and options transactions, and
increased margin requirements for various types of futures
transactions. These regulations and actions may adversely
affect the instruments in which a Fund invests and its ability
to execute its investment strategy.
-- Other Risks. Other risks in using derivatives include the
risk of mispricing or improper valuation of derivatives and
the inability of derivatives to correlate perfectly with
underlying assets, rates and indices. Many derivatives, in
particular privately-negotiated derivatives, are complex and
often valued subjectively. Improper valuations can result in
increased cash payment requirements to counterparties or a
loss of value to a Fund. Derivatives do not always perfectly
or even highly correlate with or track the value of the
assets, rates or indices they are designed to closely track.
Consequently, a Fund's use of derivatives may not always be an
effective means of, and sometimes could be counterproductive
to, furthering the Fund's investment objective.
Other. A Fund may purchase and sell derivative instruments only to
the extent that such activities are consistent with the requirements of the
Commodity Exchange Act ("CEA") and the rules adopted by the CFTC thereunder.
Under CFTC rules, a registered investment company that conducts more than a
certain amount of trading in futures contracts, commodity options, certain swaps
and other commodity interests is a commodity pool and its adviser must register
as a commodity pool operator ("CPO"). Under such rules, registered investment
companies that are commodity pools are subject to additional recordkeeping,
reporting and disclosure requirements. The Funds, except Unconstrained Bond and
Income Fund, have claimed an exclusion from the definition of CPO under CFTC
Rule 4.5 under the CEA and are not currently subject to these recordkeeping,
reporting and disclosure requirements under the CEA. The trading exemption in
Rule 4.5 is not available to Unconstrained Bond and Income Fund, and
AllianceBernstein L.P., the Funds' adviser (the "Adviser") has registered as a
CPO with respect to these Funds. This registration subjects Unconstrained Bond
and Income Fund to certain registration and reporting requirements but, under
rules recently adopted by the CFTC, compliance with SEC disclosure and filing
requirements will, for the most part, constitute compliance with comparable CFTC
requirements.
Use of Options, Futures Contracts, Forwards and Swaps by a Fund
---------------------------------------------------------------
-- Forward Currency Exchange Contracts. A forward currency exchange
contract is an obligation by one party to buy, and the other party to sell, a
specific amount of a currency for an agreed-upon price at a future date. A
forward currency exchange contract may result in the delivery of the underlying
asset upon maturity of the contract in return for the agreed-upon payment. NDFs
specify a cash payment upon maturity. NDFs are normally used when the market for
physical settlement of the currency is underdeveloped, heavily regulated or
highly taxed.
A Fund may, for example, enter into forward currency exchange
contracts to attempt to minimize the risk to the Fund from adverse changes in
the relationship between the U.S. Dollar and other currencies. A Fund may
purchase or sell forward currency exchange contracts for hedging purposes
similar to those described below in connection with its transactions in foreign
currency futures contracts. A Fund may also purchase or sell forward currency
exchange contracts for non-hedging purposes as a means of making direct
investments in foreign currencies, as described below under "Currency
Transactions".
If a hedging transaction in forward currency exchange contracts is
successful, the decline in the value of portfolio securities or the increase in
the cost of securities to be acquired may be offset, at least in part, by
profits on the forward currency exchange contract. Nevertheless, by entering
into such forward currency exchange contracts, a Fund may be required to forgo
all or a portion of the benefits which otherwise could have been obtained from
favorable movements in exchange rates.
A Fund may also use forward currency exchange contracts to seek to
increase total return when the Adviser anticipates that a foreign currency will
appreciate or depreciate in value but securities denominated in that currency
are not held by the Fund and do not present attractive investment opportunities.
For example, a Fund may enter into a foreign currency exchange contract to
purchase a currency if the Adviser expects the currency to increase in value.
The Fund would recognize a gain if the market value of the currency is more than
the contract value of the currency at the time of settlement of the contract.
Similarly, a Fund may enter into a foreign currency exchange contract to sell a
currency if the Adviser expects the currency to decrease in value. The Fund
would recognize a gain if the market value of the currency is less than the
contract value of the currency at the time of settlement of the contract.
The cost of engaging in forward currency exchange contracts varies
with such factors as the currencies involved, the length of the contract period
and the market conditions then prevailing. Since transactions in foreign
currencies are usually conducted on a principal basis, no fees or commissions
are involved.
-- Options on Securities and Municipal and U.S. Government
Securities. A Fund may write and purchase call and put options on securities.
Tax-Aware may also write and purchase call and put options on municipal and U.S.
Government securities. In purchasing an option on securities, a Fund would be in
a position to realize a gain if, during the option period, the price of the
underlying securities increased (in the case of a call) or decreased (in the
case of a put) by an amount in excess of the premium paid; otherwise the Fund
would experience a loss not greater than the premium paid for the option. Thus,
a Fund would realize a loss if the price of the underlying security declined or
remained the same (in the case of a call) or increased or remained the same (in
the case of a put) or otherwise did not increase (in the case of a put) or
decrease (in the case of a call) by more than the amount of the premium. If a
put or call option purchased by a Fund were permitted to expire without being
sold or exercised, its premium would represent a loss to the Fund.
A Fund may write a put or call option in return for a premium, which
is retained by the Fund whether or not the option is exercised. A Fund may write
covered options or uncovered options. A call option written by a Fund is
"covered" if the Fund owns the underlying security, has an absolute and
immediate right to acquire that security upon conversion or exchange of another
security it holds, or holds a call option on the underlying security with an
exercise price equal to or less than the exercise price of the call option it
has written. A put option written by a Fund is covered if the Fund holds a put
option on the underlying securities with an exercise price equal to or greater
than the exercise price of the put option it has written. Uncovered options or
"naked options" are riskier than covered options. For example, if a Fund wrote a
naked call option and the price of the underlying security increased, the Fund
would have to purchase the underlying security for delivery to the call buyer
and sustain a loss, which could be substantial, equal to the difference between
the option price and the market price of the security.
A Fund may also purchase call options to hedge against an increase
in the price of securities that the Fund anticipates purchasing in the future.
If such increase occurs, the call option will permit the Fund to purchase the
securities at the exercise price, or to close out the options at a profit. The
premium paid for the call option plus any transaction costs will reduce the
benefit, if any, realized by the Fund upon exercise of the option, and, unless
the price of the underlying security rises sufficiently, the option may expire
worthless to the Fund and the Fund will suffer a loss on the transaction to the
extent of the premium paid.
A Fund may purchase put options to hedge against a decline in the
value of portfolio securities. If such decline occurs, the put options will
permit the Fund to sell the securities at the exercise price or to close out the
options at a profit. By using put options in this way, the Fund will reduce any
profit it might otherwise have realized on the underlying security by the amount
of the premium paid for the put option and by transaction costs.
A Fund may also, as an example, write combinations of put and call
options on the same security, known as "straddles", with the same exercise and
expiration date. By writing a straddle, the Fund undertakes a simultaneous
obligation to sell and purchase the same security in the event that one of the
options is exercised. If the price of the security subsequently rises above the
exercise price, the call will likely be exercised and the Fund will be required
to sell the underlying security at or below market price. This loss may be
offset, however, in whole or in part, by the premiums received on the writing of
the two options. Conversely, if the price of the security declines by a
sufficient amount, the put will likely be exercised. The writing of straddles
will likely be effective, therefore, only where the price of the security
remains stable and neither the call nor the put is exercised. In those instances
where one of the options is exercised, the loss on the purchase or sale of the
underlying security may exceed the amount of the premiums received.
A Fund may purchase or write options on securities of the types in
which it is permitted to invest in privately-negotiated (i.e., OTC)
transactions. By writing a call option, a Fund limits its opportunity to profit
from any increase in the market value of the underlying security above the
exercise price of the option. By writing a put option, a Fund assumes the risk
that it may be required to purchase the underlying security for an exercise
price above its then current market value, resulting in a capital loss unless
the security subsequently appreciates in value. Where options are written for
hedging purposes, such transactions constitute only a partial hedge against
declines in the value of portfolio securities or against increases in the value
of securities to be acquired, up to the amount of the premium.
A Fund will effect such transactions only with investment dealers
and other financial institutions (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Adviser, and the Adviser has adopted
procedures for monitoring the creditworthiness of such entities. Options
purchased or written in negotiated transactions may be illiquid and it may not
be possible for the Fund to effect a closing transaction at a time when the
Adviser believes it would be advantageous to do so.
-- Options on Securities Indices and Municipal and U.S. Government
Securities Indices. An option on a securities index is similar to an option on a
security except that, rather than taking or making delivery of a security at a
specified price, an option on a securities index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the chosen index is greater than (in the case of a call) or less than (in the
case of a put) the exercise price of the option.
A Fund may write (sell) call and put options and purchase call and
put options on securities indices. If a Fund purchases put options on securities
indices to hedge its investments against a decline in the value of portfolio
securities, it will seek to offset a decline in the value of securities it owns
through appreciation of the put option. If the value of the Fund's investments
does not decline as anticipated, or if the value of the option does not
increase, the Fund's loss will be limited to the premium paid for the option.
The success of this strategy will largely depend on the accuracy of the
correlation between the changes in value of the index and the changes in value
of the Fund's security holdings.
A Fund may also write put or call options on securities indices to,
among other things, earn income. If the value of the chosen index declines below
the exercise price of the put option, the Fund has the risk of loss of the
amount of the difference between the exercise price and the closing level of the
chosen index, which it would be required to pay to the buyer of the put option
and which may not be offset by the premium it received upon sale of the put
option. Similarly, if the value of the index is higher than the exercise price
of the call option, the Fund has the risk of loss of the amount of the
difference between the exercise price and the closing level of the chosen index,
which may not be offset by the premium it received upon sale of the call option.
If the decline or increase in the value securities index is significantly below
or above the exercise price of the written option, the Fund could experience a
substantial loss.
The purchase of call options on securities indices may be used by a
Fund to attempt to reduce the risk of missing a broad market advance, or an
advance in an industry or market segment, at a time when the Fund holds
uninvested cash or short-term debt securities awaiting investment. When
purchasing call options for this purpose, the Fund will also bear the risk of
losing all or a portion of the premium paid if the value of the index does not
rise. The purchase of call options on stock indices when a Fund is substantially
fully invested is a form of leverage, up to the amount of the premium and
related transaction costs, and involves risks of loss and of increased
volatility similar to those involved in purchasing call options on securities
the Fund owns.
-- Other Option Strategies. In an effort to earn extra income, to
adjust exposure to individual securities or markets, or to protect all or a
portion of its portfolio from a decline in value, sometimes within certain
ranges, Tax-Aware may use option strategies such as the concurrent purchase of a
call or put option, including on individual securities and stock indices,
futures contracts (including on individual securities and stock indices) or
shares of exchange-traded funds ("ETFs") at one strike price and the writing of
a call or put option on the same individual security, stock index, futures
contract or ETF at a higher strike price in the case of a call option or at a
lower strike price in the case of a put option. The maximum profit from this
strategy would result for the call options from an increase in the value of the
individual security, stock index, futures contract or ETF above the higher
strike price or for the put options the decline in the value of the individual
security, stock index, futures contract or ETF below the lower strike price. If
the price of the individual security, stock index, futures contract or ETF
declines in the case of the call option or increases in the case of the put
option, the Fund has the risk of losing the entire amount paid for the call or
put options.
-- Options on Foreign Currencies. A Fund may purchase and write
options on foreign currencies for hedging or non-hedging purposes. For example,
a decline in the dollar value of a foreign currency in which portfolio
securities are denominated will reduce the dollar value of such securities, even
if their value in the foreign currency remains constant. In order to protect
against such diminutions in the value of portfolio securities, the Fund may
purchase put options on the foreign currency. If the value of the currency does
decline, the Fund will have the right to sell such currency for a fixed amount
in dollars and could thereby offset, in whole or in part, the adverse effect on
its portfolio which otherwise would have resulted.
Conversely, where a rise in the dollar value of a currency in which
securities to be acquired are denominated is projected, thereby increasing the
cost of such securities, a Fund may purchase call options thereon. The purchase
of such options could offset, at least partially, the effects of the adverse
movements in exchange rates. As in the case of other types of options, however,
the benefit to the Fund from purchases of foreign currency options will be
reduced by the amount of the premium and related transaction costs. In addition,
where currency exchange rates do not move in the direction or to the extent
anticipated, the Fund could sustain losses on transactions in foreign currency
options which would require it to forgo a portion or all of the benefits of
advantageous changes in such rates.
A Fund may write options on foreign currencies for hedging purposes
or to increase return. For example, where a Fund anticipates a decline in the
dollar value of non-U.S. Dollar-denominated securities due to adverse
fluctuations in exchange rates, it could, instead of purchasing a put option,
write a call option on the relevant currency. If the expected decline occurs,
the option will most likely not be exercised, and the diminution in value of
portfolio securities could be offset by the amount of the premium received.
Similarly, instead of purchasing a call option to hedge against an
anticipated increase in the dollar cost of securities to be acquired, a Fund
could write a put option on the relevant currency, which, if rates move in the
manner projected, will expire unexercised and allow the Fund to hedge such
increased cost up to the amount of the premium. As in the case of other types of
options, however, the writing of a foreign currency option will constitute only
a partial hedge up to the amount of the premium, and only if rates move in the
expected direction. If this does not occur, the option may be exercised and the
Fund will be required to purchase or sell the underlying currency at a loss
which may not be offset by the amount of the premium. Through the writing of
options on foreign currencies, the Fund also may be required to forgo all or a
portion of the benefits that might otherwise have been obtained from favorable
movements in exchange rates.
In addition to using options for the hedging purposes described
above, a Fund may also invest in options on foreign currencies for non-hedging
purposes as a means of making direct investments in foreign currencies. A Fund
may use options on currency to seek to increase total return when the Adviser
anticipates that a foreign currency will appreciate or depreciate in value but
securities denominated in that currency are not held by the Fund and do not
present attractive investment opportunities. For example, the Fund may purchase
call options in anticipation of an increase in the market value of a currency. A
Fund would ordinarily realize a gain if, during the option period, the value of
such currency exceeded the sum of the exercise price, the premium paid and
transaction costs. Otherwise, the Fund would realize no gain or a loss on the
purchase of the call option. Put options may be purchased by a Fund for the
purpose of benefiting from a decline in the value of a currency that the Fund
does not own. A Fund would normally realize a gain if, during the option period,
the value of the underlying currency decreased below the exercise price
sufficiently to more than cover the premium and transaction costs. Otherwise,
the Fund would realize no gain or loss on the purchase of the put option. For
additional information on the use of options on foreign currencies for
non-hedging purposes, see "Currency Transactions" below.
Special Risks Associated with Options on Currencies. An
exchange-traded options position may be closed out only on an options exchange
that provides a secondary market for an option of the same series. Although a
Fund will generally purchase or sell options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on
an exchange will exist for any particular option, or at any particular time. For
some options, no secondary market on an exchange may exist. In such event, it
might not be possible to effect closing transactions in particular options, with
the result that the Fund would have to exercise its options in order to realize
any profit and would incur transaction costs on the sale of the underlying
currency.
-- Futures Contracts and Options on Futures Contracts. Futures
contracts that a Fund may buy and sell may include futures contracts on
fixed-income or other securities, and contracts based on interest rates, foreign
currencies or financial indices, including any index of U.S. Government
securities. A Fund may, for example, purchase or sell futures contracts and
options thereon to hedge against changes in interest rates, securities (through
index futures or options) or currencies.
Interest rate futures contracts are purchased or sold for hedging
purposes to attempt to protect against the effects of interest rate changes on a
Fund's current or intended investments in fixed-income securities. For example,
if a Fund owned long-term bonds and interest rates were expected to increase,
that Fund might sell interest rate futures contracts. Such a sale would have
much the same effect as selling some of the long-term bonds in that Fund's
portfolio. However, since the futures market is more liquid than the cash
market, the use of interest rate futures contracts as a hedging technique allows
a Fund to hedge its interest rate risk without having to sell its portfolio
securities. If interest rates were to increase, the value of the debt securities
in the portfolio would decline, but the value of that Fund's interest rate
futures contracts would be expected to increase at approximately the same rate,
thereby keeping the net asset value ("NAV") of that Fund from declining as much
as it otherwise would have. On the other hand, if interest rates were expected
to decline, interest rate futures contracts could be purchased to hedge in
anticipation of subsequent purchases of long-term bonds at higher prices.
Because the fluctuations in the value of the interest rate futures contracts
should be similar to those of long-term bonds, a Fund could protect itself
against the effects of the anticipated rise in the value of long-term bonds
without actually buying them until the necessary cash becomes available or the
market has stabilized. At that time, the interest rate futures contracts could
be liquidated and that Fund's cash reserves could then be used to buy long-term
bonds on the cash market.
A Fund may purchase and sell foreign currency futures contracts for
hedging purposes in order to protect against fluctuations in currency exchange
rates. Such fluctuations could reduce the dollar value of portfolio securities
denominated in foreign currencies, or increase the cost of non-U.S.
Dollar-denominated securities to be acquired, even if the value of such
securities in the currencies in which they are denominated remains constant. A
Fund may sell futures contracts on a foreign currency, for example, when it
holds securities denominated in such currency and it anticipates a decline in
the value of such currency relative to the dollar. If such a decline were to
occur, the resulting adverse effect on the value of non-U.S. Dollar-denominated
securities may be offset, in whole or in part, by gains on the futures
contracts. However, if the value of the foreign currency increases relative to
the dollar, a Fund's loss on the foreign currency futures contract may or may
not be offset by an increase in the value of the securities because a decline in
the price of the security stated in terms of the foreign currency may be greater
than the increase in value as a result of the change in exchange rates.
Conversely, a Fund could protect against a rise in the dollar cost
of non-U.S. Dollar-denominated securities to be acquired by purchasing futures
contracts on the relevant currency, which could offset, in whole or in part, the
increased cost of such securities resulting from a rise in the dollar value of
the underlying currencies. When a Fund purchases futures contracts under such
circumstances, however, and the price in dollars of securities to be acquired
instead declines as a result of appreciation of the dollar, the Fund will
sustain losses on its futures position which could reduce or eliminate the
benefits of the reduced cost of portfolio securities to be acquired.
A Fund may also engage in currency "cross hedging" when, in the
opinion of the Adviser, the historical relationship among foreign currencies
suggests that a Fund may achieve protection against fluctuations in currency
exchange rates similar to that described above at a reduced cost through the use
of a futures contract relating to a currency other than the U.S. Dollar or the
currency in which the foreign security is denominated. Such "cross hedging" is
subject to the same risks as those described above with respect to an
unanticipated increase or decline in the value of the subject currency relative
to the U.S. Dollar.
A Fund may also use foreign currency futures contracts and options
on such contracts for non-hedging purposes. Similar to options on currencies
described above, a Fund may use foreign currency futures contracts and options
on such contracts to seek to increase total return when the Adviser anticipates
that a foreign currency will appreciate or depreciate in value but securities
denominated in that currency are not held by the Fund and do not present
attractive investment opportunities. The risks associated with foreign currency
futures contracts and options on futures contracts are similar to those
associated with options on foreign currencies, as described above. For
additional information on the use of options on foreign currencies for
non-hedging purposes, see "Currency Transactions" below.
Purchases or sales of stock or bond index futures contracts may be
for investment purposes. They may also be used for hedging or risk management
purposes to attempt to protect a Fund's current or intended investments from
broad fluctuations in stock or bond prices. For example, a Fund may sell stock
or bond index futures contracts in anticipation of or during a market decline to
attempt to offset the decrease in market value of the Fund's portfolio that
might otherwise result. If such decline occurs, the loss in value of portfolio
securities may be offset, in whole or in part, by gains on the futures position.
When a Fund is not fully invested in the securities market and anticipates a
significant market advance, it may purchase stock or bond index futures
contracts in order to gain rapid market exposure that may, in whole or in part,
offset increases in the cost of securities that the Fund intends to purchase. As
such purchases are made, the corresponding positions in stock or bond index
futures contracts may be closed out.
Options on futures contracts are options that call for the delivery
of futures contracts upon exercise. Options on futures contracts written or
purchased by a Fund will be traded on U.S. exchanges.
The writing of a call option on a futures contract constitutes a
partial hedge against declining prices of the securities in a Fund's portfolio.
If the futures price at expiration of the option is below the exercise price, a
Fund will retain the full amount of the option premium, which provides a partial
hedge against any decline that may have occurred in the Fund's portfolio
holdings. The writing of a put option on a futures contract constitutes a
partial hedge against increasing prices of the securities or other instruments
required to be delivered under the terms of the futures contract. If the futures
price at expiration of the put option is higher than the exercise price, a Fund
will retain the full amount of the option premium, which provides a partial
hedge against any increase in the price of securities which the Fund intends to
purchase. If a put or call option a Fund has written is exercised, the Fund will
incur a loss which will be reduced by the amount of the premium it receives.
Depending on the degree of correlation between changes in the value of its
portfolio securities and changes in the value of its options on futures
positions, a Fund's losses from exercised options on futures may to some extent
be reduced or increased by changes in the value of portfolio securities.
A Fund may purchase options on futures contracts for hedging
purposes instead of purchasing or selling the underlying futures contracts. For
example, where a decrease in the value of portfolio securities is anticipated as
a result of a projected market-wide decline or changes in interest or exchange
rates, a Fund could, in lieu of selling futures contracts, purchase put options
thereon. In the event that such decrease were to occur, it may be offset, in
whole or in part, by a profit on the option. If the anticipated market decline
were not to occur, the Fund will suffer a loss equal to the price of the put.
Where it is projected that the value of securities to be acquired by a Fund will
increase prior to acquisition due to a market advance or changes in interest or
exchange rates, a Fund could purchase call options on futures contracts, rather
than purchasing the underlying futures contracts. If the market advances, the
increased cost of securities to be purchased may be offset by a profit on the
call. However, if the market declines, the Fund will suffer a loss equal to the
price of the call, but the securities that the Fund intends to purchase may be
less expensive.
-- Credit Default Swap Agreements. The "buyer" in a credit default
swap contract is obligated to pay the "seller" a periodic stream of payments
over the term of the contract in return for a contingent payment upon the
occurrence of a credit event with respect to an underlying reference obligation.
Generally, a credit event means bankruptcy, failure to pay, obligation
acceleration or restructuring. A Fund may be either the buyer or seller in the
transaction. As a seller, the Fund receives a fixed rate of income throughout
the term of the contract, which typically is between one month and ten years,
provided that no credit event occurs. If a credit event occurs, the Fund
typically must pay the contingent payment to the buyer. The contingent payment
will be either (i) the "par value" (full amount) of the reference obligation in
which case the Fund will receive the reference obligation in return, or (ii) an
amount equal to the difference between the par value and the current market
value of the obligation. The value of the reference obligation received by the
Fund as a seller if a credit event occurs, coupled with the periodic payments
previously received, may be less than the full notional value it pays to the
buyer, resulting in a loss of value to the Fund. If the Fund is a buyer and no
credit event occurs, the Fund will lose its periodic stream of payments over the
term of the contract. However, if a credit event occurs, the buyer typically
receives full notional value for a reference obligation that may have little or
no value.
Credit default swaps may involve greater risks than if a Fund had
invested in the reference obligation directly. Credit default swaps are subject
to general market risk, illiquid investments risk and credit risk.
-- Currency Swaps. A Fund may enter into currency swaps for hedging
purposes in an attempt to protect against adverse changes in exchange rates
between the U.S. Dollar and other currencies or for non-hedging purposes as a
means of making direct investments in foreign currencies, as described below
under "Currency Transactions". Currency swaps involve the exchange by the Fund
with another party of a series of payments in specified currencies. Currency
swaps may involve the exchange of actual principal amounts of currencies by the
counterparties at the initiation and again upon termination of the transaction.
Currency swaps may be bilaterally and privately negotiated, with the Fund
expecting to achieve an acceptable degree of correlation between its portfolio
investments and its currency swaps positions. The Funds will not enter into any
currency swap unless the credit quality of the unsecured senior debt or the
claims-paying ability of the counterparty thereto is rated in the highest
short-term rating category of at least one nationally recognized statistical
rating organization ("NRSRO") at the time of entering into the transaction.
-- Swaps: Interest Rate Transactions. A Fund may enter into interest
rate swap, swaption and cap or floor transactions, which may include preserving
a return or spread on a particular investment or portion of its portfolio or
protecting against an increase in the price of securities the Fund anticipates
purchasing at a later date. Unless there is a counterparty default, the risk of
loss to a Fund from interest rate transactions is limited to the net amount of
interest payments that the Fund is contractually obligated to make. If the
counterparty to an interest rate transaction defaults, the Fund's risk of loss
consists of the net amount of interest payments that the Fund is contractually
entitled to receive.
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) computed based on a
contractually-based principal (or "notional") amount.
An option on a swap agreement, also called a "swaption", is an
option that gives the buyer the right, but not the obligation, to enter into a
swap on a future date in exchange for paying a market-based "premium". A
receiver swaption gives the owner the right to receive the total return of a
specified asset, reference rate, or index. A payer swaption gives the owner the
right to pay the total return of a specified asset, reference rate, or index.
Swaptions also include options that allow an existing swap to be terminated or
extended by one of the counterparties.
Interest rate caps and floors are similar to options in that the
purchase of an interest rate cap or floor entitles the purchaser, to the extent
that a specified index exceeds (in the case of a cap) or falls below (in the
case of a floor) a predetermined interest rate, to receive payments of interest
on a notional amount from the party selling the interest rate cap or floor.
It may be more difficult for a Fund to trade or close out interest
rate caps and floors in comparison to other types of swaps. These transactions
do not involve the delivery of securities or other underlying assets or
principal. A Fund will enter into bilateral swap agreements, including interest
rate swap, swaption, cap or floor transactions only with counterparties who have
credit ratings of at least A- (or the equivalent) from any one NRSRO or
counterparties with guarantors with debt securities having such a rating. For
cleared interest rate swaps, the Adviser will monitor the creditworthiness of
each of the central clearing counterparty, clearing broker and executing broker
but there will be no prescribed NRSRO rating requirements for these entities.
-- Inflation (CPI) Swaps. Inflation swap agreements are contracts in
which one party agrees to pay the cumulative percentage increase in a price
index (the Consumer Price Index with respect to CPI swaps) over the term of the
swap (with some lag on the inflation index), and the other pays a compounded
fixed rate. Inflation swap agreements may be used to protect the NAV of the Fund
against an unexpected change in the rate of inflation measured by an inflation
index since the value of these agreements is expected to increase if unexpected
inflation increases.
-- Total Return Swaps. A Fund may enter into total return swaps in
order to take a "long" or "short" position with respect to an underlying
referenced asset. The Fund is subject to market price volatility of the
underlying referenced asset. A total return swap involves commitments to pay
interest in exchange for a market linked return based on a notional amount. To
the extent that the total return of the security group of securities or index
underlying the transaction exceeds or falls short of the offsetting interest
obligation, the Fund will receive a payment from or make a payment to the
counterparty.
-- Variance and Correlation Swaps. A Fund, except Tax-Aware, may
enter into variance or correlation swaps in an attempt to hedge equity market
risk or adjust exposure to the equity markets. Variance swaps are contracts in
which two parties agree to exchange cash payments based on the difference
between the stated level of variance and the actual variance realized on an
underlying asset or index. Actual "variance" as used here is defined as the sum
of the square of the returns on the reference asset or index (which in effect is
a measure of its "volatility") over the length of the contract term. The parties
to a variance swap can be said to exchange actual volatility for a contractually
stated rate of volatility. Correlation swaps are contracts in which two parties
agree to exchange cash payments based on the differences between the stated and
the actual correlation realized on the underlying equity securities within a
given equity index. "Correlation" as used here is defined as the weighted
average of the correlations between the daily returns of each pair of securities
within a given equity index. If two assets are said to be closely correlated, it
means that their daily returns vary in similar proportions or along similar
trajectories.
Special Risks Associated with Swaps. Risks may arise as a result of
the failure of the counterparty to a bilateral swap contract to comply with the
terms of the swap contract. The loss incurred by the failure of a counterparty
is generally limited to the net interim payment to be received by a Fund, and/or
the termination value at the end of the contract. Therefore, the Fund considers
the creditworthiness of the counterparty to a bilateral swap contract. The risk
is mitigated by having a netting arrangement between the Fund and the
counterparty and by the posting of collateral by the counterparty to the Fund to
cover the Fund's exposure to the counterparty. Certain standardized swaps,
including certain interest rate swaps and credit default swaps, are subject to
mandatory central clearing. Central clearing is expected, among other things, to
reduce counterparty credit risk, but does not eliminate it completely.
Additionally, risks may arise from unanticipated movements in
interest rates or in the value of the underlying securities. The Fund accrues
for the changes in value on swap contracts on a daily basis, with the net amount
recorded within unrealized appreciation/depreciation of swap contracts on the
statement of assets and liabilities. 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 swap contracts. Fluctuations in the value of swap contracts
are recorded as a component of net change in unrealized
appreciation/depreciation of swap contracts on the statement of operations.
-- Eurodollar Instruments. Eurodollar instruments are essentially
U.S. Dollar-denominated futures contracts or options thereon that are linked to
the London Interbank Offered Rate and are subject to the same limitations and
risks as other futures contracts and options.
-- Currency Transactions. A Fund may invest in non-U.S.
Dollar-denominated securities on a currency hedged or un-hedged basis. The
Adviser may actively manage the Fund's currency exposures and 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 contracts and options on futures contracts, swaps and
options. The Adviser may enter into transactions for investment opportunities
when it anticipates that a foreign currency will appreciate or depreciate in
value but securities denominated in that currency are not held by the Fund and
do not present attractive investment opportunities. Such transactions may also
be used when the Adviser believes that it may be more efficient than a direct
investment in a foreign currency-denominated security. The Funds 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).
Event-Linked Securities
-----------------------
Event-linked securities are variable rate or fixed-rate fixed-income
securities or types of equity securities for which the return of principal and
payment of interest are contingent on the non-occurrence of various catastrophe
exposures, which may be specific trigger events or a diversified group of
events, such as hurricanes, typhoons, wind events or earthquakes. The most
common type of fixed-income securities are known as "catastrophe" or "CAT"
bonds. In some cases, the trigger event(s) will not be deemed to have occurred
unless the event(s) happened in a particular geographic area and was of a
certain magnitude (based on independent scientific readings) or caused a certain
amount of actual or modeled loss. If the trigger event(s) occurs prior to the
securities' maturity, the Fund may lose all or a portion of its principal and
forgo additional interest.
These securities may have a special condition that states that if
the issuer (i.e., an insurance or reinsurance company) suffers a loss from a
particular pre-defined catastrophe, then the issuer's obligation to pay interest
and/or repay the principal is either deferred or completely forgiven. For
example, if a Fund holds a fixed-income security that covers an insurer's losses
due to a hurricane with a "trigger" at $1 billion and a hurricane hits causing
$1 billion or more in losses to such insurer, then the Fund will lose all or a
portion of its principal invested in the security and forgo any future interest
payments. If the trigger event(s) does not occur, the Fund will recover its
principal plus interest. Interest typically accrues and is paid on a quarterly
basis. Although principal typically is repaid only on the maturity date, it may
be repaid in installments, depending on the terms of the securities.
Event-linked securities may be issued by government agencies,
insurance companies, reinsurers, special purpose companies or other on-shore or
off-shore entities. Event-linked securities are a relatively new type of
financial instrument. As a result, there is no significant trading history of
these securities and these securities may be illiquid or the markets for these
instruments may not be liquid at all times. These securities may be rated,
generally below investment grade or the unrated equivalent, and have the same or
equivalent risks as higher yield debt securities ("junk bonds"). The rating
primarily reflects the rating agency's calculated probability that a pre-defined
trigger event will occur as well as the overall expected loss to the principal
of the security.
Forward Commitments and When-Issued and Delayed Delivery Securities
-------------------------------------------------------------------
Forward commitments for the purchase or sale of securities may
include purchases on a "when-issued" basis or purchases or sales on a "delayed
delivery" basis. In some cases, a forward commitment may be conditioned upon the
occurrence of a subsequent event, such as approval and consummation of a merger,
corporate reorganization or debt restructuring (i.e., a "when, as and if issued"
trade). When forward commitment transactions are negotiated, the price is fixed
at the time the commitment is made. The Fund assumes the rights and risks of
ownership of the security, but does not pay for the securities until they are
received. If a Fund is fully or almost fully invested when forward commitment
purchases are outstanding, such purchases may result in a form of leverage.
Leveraging the portfolio in this manner may increase the Fund's volatility of
returns.
When-issued securities and forward commitments may be sold prior to
the settlement date. If the Fund chooses to dispose of the right to acquire a
when-issued security prior to its acquisition or dispose of its right to deliver
or receive against a forward commitment, it may incur a gain or loss. Any
significant commitment of Fund assets to the purchase of securities on a "when,
as and if issued" basis may increase the volatility of the Fund's NAV.
The use of forward commitments enables a Fund to protect against
anticipated changes in exchange rates, interest rates and/or prices. For
instance, a Fund may enter into a forward contract when it enters into a
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. Dollar price of the security
("transaction hedge"). In addition, when a Fund believes that a foreign currency
may suffer a substantial decline against the U.S. Dollar, it may enter into a
forward sale contract to sell an amount of that foreign currency approximating
the value of some or all of that Fund's securities denominated in such foreign
currency, or when the Fund believes that the U.S. Dollar may suffer a
substantial decline against a foreign currency, it may enter into a forward
purchase contract to buy that foreign currency for a fixed dollar amount
("position hedge"). If the Adviser were to forecast incorrectly the direction of
exchange rate movements, a Fund might be required to complete such when-issued
or forward transactions at prices inferior to the then current market values.
Forward commitments include "To be announced" ("TBA")
mortgage-backed securities, which are contracts for the purchase or sale of
mortgage-backed securities to be delivered at a future agreed-upon date, whereby
the specific mortgage pool number 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. Subsequent to the time of the trade, a mortgage pool or pools
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, (including fixed-rate or variable-rate mortgages) are
allocated to the TBA mortgage-backed securities transactions.
At the time a Fund intends to enter into a forward commitment, it
will record the transaction and thereafter reflect the value of the security
purchased or, if a sale, the proceeds to be received, in determining its NAV.
Any unrealized appreciation or depreciation reflected in such valuation of a
"when, as and if issued" security would be canceled in the event that the
required conditions did not occur and the trade was canceled.
Purchases of securities on a forward commitment or when-issued basis
may involve more risk than other types of purchases. For example, by committing
to purchase securities in the future, a Fund subjects itself to a risk of loss
on such commitments as well as on its portfolio securities. Also, a Fund may
have to sell assets which have been set aside in order to meet redemptions. In
addition, if a Fund determines it is advisable as a matter of investment
strategy to sell the forward commitment or "when-issued" or "delayed delivery"
securities before delivery, that Fund may incur a gain or loss because of market
fluctuations since the time the commitment to purchase such securities was made.
Any such gain or loss would be treated as a capital gain or loss for tax
purposes. When the time comes to pay for the securities to be purchased under a
forward commitment or on a "when-issued" or "delayed delivery" basis, the Fund
will meet its obligations from the then available cash flow or the sale of
securities, or, although it would not normally expect to do so, from the sale of
the forward commitment or "when-issued" or "delayed delivery" securities
themselves (which may have a value greater or less than the Fund's payment
obligation). No interest or dividends accrue to the purchaser prior to the
settlement date for securities purchased or sold under a forward commitment. In
addition, in the event the other party to the transaction files for bankruptcy,
becomes insolvent, or defaults on its obligation, a Fund may be adversely
affected.
Illiquid Securities
-------------------
A Fund will not invest in illiquid securities if immediately after
such investment more than 15% of the Fund's net assets would be invested in such
securities. For this purpose, illiquid securities include, among others, (a)
direct placements or other securities which are subject to legal or contractual
restrictions on resale or for which there is no readily available market (e.g.,
trading in the security is suspended or, in the case of unlisted securities,
market makers do not exist or will not entertain bids or offers), (b) options
purchased by a Fund OTC and the cover for options written by the Fund OTC, and
(c) repurchase agreements not terminable within seven days. Securities that have
legal or contractual restrictions on resale but have a readily available market
are not deemed illiquid for purposes of this limitation.
Mutual funds do not typically hold a significant amount of
restricted securities (securities that are subject to restrictions on resale to
the general public) or other illiquid securities because of the potential for
delays on resale and uncertainty in valuation. Limitations on resale may have an
adverse effect on the marketability of portfolio securities and a mutual fund
might be unable to dispose of restricted or other illiquid securities promptly
or at reasonable prices and might thereby experience difficulty satisfying
redemptions within seven days. A mutual fund may also have to take certain steps
or wait a certain amount of time in order to remove the transfer restrictions
for such restricted securities in order to dispose of them, resulting in
additional expense and delay.
Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act") allows a broader institutional trading market for securities
otherwise subject to restriction on resale to the general public. Rule 144A
establishes a "safe harbor" from the registration requirements of the Securities
Act for resales of certain securities to qualified institutional buyers ("Rule
144A Securities"). To the extent permitted by applicable law, Rule 144A
Securities will not be treated as illiquid for purposes of the foregoing
restriction so long as such securities meet the liquidity guidelines established
by the Board. Pursuant to these guidelines, the Adviser will monitor the
liquidity of a Fund's investment in Rule 144A Securities. An insufficient number
of qualified institutional buyers interested in purchasing certain restricted
securities held by a Fund, however, could affect adversely the marketability of
such portfolio securities and the Fund might be unable to dispose of such
securities promptly or at reasonable prices.
The Adviser, acting under the oversight of the Board, will monitor
the liquidity of restricted securities in a Fund that are eligible for resale
pursuant to Rule 144A. In reaching liquidity decisions, the Adviser will
consider, among others, the following factors: (1) the frequency of trades and
quotes for the security; (2) the number of dealers issuing quotations to
purchase or sell the security; (3) the number of other potential purchasers of
the security; (4) the number of dealers undertaking to make a market in the
security; (5) the nature of the security (including its unregistered nature) and
the nature of the marketplace for the security (e.g., the time needed to dispose
of the security, the method of soliciting offers and the mechanics of the
transfer); and (6) any applicable SEC interpretation or position with respect to
such type of securities.
Insurance Feature
-----------------
The insurance feature is generally described in the Prospectus under
"Additional Information about the Funds' Risks and Investments--Insured
Securities."
Tax-Aware may obtain insurance on its municipal bonds or purchase
insured municipal bonds covered by policies issued by monoline insurance
companies. Currently, only Assured Guaranty Municipal Corp. ("AGM") is writing
policies on newly issued municipal bonds. AGM (formerly, Financial Security
Assurance Holdings Ltd.) is an indirect subsidiary of Assured Guaranty Ltd.
("Assured"). Prior to the 2008 financial crisis, there were several other
insurers writing policies on municipal bonds, but the ratings of these insurers
have been severely downgraded and, while they are still insuring municipal bonds
under policies written prior to the financial crisis, they are no longer writing
new policies. As noted above, most of these insurers have been downgraded and it
is possible that additional downgrades may occur. Moody's Investors Service,
Inc. ("Moody's") and S&P Global Ratings ("S&P") ratings reflect the respective
rating agency's current assessment of the creditworthiness of each insurer and
its ability to pay claims on its policies of insurance. Any further explanation
as to the significance of the ratings may be obtained only from the applicable
rating agency. The ratings are not recommendations to buy, sell or hold the
municipal bonds, and such ratings may be subject to revision or withdrawal at
any time by the rating agencies. Any downward revision or withdrawal of either
or both ratings may have an adverse effect on the market price of the municipal
bonds.
It should be noted that insurance is not a substitute for the basic
credit of an issuer, but supplements the existing credit and provides additional
security therefore. Moreover, while insurance coverage for the municipal
securities held by Tax-Aware may reduce credit risk, it does not protect against
market fluctuations caused by changes in interest rates and other factors. As a
result of declines in the credit quality and associated downgrades of most fund
insurers, insurance has less value than it did in the past. The market now
values insured municipal securities primarily based on the credit quality of the
issuer of the security with little value given to the insurance feature. In
purchasing insured municipal securities, the Adviser currently evaluates the
risk and return of such securities through its own research.
Investment in Exchange-Traded Funds and Other Investment Companies
------------------------------------------------------------------
The Funds may invest in shares of ETFs, subject to the restrictions
and limitations of the 1940 Act, or any applicable rules, exemptive orders or
regulatory guidance. ETFs are pooled investment vehicles, which may be managed
or unmanaged, that generally seek to track the performance of a specific index.
ETFs will not track their underlying indices precisely since the ETFs have
expenses and may need to hold a portion of their assets in cash, unlike the
underlying indices, and the ETFs may not invest in all of the securities in the
underlying indices in the same proportion as the indices for various reasons.
The Funds will incur transaction costs when buying and selling ETF shares, and
indirectly bear the expenses of the ETFs. In addition, the market value of an
ETF's shares, which is based on supply and demand in the market for the ETF's
shares, may differ from its NAV. Accordingly, there may be times when an ETF's
shares trade at a discount to its NAV.
The Funds may also invest in investment companies other than ETFs,
as permitted by the 1940 Act or the rules and regulations or exemptive orders
thereunder. As with ETF investments, if the Funds acquire shares in other
investment companies, shareholders would bear, indirectly, the expenses of such
investment companies (which may include management and advisory fees), which to
the extent not waived or reimbursed, would be in addition to the Funds'
expenses. The Funds intend to invest uninvested cash balances in an affiliated
money market fund as permitted by Rule 12d1-1 under the 1940 Act. A Fund's
investment in other investment companies, including ETFs, subjects the Fund
indirectly to the underlying risks of those investment companies.
Loans of Portfolio Securities
-----------------------------
A Fund may seek to increase income by lending portfolio securities
to brokers, dealers, and financial institutions ("borrowers") to the extent
permitted under the 1940 Act or the rules or regulations thereunder (as such
statute, rules, or regulations may be amended from time to time) or by guidance
regarding, interpretations of, or exemptive orders under, the 1940 Act.
Generally, under the securities lending program, all securities loans will be
secured continually by cash collateral. A principal risk in lending portfolio
securities is that the borrower will fail to return the loaned securities upon
termination of the loan and, that the collateral will not be sufficient to
replace the loaned securities upon the borrower's default. In determining
whether to lend securities to a particular borrower, the Adviser (subject to the
oversight of the Board) will consider all relevant facts and circumstances,
including the creditworthiness of the borrower. The loans would be made only to
firms deemed by the Adviser to be creditworthy and when, in the judgment of the
Adviser, the consideration that can be earned currently from securities loans of
this type justifies the attendant risk. The Fund will be compensated for the
loan from a portion of the net return from the interest earned on the cash
collateral after a rebate paid to the borrower (which may be a negative amount -
i.e., the borrower may pay a fee to the Fund in connection with the loan) and
payments for fees paid to the securities lending agent and for certain other
administrative expenses.
A Fund will have the right to call a loan and obtain the securities
loaned on notice to the borrower within the normal and customary settlement time
for the securities. While securities are on loan, the borrower is obligated to
pay the Fund amounts equal to any income or other distribution from the
securities.
A Fund will invest any cash collateral from its securities lending
activities in shares of an affiliated money market fund managed by the Adviser
and approved by the Board. Any such investment of cash collateral will be
subject to the money market fund's investment risk. The Fund may pay reasonable
finders', administrative, and custodial fees in connection with a loan.
A Fund will not have the right to vote any securities having voting
rights during the existence of the loan. The Fund will have the right to regain
record ownership of loaned securities or equivalent securities in order to
exercise voting or ownership rights. When the Fund lends its securities, its
investment performance will continue to reflect the value of securities on loan.
Loan Participations and Assignments
-----------------------------------
A Fund may invest in direct debt instruments, which are interests in
amounts owed to lenders or lending syndicates by corporate, governmental, or
other borrowers ("Loans") either by participating as co-lender at the time the
loan is originated ("Participations") or by buying an interest in the loan in
the secondary market from a financial institution or institutional investor
("Assignments"). The financial status of an institution interposed between a
Fund and a borrower may affect the ability of the Fund to receive principal and
interest payments.
A Fund's investment may depend on the skill with which an agent bank
administers the terms of the corporate loan agreements, monitors borrower
compliance with covenants, collects principal, interest and fee payments from
borrowers and, where necessary, enforces creditor remedies against borrowers.
Agent banks typically have broad discretion in enforcing loan agreements.
A Fund's investment in Participations typically will result in the
Fund having a contractual relationship only with the financial institution
arranging the Loan with the borrower (the "Lender") and not with the borrower
directly. A Fund will have the right to receive payments of principal, interest
and any fees to which it is entitled only from the Lender selling the
Participation and only upon receipt by the Lender of the payments from the
borrower. In connection with purchasing Participations, the Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan
agreement relating to the Loan, nor any rights of set-off against the borrower,
and the Fund may not directly benefit from any collateral supporting the Loan in
which it has purchased the Participation. As a result, the Fund may be subject
to the credit risk of both the borrower and the Lender that is selling the
Participation. In the event of the insolvency of the Lender selling a
Participation, the Fund may be treated as a general creditor of the Lender and
may not benefit from any set-off between the Lender and the borrower. Certain
Participations may be structured in a manner designed to avoid purchasers of
Participations being subject to the credit risk of the Lender with respect to
the Participation; but even under such a structure, in the event of the Lender's
insolvency, the Lender's servicing of the Participation may be delayed and the
assignability of the Participation impaired. A Fund will acquire Participations
only if the Lender interpositioned between the Fund and the borrower is a Lender
having total assets of more than $25 billion and whose senior unsecured debt is
rated investment grade or higher.
When a Fund purchases Assignments from Lenders it will typically
acquire direct rights against the borrower on a Loan. Because Assignments are
arranged through private negotiations between potential assignees and potential
assignors, however, the rights and obligations acquired by the Fund as the
purchaser of an assignment may differ from, and be more limited than, those held
by the assigning Lender. The assignability of certain obligations is restricted
by the governing documentation as to the nature of the assignee such that the
only way in which the Fund may acquire an interest in a Loan is through a
Participation and not an Assignment.
Loans in which a Fund may invest include participations in "bridge
loans", which are loans taken out by borrowers for a short period (typically
less than six months) pending arrangement of more permanent financing through,
for example, the issuance of bonds, frequently high-yield bonds issued for the
purpose of an acquisition. A Fund may also participate in unfunded loan
commitments, which are contractual obligations for future funding, and receive a
commitment fee based on the amount of the commitment.
A Fund may have difficulty disposing of Assignments and
Participations because in order to do so it will have to assign such securities
to a third party. Because there is no liquid market for such securities, the
Fund anticipates that such securities could be sold only to a limited number of
institutional investors. The lack of a liquid secondary market may have an
adverse impact on the value of such securities and the Fund's ability to dispose
of particular Assignments or Participations when necessary to meet the Fund's
liquidity needs in response to a specific economic event such as a deterioration
in the creditworthiness of the borrower. The lack of a liquid secondary market
for Assignments and Participations also may make it more difficult for the Fund
to assign a value to these securities for purposes of valuing the Fund's
portfolio and calculating its asset value.
Mortgage-Related Securities, Other Asset-Backed Securities and Structured
-------------------------------------------------------------------------
Financings
----------
The mortgage-related securities in which a Fund may invest typically
are securities representing interests in pools of mortgage loans made by lenders
such as savings and loan associations, mortgage bankers and commercial banks and
are assembled for sale to investors (such as the Funds) by governmental,
government-related or private organizations. Private organizations include
commercial banks, savings associations, mortgage companies, investment banking
firms, finance companies, special purpose finance entities (called special
purpose vehicles or SPVs) and other entities that acquire and package loans for
resale as mortgage-related securities. Specifically, these securities may
include pass-through mortgage-related securities, collateralized mortgage
obligations ("CMOs"), CMO residuals, adjustable-rate mortgage securities
("ARMS"), stripped mortgage-backed securities ("SMBSs"), commercial
mortgage-backed securities ("CMBS"), TBA mortgage-backed securities, mortgage
dollar rolls, collateralized obligations and other securities that directly or
indirectly represent a participation in or are secured by and payable from
mortgage loans on real property and other assets.
Pass-Through Mortgage-Related Securities. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment consisting of both interest and principal
payments. In effect, these payments are a "pass-through" of the monthly payments
made by the individual borrowers on their residential mortgage loans, net of any
fees paid to the issuer or guarantor of such securities. Additional payments are
caused by repayments of principal resulting from the sale of the underlying
residential property, refinancing or foreclosure, net of fees or costs that may
be incurred. Some mortgage-related securities, such as securities issued by
GNMA, are described as "modified pass-through". These securities entitle the
holder to receive all interest and principal payments owed on the mortgage pool,
net of certain fees, regardless of whether or not the mortgagor actually makes
the payment.
The average life of pass-through pools varies with the maturities of
the underlying mortgage instruments. In addition, a pool's term may be shortened
by unscheduled or early payments of principal and interest on the underlying
mortgages. The occurrence of mortgage prepayments is affected by factors
including the level of interest rates, general economic conditions, the location
and age of the mortgage and other social and demographic conditions. As
prepayment rates of individual pools vary widely, it is not possible to
accurately predict the average life of a particular pool. For pools of
fixed-rate, 30-year mortgages, common industry practice is to assume that
prepayments will result in a 12-year average life. Pools of mortgages with other
maturities or different characteristics will have varying average life
assumptions. The assumed average life of pools of mortgages having terms of less
than 30 years, is less than 12 years, but typically not less than 5 years.
Yields on pass-through securities are typically quoted by investment
dealers and vendors based on the maturity of the underlying instruments and the
associated average life assumption. In periods of falling interest rates, the
rate of prepayment tends to increase, thereby shortening the actual average life
of a pool of mortgage-related securities. Conversely, in periods of rising
interest rates the rate of prepayment tends to decrease, thereby lengthening the
actual average life of the pool. Historically, actual average life has been
consistent with the 12-year assumption referred to above. Actual prepayment
experience may cause the yield to differ from the assumed average life yield.
Reinvestment of prepayments may occur at higher or lower interest rates than the
original investment, thus affecting the yield of the Fund. The compounding
effect from reinvestment of monthly payments received by the Fund will increase
the yield to shareholders compared with bonds that pay interest semi-annually.
The principal governmental (i.e., backed by the full faith and
credit of the U.S. Government) guarantor of mortgage-related securities is GNMA.
GNMA is a wholly-owned U.S. Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of Federal Housing Administration-insured or U.S. Department of Veterans
Affairs-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of
the U.S. Government) guarantors include FNMA and FHLMC. FNMA and FHLMC are
government-sponsored corporations or corporate instrumentalities of the U.S.
Government respectively (government-sponsored entities or "GSEs"), which were
owned entirely by private stockholders until 2008 when they were placed in
conservatorship by the U.S. Government. After being placed in conservatorship,
the GSEs issued senior preferred stock and common stock to the U.S. Department
of the Treasury ("U.S. Treasury") in an amount equal to 79.9% of each GSE in
return for certain funding and liquidity arrangements. The GSEs continue to
operate as going concerns while in conservatorship and each remains liable for
all of its obligations associated with its mortgage-backed securities. The U.S.
Treasury provided additional funding to the GSEs, but the GSEs have paid
dividends to the U.S. Treasury in a cumulative amount that exceeds the payments
made to the GSEs by the U.S. Treasury since 2008. The future of the GSEs is
unclear as Congress is considering whether to adopt legislation that would
severely restrict or even terminate their operations. FNMA purchases residential
mortgages from a list of approved seller/servicers which include state and
federally-chartered savings and loan associations, mutual savings banks,
commercial banks and credit unions and mortgage bankers. Pass-through securities
issued by FNMA are guaranteed as to timely payment of principal and interest by
FNMA. Participation certificates issued by FHLMC, which represent interests in
mortgages from FHLMC's national portfolio, are guaranteed by FHLMC as to the
timely payment of interest and ultimate collection of principal.
Commercial banks, savings and loan associations, private mortgage
insurance companies, mortgage bankers and other secondary market issuers create
pass-through pools of conventional residential mortgage loans. Securities
representing interests in pools created by non-governmental private issuers
generally offer a higher rate of interest than securities representing interests
in pools created by governmental issuers because there are no direct or indirect
governmental guarantees of the underlying mortgage payments. However, private
issuers sometimes obtain committed loan facilities, lines of credit, letters of
credit, surety bonds or other forms of liquidity and credit enhancement to
support the timely payment of interest and principal with respect to their
securities if the borrowers on the underlying mortgages fail to make their
mortgage payments. The ratings of such non-governmental securities are generally
dependent upon the ratings of the providers of such liquidity and credit support
and would be adversely affected if the rating of such an enhancer were
downgraded.
The structuring of the pass-through pool may also provide credit
enhancement. Examples of such credit support arising out of the structure of the
transaction include the issue of senior and subordinated securities (e.g., the
issuance of securities by a SPV in multiple classes or "tranches", with one or
more classes being senior to other subordinated classes as to payment of
principal and interest, with the result that defaults on the underlying mortgage
loans are borne first by the holders of the subordinated class); creation of
"reserve funds" (in which case cash or investments sometimes funded from a
portion of the payments on the underlying mortgage loans, are held in reserve
against future losses); and "overcollateralization" (in which case the scheduled
payments on, or the principal amount of, the underlying mortgage loans exceeds
that required to make payment of the securities and pay any servicing or other
fees). There can be no guarantee that the credit enhancements, if any will be
sufficient to prevent losses in the event of defaults on the underlying mortgage
loans.
In addition, mortgage-related securities that are issued by private
issuers are not subject to the underwriting requirements for the underlying
mortgages that are applicable to those mortgage-related securities that have a
government or GSE guarantee. As a result, the mortgage loans underlying private
mortgage-related securities may, and frequently do, have less favorable
collateral, credit risk or other underwriting characteristics than government or
government-sponsored, mortgage-related securities and have wider variances in a
number of terms, including interest rate, term, size, purposes and borrower
characteristics. Privately-issued pools more frequently include second
mortgages, high loan-to-value mortgages and manufactured housing loans. The
coupon rates and maturities of the underlying mortgage loans in a private-label,
mortgage-related pool may vary to a greater extent than those included in a
government guaranteed pool, and the pool may include subprime mortgage loans.
Subprime loans refer to loans made to borrowers with weakened credit histories
or with a lower capacity to make timely payments on their loans. For these
reasons, the loans underlying these securities have had in many cases higher
default rates than those loans that meet government underwriting requirements.
Collateralized Mortgage Obligations. Another form of
mortgage-related security is a "pay-through" security, which is a debt
obligation of the issuer secured by a pool of mortgage loans pledged as
collateral that is legally required to be paid by the issuer, regardless of
whether payments are actually made on the underlying mortgages. CMOs are the
predominant type of "pay-through" mortgage-related security. In a CMO, a series
of bonds or certificates is issued in multiple classes. Each class of a CMO,
often referred to as a "tranche", is issued at a specific coupon rate and has a
stated maturity or final distribution date. Principal prepayments on collateral
underlying a CMO may cause one or more tranches of the CMO to be retired
substantially earlier than the stated maturities or final distribution dates of
the collateral. Although payment of the principal of, and interest on, the
underlying collateral securing privately issued CMOs may be guaranteed by GNMA,
FNMA or FHLMC, these CMOs represent obligations solely of the private issuer and
are not insured or guaranteed by GNMA, FNMA, FHLMC, any other governmental
agency or any other person or entity.
Adjustable-Rate Mortgage Securities. ARMS bear interest at a rate
determined by reference to a predetermined interest rate or index. ARMS may be
secured by fixed-rate mortgages or adjustable-rate mortgages. ARMS secured by
fixed-rate mortgages generally have lifetime caps on the coupon rates of the
securities. To the extent that general interest rates increase faster than the
interest rates on the ARMS, these ARMS will decline in value. The
adjustable-rate mortgages that secure ARMS will frequently have caps that limit
the maximum amount by which the interest rate or the monthly principal and
interest payments on the mortgages may increase. These payment caps can result
in negative amortization (i.e., an increase in the balance of the mortgage
loan). Furthermore, since many adjustable-rate mortgages only reset on an annual
basis, the values of ARMS tend to fluctuate to the extent that changes in
prevailing interest rates are not immediately reflected in the interest rates
payable on the underlying adjustable-rate mortgages.
Stripped Mortgage-Related Securities. SMRS are mortgage-related
securities that are usually structured with separate classes of securities
collateralized by a pool of mortgages or a pool of mortgage-backed bonds or
pass-through securities, with each class receiving different proportions of the
principal and interest payments from the underlying assets. A common type of
SMRS has one class of interest-only securities (IOs) receiving all of the
interest payments from the underlying assets and one class of principal-only
securities (POs) receiving all of the principal payments from the underlying
assets. IOs and POs are extremely sensitive to interest rate changes and are
more volatile than mortgage-related securities that are not stripped. IOs tend
to decrease in value as interest rates decrease and are extremely sensitive to
the rate of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal prepayments may have a material
adverse effect on the yield to maturity of the IO class. POs generally increase
in value as interest rates decrease. If prepayments of the underlying mortgages
are greater than anticipated, the amount of interest earned on the overall pool
will decrease due to the decreasing principal balance of the assets. Due to
their structure and underlying cash flows, SMRS may be more volatile than
mortgage-related securities that are not stripped. Changes in the values of IOs
and POs can be substantial and occur quickly, such as occurred in the first half
of 1994 when the value of many POs dropped precipitously due to increases in
interest rates.
A Fund will only invest in SMRS that are issued by the U.S.
Government, its agencies or instrumentalities and supported by the full faith
and credit of the United States or by other U.S. Government sponsored entities.
Although SMRS are purchased and sold by institutional investors through several
investment banking firms acting as brokers or dealers, the complexity of these
instruments and the smaller number of investors in the sector can lend to
illiquid markets in the sector.
Commercial Mortgage-Backed Securities. CMBS are securities that
represent an interest in, or are secured by, mortgage loans secured by
multifamily or commercial properties, such as industrial and warehouse
properties, office buildings, retail space and shopping malls, and cooperative
apartments, hotels and motels, nursing homes, hospitals and senior living
centers. CMBS have been issued in public and private transactions by a variety
of public and private issuers using a variety of structures, some of which were
developed in the residential mortgage context, including multi-class structures
featuring senior and subordinated classes. CMBS may pay fixed or floating rates
of interest. The commercial mortgage loans that underlie commercial
mortgage-related securities have certain distinct risk characteristics.
Commercial mortgage loans generally lack standardized terms, which may
complicate their structure, tend to have shorter maturities than residential
mortgage loans and may not be fully amortizing. Commercial properties themselves
tend to be unique and are more difficult to value than single-family residential
properties. In addition, commercial properties, particularly industrial and
warehouse properties, are subject to environmental risks and the burdens and
costs of compliance with environmental laws and regulations.
Certain Risks. The value of mortgage-related securities is affected
by a number of factors. Unlike traditional debt securities, which have fixed
maturity dates, mortgage-related securities may be paid earlier than expected as
a result of prepayments of underlying mortgages. Such prepayments generally
occur during periods of falling mortgage interest rates. If property owners make
unscheduled prepayments of their mortgage loans, these prepayments will result
in the early payment of the applicable mortgage-related securities. In that
event, the Fund may be unable to invest the proceeds from the early payment of
the mortgage-related securities in investments that provide as high a yield as
the mortgage-related securities. 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. The
level of general interest rates, general economic conditions and other social
and demographic factors affect the occurrence of mortgage prepayments. During
periods of falling interest rates, the rate of mortgage prepayments tends to
increase, thereby tending to decrease the life of mortgage-related securities.
Conversely, during periods of rising interest rates, a reduction in prepayments
may increase the effective life of mortgage-related securities, subjecting them
to greater risk of decline in market value in response to rising interest rates.
If the life of a mortgage-related security is inaccurately predicted, the Fund
may not be able to realize the rate of return it expected.
As with other fixed-income securities, there is also the risk of
nonpayment of mortgage-related securities, particularly for those securities
that are backed by mortgage pools that contain subprime loans. Market factors
adversely affecting mortgage loan repayments include a general economic
downturn, high unemployment, a general slowdown in the real estate market, a
drop in the market prices of real estate, or higher mortgage payments required
to be made by holders of adjustable rate mortgages due to scheduled increases or
increases due to higher interest rates.
Subordinated mortgage-related securities may have additional risks.
The subordinated mortgage-related security may serve as credit support for the
senior securities purchased by other investors. In addition, the payments of
principal and interest on these subordinated securities generally will be made
only after payments are made to the holders of securities senior to the
subordinated securities. Therefore, if there are defaults on the underlying
mortgage loans, the holders of subordinated mortgage-related securities will be
less likely to receive payments of principal and interest and will be more
likely to suffer a loss.
Commercial mortgage-related securities, like all fixed-income
securities, generally decline in value as interest rates rise. Moreover,
although generally the value of fixed-income securities increases during periods
of falling interest rates, this inverse relationship is not as marked in the
case of single-family residential mortgage-related securities, due to the
increased likelihood of prepayments during periods of falling interest rates,
and may not be as marked in the case of commercial mortgage-related securities.
The process used to rate commercial mortgage-related securities may focus on,
among other factors, the structure of the security, the quality and adequacy of
collateral and insurance, and the creditworthiness of the originators, servicing
companies and providers of credit support.
Although the market for mortgage-related securities is becoming
increasingly liquid, those issued by certain private organizations may not be
readily marketable, thus there may be a limited market for these securities,
especially when there is a perceived weakness in the mortgage and real estate
market sectors. In particular, the secondary markets for CMOs, IOs and POs may
be more volatile and less liquid than those for other mortgage-related
securities, thereby potentially limiting a Fund's ability to buy or sell those
securities at any particular time. Without an active trading market,
mortgage-related securities held in a Fund's portfolio may be particularly
difficult to value because of the complexities involved in the value of the
underlying mortgages. In addition, the rating agencies may have difficulties in
rating commercial mortgage-related securities through different economic cycles
and in monitoring such ratings on a longer-term basis.
As with fixed-income securities generally, the value of
mortgage-related securities can also be adversely affected by increases in
general interest rates relative to the yield provided by such securities. Such
an adverse effect is especially possible with fixed-rate mortgage securities. If
the yield available on other investments rises above the yield of the fixed-rate
mortgage securities as a result of general increases in interest rate levels,
the value of the mortgage-related securities will decline.
GSE Risk-Sharing Bonds. Another type of mortgage-related security,
known as GSE Risk-Sharing Bonds or Credit Risk Transfer securities ("CRTs"),
transfers a portion of the risk of borrower defaults from the issuing GSE to
investors through the issuance of a bond whose return of principal is linked to
the performance of a selected pool of mortgages. CRTs are issued by GSEs (and
sometimes banks or mortgage insurers) and structured without any government or
GSE guarantee in respect of borrower defaults or underlying collateral.
Typically, CRTs are issued at par and have stated final maturities. CRTs are
structured so that: (i) interest is paid directly by the issuing GSE and (ii)
principal is paid by the issuing GSE in accordance with the principal payments
and default performance of a certain pool of residential mortgage loans acquired
by the GSE.
The risks associated with an investment in CRTs differ from the
risks associated with an investment in mortgage-backed securities issued by GSEs
because, in CRTs, some or all of the credit risk associated with the underlying
mortgage loans is transferred to the end-investor. As a result, in the event
that a GSE fails to pay principal or interest on a CRT or goes through
bankruptcy, insolvency or similar proceeding, holders of such CRT have no direct
recourse to the underlying mortgage loans.
Other Asset-Backed Securities. A Fund may invest in other
asset-backed securities. The securitization techniques used to develop
mortgage-related securities are being applied to a broad range of financial
assets. Through the use of trusts and special purpose corporations, various
types of assets, including automobile loans and leases, credit card receivables,
home equity loans, equipment leases and trade receivables, are being securitized
in structures similar to the structures used in mortgage securitizations. For
example, the Fund may invest in collateralized debt obligations ("CDOs"), which
include collateralized bond obligations ("CBOs"), collateralized loan
obligations ("CLOs"), and other similarly structured securities. CBOs and CLOs
are types of asset-backed securities. A CBO is a trust, which is backed by a
diversified pool of high-risk, below investment grade fixed-income securities. A
CLO is a trust typically collateralized by a pool of loans, which may include,
among others, domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated below
investment grade or equivalent unrated loans. These asset-backed securities are
subject to risks associated with changes in interest rates, prepayment of
underlying obligations and defaults similar to the risks of investment in
mortgage-related securities discussed above.
Each type of asset-backed security also entails unique risks
depending on the type of assets involved and the legal structure used. For
example, credit card receivables are generally unsecured obligations of the
credit card holder and the debtors are entitled to the protection of a number of
state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts owed on the credit cards, thereby reducing the
balance due. There have also been proposals to cap the interest rate that a
credit card issuer may charge. In some transactions, the value of the
asset-backed security is dependent on the performance of a third party acting as
credit enhancer or servicer. Furthermore, in some transactions (such as those
involving the securitization of vehicle loans or leases) it may be
administratively burdensome to perfect the interest of the security issuer in
the underlying collateral and the underlying collateral may become damaged or
stolen.
Structured Financings. A Fund may invest in fixed-income securities
issued in structured financing transactions, which generally involve aggregating
types of debt assets in a pool or special purpose entity and then issuing new
securities. Types of structured financings include, for example,
mortgage-related real estate and other asset-backed securities. These securities
may be privately-negotiated and are generally not publicly traded and are
illiquid. A Fund's investments include investments in structured securities that
represent interests in entities organized and operated solely for the purpose of
restructuring the investment characteristics of debt obligations. This type of
restructuring involves the deposit with or purchase by an entity, such as a
corporation or trust, of specified instruments (such as commercial bank loans)
and the issuance by that entity of one or more classes of securities
("Structured Securities") backed by, or representing interests in, the
underlying instruments. The cash flow on the underlying instruments may be
apportioned among the newly issued Structured Securities to create securities
with different investment characteristics such as varying maturities, payment
priorities and interest rate provisions, and the extent of the payments made
with respect to Structured Securities is dependent on the extent of the cash
flow on the underlying instruments. Because Structured Securities of the type in
which the Fund anticipates it will invest typically involve no credit
enhancement, their credit risk generally will be equivalent to that of the
underlying instruments.
A Fund is permitted to invest in a class of Structured Securities
that is either subordinated or unsubordinated to the right of payment of another
class. Subordinated Structured Securities typically have higher yields and
present greater risks than unsubordinated Structured Securities.
Under the terms of subordinated securities, payments that would be
made to their holders may be required to be made to the holders of more senior
securities and/or the subordinated or junior securities may have junior liens,
if they have any rights at all, in any collateral (meaning proceeds of the
collateral are required to be paid first to holders of more senior securities).
As a result, subordinated or junior securities will be disproportionately
affected by a default or even a perceived decline in the creditworthiness of the
issuer.
Municipal Securities
--------------------
Tax-Aware will invest in municipal securities. Municipal securities
include municipal bonds as well as short-term (i.e., maturing in under one year
to as much as three years) municipal notes, demand notes and tax-exempt
commercial paper. In the event Tax-Aware invests in demand notes, the Adviser
will continually monitor the ability of the obligor under such notes to meet its
obligations. Typically, municipal bonds are issued to obtain funds used to
construct a wide range of public facilities, such as schools, hospitals,
housing, mass transportation, airports, highways and bridges. The funds may also
be used for general operating expenses, refunding of outstanding obligations and
loans to other public institutions and facilities.
Municipal bonds have two principal classifications: general
obligation bonds and revenue or special obligation bonds. General obligation
bonds are secured by the issuer's pledge of its faith, credit and taxing power
for the payment of principal and interest. Revenue or special obligation bonds
are payable only from the revenues derived from a particular facility or class
of facilities or, in some cases, from the proceeds of a special excise tax or
other specific revenue source but not from general tax and other unrestricted
revenues of the issuer. The term "issuer" means the agency, authority,
instrumentality or other political subdivision whose assets and revenues are
available for the payment of principal and interest on the bonds. Certain types
of private activity bonds are also considered municipal bonds if the interest
thereon is exempt from federal income tax.
Private activity bonds are in most cases revenue bonds and do not
generally constitute the pledge of the credit or taxing power of the issuer of
such bonds. The payment of the principal and interest on such private activity
bonds depends solely on the ability of the user of the facilities financed by
the bonds to meet its financial obligations and the pledge, if any, of real and
personal property so financed as security for such payment.
Tax-Aware may invest a portion of its assets in municipal securities
that pay interest at a coupon rate equal to a base rate plus additional interest
for a certain period of time if short-term interest rates rise above a
predetermined level or "cap". Although the specific terms of these municipal
securities may differ, the amount of any additional interest payment typically
is calculated pursuant to a formula based upon an applicable short-term interest
rate index multiplied by a designated factor. The additional interest component
of the coupon rate of these municipal securities generally expires before the
maturity of the underlying instrument. These municipal securities may also
contain provisions that provide for conversion at the option of the issuer to
constant interest rates in addition to standard call features.
Tax-Aware may invest in zero-coupon municipal securities, which are
debt obligations that do not entitle the holder to any periodic payments prior
to maturity and are issued and traded at a discount from their face amounts. The
discount varies depending on the time remaining until maturity, prevailing
interest rates, liquidity of the security and perceived credit quality of the
issuer. The market prices of zero-coupon municipal securities are generally more
volatile than the market prices of securities that pay interest periodically and
are likely to respond to changes in interest rates to a greater degree than do
securities having similar maturities and credit quality that do pay periodic
interest.
Tax-Aware may also invest in municipal securities, the interest rate
on which has been divided into two different and variable components, which
together result in a fixed interest rate. Typically, the first of the components
(the "Auction Component") pays an interest rate that is reset periodically
through an auction process, whereas the second of the components (the "Residual
Component") pays a current residual interest rate based on the difference
between the total interest paid by the issuer on the municipal securities and
the auction rate paid on the Auction Component. Tax-Aware may purchase both
Auction and Residual Components.
Because the interest rate paid to holders of Residual Components is
generally determined by subtracting the interest rate paid to the holders of
Auction Components from a fixed amount, the interest rate paid to Residual
Component holders will decrease the Auction Component's rate increases and
increase as the Auction Component's rate decreases. Moreover, the extent of the
increases and decreases in market value of Residual Components may be larger
than comparable changes in the market value of an equal principal amount of a
fixed rate municipal security having similar credit quality, redemption
provisions and maturity.
Tax-Aware may also invest in (i) asset-backed securities, which are
securities issued by special purpose entities whose primary assets consist of,
for the purposes of Tax-Aware's investment, a pool of municipal securities, or
(ii) partnership and grantor trust-type derivative securities, whose ownership
allows the purchaser to receive principal and interest payments on underlying
municipal securities. The securities may be in the form of a beneficial interest
in a special purpose trust, limited partnership interest, or other debt
securities issued by a special purpose corporation. Although the securities may
have some form of credit or liquidity enhancement, payments on the securities
depend predominately upon the municipal securities held by the issuer. There are
many types of these securities, including securities in which the tax-exempt
interest rate is determined by an index, a swap agreement, or some other
formula, for example, the interest rate payable on the security may adjust
either at pre-designated periodic intervals or whenever there is a change in the
market rate to which the security's interest rate is tied. Other features may
include the right of Tax-Aware to tender the security prior to its stated
maturity. Tax-Aware will not purchase an asset-backed or derivatives security of
the type discussed in this paragraph unless it has opinion of counsel in
connection with the purchase that interest earned by the Fund from the
securities is exempt from, as applicable, federal and state income taxes.
Municipal notes in which Tax-Aware may invest include demand notes,
which are tax-exempt obligations that have stated maturities in excess of one
year, but permit the holder to sell back the security (at par) to the issuer
within one to seven days' notice. The payment of principal and interest by the
issuer of these obligations will ordinarily be guaranteed by letters of credit
offered by banks. The interest rate on a demand note may be based upon a known
lending rate, such as a bank's prime rate, and may be adjusted when such rate
changes, or the interest rate on a demand note may be a market rate that is
adjusted at specified intervals.
Other short-term obligations constituting municipal notes include
tax anticipation notes, revenue anticipation notes, bond anticipation notes and
tax-exempt commercial paper.
Tax anticipation notes are issued to finance working capital needs
of municipalities. Generally, they are issued in anticipation of various
seasonal tax revenues, such as ad valorem, income, sales, use and business
taxes. Revenue anticipation notes are issued in expectation of receipt of other
types of revenues, such as federal revenues available under the Federal Revenue
Sharing Programs. Bond anticipation notes are issued to provide interim
financing until long-term financing can be arranged. In most such cases, the
long-term bonds provide the money for the repayment of the notes.
Tax-exempt commercial paper is a short-term obligation with a stated
maturity of 365 days or less (however, issuers typically do not issue such
obligations with maturities longer than seven days). Such obligations are issued
by state and local municipalities to finance seasonal working capital needs or
as short-term financing in anticipation of longer-term financing.
There are, of course, variations in the terms of, and the security
underlying, municipal securities, both within a particular rating classification
and between such classifications, depending on many factors. The ratings of
Moody's, S&P and Fitch Ratings ("Fitch") represent their opinions of the quality
of the municipal securities rated by them. It should be emphasized that such
ratings are general and are not absolute standards of quality. Consequently,
municipal securities with the same maturity, coupon and rating may have
different yields, while the municipal securities of the same maturity and
coupon, but with different ratings, may have the same yield. The Adviser
appraises independently the fundamental quality of the securities included in
Tax-Aware Fund's portfolio.
Yields on municipal securities are dependent on a variety of
factors, including the general conditions of the municipal securities market,
the size of a particular offering, the maturity of the obligation and the rating
of the issue. An increase in interest rates generally will reduce the market
value of portfolio investments, and a decline in interest rates generally will
increase the value of portfolio investments. Municipal securities with longer
maturities tend to produce higher yields and are generally subject to greater
price movements than obligations with shorter maturities. However, Tax-Aware
does not have any restrictions on the maturity of municipal securities in which
it may invest. Tax-Aware will seek to invest in municipal securities of such
maturities that, in the judgment of the Adviser, will provide a high level of
current income consistent with liquidity requirements and market conditions. The
achievement of Tax-Aware's investment objective depends in part on the
continuing ability of the issuers of municipal securities in which the Fund
invests to meet their obligations for the payment of principal and interest when
due. Municipal securities historically have not been subject to registration
with the SEC, although from time to time there have been proposals which would
require registration in the future.
Tax-Aware may invest in municipal securities rated below investment
grade or unrated municipal securities. These securities may present a
substantial risk of default or may be in default at the time of purchase. See
"Certain Risk and Other Considerations - Investments in Lower-Rated and Unrated
Instruments" below.
After purchase by Tax-Aware, a municipal security may cease to be
rated or it may default. These events do not require sales of such securities by
Tax-Aware, but the Adviser will consider such event in its determination of
whether the Fund should continue to hold the security. To the extent that the
ratings given by Moody's, S&P or Fitch may change as a result of changes in such
organizations or their rating systems, the Adviser will attempt to use such
changed ratings in a manner consistent with Tax-Aware's quality criteria as
described in the Prospectus.
Obligations of issuers of municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors, such as the Federal Bankruptcy Code. In addition, the
obligations of such issuers may become subject to laws enacted in the future by
Congress, state legislatures, or referenda extending the time for payment of
principal and/or interest, or imposing other constraints upon enforcement of
such obligations or upon the ability of municipalities to levy taxes. There is
also the possibility that, as a result of litigation or other conditions, the
ability of any issuer to pay, when due, the principal or the interest on its
municipal bonds may be materially affected.
From time to time, proposals have been introduced before Congress
for the purpose of restricting or eliminating the federal income tax exemption
for interest on municipal securities. It can be expected that similar proposals
may be introduced in the future. If such a proposal were enacted, the
availability of municipal securities for investment by Tax-Aware and the value
of the Fund would be affected. Additionally, Tax-Aware's investment objective
and policies would be reevaluated.
Preferred Stock
---------------
A Fund may invest in preferred stock. Preferred stock is an equity
security that has features of debt because it generally entitles the holder to
periodic payments at a fixed rate of return. Preferred stock is subordinated to
any debt the issuer has outstanding but has liquidation preference over common
stock. Accordingly, preferred stock dividends are not paid until all debt
obligations are first met. Preferred stock may be subject to more fluctuations
in market value, due to changes in market participants' perceptions of the
issuer's ability to continue to pay dividends, than debt of the same issuer.
Repurchase Agreements and Buy/Sell Back Transactions
----------------------------------------------------
A repurchase agreement is an agreement by which a Fund purchases a
security and obtains a simultaneous commitment from the seller to repurchase the
security at an agreed-upon price and date, normally one day or a week later. The
purchase and repurchase obligations are transacted under one document. The
resale price is greater than the purchase price, reflecting an agreed-upon
"interest rate" that is effective for the period of time the buyer's money is
invested in the security, and which is related to the current market rate of the
purchased security rather than its coupon rate. During the term of the
repurchase agreement, the Fund monitors on a daily basis the market value of the
securities subject to the agreement and, if the market value of the securities
falls below the resale amount provided under the repurchase agreement, the
seller under the repurchase agreement is required to provide additional
securities or cash equal to the amount by which the market value of the
securities falls below the resale amount. Because a repurchase agreement permits
a Fund to invest temporarily available cash on a fully-collateralized basis,
repurchase agreements permit the Fund to earn a return on temporarily available
cash while retaining "overnight" flexibility in pursuit of investments of a
longer-term nature. Repurchase agreements may exhibit the characteristics of
loans by a Fund.
The obligation of the seller under the repurchase agreement is not
guaranteed, and there is a risk that the seller may fail to repurchase the
underlying security, whether because of the seller's bankruptcy or otherwise. In
such event, the Fund would attempt to exercise its rights with respect to the
underlying security, including possible sale of the securities. A Fund may incur
various expenses in connection with the exercise of its rights and may be
subject to various delays and risks of loss, including (a) possible declines in
the value of the underlying securities, (b) possible reduction in levels of
income and (c) lack of access to the securities (if they are held through a
third-party custodian) and possible inability to enforce the Fund's rights. The
Fund's Board has established procedures, which are periodically reviewed by the
Board, pursuant to which the Adviser monitors the creditworthiness of the
dealers with which the Fund enters into repurchase agreement transactions.
A Fund may enter into buy/sell back transactions, which are similar
to repurchase agreements. In this type of transaction, a Fund enters a trade to
buy securities at one price and simultaneously enters a trade to sell the same
securities at another price on a specified date. Similar to a repurchase
agreement, the repurchase price is higher than the sale price and reflects
current interest rates. Unlike a repurchase agreement, however, the buy/sell
back transaction, though done simultaneously, constitutes two separate legal
agreements. A buy/sell back transaction also differs from a repurchase agreement
in that the seller is not required to provide margin payments if the value of
the securities falls below the repurchase price because the transaction
constitutes two separate transactions. Each Fund has the risk of changes in the
value of the purchased security during the term of the buy/sell back agreement
although these agreements typically provide for the repricing of the original
transaction at a new market price if the value of the security changes by a
specific amount.
Reverse Repurchase Agreements and Dollar Rolls
----------------------------------------------
Reverse repurchase agreements are identical to repurchase agreements
except that rather than buying securities for cash subject to their repurchase
by the seller, a Fund sells portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed price slightly
higher than the sale price. During the reverse repurchase agreement period, the
Fund continues to receive principal and interest payments on these securities.
Generally, the effect of a reverse repurchase agreement is that the Fund can
recover all or most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while it will be able to
keep the interest income associated with those portfolio securities. Such
transactions are advantageous only if the "interest cost" to the Fund of the
reverse repurchase transaction, i.e., the difference between the sale and
repurchase price for the securities, is less than the cost of otherwise
obtaining the cash invested in portfolio securities.
Reverse repurchase agreements are considered to be a loan to the
Fund by the counterparty, collateralized by the assets subject to repurchase
because the incidents of ownership are retained by the Fund. By entering into
reverse repurchase agreements, the Fund obtains additional cash to invest in
other securities. The Funds may use reverse repurchase agreements for borrowing
purposes if it believes that the cost of this form of borrowing will be lower
than the cost of bank borrowing. Reverse repurchase agreements create leverage
and are speculative transactions because they allow a Fund to achieve a return
on a larger capital base relative to its NAV. The use of leverage creates the
opportunity for increased income for the Fund's shareholders when the Fund
achieves a higher rate of return on the investment of the reverse repurchase
agreement proceeds than it pays in interest on the reverse repurchase
transactions. However, there is the risk that returns could be reduced if the
rates of interest on the investment proceeds do not exceed the interest paid by
a Fund on the reverse repurchase transactions.
Dollar rolls involve sales by a Fund of securities for delivery in
the current month and the Fund's simultaneously contracting to repurchase
substantially similar (same type and coupon) securities on a specified future
date. During the roll period, the Fund forgoes principal and interest paid on
the securities. The Fund 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.
Reverse repurchase agreements and dollar rolls involve the risk that
the market value of the securities the Fund is obligated to repurchase under the
agreement may decline below the repurchase price. In the event the buyer of
securities under a reverse repurchase agreement or dollar roll files for
bankruptcy or becomes insolvent, the Fund's use of the proceeds of the agreement
may be restricted pending a determination by the other party, or its trustee or
receiver, whether to enforce the Fund's obligation to repurchase the securities.
In addition, the use of these investments results in leveraging the Fund's
common stocks because the Fund uses the proceeds to make investments in other
securities. See "Borrowing and Use of Leverage" below.
Rights and Warrants
-------------------
Tax-Aware may invest in rights and warrants, which entitle the
holder to buy equity securities at a specific price for a specific period of
time, but will do so only if the equity securities themselves are deemed
appropriate by the Adviser for inclusion in the Fund's portfolio. Rights and
warrants may be considered more speculative than certain other types of
investments in that they do not entitle a holder to dividends or voting rights
with respect to the securities that may be purchased, nor do they represent any
rights in the assets of the issuing company. Also, the value of a right or
warrant does not necessarily change with the value of the underlying securities
and a right or warrant ceases to have value if it is not exercised prior to the
expiration date.
Securities Ratings
------------------
The ratings of fixed-income securities by Moody's, S&P, Fitch and
A.M. Best Company are a generally accepted barometer of credit risk. They are,
however, subject to certain limitations from an investor's standpoint. The
rating of an issuer is heavily weighted by past developments and does not
necessarily reflect probable future conditions. There is frequently a lag
between the time a rating is assigned and the time it is updated. In addition,
there may be varying degrees of difference in credit risk of securities within
each rating category.
Securities rated Baa, BBB+, BBB, or BBB- by S&P or Baa1, Baa2 or
Baa3 by Moody's are considered by Moody's to have speculative characteristics.
Sustained periods of deteriorating economic conditions or rising interest rates
are more likely to lead to a weakening in the issuer's capacity to pay interest
and repay principal than in the case of higher-rated securities.
Non-rated securities will also be considered for investment by a
Fund when the Adviser believes that the financial condition of the issuers of
such securities, or the protection afforded by the terms of the securities
themselves, limits the risk to the Fund to a degree comparable to that of rated
securities which are consistent with the Fund's objectives and policies.
The Adviser generally uses ratings issued by S&P, Moody's and Fitch.
Some securities are rated by more than one of these ratings agencies, and the
ratings assigned to the security by the rating agencies may differ. In such an
event and for purposes of determining compliance with restrictions on
investments for the Fund, if a security is rated by two or more rating agencies,
the Adviser will deem the security to be rated at the highest rating. For
example, if a security is rated by Moody's and S&P only, with Moody's rating the
security as Ba and S&P as BBB, the Adviser will deem the security to be rated as
the equivalent of BBB (i.e., Baa by Moody's and BBB by S&P). Or, if a security
is rated by Moody's, S&P and Fitch, with Moody's rating the security as Ba, S&P
as BBB and Fitch as BB, the Adviser will deem the security to be rated as the
equivalent of BBB (i.e., Ba1 by Moody's, BBB by S&P and BBB by Fitch).
The Adviser will try to reduce the risk inherent in the Fund's
investment approach through credit analysis, diversification and attention to
current developments and trends in interest rates and economic conditions.
However, there can be no assurance that losses will not occur. In considering
investments for Funds that invest in high-yielding securities, the Adviser will
attempt to identify those high-yielding securities whose financial condition is
adequate to meet future obligations, has improved, or is expected to improve in
the future. The Adviser's analysis focuses on relative values based on such
factors as interest or dividend coverage, asset coverage, earnings prospects,
and the experience and managerial strength of the issuer.
In the event that the credit rating of a security held by the Fund
is downgraded, the credit quality deteriorates after purchase, or the security
defaults, the Fund will not be obligated to dispose of that security and may
continue to hold the security if, in the opinion of the Adviser, such investment
is appropriate in the circumstances.
Unless otherwise indicated, references to securities ratings by one
rating agency in this SAI shall include the equivalent rating by another rating
agency.
Short Sales
-----------
A Fund may make short sales of securities or maintain a short
position. A short sale is effected by selling a security that a Fund does not
own, or if the Fund does own such security, it is not to be delivered upon
consummation of the sale. Among other reasons, a Fund may make short sales of
securities or maintain a short position for the purpose of deferring realization
of gain or loss for U.S. federal income tax purposes. The Fund may not make a
short sale if more than 10% of the Fund's net assets (taken at market value) is
held as collateral for short sales at any one time. A short sale of a security
involves the risk that, instead of declining, the price of the security sold
short will rise. If the price of the securities sold short increases between the
time of a short sale and the time a Fund replaces the borrowed security, the
Fund will incur a loss; conversely, if the price declines, the Fund will realize
a gain. The potential for the price of a fixed-income security sold short to
rise is a function of both the remaining maturity of the obligation, its
creditworthiness and its yield. Unlike short sales of equities or other
instruments, the potential for the price of a fixed-income security to rise may
be limited due to the fact that the security will be no more than par at
maturity. However, the short sale of other instruments or securities generally,
including fixed-income securities convertible into equities or other
instruments, a fixed-income security trading at a deep discount from par or
which pays a coupon that is high in relative or absolute terms, or which is
denominated in a currency other than the U.S. Dollar, involves the possibility
of a theoretically unlimited loss since there is a theoretically unlimited
potential for the market price of the security sold short to increase. See
"Dividends, Distributions and Taxes-Tax Straddles" for a discussion of certain
special federal income tax considerations that may apply to short sales which
are entered into by the Fund.
Standby Commitment Agreements
-----------------------------
Tax-Aware may, from time to time, enter into standby commitment
agreements. Such agreements commit Tax-Aware, for a stated period of time, to
purchase a stated amount of a security that may be issued and sold to the Fund
at the option of the issuer. The price and coupon of the security are fixed at
the time of the commitment. At the time of entering into the agreement the Fund
is paid a commitment fee, regardless of whether or not the security is
ultimately issued. Tax-Aware will enter into such agreements only for the
purpose of investing in the security underlying the commitment at a yield and
price which are considered advantageous to the Fund and which are unavailable on
a firm commitment basis.
There can be no assurance that the securities subject to a standby
commitment will be issued, and the value of the security, if issued, on the
delivery date may be more or less than its purchase price. Since the issuance of
the security underlying the commitment is at the option of the issuer, Tax-Aware
will bear the risk of capital loss in the event the value of the security
declines and may not benefit from an appreciation in the value of the security
during the commitment period if the issuer decides not to issue and sell the
security to the Fund.
The purchase of a security subject to a standby commitment agreement
and the related commitment fee will be recorded on the date on which the
security can reasonably be expected to be issued and the value of the security
will thereafter be reflected in the calculation of Tax-Aware's NAV. The cost
basis of the security will be adjusted by the amount of the commitment fee. In
the event the security is not issued, the commitment fee will be recorded as
income on the expiration date of the standby commitment.
Structured Products
-------------------
A Fund may invest in structured products. Structured products,
including indexed or structured securities, combine the elements of futures
contracts or options with those of debt, preferred equity or a depositary
instrument. Generally, the principal amount, amount payable upon maturity or
redemption, or interest rate of a structured product is tied (either positively
or negatively) to prices, changes in prices, or differences between prices, of
underlying assets, such as securities, currencies, intangibles, goods, articles
or commodities, or by reference to an unrelated benchmark related to an
objective index, economic factor or other measure such as interest rates,
currency exchange rates, commodity indices, and securities indices. The interest
rate or (unlike most fixed-income securities) the principal amount payable at
maturity of a structured product may be increased or decreased depending on
changes in the value of the underlying asset or benchmark.
Structured products may take a variety of forms. Most commonly, they
are in the form of debt instruments with interest or principal payments or
redemption terms determined by reference to the value of a currency or commodity
or securities index at a future point in time, but may also be issued as
preferred stock with dividend rates determined by reference to the value of a
currency or convertible securities with the conversion terms related to a
particular commodity.
Investing in structured products may be more efficient and less
expensive for a Fund than investing in the underlying assets or benchmarks and
the related derivative. These investments can be used as a means of pursuing a
variety of investment goals, including currency hedging, duration management and
increased total return. In addition, structured products may be a tax-advantaged
investment in that they generate income that may be distributed to shareholders
as income rather than short-term capital gains that may otherwise result from a
derivatives transaction.
Structured products, however, have more risk than traditional types
of debt or other securities. These products may not bear interest or pay
dividends. The value of a structured product or its interest rate may be a
multiple of a benchmark and, as a result, may be leveraged and move (up or down)
more steeply and rapidly than the benchmark. Under certain conditions, the
redemption value of a structured product could be zero. Structured products are
potentially more volatile and carry greater market risks than traditional debt
instruments. The prices of the structured instrument and the benchmark or
underlying asset may not move in the same direction or at the same time.
Structured products may carry greater trading risk and be more difficult to
price than less complex securities or instruments or more traditional debt
securities. The risk of these investments can be substantial with the
possibility that the entire principal amount is at risk. The purchase of
structured products also exposes a Fund to the credit risk of the issuer of the
structured product.
Structured Notes and Indexed Securities: A Fund may invest in a
particular type of structured instrument sometimes referred to as a "structured
note". The terms of these notes may be structured by the issuer and the
purchaser of the note. Structured notes are derivative debt instruments, the
interest rate or principal of which is determined by an unrelated indicator (for
example, a currency, security, commodity or index thereof). Indexed securities
may include structured notes as well as securities other than debt securities,
the interest rate or principal of which is determined by an unrelated indicator.
The terms of structured notes and indexed securities may provide that in certain
circumstances no principal is due at maturity, which may result in a total loss
of invested capital. Structured notes and indexed securities may be positively
or negatively indexed, so that appreciation of the unrelated indicator may
produce an increase or a decrease in the interest rate or the value of the
structured note or indexed security at maturity may be calculated as a specified
multiple of the change in the value of the unrelated indicator. Therefore, the
value of such notes and securities may be very volatile. Structured notes and
indexed securities may entail a greater degree of market risk than other types
of debt securities because the investor bears the risk of the unrelated
indicator. Structured notes or indexed securities also may be more volatile,
carry greater trading risk and be more difficult to accurately price than less
complex securities and instruments or more traditional debt securities.
Commodity Index-Linked Notes and Commodity-Linked Notes: Structured
products may provide exposure to the commodities markets. These structured notes
may include leveraged or unleveraged commodity index-linked notes, which are
derivative debt instruments with principal and/or coupon payments linked to the
performance of commodity indices. They also include commodity-linked notes with
principal and/or coupon payments linked to the value of particular commodities
or commodities futures contracts, or a subset of commodities and commodities
future contracts. The value of these notes will rise or fall in response to
changes in the underlying commodity, commodity futures contract, subset of
commodities or commodities futures contracts or commodity index. These notes
expose the Fund economically to movements in commodity prices. These notes also
are subject to risks, such as credit, market and interest rate risks, that in
general affect the values of debt securities. In addition, these notes are often
leveraged, increasing the volatility of each note's market value relative to
changes in the underlying commodity, commodity futures contract or commodity
index. Therefore, the Fund might receive interest or principal payments on the
note that are determined based upon a specified multiple of the change in value
of the underlying commodity, commodity futures contract or index.
Credit-Linked Securities: Credit-linked securities are issued by a
limited purpose trust or other vehicle that, in turn, invests in a basket of
derivative instruments, such as credit default swaps, interest rate swaps and
other securities, in order to provide exposure to certain high-yield or other
fixed-income markets. For example, a Fund may invest in credit-linked securities
as a cash management tool in order to gain exposure to certain high-yield
markets and/or to remain fully invested when more traditional income-producing
securities are not available. Like an investment in a bond, investments in
credit-linked securities represent the right to receive periodic income payments
(in the form of distributions) and payment of principal at the end of the term
of the security. However, these payments are conditioned on the trust's receipt
of payments from, and the trust's potential obligations to, the counterparties
to the derivative instruments and other securities in which the trust invests.
For instance, the trust may sell one or more credit default swaps, under which
the trust would receive a stream of payments over the term of the swap
agreements provided that no event of default has occurred with respect to the
referenced debt obligation upon which the swap is based. If a default occurs,
the stream of payments may stop and the trust would be obligated to pay the
counterparty the par value (or other agreed-upon value) of the referenced debt
obligation. This, in turn, would reduce the amount of income and principal that
a Fund would receive as an investor in the trust. A Fund's investments in these
instruments are indirectly subject to the risks associated with derivative
instruments, including, among others, credit risk, default or similar event
risk, counterparty risk, interest rate risk, leverage risk and management risk.
These securities are generally structured as Rule 144A Securities so that they
may be freely traded among institutional buyers. However, changes in the market
for credit-linked securities or the availability of willing buyers may result in
reduced liquidity for the securities.
Tender Option Bond ("TOB") Transactions
---------------------------------------
Tax-Aware may enter into TOB transactions ("TOBs") in which the Fund
sells a municipal security to a broker, which, in turn deposits the bond into a
special purpose vehicle, which is generally organized as a trust, sponsored by
the broker (the "Trust"). The Fund receives cash and a residual interest
security (sometimes referred to as "inverse floaters") issued by the Trust in
return. The Trust simultaneously issues securities, which pay an interest rate
that is reset each week based on an index of high-grade short-term demand notes.
These securities, sometimes referred to as "floaters", are bought by third
parties, including tax-exempt money market funds, and can be tendered by these
holders to a liquidity provider at par, unless certain events occur. Under
certain circumstances, the Trust may be terminated or collapsed, either by the
Fund or upon the occurrence of certain events, such as a downgrade in the credit
quality of the underlying bond or in the event holders of the floaters tender
their securities to the liquidity provider. The Fund continues to earn all the
interest from the transferred bond less the amount of interest paid on the
floaters and the expenses of the SPV, which include payments to the trustee and
the liquidity provider and organizational costs. The Fund uses the cash received
from the transaction for investment purposes, which involves leverage risk.
U.S. Government Securities
--------------------------
U.S. Government securities may be backed by the full faith and
credit of the United States, supported only by the right of the issuer to borrow
from the U.S. Treasury or backed only by the credit of the issuing agency
itself. These securities include: (i) the following U.S. Treasury securities,
which are backed by the full faith and credit of the United States and differ
only in their interest rates, maturities and times of issuance: U.S. Treasury
bills (maturities of one year or less with no interest paid and hence issued at
a discount and repaid at full face value upon maturity), U.S. Treasury notes
(maturities of one to ten years with interest payable every six months) and U.S.
Treasury bonds (generally maturities of greater than ten years with interest
payable every six months); (ii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that are supported by the full faith
and credit of the U.S. Government, such as securities issued by GNMA, the
Farmers Home Administration, the Department of Housing and Urban Development,
the Export-Import Bank, the General Services Administration and the Small
Business Administration and including obligations that are issued by private
issuers that are guaranteed as to principal or interest by the U.S. Government,
its agencies or institutions; and (iii) obligations issued or guaranteed by U.S.
Government agencies and instrumentalities that were historically not supported
by the full faith and credit of the U.S. Government or a right to borrow from
the U.S. Treasury, such as securities issued by the FNMA and FHLMC, and
governmental CMOs. The maturities of the U.S. Government securities listed in
paragraphs (i) and (ii) above usually range from three months to 30 years. Such
securities, except GNMA certificates, normally provide for periodic payments of
interest in fixed amounts with principal payments at maturity or specified call
dates.
U.S. Government securities also include zero-coupon securities and
principal-only securities and certain SMRS. Zero-coupon securities are described
in more detail in "Zero-Coupon Securities" below, and SMRS and principal-only
securities are described in more detail in "Mortgage-Related Securities, Other
Asset-Backed Securities and Structured Financings - Stripped Mortgage-Related
Securities" above. In addition, other U.S. Government agencies and
instrumentalities have issued stripped securities that are similar to SMRS.
Inflation-indexed securities such as Treasury Inflation-Protected
Securities, or TIPS, are fixed-income securities whose principal value is
periodically adjusted according to the rate of inflation. If the index measuring
inflation falls, the principal value of these securities will be adjusted
downward, and consequently the interest payable on these securities (calculated
with respect to a smaller principal amount) will be reduced. Repayment of the
original bond principal upon maturity (as adjusted for inflation) is guaranteed
in the case of TIPS. For bonds that do not provide a similar guarantee, the
adjusted principal value of the bond repaid at maturity may be less than the
original principal.
Inflation-indexed securities tend to react to changes in real
interest rates. In general, the price of these securities can fall when real
interest rates rise, and can rise when real interest rates fall. In addition,
the value of these securities may be vulnerable to changes in expectations of
inflation. Interest payments on these securities can be unpredictable and will
vary as the principal and/or interest is adjusted for inflation.
TIPS, which are issued by the U.S Treasury, use the Consumer Price
Index for Urban Consumers, or the CPI, as the inflation measure. The principal
of a TIPS increases with inflation and decreases with deflation, as measured by
the CPI. When a TIPS matures, the holder is paid the adjusted principal or
original principal, whichever is greater. TIPS pay interest twice a year, at a
fixed rate, which is determined by auction at the time the TIPS are issued. The
rate is applied to the adjusted principal; so, like the principal, interest
payments rise with inflation and fall with deflation. TIPS are issued in terms
of 5, 10, and 30 years.
Guarantees of securities by the U.S. Government or its agencies or
instrumentalities guarantee only the payment of principal and interest on the
securities, and do not guarantee the securities' yield or value or the yield or
value of the shares of the Fund that holds the securities.
U.S. Government securities are considered among the safest of
fixed-income investments. As a result, however, their yields are generally lower
than the yields available from other fixed-income securities.
Variable, Floating and Inverse Floating Rate Securities
-------------------------------------------------------
These securities have interest rates that are reset at periodic
intervals, usually by reference to some interest rate index or market interest
rate. Some of these securities are backed by pools of mortgage loans. Although
the rate adjustment feature may act as a buffer to reduce sharp changes in the
value of these securities, they are still subject to changes in value based on
changes in market interest rates or changes in the issuer's creditworthiness.
Because the interest rate is reset only periodically, changes in the interest
rate on these securities may lag behind changes in prevailing market interest
rates. Also, some of these securities (or the underlying mortgages) are subject
to caps or floors that limit the maximum change in the interest rate during a
specified period or over the life of the security.
Zero-Coupon Securities
----------------------
A zero-coupon security pays no interest to its holder during its
life. An investor acquires a zero-coupon security at a discounted price from the
face value of the security, which is generally based upon its present value, and
which, depending upon the time remaining until maturity, may be significantly
less than its face value (sometimes referred to as a "deep discount" price).
Upon maturity of the zero-coupon security, the investor receives the face value
of the security.
A Fund may invest in zero-coupon Treasury securities, which consist
of Treasury bills or the principal components of U.S. Treasury bonds or notes. A
Fund may also invest in zero-coupon securities issued by U.S. Government
agencies or instrumentalities that are supported by the full faith and credit of
the United States, which consist of the principal components of securities of
U.S. Government agencies or instrumentalities.
Currently, the only U.S. Treasury security issued without coupons is
the Treasury bill. The zero-coupon securities purchased by the Funds may consist
of principal components held in STRIPS form issued through the U.S. Treasury's
STRIPS program, which permits the beneficial ownership of the component to be
recorded directly in the Treasury book-entry system. In addition, in the last
few years a number of banks and brokerage firms have separated ("stripped") the
principal portions ("corpus") from the coupon portions of the U.S. Treasury
bonds and notes and sold them separately in the form of receipts or certificates
representing undivided interests in these instruments (which instruments are
generally held by a bank in a custodial or trust account).
Because zero-coupon securities trade at a discount from their face
or par value but pay no periodic interest, they are subject to greater
fluctuations of market value in response to changing interest rates than debt
obligations of comparable maturities which make periodic distributions of
interest.
Current federal tax law requires that a holder (such as the Funds)
of a zero-coupon security accrue a portion of the discount at which the security
was purchased as income each year even though the holder receives no interest
payment in cash on the security during the year (generally referred to as
"original issue discount" or "OID"). As a result, in order to make the
distributions necessary for a Fund not to be subject to federal income or excise
taxes, a Fund may be required to pay out as an income distribution each year an
amount, obtained by liquidation of portfolio securities or borrowings if
necessary, greater than the total amount of cash that the Fund has actually
received as interest during the year. The Funds believe, however, that it is
highly unlikely that it would be necessary to liquidate portfolio securities or
borrow money in order to make such required distributions or to meet their
investment objectives.
Special Risk and Considerations
-------------------------------
Borrowing and Use of Leverage. A Fund may use borrowings for
investment purposes subject to the restrictions of the 1940 Act. A Fund may also
use leverage for investment purposes by entering into transactions such as
reverse repurchase agreements, forward contracts and dollar rolls and, with
respect to Tax-Aware, TOBs. This means that the Fund uses the cash proceeds made
available during the term of these transactions to make investments in other
securities.
Borrowings by a Fund result in leveraging of the Fund's shares of
common stock. The proceeds of such borrowings will be invested in accordance
with the Fund's investment objective and policies. The Adviser anticipates that
the difference between the interest expense paid by the Fund on borrowings and
the rates received by the Fund from its investment portfolio issuers will
provide the Fund's shareholders with a potentially higher yield.
Utilization of leverage, which is usually considered speculative,
however, involves certain risks to a Fund's shareholders. These include a higher
volatility of the NAV of the Fund's shares of common stock and the relatively
greater effect on the NAV of the shares caused by favorable or adverse changes
in market conditions or interest rates. So long as the Fund is able to realize a
net return on the portion of its investment portfolio resulting from leverage
that is higher than the interest expense paid on borrowings or the carrying
costs of leveraged transactions, the effect of leverage will be to cause the
Fund's shareholders to realize a higher net return than if the Fund were not
leveraged. However, to the extent that the interest expense on borrowings or the
carrying costs of leveraged transactions approaches the net return on the
leveraged portion of the Fund's investment portfolio, the benefit of leverage to
the Fund's shareholders will be reduced, and if the interest expense on
borrowings or carrying costs of leveraged transactions were to exceed the net
return to shareholders, the Fund's use of leverage would result in a lower rate
of net return than if the Fund were not leveraged. Similarly, the effect of
leverage in a declining market could be a greater decrease in NAV per share than
if the Fund were not leveraged. In an extreme case, if the Fund's current
investment income were not sufficient to meet the interest expense on borrowings
or the carrying costs of leveraged transactions, it could be necessary for the
Fund to liquidate certain of its investments in adverse circumstances,
potentially significantly reducing its NAV.
During periods of rising short-term interest rates, the interest
paid on floaters in TOB transactions would increase, which may adversely affect
Tax-Aware's net returns. If rising interest rates coincide with a period of
rising long-term rates, the value of long-term municipal bonds purchased with
the proceeds of leverage would decline, adversely affecting the Fund's NAV. In
certain circumstances, adverse changes in interest rates or other events could
cause a TOB Trust to terminate or collapse, potentially requiring Tax-Aware to
liquidate longer-term municipal securities at unfavorable prices to meet the
Trust's outstanding obligations.
Certain transactions, such as derivatives transactions, forward
commitments, reverse repurchase agreements and short sales involve leverage and
may expose a Fund to potential losses that, in some cases, may exceed the amount
originally invested by the Fund. When a Fund engages in such transactions, it
will, in accordance with guidance provided by the SEC or its staff in, among
other things, regulations, interpretative releases and no-action letters,
deposit in a segregated account certain liquid assets with a value at least
equal to the Fund's exposure, on a marked-to-market or other relevant basis, to
the transaction. Transactions for which assets have been segregated will not be
considered "senior securities" for purposes of the Fund's investment restriction
concerning senior securities. The segregation of assets is intended to enable
the Fund to have assets available to satisfy its obligations with respect to
these transactions, but will not limit the Fund's exposure to loss.
Cyber Security Risk. As the use of the Internet and other
technologies has become more prevalent in the course of business, the Funds and
their service providers, including the Adviser, have become more susceptible to
operational and financial risks associated with cyber security. Cyber security
incidents can result from deliberate attacks such as gaining unauthorized access
to digital systems (e.g., through "hacking" or malicious software coding) for
purposes of misappropriating assets or sensitive information, corrupting data,
or causing operational disruption, or from unintentional events, such as the
inadvertent release of confidential information. Cyber security failures or
breaches of the Funds or their service providers or the issuers of securities in
which the Funds invest have the ability to cause disruptions and affect business
operations, potentially resulting in financial losses, the inability of Fund
shareholders to transact business, violations of applicable privacy and other
laws, regulatory fines, reputational damage, reimbursement or other compensation
costs, and/or additional compliance costs. While measures have been developed
that are designed to reduce the risks associated with cyber security, there is
no guarantee that those measures will be effective, particularly since the Funds
do not control the cyber security defenses or plans of their service providers,
financial intermediaries and companies in which they invest or with which they
do business.
Investments in Lower-Rated and Unrated Instruments. A Fund may
invest in lower-rated securities, in some cases, substantially (High Income),
which may include securities having the lowest rating for non-subordinated debt
securities (i.e., rated C by Moody's or CCC or lower by S&P & Fitch) and unrated
securities of equivalent investment quality (commonly referred to as "junk
bonds"). Debt securities with such a rating are considered by the rating
organizations to be subject to greater risk of loss of principal and interest
than higher-rated securities and are considered to be predominantly speculative
with respect to the issuer's capacity to pay interest and repay principal, which
may in any case decline during sustained periods of deteriorating economic
conditions or rising interest rates. These securities are considered to have
extremely poor prospects of ever attaining any real investment standing, to have
a current identifiable vulnerability to default, to be unlikely to have the
capacity to pay interest and repay principal when due in the event of adverse
business, financial or economic conditions, and/or to be in default or not
current in the payment of interest or principal.
Lower-rated securities generally are considered to be subject to
greater market risk than higher-rated securities in times of deteriorating
economic conditions. In addition, lower-rated securities may be more susceptible
to real or perceived adverse economic and competitive industry conditions than
investment grade securities, although the market values of securities rated
below investment grade and comparable unrated securities tend to react less to
fluctuations in interest rate levels than do those of higher-rated securities.
The market for lower-rated securities may be thinner and less active than that
for higher-quality securities, which can adversely affect the prices at which
these securities can be sold. To the extent that there is no established
secondary market for lower-rated securities, the Adviser may experience
difficulty in valuing such securities and, in turn, a Fund's assets. In
addition, adverse publicity and investor perceptions about lower-rated
securities, whether or not based on fundamental analysis, may tend to decrease
the market value and liquidity of such lower-rated securities. Transaction costs
with respect to lower-rated securities may be higher, and in some cases
information may be less available, than is the case with investment grade
securities.
Many fixed-income securities, including certain U.S. corporate
fixed-income securities in which a Fund may invest, contain call or buy-back
features that permit the issuer of the security to call or repurchase it. Such
securities may present risks based on payment expectations. If an issuer
exercises such a "call option" and redeems the security, the Fund may have to
replace the called security with a lower yielding security, resulting in a
decreased rate of return for the Fund.
Non-rated municipal or other fixed-income securities will also be
considered for investment by Tax-Aware when the Adviser believes that the
financial condition of the issuers of such obligations and the protection
afforded by the terms of the obligations themselves limit the risk to the Fund
to a degree comparable to that of rated securities which are consistent with the
Fund's objective and policies.
In seeking to achieve a Fund's investment objectives, there will be
times, such as during periods of rising interest rates, when depreciation and
realization of capital losses on securities in the Fund's portfolio will be
unavoidable. Moreover, medium- and lower-rated securities and non-rated
securities of comparable quality may be subject to wider fluctuations in yield
and market values than higher-rated securities under certain market conditions.
Such fluctuations after a security is acquired do not affect the cash income
received from that security but are reflected in the NAV of the Fund.
U.S. Corporate Fixed-Income Securities. A Fund may invest in U.S.
corporate fixed-income securities that may include securities issued in
connection with corporate restructurings such as takeovers or leveraged buyouts,
which may pose particular risks. Securities issued to finance corporate
restructurings may have special credit risks due to the highly leveraged
conditions of the issuer. In addition, such issuers may lose experienced
management as a result of the restructuring. Finally, the market price of such
securities may be more volatile to the extent that expected benefits from the
restructuring do not materialize. A Fund may also invest in U.S. corporate
fixed-income securities that are not current in the payment of interest or
principal or are in default, so long as the Adviser believes such investment is
consistent with the Fund's investment objectives. A Fund's rights with respect
to defaults on such securities will be subject to applicable U.S. bankruptcy,
moratorium and other similar laws.
Risks of Investments in Foreign Securities. Investors should
understand and consider carefully the substantial risks involved in securities
of foreign companies and governments of foreign nations, some of which are
referred to below, and which are in addition to the usual risks inherent in
domestic investments. Investing in securities of non-U.S. companies which are
generally denominated in foreign currencies, and utilization of derivative
investment products denominated in, or the value of which is dependent upon
movements in the relative value of, a foreign currency, involve certain
considerations comprising both risk and opportunity not typically associated
with investing in U.S. companies. These considerations include changes in
exchange rates and exchange control regulations, political and social
instability, expropriation, imposition of foreign taxes, less liquid markets and
less available information than are generally the case in the United States,
higher transaction costs, less government supervision of exchanges, brokers and
issuers, difficulty in enforcing contractual obligations, lack of uniform
accounting and auditing standards and greater price volatility.
There is generally less publicly available information about foreign
companies comparable to reports and ratings that are published about companies
in the United States. Foreign issuers are subject to accounting and financial
standards and requirements that differ, in some cases significantly, from those
applicable to U.S. issuers. In particular, the assets and profits appearing on
the financial statements of a foreign issuer may not reflect its financial
position or results of operations in the way they would be reflected had the
financial statement been prepared in accordance with U.S. generally accepted
accounting principles. In addition, for an issuer that keeps accounting records
in local currency, inflation accounting rules in some of the countries in which
the Fund may invest require, for both tax and accounting purposes, that certain
assets and liabilities be restated on the issuer's balance sheet in order to
express items in terms of currency of constant purchasing power. Inflation
accounting may indirectly generate losses or profits. Consequently, financial
data may be materially affected by restatements for inflation and may not
accurately reflect the real condition of those issuers and securities markets.
Substantially less information is publicly available about certain non-U.S.
issuers than is available about U.S. issuers.
It is contemplated that foreign securities will be purchased in OTC
markets or on stock exchanges located in the countries in which the respective
principal offices of the issuers of the various securities are located, if that
is the best available market. Foreign securities markets are generally not as
developed or efficient as those in the United States. While growing in volume,
they usually have substantially less volume than the New York Stock Exchange
(the "Exchange"), and securities of some foreign companies are more difficult to
trade or dispose of and more volatile than securities of comparable United
States companies. Similarly, volume and liquidity in most foreign bond markets
is less than in the United States and, at times, volatility of price can be
greater than in the United States. Fixed commissions on foreign stock exchanges
are generally higher than negotiated commissions on United States exchanges,
although a Fund will endeavor to achieve the most favorable net results on its
portfolio transactions. There is generally less government supervision and
regulation of stock exchanges, brokers and listed companies than in the United
States.
Expropriation, confiscatory taxation, nationalization, political,
economic or social instability or other similar developments, such as military
coups, have occurred in the past in countries in which a Fund may invest and
could adversely affect a Fund's assets should these conditions or events recur.
In June 2016, the United Kingdom ("UK") voted in a referendum to
leave the European Union ("EU"). On March 29, 2017, the UK notified the European
Council of its intention to withdraw from the EU. It is expected that the UK's
withdrawal will be completed within two years of such notification. There is
considerable uncertainty relating to the potential consequences of the
withdrawal. During this period and beyond, the impact on the UK and European
economies and the broader global economy could be significant, resulting in
increased volatility and illiquidity, currency fluctuations, impacts on
arrangements for trading and on other existing cross-border cooperation
arrangements (whether economic, tax, fiscal, legal, regulatory or otherwise),
and in potentially lower growth for companies in the UK, Europe and globally,
which could have an adverse effect on the value of a Fund's investments.
Foreign investment in certain foreign securities is restricted or
controlled to varying degrees. These restrictions or controls may at times limit
or preclude foreign investment in certain foreign securities and increase the
costs and expenses of a Fund. Certain countries in which the Fund may invest
require governmental approval prior to investments by foreign persons, limit the
amount of investment by foreign persons in a particular issuer, limit the
investment by foreign persons only to a specific class of securities of an
issuer that may have less advantageous rights than the classes available for
purchase by domiciliaries of the countries and/or impose additional taxes on
foreign investors.
Certain countries may require governmental approval for the
repatriation of investment income, capital or the proceeds of sales of
securities by foreign investors. In addition, if a deterioration occurs in a
country's balance of payments, the country could impose temporary restrictions
on foreign capital remittances.
Income from certain investments held by a Fund could be reduced by
foreign income taxes, including withholding taxes. It is impossible to determine
the effective rate of foreign tax in advance. A Fund's NAV may also be affected
by changes in the rates or methods of taxation applicable to that Fund or to
entities in which that Fund has invested. The Adviser generally will consider
the cost of any taxes in determining whether to acquire any particular
investments, but can provide no assurance that the tax treatment of investments
held by the Fund will not be subject to change. A shareholder otherwise subject
to U.S. federal income taxes may, subject to certain limitations, be entitled to
claim a credit or deduction for U.S. federal income tax purposes for his or her
proportionate share of such foreign taxes paid by the Fund. See "U.S. Federal
Income Taxation of Dividends and Distributions".
Investors should understand that the expense ratio of a fund
investing in foreign securities may be higher than investment companies
investing only in domestic securities since, among other things, the cost of
maintaining the custody of foreign securities is higher and the purchase and
sale of portfolio securities may be subject to higher transaction charges, such
as stamp duties and turnover taxes.
Foreign Currency Transactions. A Fund may invest in securities
denominated in foreign currencies and a corresponding portion of the Fund's
revenues will be received in such currencies. In addition, a Fund may conduct
foreign currency transactions for hedging and non-hedging purposes on a spot
(i.e., cash) basis or through the use of derivatives transactions, such as
forward currency exchange contracts, currency futures and options thereon, and
options on currencies as described above. The dollar equivalent of a Fund's net
assets and distributions will be adversely affected by reductions in the value
of certain foreign currencies relative to the U.S. Dollar. Such changes will
also affect a Fund's income. A Fund will, however, have the ability to attempt
to protect itself against adverse changes in the values of foreign currencies by
engaging in certain of the investment practices listed above. While a Fund has
this ability, there is no certainty as to whether and to what extent the Fund
will engage in these practices.
Currency exchange rates may fluctuate significantly over short
periods of time causing, along with other factors, a Fund's NAV to fluctuate.
Currency exchange rates generally are determined by the forces of supply and
demand in the foreign exchange markets and the relative merits of investments in
different countries, actual or anticipated changes in interest rates and other
complex factors, as seen from an international perspective. Currency exchange
rates also can be affected unpredictably by the intervention of U.S. or foreign
governments or central banks, or the failure to intervene, or by currency
controls or political developments in the United States or abroad. To the extent
a Fund's total assets adjusted to reflect the Fund's net position after giving
effect to currency transactions is denominated or quoted in the currencies of
foreign countries, the Fund will be more susceptible to the risk of adverse
economic and political developments within those countries.
A Fund will incur costs in connection with conversions between
various currencies. A Fund may hold foreign currency received in connection with
investments when, in the judgment of the Adviser, it would be beneficial to
convert such currency into U.S. Dollars at a later date, based on anticipated
changes in the relevant exchange rate. If the value of the foreign currencies in
which a Fund receives income falls relative to the U.S. Dollar between receipt
of the income and the making of Fund distributions, the Fund may be required to
liquidate securities in order to make distributions if the Fund has insufficient
cash in U.S. Dollars to meet, among other things, the distribution requirements
that the Fund must satisfy to qualify as a regulated investment company for
federal income tax purposes. Similarly, if the value of a particular foreign
currency declines between the time a Fund incurs expenses in U.S. Dollars and
the time cash expenses are paid, the amount of the currency required to be
converted into U.S. Dollars in order to pay expenses in U.S. Dollars could be
greater than the equivalent amount of such expenses in the currency at the time
they were incurred. In light of these risks, a Fund may engage in certain
currency hedging transactions, which themselves, involve certain special risks.
See "Additional Investment Policies and Practices", above.
Additional Risks of Options on Forward Currency Exchange Contracts,
Options on Foreign Currencies, Swaps and Other Options. Unlike transactions
entered into by a Fund in futures contracts and exchange-traded options, options
on foreign currencies and forward currency exchange contracts may not be traded
on contract markets regulated by the CFTC or (with the exception of certain
foreign currency options) by the SEC. Such instruments may instead be traded
through financial institutions acting as market-makers, although foreign
currency options are also traded on certain national securities exchanges, such
as the Nasdaq PHLX and the Chicago Board Options Exchange, subject to SEC
regulation. Similarly, options on currencies may be traded OTC. In an OTC
trading environment, many of the protections afforded to exchange participants
will not be available. For example, there are no daily price fluctuation limits,
and adverse market movements could therefore continue to an unlimited extent
over a period of time. Although the purchaser of an option cannot lose more than
the amount of the premium plus related transaction costs, this entire amount
could be lost. Moreover, the option writer and a trader of forward currency
exchange contracts could lose amounts substantially in excess of their initial
investments, due to the margin and collateral requirements associated with such
positions.
OTC transactions can be entered into only with a financial
institution willing to take the opposite side, as principal, of a Fund's
position unless the institution acts as broker and is able to find another
counterparty willing to enter into the transaction with the Fund. Where no such
counterparty is available, it will not be possible to enter into a desired
transaction. There also may be no liquid secondary market in the trading of OTC
contracts, and a Fund could be required to retain options purchased or written,
or forward currency exchange contracts entered into, until exercise, expiration
or maturity. This in turn could limit the Fund's ability to profit from open
positions or to reduce losses experienced, and could result in greater losses.
Further, OTC transactions are not subject to the guarantee of an
exchange clearinghouse, and a Fund will therefore be subject to the risk of
default by, or the bankruptcy of, the financial institution serving as its
counterparty. A Fund will enter into an OTC transaction only with parties whose
creditworthiness has been reviewed and found to be satisfactory by the Adviser.
Transactions in OTC options on foreign currencies are subject to a
number of conditions regarding the commercial purpose of the purchaser of such
option. A Fund is not able to determine at this time whether or to what extent
additional restrictions on the trading of OTC options on foreign currencies may
be imposed at some point in the future, or the effect that any such restrictions
may have on the hedging strategies to be implemented by them.
Options on foreign currencies traded on national securities
exchanges are within the jurisdiction of the SEC, as are other securities traded
on such exchanges. As a result, many of the protections provided to traders on
organized exchanges will be available with respect to such transactions. In
particular, all foreign currency option positions entered into on a national
securities exchange are cleared and guaranteed by the Options Clearing
Corporation ("OCC"), thereby reducing the risk of counterparty default. Further,
a liquid secondary market in options traded on a national securities exchange
may be more readily available than in the OTC market, potentially permitting the
Fund to liquidate open positions at a profit prior to exercise or expiration, or
to limit losses in the event of adverse market movements.
The purchase and sale of exchange-traded foreign currency options,
however, is subject to the risks of the availability of a liquid secondary
market described above, as well as the risks regarding adverse market movements,
margining of options written, the nature of the foreign currency market,
possible intervention by governmental authorities and the effects of other
political and economic events. In addition, exchange-traded options on foreign
currencies involve certain risks not presented by the OTC market. For example,
exercise and settlement of such options must be made exclusively through the
OCC, which has established banking relationships in applicable foreign countries
for this purpose. As a result, the OCC may, if it determines that foreign
governmental restrictions or taxes would prevent the orderly settlement of
foreign currency option exercises, or would result in undue burdens on the OCC
or its clearing member, impose special procedures on exercise and settlement,
such as technical changes in the mechanics of delivery of currency, the fixing
of dollar settlement prices or prohibitions, on exercise.
Options on U.S. Government securities, futures contracts, options on
futures contracts, forward currency exchange contracts and options on foreign
currencies may be traded on foreign exchanges. Such transactions are subject to
the risk of governmental actions affecting trading in or the prices of foreign
currencies or securities. The value of such positions also could be adversely
affected by (i) other complex foreign political and economic factors, (ii)
lesser availability than in the United States of data on which to make trading
decisions, (iii) delays in the Fund's ability to act upon economic events
occurring in foreign markets during nonbusiness hours in the United States, (iv)
the imposition of different exercise and settlement terms and procedures and
margin requirements than in the United States, and (v) lesser trading volume
period.
Sovereign Debt Obligations. No established secondary markets may
exist for many of the Sovereign Debt Obligations in which a Fund may invest.
Reduced secondary market liquidity may have an adverse effect on the market
price and the Fund's ability to dispose of particular instruments when necessary
to meet its liquidity requirements or in response to specific economic events
such as a deterioration in the creditworthiness of the issuer. Reduced secondary
market liquidity for certain Sovereign Debt Obligations may also make it more
difficult for a Fund to obtain accurate market quotations for the purpose of
valuing its portfolio. Market quotations are generally available on many
Sovereign Debt Obligations only from a limited number of dealers and may not
necessarily represent firm bids of those dealers or prices for actual sales.
By investing in Sovereign Debt Obligations, a Fund will be exposed
to the direct or indirect consequences of political, social and economic changes
in various countries. Political changes in a country may affect the willingness
of a foreign government to make or provide for timely payments of its
obligations. The country's economic status, as reflected, among other things, in
its inflation rate, the amount of its external debt and its gross domestic
product, will also affect the government's ability to honor its obligations.
Many countries providing investment opportunities for a Fund have
experienced substantial, and in some periods extremely high, rates of inflation
for many years. Inflation and rapid fluctuations in inflation rates have had and
may continue to have adverse effects on the economies and securities markets of
certain of these countries. In an attempt to control inflation, wage and price
controls have been imposed in certain countries.
Investing in Sovereign Debt Obligations involves economic and
political risks. The Sovereign Debt Obligations in which a Fund may invest in
most cases pertain to countries that are among the world's largest debtors to
commercial banks, foreign governments, international financial organizations and
other financial institutions. In recent years, the governments of some of these
countries have encountered difficulties in servicing their external debt
obligations, which led to defaults on certain obligations and the restructuring
of certain indebtedness. Restructuring arrangements have included, among other
things, obtaining new credit to finance interest payments. Certain governments
have not been able to make payments of interest on or principal of Sovereign
Debt Obligations as those payments have come due. Obligations arising from past
restructuring agreements may affect the economic performance and political and
social stability of those issuers.
Central banks and other governmental authorities which control the
servicing of Sovereign Debt Obligations may not be willing or able to permit the
payment of the principal or interest when due in accordance with the terms of
the obligations. As a result, the issuers of Sovereign Debt Obligations may
default on their obligations. Defaults on certain Sovereign Debt Obligations
have occurred in the past. Holders of certain Sovereign Debt Obligations may be
requested to participate in the restructuring and rescheduling of these
obligations and to extend further loans to the issuers. The interests of holders
of Sovereign Debt Obligations could be adversely affected in the course of
restructuring arrangements or by certain other factors referred to below.
Furthermore, some of the participants in the secondary market for Sovereign Debt
Obligations may also be directly involved in negotiating the terms of these
arrangements and may therefore have access to information not available to other
market participants.
The ability of governments to make timely payments on their
obligations is likely to be influenced strongly by the issuer's balance of
payments, including export performance, and its access to international credits
and investments. A country whose exports are concentrated in a few commodities
could be vulnerable to a decline in the international prices of one or more of
those commodities. Increased protectionism on the part of a country's trading
partners could also adversely affect the country's exports and diminish its
trade account surplus, if any.
To the extent that a country receives payment for its exports in
currencies other than dollars, its ability to make debt payments denominated in
dollars could be adversely affected. To the extent that a country develops a
trade deficit, it will need to depend on continuing loans from foreign
governments, multilateral organizations or private commercial banks, aid
payments from foreign governments and on inflows of foreign investment. The
access of a country to these forms of external funding may not be certain, and a
withdrawal of external funding could adversely affect the capacity of a
government to make payments on its obligations. In addition, the cost of
servicing debt obligations can be affected by a change in international interest
rates since the majority of these obligations carry interest rates that are
adjusted periodically based upon international rates.
Another factor bearing on the ability of a country to repay
Sovereign Debt Obligations is the level of the country's international reserves.
Fluctuations in the level of these reserves can affect the amount of foreign
exchange readily available for external debt payments and, thus, could have a
bearing on the capacity of the country to make payments on its Sovereign Debt
Obligations.
A Fund, except Tax-Aware, is permitted to invest in Sovereign Debt
Obligations that are not current in the payment of interest or principal or are
in default, so long as the Adviser believes it to be consistent with the Fund's
investment objectives. A Fund may have limited legal recourse in the event of a
default with respect to certain Sovereign Debt Obligations it holds. For
example, remedies from defaults on certain Sovereign Debt Obligations, unlike
those on private debt, must, in some cases, be pursued in the courts of the
defaulting party itself. Legal recourse therefore may be significantly
diminished. Bankruptcy, moratorium and other similar laws applicable to issuers
of Sovereign Debt Obligations may be substantially different from those
applicable to issuers of private debt obligations. The political context,
expressed as the willingness of an issuer of Sovereign Debt Obligations to meet
the terms of the debt obligation, for example, is of considerable importance. In
addition, no assurance can be given that the holders of commercial bank debt
will not contest payments to the holders of securities issued by foreign
governments in the event of default under commercial bank loan agreements.
--------------------------------------------------------------------------------
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
Fundamental Investment Policies
-------------------------------
The following fundamental investment policies may not be changed
without approval by the vote of a majority of a Fund's outstanding voting
securities, which means the affirmative vote of the holders of (i) 67% or more
of the shares of the Fund represented at a meeting at which more than 50% of the
outstanding shares are present in person or by proxy or (ii) more than 50% of
the outstanding shares of the Fund, whichever is less.
As a matter of fundamental policy, a Fund:
(a) may not concentrate investments in an industry, as
concentration may be defined under the 1940 Act or the
rules and regulations thereunder (as such statute, rules
or regulations may be amended from time to time) or by
guidance regarding, interpretations of, or exemptive
orders under, the 1940 Act or the rules or regulations
thereunder published by appropriate regulatory
authorities;
(b) may not issue any senior security (as that term is
defined in the 1940 Act) or borrow money, except to the
extent permitted by the 1940 Act or the rules and
regulations thereunder (as such statute, rules or
regulations may be amended from time to time) or by
guidance regarding, or interpretations of, or exemptive
orders under, the 1940 Act or the rules or regulations
thereunder published by appropriate regulatory
authorities. For the purposes of this restriction,
margin and collateral arrangements, including, for
example, with respect to permitted borrowings, options,
futures contracts, options on futures contracts and
other derivatives such as swaps, are not deemed to be
the issuance of a senior security;
(c) may not make loans except through (i) the purchase of
debt obligations in accordance with its investment
objective and policies; (ii) the lending of portfolio
securities; (iii) the use of repurchase agreements; or
(iv) the making of loans to affiliated funds as
permitted under the 1940 Act, the rules and regulations
thereunder (as such statutes, rules or regulations may
be amended from time to time), or by guidance regarding,
and interpretations of, or exemptive orders under, the
1940 Act;
(d) may not purchase or sell real estate except that it may
dispose of real estate acquired as a result of the
ownership of securities or other instruments. This
restriction does not prohibit the Fund from investing in
securities or other instruments backed by real estate or
in securities of companies engaged in the real estate
business;
(e) with respect to High Income and Global Bond, may not
purchase or sell commodities regulated by the CFTC under
the CEA or commodities contracts except for futures
contracts and options on futures contracts, and, with
respect to Intermediate Bond, Unconstrained Bond, Income
Fund and Tax-Aware may purchase or sell commodities or
options thereon to the extent permitted by applicable
law; or
(f) may not act as an underwriter of securities, except that
the Fund may acquire restricted securities under
circumstances in which, if such securities were sold,
the Fund might be deemed to be an underwriter for
purposes of the Securities Act.
As a matter of fundamental policy, each of Global Bond, Intermediate
Bond, Unconstrained Bond, Limited Duration, High Income, Income Fund and
Tax-Aware is diversified (as that term is defined in the 1940 Act). This means
that at least 75% of the Fund's assets consist of:
o Cash or cash items;
o Government securities;
o Securities of other investment companies; and
o Securities of any one issuer that represent not more than 10%
of the outstanding voting securities of the issuer of the
securities and not more than 5% of the total assets of the
Fund.
Non-Fundamental Investment Policies
-----------------------------------
As a matter of non-fundamental policy, each Fund has adopted a
policy that provides that the Fund may not purchase securities on margin, except
(i) as otherwise provided under rules adopted by the SEC under the 1940 Act or
by guidance regarding the 1940 Act, or interpretations thereof, and (ii) that
the Fund may obtain such short-term credits as are necessary for the clearance
of portfolio transactions, and the Fund may make margin payments in connection
with futures contracts, options, forward contracts, swaps, caps, floors, collars
and other financial instruments.
As a matter of non-fundamental policy, High Income has adopted a
policy that provides that the Fund may not purchase shares of any registered
open-end investment company or registered unit investment trust in reliance on
Section 12(d)(1)(F) or (G) of the 1940 Act at any time the Fund has knowledge
that its shares are purchased by another investment company investor in reliance
on the provisions of subparagraph (G) of Section 12(d)(1).
--------------------------------------------------------------------------------
MANAGEMENT OF THE FUNDS
--------------------------------------------------------------------------------
The Adviser
-----------
The Adviser, a Delaware limited partnership with principal offices
at 1345 Avenue of the Americas, New York, New York 10105, has been retained
under an investment advisory agreement (the "Advisory Agreement") to provide
investment advice and, in general, to conduct the management and investment
program of each of the Funds under the supervision of each Fund's Board (see
"Management of the Funds" in the Prospectus). The Adviser is an investment
adviser registered under the Investment Advisers Act of 1940, as amended.
The Adviser is a leading global investment management firm
supervising client accounts with assets as of December 31, 2018, totaling
approximately $516 billion. The Adviser provides management services for many of
the largest U.S. public and private employee benefit plans, endowments,
foundations, public employee retirement funds, banks, insurance companies and
high net worth individuals worldwide.
As of December 31, 2018, the ownership structure of the Adviser,
expressed as a percentage of general and limited partnership interests, was as
follows:
AXA Equitable Holdings and its subsidiaries 63.6%
AllianceBernstein Holding L.P. 35.6
Unaffiliated holders 0.8
----------------
100.0%
================
AXA S.A. ("AXA"), a French holding company for the AXA Group, a
worldwide leader in life, property and casualty and health insurance and asset
management, owns approximately 59.2% of the outstanding common stock of AXA
Equitable Holdings, Inc. ("AXA Equitable") as of December 31, 2018.
As of December 31, 2018, AXA Equitable owns approximately 4.2% of
the issued and outstanding units representing assignments of beneficial
ownership of limited partnership interests in AllianceBernstein Holding L.P.
("AB Holding"). AllianceBernstein Corporation (an indirect wholly-owned
subsidiary of AXA Equitable, "GP") is the general partner of both AB Holding and
the Adviser. The GP owns 100,000 general partnership units in AB Holding and a
1% general partnership interest in the Adviser.
Including both the general partnership and limited partnership
interests in AB Holding and the Adviser, AXA Equitable and its subsidiaries have
an approximate 65.2% economic interest in the Adviser as of December 31, 2018.
See "Management of Funds - Investment Adviser" in the Funds'
Prospectus for additional information about the ownership structure of the
Adviser and related matters.
Advisory Agreements and Expenses
--------------------------------
The Adviser serves as investment manager and adviser of each of the
Funds, continuously furnishes an investment program for each Fund, and manages,
supervises and conducts the affairs of each Fund, subject to supervision of each
Fund's Board.
Under the Advisory Agreements for the Funds, the Adviser furnishes
advice and recommendations with respect to the Funds' portfolio of securities
and investments and provides persons satisfactory to the Board to act as
officers of the Funds. Such officers and employees may be employees of the
Adviser or its affiliates.
The Adviser is, under each Fund's Advisory Agreement, responsible
for certain expenses incurred by the Fund, including, for example, office
facilities, and any expenses incurred in promoting the sale of Fund shares
(other than the portion of the promotional expenses borne by the Fund in
accordance with an effective plan pursuant to Rule 12b-1 under the 1940 Act, and
the costs of printing Fund prospectuses and other reports to shareholders and
fees related to registration with the SEC and with state regulatory
authorities).
The Funds have under the Advisory Agreements assumed the obligation
for payment of all of their other expenses. As to the obtaining of services
other than those specifically provided to the Funds by the Adviser, each Fund
may employ its own personnel. The Advisory Agreements provide for reimbursement
to the Adviser of the costs of certain non-advisory services provided to the
Funds. Costs currently reimbursed include the costs of the Adviser's personnel
performing certain administrative services for the Funds, including clerical,
accounting, legal and other services ("administrative services"), and associated
overhead costs, such as office space, supplies and information technology. The
administrative services are provided to the Funds on a fully-costed basis (i.e.,
includes each person's total compensation and a factor reflecting the Adviser's
total cost relating to that person, including all related overhead expenses).
The reimbursement of these costs to the Adviser will be specifically approved by
the Fund's Board. For the fiscal year ended October 31, 2018, for Intermediate
Bond, Unconstrained Bond, High Income, Income Fund and Tax-Aware, the Funds paid
the Adviser a total of $73,345, $90,270, $63,952, $67,265 and $55,897,
respectively, for these services. For the fiscal year ended September 30, 2018
for Limited Duration and Global Bond, the Funds paid the Adviser a total of
$70,027 and $69,045, respectively, for these services.
Each Advisory Agreement continues in effect, provided that such
continuance is specifically approved at least annually by a vote of a majority
of the Fund's outstanding voting securities or by the Fund's Board and, in
either case, by a majority of the Directors who are not parties to the Advisory
Agreement or interested persons of any such party. Most recently, continuance of
each advisory agreement was approved for an additional annual term by the Board
at meetings held on November 6-8, 2018.
Any material amendments to the Advisory Agreements must be approved
by a vote of the outstanding securities of the relevant Fund and by a vote of a
majority of the Directors who are not interested persons of the Fund or the
Adviser. The Advisory Agreements are terminable without penalty on 60 days'
written notice by a vote of a majority of the Funds' outstanding voting
securities or by a vote of a majority of the Directors or by the Adviser, and
will automatically terminate in the event of assignment. Each Advisory Agreement
provides that in the absence of willful misfeasance, bad faith or gross
negligence on the part of the Adviser, or of reckless disregard of its
obligations thereunder, the Adviser shall not be liable for any action or
failure to act in accordance with its duties thereunder.
The Adviser is compensated for its services at the following annual
rates:
Fund Annual Percentage Rate
----- ----------------------
Intermediate Bond* .45 of 1% of the first $2.5 billion of average net assets
.40 of 1% of the excess of $2.5 billion up to $5 billion of average net assets
.35 of 1% of the excess over $5 billion up to $8 billion of average net assets
.30 of 1% of the excess over $8 billion of average net assets
Limited Duration** .55 of 1% of the first $2.5 billion of average net assets
.50 of 1% of the excess of $2.5 billion up to $5 billion of average net assets
.45 of 1% of the excess over $5 billion of average net assets
Unconstrained Bond .50 of 1% for the first $2.5 billion of average daily net assets
.45 of 1% of the excess of $2.5 billion up to $5 billion of average daily net assets
.40 of 1% of the excess over $5 billion of average daily net assets
Global Bond .50 of 1% for the first $2.5 billion of average daily adjusted total assets
.45 of 1% of the excess of $2.5 billion up to $5 billion of average daily adjusted
total assets
.40 of 1% of the excess over $5 billion of average daily adjusted total assets (i.e.,
the average daily value of total assets, minus the sum of accrued liabilities (other
than the principal amount of money borrowed))
High Income .50 of 1% for the first $2.5 billion of average daily adjusted total assets
.45 of 1% of the excess of $2.5 billion up to $5 billion of average daily adjusted
total assets
.40 of 1% of the excess over $5 billion of average daily adjusted total assets (i.e.,
the average daily value of total assets, minus the sum of accrued liabilities (other
than the principal amount of money borrowed))
Income Fund*** .45 of 1% for the first $2.5 billion of average net assets
.40 of 1% of the excess of $2.5 billion up to $5 billion of average net assets
.35 of 1% of the excess over $5 billion of average net assets
Tax-Aware**** .45 of 1% for the first $2.5 billion of average net assets
.40 of 1% of the excess of $2.5 billion up to $5 billion of average net assets
.35 of 1% of the excess over $5 billion of average net assets
* Effective January 31, 2018. Prior to January 31, 2018, the Adviser was
compensated at an annual rate of .45 of 1% of the first $2.5 billion of
average net assets, .40 of 1% of the excess over $2.5 billion up to $5
billion of average net assets and .35 of 1% of the excess over $5 billion
of average net assets with respect to Intermediate Bond.
** Effective January 1, 2017. Prior to January 1, 2017, the Adviser was
compensated at an annual rate of .60 of 1% of the first $2.5 billion of
average net assets, .55 of 1% of the excess of $2.5 billion up to $5
billion of average net assets and .50 of 1% of the excess over $5 billion
of average net assets with respect to Limited Duration.
*** Effective January 29, 2017. Prior to January 29, 2017, the Adviser was
compensated at an annual rate of .60 of 1% of the first $2.5 billion of
average net assets, .55 of 1% of the excess over $2.5 billion up to $5
billion of average net assets and .50 of 1% of the excess over $5 billion
of average net assets with respect to Income Fund.
**** Effective January 1, 2017. Prior to January 1, 2017, the Adviser was
compensated at an annual rate of .50% of average net assets with respect
to Tax-Aware.
The fee is accrued daily and paid monthly.
Effective January 1, 2017, with respect to Limited Duration, the
Adviser has agreed to waive its management fee and/or bear expenses of the Fund
until January 31, 2020 to the extent necessary to prevent total Fund operating
expenses, on an annual basis, from exceeding .95%, 1.70% and .70% of average
daily net assets, respectively, for Class A, Class C and Advisor Class shares
(excluding acquired fund fees and expenses of any AB Mutual Funds in which the
Fund may invest, interest expense, taxes, extraordinary expenses, and brokerage
commissions and other transaction costs). Prior to January 1, 2017, the Adviser
had agreed to waive its fee and bear certain expenses so that the total
operating expenses, excluding interest expense, did not, on an annual basis,
exceed 1.05%, 1.80% and .80% of average daily net assets, respectively, for
Class A, Class C and Advisor Class shares.
Effective January 29, 2017, with respect to Income Fund, the Adviser
has contractually agreed to waive its fee and bear certain expenses until
January 31, 2020 so that total expenses (excluding acquired fund fees and
expenses other than the advisory fees of any AB Mutual Funds in which the Fund
may invest, interest expense, expenses on securities sold short, brokerage
commissions and other transaction costs, taxes and extraordinary expenses) do
not exceed on an annual basis .77%, 1.52% and .52% of average daily net assets,
respectively, for Class A, Class C and Advisor Class shares ("expense
limitations"). The expense limitations will remain in effect until January 31,
2020 and will continue thereafter from year to year unless the Adviser provides
notice of termination to the Fund at least 60 days prior to the end of the
period. Any fees waived and expenses borne by the Adviser are may be reimbursed
by the Fund until the end of the third fiscal year after the fiscal period in
which the fee was waived or the expense was borne, provided that no
reimbursement payment will be made that would otherwise cause the Fund's total
annualized operating expenses to exceed the expense limitations. Prior to
January 29, 2017, the Adviser had agreed to waive its fee and bear certain
expenses so that the total operating expenses (excluding acquired fund fees and
expenses other than the advisory fees of any AB Mutual Funds in which the Fund
may invest, interest expense, expenses on securities sold short, brokerage
commissions and other transaction costs, taxes and extraordinary expenses) did
not, on an annual basis, exceed .88%, 1.63%, .63%, 1.13%, .88%, .63% and .63% of
average daily net assets, respectively, for Class A, Class C, Advisor Class,
Class R, Class K, Class I and Class Z shares.
The Adviser has contractually agreed, with respect to Intermediate
Bond, Unconstrained Bond and Tax-Aware, for the period from the effective date
of each Fund's Prospectus to the effective date of the subsequent Prospectus
incorporating each Fund's annual financial statements (the "Period") to waive
its fee and bear certain expenses so that total operating expenses, excluding
interest expense (or for Tax-Aware, excluding expenses associated with
securities sold short, acquired fund fees and expenses other than the advisory
fees of any AB Mutual Funds in which the Fund may invest, interest expense,
taxes, extraordinary expenses, and brokerage commissions and other transaction
costs), do not, on an annual basis, exceed the amounts noted for the Funds
listed in the table below. These fee waiver and/or expense reimbursement
agreements automatically extend each year unless the Adviser provides notice 60
days prior to the end of the Period.
Fund Expense Caps
---- ------------
Intermediate Bond* Class A .77% of average net assets
Class B 1.52% of average net assets
Class C 1.52% of average net assets
Advisor Class .52% of average net assets
Class R 1.02% of average net assets
Class K .77% of average net assets
Class I .52% of average net assets
Class Z .52% of average net assets
Unconstrained Bond Class A .90% of aggregate daily net assets
Class B 1.65% of aggregate daily net assets
Class C 1.65% of aggregate daily net assets
Advisor Class .65% of aggregate daily net assets
Class R 1.15% of aggregate daily net assets
Class K .90% of aggregate daily net assets
Class I .65% of aggregate daily net assets
Class Z .65% of aggregate daily net assets
Tax-Aware** Class A .75% of aggregate daily net assets
Class C 1.50% of aggregate daily net assets
Advisor Class .50% of aggregate daily net assets
* Effective February 1, 2017. Prior to February 1, 2017, the Adviser had
agreed to waive its fee and bear certain expenses so that the total
operating expenses, excluding interest expense, did not, on an annual
basis, exceed .85%, 1.60%, 1.60%, .60%, 1.10%, .85%, .60% and .60% of
average net assets, respectively, for Class A, Class B, Class C, Advisor
Class, Class R, Class K, Class I and Class Z shares.
** Effective January 1, 2017. Prior to January 1, 2017, the Adviser had
agreed to waive its fee and bear certain expenses so that the total
operating expenses (excluding expenses associated with securities sold
short, acquired fund fees and expenses other than the advisory fees of any
AB Mutual Funds in which the Fund may invest, interest expense, taxes,
extraordinary expenses, and brokerage commissions and other transaction
costs) did not, on an annual basis, exceed .80%, 1.55% and .55% of
aggregate daily net assets, respectively, for Class A, Class C and Advisor
Class shares.
In addition, to the extent that a Fund invests in AB Government
Money Market Portfolio (except for the investment of any cash collateral from
securities lending), the Adviser has contractually agreed to waive its
management fee from the Fund in an amount equal to the Fund's pro rata share of
the AB Government Money Market Portfolio's effective management fee. This
agreement will remain in effect until January 31, 2020 and will continue
thereafter from year to year unless the Adviser provides notice of termination
to the Fund at least 60 days prior to the end of the period. To the extent that
a Fund invests securities lending cash collateral in the AB Government Money
Market Portfolio, the Adviser has also agreed to waive a portion of the Fund's
share of the advisory fees of AB Government Money Market Portfolio. In
connection with the investment by the Funds in the AB Government Money Market
Portfolio, the Adviser waived its investment management fee from Intermediate
Bond, Unconstrained Bond, High Income, Income Fund and Tax-Aware in the amount
of $7,737, $23,602, $277,019, $16,967 and $1,076, respectively, for the fiscal
year ended October 31, 2016, $8,359, $62,024, $359,745, $29,559 and $5,796,
respectively, for the fiscal year ended October 31, 2017, and $7,405, $26,657,
$165,770, $63,228 and $1,573, respectively, for the fiscal year ended October
31, 2018, and from Limited Duration and Global Bond in the amount of $32,249 and
$116,131, respectively, for the fiscal year ended September 30, 2016, $76,102
and $223,351, respectively, for the fiscal year ended September 30, 2017, and
$14,870 and $213,644, respectively, for the fiscal year ended September 30,
2018.
For the three most recent fiscal years or since inception of the
Funds, the Funds paid the Adviser advisory fees as follows:
Amounts Waived or
Reimbursed under Expense
Fund Advisory Fees Limitation Undertaking
---- ------------- ----------------------
Intermediate Bond
2018 $1,617,102 $840,486
2017 $1,615,767 $836,778
2016 $1,591,173 $625,527
Limited Duration
2018 $1,540,794 $266,035
2017 $1,896,053 $229,482
2016 $1,741,495 $175,273
Unconstrained Bond
2018 $1,526,873 $496,464
2017 $1,507,596 $418,033
2016 $1,596,625 $452,745
Global Bond
2018 $31,413,114 $0
2017 $29,134,610 $0
2016 $24,097,113 $0
High Income
2018 $32,529,621 $0
2017 $35,531,703 $0
2016 $30,115,930 $0
Income Fund
2018 $11,554,392 $2,076,002
2017 $5,759,192 $1,361,441
2016 $6,979,775 $990,111
Tax-Aware
2018 $312,885 $305,597
2017 $258,988 $300,737
2016 $196,813 $308,027
The Adviser may act as an investment adviser to other persons, firms
or corporations, including investment companies, and is the investment adviser
to AB Cap Fund, Inc., AB Core Opportunities Fund, Inc., AB Corporate Shares, AB
Discovery Growth Fund, Inc., AB Equity Income Fund, Inc., AB Fixed-Income
Shares, Inc., AB Global Real Estate Investment Fund, Inc., AB Global Risk
Allocation Fund, Inc., AB Institutional Funds, Inc., AB Large Cap Growth Fund,
Inc., AB Municipal Income Fund, Inc., AB Municipal Income Fund II, AB Relative
Value Fund, Inc., AB Sustainable Global Thematic Fund, Inc., AB Sustainable
International Thematic Fund, Inc., AB Trust, AB Variable Products Series Fund,
Inc., Sanford C. Bernstein Fund, Inc., Bernstein Fund, Inc., Sanford C.
Bernstein Fund II, Inc. and The AB Portfolios, all registered open-end
investment companies; and to AllianceBernstein Global High Income Fund, Inc., AB
Multi-Manager Alternative Fund, AllianceBernstein National Municipal Income
Fund, Inc. and Alliance California Municipal Income Fund, Inc., all registered
closed-end investment companies. The registered investment companies for which
the Adviser serves as investment adviser are referred to collectively below as
the "AB Fund Complex", while all of these investment companies, except Bernstein
Fund, Inc., Sanford C. Bernstein Fund, Inc. and the AB Multi-Manager Alternative
Fund, are referred to collectively below as the "AB Funds".
Certain other clients of the Adviser may have investment objectives
and policies similar to those of a Fund. The Adviser may, from time to time,
make recommendations which result in the purchase or sale of the particular
security by its other clients simultaneously with a purchase or sale thereof by
the Fund. If transactions on behalf of more than one client during the same
period increase the demand for securities being purchased or the supply of
securities being sold, there may be an adverse effect on price. It is the policy
of the Adviser to allocate advisory recommendations and the placing of orders in
a manner that is deemed equitable by the Adviser to the accounts involved,
including the Fund. When two or more of the Adviser's clients (including the
Fund) are purchasing or selling the same security on a given day through the
same broker or dealer, such transactions may be averaged as to price.
Board of Directors Information
------------------------------
Certain information concerning the Funds' Directors is set forth below.
PORTFOLIOS IN AB
NAME, ADDRESS*, FUND COMPLEX OTHER PUBLIC COMPANY
AGE AND PRINCIPAL OCCUPATION(S) DURING PAST OVERSEEN DIRECTORSHIPS CURRENTLY
(YEAR FIRST ELECTED**) FIVE YEARS AND OTHER INFORMATION BY DIRECTOR HELD BY DIRECTOR
---------------------- -------------------------------- ---------------- ------------------------
INDEPENDENT
DIRECTORS
---------
Marshall C. Turner, Jr.,# Private Investor since prior to 2014. 94 Xilinx, Inc.
77 Former Chairman and CEO of Dupont (programmable logic
Chairman of the Board Photomasks, Inc. (components of semi-conductors) since
(2005 - Intermediate Bond) semi-conductor manufacturing). He has 2007
(2005 - Global Bond) extensive operating leadership and
(2005 - High Income) venture capital investing experience,
(2005 - Unconstrained Bond) including five interim or full-time
(2011 - Limited Duration) CEO roles, and prior service as
(2013 - Tax-Aware) general partner of institutional
(2015 - Income Fund) venture capital partnerships. He also
has extensive non-profit board
leadership experience, and currently
serves on the boards of two education
and science-related non-profit
organizations. He has served as a
director of one AB Fund since 1992,
and director or trustee of multiple AB
Funds since 2005. He has been
Chairman of the AB Funds since January
2014, and the Chairman of the
Independent Directors Committees of
such AB Funds since February 2014.
Michael J. Downey,# Private Investor since prior to 2014. 94 The Asia Pacific Fund,
75 Formerly, managing partner of Inc. (registered
(2005 - Intermediate Bond) Lexington Capital, LLC (investment investment company)
(2005 - Global Bond) advisory firm) from December 1997 since prior to 2014
(2005 - High Income) until December 2003. He served as a
(2005 - Unconstrained Bond) Director of Prospect Acquisition Corp.
(2011 - Limited Duration) (financial services) from 2007 until
(2013 - Tax-Aware) 2009. From 1987 until 1993, Chairman
(2015 - Income Fund) and CEO of Prudential Mutual Fund
Management, director of the Prudential
mutual funds and member of the
Executive Committee of Prudential
Securities Inc. He has served as a
director or trustee of the AB Funds
since 2005 and is a director and
chairman of one other registered
investment company.
Nancy P. Jacklin,# Private Investor since prior to 2014. 94 None
70 Professorial Lecturer at the Johns
(2006 - Intermediate Bond) Hopkins School of Advanced
(2006 - Global Bond) International Studies (2008-2015);
(2006 - High Income) U.S. Executive Director of the
(2006 - Unconstrained Bond) International Monetary Fund (which is
(2011 - Limited Duration) responsible for ensuring the stability
(2013 - Tax-Aware) of the international monetary system)
(2015 - Income Fund) (December 2002-May 2006); Partner,
Clifford Chance (1992-2002); Sector
Counsel, International Banking and
Finance, and Associate General
Counsel, Citicorp (1985-1992);
Assistant General Counsel
(International), Federal Reserve Board
of Governors (1982-1985); and Attorney
Advisor, U.S. Department of the
Treasury (1973-1982). Member of the
Bar of the District of Columbia and of
New York; and member of the Council on
Foreign Relations. She has served as
a director or trustee of the AB Funds
since 2006 and has been Chair of the
Governance and Nominating Committees
of the AB Funds since August 2014.
Carol C. McMullen,# Managing Director of Slalom Consulting 94 None
63 (consulting) since 2014, private
(2016) investor and member of the Partners
Healthcare Investment Committee.
Formerly, Director of Norfolk & Dedham
Group (mutual property and casualty
insurance) from 2011 until November
2016; Director of Partners Community
Physicians Organization (healthcare)
from 2014 until December 2016; and
Managing Director of The Crossland
Group (consulting) from 2012 until
2013. She has held a number of senior
positions in the asset and wealth
management industries, including at
Eastern Bank (where her roles included
President of Eastern Wealth
Management), Thomson Financial (Global
Head of Sales for Investment
Management), and Putnam Investments
(where her roles included Head of
Global Investment Research). She has
served on a number of private company
and nonprofit boards, and as a
director or trustee of the AB Funds
since June 2016.
Garry L. Moody,# Independent Consultant. Formerly, 94 None
66 Partner, Deloitte & Touche LLP
(2008 - Intermediate Bond) (1995-2008) where he held a number of
(2008 - Global Bond) senior positions, including Vice
(2008 - High Income) Chairman, and U.S. and Global
(2008 - Unconstrained Bond) Investment Management Practice
(2011 - Limited Duration) Managing Partner; President, Fidelity
(2013 - Tax-Aware) Accounting and Custody Services
(2015 - Income Fund) Company (1993-1995), where he was
responsible for accounting, pricing,
custody and reporting for the Fidelity
mutual funds; and Partner, Ernst &
Young LLP (1975-1993), where he served
as the National Director of Mutual
Fund Tax Services and Managing Partner
of its Chicago Office Tax department.
He is a member of the Trustee Advisory
Board of BoardIQ, a biweekly
publication focused on issues and news
affecting directors of mutual funds.
He has served as a director or
trustee, and as Chairman of the Audit
Committees, of the AB Funds since
2008.
Earl D. Weiner,# Of Counsel, and Partner prior to 94 None
79 January 2007, of the law firm Sullivan
(2007 - Intermediate Bond) & Cromwell LLP and is a former member
(2007 - Global Bond) of the ABA Federal Regulation of
(2007 - High Income) Securities Committee Task Force to
(2007 - Unconstrained Bond) draft editions of the Fund Director's
(2011 - Limited Duration) Guidebook. He also serves as a
(2013 - Tax-Aware) director or trustee of various
(2015 - Income Fund) non-profit organizations and has
served as Chairman or Vice Chairman of
a number of them. He has served as a
director or trustee of the AB Funds
since 2007 and served as Chairman of
the Governance and Nominating
Committees of the AB Funds from 2007
until August 2014.
INTERESTED DIRECTOR
-------------------
Robert M. Keith,+ Senior Vice President of the Adviser++ 94 None
58 and the head of AllianceBernstein
(2010 - Intermediate Bond) Investments, Inc. ("ABI")++ since July
(2010 - Global Bond) 2008; Director of ABI and President of
(2010 - High Income) the AB Mutual Funds. Previously, he
(2010 - Unconstrained Bond) served as Executive Managing Director
(2011 - Limited Duration) of ABI from December 2006 to June
(2013 - Tax-Aware) 2008. Prior to joining ABI in 2006,
(2015 - Income Fund) Executive Managing Director of
Bernstein Global Wealth Management,
and prior thereto, Senior Managing
Director and Global Head of Client
Service and Sales of the Adviser's
institutional investment management
business since 2004. Prior thereto,
he was Managing Director and Head of
North American Client Service and
Sales in the Adviser's institutional
investment management business, with
which he had been associated since
prior to 2004.
--------
* The address for each of the Fund's Directors is c/o AllianceBernstein L.P.,
Attention: Legal & Compliance Department - Mutual Fund Legal, 1345 Avenue
of the Americas, New York, NY 10105.
** There is no stated term of office for the Funds' Directors.
# Member of the Audit Committee, the Governance and Nominating Committee and
the Independent Directors Committee.
+ Mr. Keith is an "interested person", as defined in Section 2(a)(19) of the
1940 Act, of the Funds because of his affiliation with the Adviser.
++ The Adviser and ABI are affiliates of the Funds.
In addition to the public company directorships currently held by
the Directors set forth in the table above, Mr. Turner was a director of
SunEdison, Inc. (solar materials and power plants) since prior to 2014 until
July 2014.
The business and affairs of each Fund are overseen by the Board.
Directors who are not "interested persons" of the Fund as defined in the 1940
Act, are referred to as "Independent Directors", and Directors who are
"interested persons" of the Fund are referred to as "Interested Directors".
Certain information concerning the Fund's governance structure and each Director
is set forth below.
Experience, Skills, Attributes and Qualifications of the Funds'
Directors. The Governance and Nominating Committee of each Fund's Board, which
is composed of Independent Directors, reviews the experience, qualifications,
attributes and skills of potential candidates for nomination or election by the
Board, and conducts a similar review in connection with the proposed nomination
of current Directors for re-election by shareholders at any annual or special
meeting of shareholders. In evaluating a candidate for nomination or election as
a Director, the Governance and Nominating Committee takes into account the
contribution that the candidate would be expected to make to the diverse mix of
experience, qualifications, attributes and skills that the Governance and
Nominating Committee believes contributes to good governance for the Fund.
Additional information concerning the Governance and Nominating Committee's
consideration of nominees appears in the description of the Committee below.
Each Fund's Board believes that, collectively, the Directors have
balanced and diverse experience, qualifications, attributes and skills, which
allow the Board to operate effectively in governing the Fund and protecting the
interests of shareholders. The Board of each Fund has concluded that, based on
each Director's experience, qualifications, attributes or skills on an
individual basis and in combination with those of the other Directors, each
Director is qualified and should continue to serve as such.
In determining that a particular Director was and continues to be
qualified to serve as a Director, each Board has considered a variety of
criteria, none of which, in isolation, was controlling. In addition, each Board
has taken into account the actual service and commitment of each Director during
his or her tenure (including the Director's commitment and participation in
Board and committee meetings, as well as his or her current and prior leadership
of standing and ad hoc committees) in concluding that each should continue to
serve. Additional information about the specific experience, skills, attributes
and qualifications of each Director, which in each case led to the Board's
conclusion that the Director should serve (or continue to serve) as trustee or
director of the Funds, is provided in the table above and in the next paragraph.
Among other attributes and qualifications common to all Directors
are their ability to review critically, evaluate, question and discuss
information provided to them (including information requested by the Directors),
to interact effectively with the Adviser, other service providers, counsel and
the Fund's independent registered public accounting firm, and to exercise
effective business judgment in the performance of their duties as Directors. In
addition to his or her service as a Director of the Fund and other AB Funds as
noted in the table above: Mr. Downey has experience in the investment advisory
business including as Chairman and Chief Executive Officer of a large fund
complex and as director of a number of non-AB funds and as Chairman of a non-AB
closed-end fund; Ms. Jacklin has experience as a financial services regulator,
as U.S. Executive Director of the International Monetary Fund (which is
responsible for ensuring the stability of the international monetary system),
and as a financial services lawyer in private practice, and has served as Chair
of the Governance and Nominating Committees of the AB Funds since August 2014;
Mr. Keith has experience as an executive of the Adviser with responsibility for,
among other things, the AB Funds; Ms. McMullen has experience as a management
consultant and as a director of various private companies and non-profit
organizations, as well as extensive asset management experience at a number of
companies, including as an executive in the areas of portfolio management,
research, and sales and marketing; Mr. Moody has experience as a certified
public accountant including experience as Vice Chairman and U.S. and Global
Investment Management Practice Partner for a major accounting firm, is a member
of both the governing council of an organization of independent directors of
mutual funds, and the Trustee Advisory Board of BoardIQ, a biweekly publication
focused on issues and news affecting directors of mutual funds, and has served
as a director or trustee and Chairman of the Audit Committees of the AB Funds
since 2008; Mr. Turner has experience as a director (including Chairman and
Chief Executive Officer of a number of companies) and as a venture capital
investor including prior service as general partner of three institutional
venture capital partnerships, and has served as Chairman of the AB Funds since
January 2014 and Chairman of the Independent Directors Committees of such Funds
since February 2014; and Mr. Weiner has experience as a securities lawyer whose
practice included registered investment companies and as a director or trustee
of various nonprofit organizations and served as Chairman or Vice Chairman of a
number of them, and has served as Chairman of the Governance and Nominating
Committees of the AB Funds from 2007 until August 2014. The disclosure herein of
a director's experience, qualifications, attributes and skills does not impose
on such director any duties, obligations, or liability that are greater than the
duties, obligations and liability imposed on such director as a member of the
Board and any committee thereof in the absence of such experience,
qualifications, attributes and skills.
Board Structure and Oversight Function. Each Fund's Board is
responsible for oversight of that Fund. Each Fund has engaged the Adviser to
manage the Fund on a day-to-day basis. Each Board is responsible for overseeing
the Adviser and the Fund's other service providers in the operations of that
Fund in accordance with the Fund's investment objective and policies and
otherwise in accordance with its prospectus, the requirements of the 1940 Act
and other applicable Federal, state and other securities and other laws, and the
Fund's charter and bylaws. Each Board typically meets in-person at regularly
scheduled meetings four times throughout the year. In addition, the Directors
may meet in-person or by telephone at special meetings or on an informal basis
at other times. The Independent Directors also regularly meet without the
presence of any representatives of management. As described below, each Board
has established three standing committees - the Audit, Governance and Nominating
and Independent Directors Committees - and may establish ad hoc committees or
working groups from time to time to assist the Board in fulfilling its oversight
responsibilities. Each committee is composed exclusively of Independent
Directors. The responsibilities of each committee, including its oversight
responsibilities, are described further below. The Independent Directors have
also engaged independent legal counsel, and may from time to time engage
consultants and other advisors, to assist them in performing their oversight
responsibilities.
An Independent Director serves as Chairman of each Board. The
Chairman's duties include setting the agenda for each Board meeting in
consultation with management, presiding at each Board meeting, meeting with
management between Board meetings, and facilitating communication and
coordination between the Independent Directors and management. The Directors
have determined that a Board's leadership by an Independent Director and its
committees composed exclusively of Independent Directors is appropriate because
they believe it sets the proper tone to the relationships between the Fund, on
the one hand, and the Adviser and other service providers, on the other, and
facilitates the exercise of the Board's independent judgment in evaluating and
managing the relationships. In addition, each Fund is required to have an
Independent Director as Chairman pursuant to certain 2003 regulatory settlements
involving the Adviser.
Risk Oversight. Each Fund is subject to a number of risks, including
investment, compliance and operational risks, including cyber risks. Day-to-day
risk management with respect to a Fund resides with the Adviser or other service
providers (depending on the nature of the risk), subject to supervision by the
Adviser. Each Board has charged the Adviser and its affiliates with (i)
identifying events or circumstances, the occurrence of which could have
demonstrable and material adverse effects on the Fund; (ii) to the extent
appropriate, reasonable or practicable, implementing processes and controls
reasonably designed to lessen the possibility that such events or circumstances
occur or to mitigate the effects of such events or circumstances if they do
occur; and (iii) creating and maintaining a system designed to evaluate
continuously, and to revise as appropriate, the processes and controls described
in (i) and (ii) above.
Risk oversight forms part of a Board's general oversight of a Fund's
investment program and operations and is addressed as part of various regular
Board and committee activities. Each Fund's investment management and business
affairs are carried out by or through the Adviser and other service providers.
Each of these persons has an independent interest in risk management but the
policies and the methods by which one or more risk management functions are
carried out may differ from the Fund's and each other's in the setting of
priorities, the resources available or the effectiveness of relevant controls.
Oversight of risk management is provided by the Board and the Audit Committee.
The Directors regularly receive reports from, among others, management
(including the Chief Risk Officer of the Adviser), the Fund's Chief Compliance
Officer, the Fund's independent registered public accounting firm, the Adviser's
internal legal counsel, the Adviser's Chief Compliance Officer and internal
auditors for the Adviser, as appropriate, regarding risks faced by the Fund and
the Adviser's risk management programs. In addition, the Directors receive
regular updates on cyber security matters from the Adviser.
Not all risks that may affect a Fund can be identified, nor can
controls be developed to eliminate or mitigate their occurrence or effects. It
may not be practical or cost-effective to eliminate or mitigate certain risks,
the processes and controls employed to address certain risks may be limited in
their effectiveness, and some risks are simply beyond the reasonable control of
the Fund or the Adviser, its affiliates or other service providers. Moreover, it
is necessary to bear certain risks (such as investment-related risks) to achieve
a Fund's goals. As a result of the foregoing and other factors a Fund's ability
to manage risk is subject to substantial limitations.
Board Committees. Each Fund's Board has three standing committees -
an Audit Committee, a Governance and Nominating Committee and an Independent
Directors Committee. The members of the Audit, Governance and Nominating and
Independent Directors Committees are identified above.
The function of the Audit Committee is to assist the Boards in their
oversight of each Fund's accounting and financial reporting policies and
practices. The Audit Committee of Intermediate Bond, Limited Duration,
Unconstrained Bond, Global Bond, High Income, Income Fund and Tax-Aware met
three times during the Funds' most recently completed fiscal year.
The function of the Governance and Nominating Committee includes the
nomination of persons to fill any vacancies or newly created positions on the
Boards. The Governance and Nominating Committee of Intermediate Bond, Limited
Duration, Unconstrained Bond, Global Bond, High Income, Income Fund and
Tax-Aware met four times during the Funds' most recently completed fiscal year.
The Board has adopted a charter for its Governance and Nominating
Committee. Pursuant to the charter, the Committee assists the Board in carrying
out its responsibilities with respect to governance of the Fund and identifies,
evaluates, selects and nominates candidates for the Board. The Committee may
also set standards or qualifications for Directors and reviews at least annually
the performance of each Director, taking into account factors such as attendance
at meetings, adherence to Board policies, preparation for and participation at
meetings, commitment and contribution to the overall work of the Board and its
committees, and whether there are health or other reasons that might affect the
Director's ability to perform his or her duties. The Committee may consider
candidates for nomination as Directors submitted by the Fund's current Board
members, officers, the Adviser, shareholders and other appropriate sources.
Pursuant to the charter, the Governance and Nominating Committee
will consider candidates for nomination as a Director submitted by a shareholder
or group of shareholders who have beneficially owned at least 5% of the Fund's
common stock or shares of beneficial interest for at least two years prior to
the time of submission and who timely provide specified information about the
candidates and the nominating shareholder or group. To be timely for
consideration by the Governance and Nominating Committee, the submission,
including all required information, must be submitted in writing to the
attention of the Secretary at the principal executive offices of the Funds not
less than 120 days before the date of the proxy statement for the previous
year's annual meeting of shareholders. If the Funds did not hold an annual
meeting of shareholders in the previous year, the submission must be delivered
or mailed and received within a reasonable amount of time before the Funds begin
to print and mail their proxy materials. Public notice of such upcoming annual
meeting of shareholders may be given in a shareholder report or other mailing to
shareholders or by other means deemed by the Governance and Nominating Committee
or the Board to be reasonably calculated to inform shareholders.
Shareholders submitting a candidate for consideration by the
Governance and Nominating Committee must provide the following information to
the Governance and Nominating Committee: (i) a statement in writing setting
forth (A) the name, date of birth, business address and residence address of the
candidate; (B) any position or business relationship of the candidate, currently
or within the preceding five years, with the shareholder or an associated person
of the shareholder as defined below; (C) the class or series and number of all
shares of a Fund owned of record or beneficially by the candidate; (D) any other
information regarding the candidate that is required to be disclosed about a
nominee in a proxy statement or other filing required to be made in connection
with the solicitation of proxies for election of Directors pursuant to Section
20 of the 1940 Act and the rules and regulations promulgated thereunder; (E)
whether the shareholder believes that the candidate is or will be an "interested
person" of the Funds (as defined in the 1940 Act) and, if believed not to be an
"interested person", information regarding the candidate that will be sufficient
for the Funds to make such determination; and (F) information as to the
candidate's knowledge of the investment company industry, experience as a
director or senior officer of public companies, directorships on the boards of
other registered investment companies and educational background; (ii) the
written and signed consent of the candidate to be named as a nominee and to
serve as a Director if elected; (iii) the written and signed agreement of the
candidate to complete a directors' and officers' questionnaire if elected; (iv)
the shareholder's consent to be named as such by the Funds; (v) the class or
series and number of all shares of the Funds owned beneficially and of record by
the shareholder and any associated person of the shareholder and the dates on
which such shares were acquired, specifying the number of shares owned
beneficially but not of record by each, and stating the names of each as they
appear on the Funds' record books and the names of any nominee holders for each;
and (vi) a description of all arrangements or understandings between the
shareholder, the candidate and/or any other person or persons (including their
names) pursuant to which the recommendation is being made by the shareholder.
"Associated person of the shareholder" means any person who is required to be
identified under clause (vi) of this paragraph and any other person controlling,
controlled by or under common control with, directly or indirectly, (a) the
shareholder or (b) the associated person of the shareholder.
The Governance and Nominating Committee may require the shareholder
to furnish such other information as it may reasonably require or deem necessary
to verify any information furnished pursuant to the nominating procedures
described above or to determine the qualifications and eligibility of the
candidate proposed by the shareholder to serve on the Board. If the shareholder
fails to provide such other information in writing within seven days of receipt
of written request from the Governance and Nominating Committee, the
recommendation of such candidate as a nominee will be deemed not properly
submitted for consideration, and will not be considered, by the Committee.
The Governance and Nominating Committee will consider only one
candidate submitted by such a shareholder or group for nomination for election
at an annual meeting of shareholders. The Governance and Nominating Committee
will not consider self-nominated candidates. The Governance and Nominating
Committee will consider and evaluate candidates submitted by shareholders on the
basis of the same criteria as those used to consider and evaluate candidates
submitted from other sources. These criteria include the candidate's relevant
knowledge, experience, and expertise, the candidate's ability to carry out his
or her duties in the best interests of the Fund, and the candidate's ability to
qualify as an Independent Director. When assessing a candidate for nomination,
the Committee considers whether the individual's background, skills, and
experience will complement the background, skills, and experience of other
nominees and will contribute to the diversity of the Board.
The function of the Independent Directors Committee is to consider
and take action on matters that the Board or Committee believes should be
addressed in executive session of the Independent Directors, such as review and
approval of the Advisory and Distribution Services Agreements. The Independent
Directors Committee met seven times during the Funds' most recently completed
fiscal year.
The dollar range of each Fund's securities owned by each Director
and the aggregate dollar range of securities of funds in the AB Fund Complex
owned by each Director are set forth below.
Dollar Range of Equity Securities in the Funds
As of December 31, 2018
-----------------------
Intermediate Unconstrained
Name of Director Bond Bond Global Bond High Income
---------------- ---- ---- ----------- -----------
Michael J. Downey None None None $10,001-$50,000
Nancy P. Jacklin None None None None
Robert M. Keith None None None None
Carol C. McMullen None None None None
Garry L. Moody None None None None
Marshall C. Turner, Jr. None None None None
Earl D. Weiner None None None $10,001-$50,000
Dollar Range of Equity Securities in the Funds
As of December 31, 2018
-----------------------
Limited
Name of Director Duration Income Fund Tax-Aware
---------------- -------- ----------- ---------
Michael J. Downey None $1-$10,000 None
Nancy P. Jacklin None $50,001-$100,000 None
Robert M. Keith None None None
Carol C. McMullen None None None
Garry L. Moody None None None
Marshall C. Turner, Jr. None Over $100,000 None
Earl D. Weiner None None None
Aggregate Dollar Range
of Equity Securities in
the AB Fund Complex
Name of Director as of December 31, 2018
---------------- -----------------------
Michael J. Downey Over $100,000
Nancy P. Jacklin Over $100,000
Robert M. Keith None
Carol C. McMullen Over $100,000
Garry L. Moody Over $100,000
Marshall C. Turner, Jr. Over $100,000
Earl D. Weiner Over $100,000
Officer Information
-------------------
Certain information concerning each Fund's officers is set forth
below.
NAME, ADDRESS,* POSITION(S) PRINCIPAL OCCUPATION
AND AGE HELD WITH FUND DURING PAST FIVE YEARS
------- -------------- ----------------------
Robert M. Keith, President and See biography above.
58 Chief Executive
Officer
Emilie D. Wrapp, Secretary Senior Vice President, Assistant
63 General Counsel and Assistant
Secretary of ABI,** with which she
has been associated since prior to
2014.
Michael B. Reyes, Senior Analyst Vice President of the Adviser,**
42 with which he has been associated
since prior to 2014.
Joseph J. Mantineo, Treasurer and Senior Vice President of ABIS,**
59 Chief with which he has been associated
Financial since prior to 2014.
Officer
Vincent S. Noto, Chief Senior Vice President since 2015
54 Compliance and Mutual Fund Chief Compliance
Officer Officer of the Adviser** since
2014. Prior thereto, he was Vice
President and Director of Mutual
Fund Compliance of the Adviser
since 2012.
Stephen M. Woetzel, Controller Senior Vice President of ABIS,**
47 with which he has been associated
since prior to 2014.
Intermediate Bond
-----------------
Michael Canter, Vice President Senior Vice President of the
49 Adviser,** with which he has been
associated since prior to 2014. He
is also the Director of US Multi-
Sector and Securitized Assets.
Shawn E. Keegan, Vice President Senior Vice President of the
47 Adviser,** with which he has been
associated since prior to 2014.
Douglas J. Peebles, Vice President Senior Vice President of the
53 Adviser,** with which he has been
associated since prior to 2014. He
is also Chief Investment Officer
of Fixed Income.
Janaki Rao, Vice President Senior Vice President of the
48 Adviser,** with which he has been
associated since March 2014.
Greg J. Wilensky, Vice President Senior Vice President of the
51 Adviser,** with which he has been
associated since prior to 2014. He
is also Director of US Multi-
Sector Fixed Income, US Inflation-
Linked Fixed Income and Stable
Value Investments.
Limited Duration
----------------
Gershon M. Distenfeld, Vice President Senior Vice President of the
43 Adviser,** with which he has been
associated since prior to 2014. He
is also co-Head of Fixed-Income.
Jacqueline Pincus, Vice President Vice President of the Adviser,**
32 with which he has been associated
since prior to 2014.
William Smith, Vice President Vice President of the Adviser,**
31 with which he has been associated
since prior to 2014. He is a
member of the High Yield Credit
portfolio-management team,
focusing on US and global multi-
sector portfolios as well as a
member of the High Income
portfolio-management team.
Unconstrained Bond
------------------
Scott A. DiMaggio, Vice President Senior Vice President of the
47 Adviser,** with which he has been
associated since prior to 2014. He
is also co-Head of Fixed-Income.
Gershon M. Distenfeld, Vice President See above.
43
Douglas J. Peebles, Vice President See above.
53
Dimitri Silva, Vice President Vice President of the Adviser,**
36 with which he has been associated
since prior to 2014.
John Taylor, Vice President Senior Vice President of the
41 Adviser,** with which he has been
associated since prior to 2014. He
is also Co-Head of European Fixed
Income.
Global Bond
-----------
Paul J. DeNoon,^ Vice President Senior Vice President of the
56 Adviser,** with which he has been
associated since prior to 2014.
Scott A. DiMaggio, Vice President See above.
47
Douglas J. Peebles, Vice President See above.
53
Matthew S. Sheridan, Vice President Senior Vice President of the
43 Adviser,** with which he has been
associated since prior to 2014.
John Taylor, Vice President See above.
41
High Income
-----------
Paul J. DeNoon,^ Vice President See above.
56
Gershon M. Distenfeld, Vice President See above.
43
Shamaila Khan, Vice President Senior Vice President of the
47 Adviser,** with which she has been
associated since prior to 2014.
She is also Director of Emerging
Market Debt.
Douglas J. Peebles, Vice President See above.
53
Matthew S. Sheridan, Vice President See above.
43
Income Fund
-----------
Paul J. DeNoon,^ Vice President See above.
56
Scott A. DiMaggio, Vice President See above.
47
Gershon M. Distenfeld, Vice President See above.
43
Douglas J. Peebles, Vice President See above.
53
Matthew S. Sheridan, Vice President See above.
43
Tax-Aware
---------
Robert B. (Guy) Davidson, Vice President Senior Vice President of the
III, Adviser,** with which he has been
57 associated since prior to 2014. He
is also Director for Municipal
Bond Management.
Terrance T. Hults, Vice President Senior Vice President of the
52 Adviser,** with which he has been
associated since prior to 2014.
Shawn E. Keegan, Vice President See above.
47
Matthew J. Norton, Vice President Vice President of the Adviser,**
36 with which he has been associated
since prior to 2014.
Andrew D. Potter, Vice President Vice President of the Adviser,
33 with which he has been associated
since prior to 2014.
--------
* The address for each of the Fund's Officers is 1345 Avenue of the
Americas, New York, NY 10105.
** The Adviser, ABI and ABIS are affiliates of each Fund.
^ Mr. DeNoon is expected to retire from the Adviser effective January 1,
2020.
The Funds do not pay any fees to, or reimburse expenses of, their
Directors who are considered "interested persons" (as defined in Section
2(a)(19) of the 1940 Act) of the Funds. The aggregate compensation paid by a
Fund to each of the Directors during its most recent fiscal year, the aggregate
compensation paid to each of the Directors during calendar year 2018 by the AB
Fund Complex, and the total number of registered investment companies (and
separate investment portfolios within the companies) in the AB Fund Complex with
respect to which each of the Directors serves as a director or trustee are set
forth below. Neither the Funds nor any other fund in the AB Fund Complex
provides compensation in the form of pension or retirement benefits to any of
its directors or trustees. Each of the Directors is a director or trustee of one
or more other registered investment companies in the AB Fund Complex.
Aggregate Aggregate
Compensation Aggregate Compensation
from Compensation from Aggregate
Intermediate from Limited Unconstrained Compensation
Name of Director Bond Duration Bond from Global Bond
---------------- ---- -------- ---- ----------------
Michael J. Downey $3,107 $3,107 $3,107 $3,107
William H. Foulk, Jr.* $3,107 $3,107 $3,107 $3,107
Nancy P. Jacklin $3,317 $3,317 $3,317 $3,317
Robert M. Keith $ 0 $ 0 $ 0 $ 0
Carol C. McMullen $3,107 $3,107 $3,107 $3,107
Garry L. Moody $3,527 $3,527 $3,527 $3,527
Marshall C. Turner, Jr. $5,042 $5,042 $5,042 $5,042
Earl D. Weiner $3,107 $3,107 $3,107 $3,107
Aggregate Aggregate Aggregate
Compensation Compensation Compensation
Name of Director from High Income from Income Fund from Tax-Aware
---------------- ---------------- ---------------- --------------
Michael J. Downey $3,107 $3,107 $3,107
William H. Foulk, Jr.* $3,107 $3,107 $3,107
Nancy P. Jacklin $3,317 $3,317 $3,317
Robert M. Keith $ 0 $ 0 $ 0
Carol C. McMullen $3,107 $3,107 $3,107
Garry L. Moody $3,527 $3,527 $3,527
Marshall C. Turner, Jr. $5,042 $5,042 $5,042
Earl D. Weiner $3,107 $3,107 $3,107
Total Number of Total Number of
Registered Investment Investment Portfolios
Companies in the within the AB Fund
Total Compensation AB Fund Complex, Complex, including the
from the including the Funds, as to Funds, as to which the
AB Fund Complex, which the Director is a Director is a
Name of Director including the Funds Director or Trustee Director or Trustee
---------------- ------------------- --------------------------- -------------------
Michael J. Downey $299,250 26 94
William H. Foulk, Jr.* $299,250 26 94
Nancy P. Jacklin $319,250 26 94
Robert M. Keith $ 0 26 94
Carol C. McMullen $299,250 26 94
Garry L. Moody $339,250 26 94
Marshall C. Turner, Jr. $480,000 26 94
Earl D. Weiner $299,250 26 94
* Mr. Foulk retired as Director effective December 31, 2018.
As of January 2, 2019, the Directors and officers of each Fund as a
group owned less than 1% of the shares of each Fund.
Additional Information About the Funds' Portfolio Managers
----------------------------------------------------------
INTERMEDIATE BOND
The management of, and investment decisions for, the Fund's
portfolio are made by the U.S. Investment Grade: Core Fixed Income Investment
Team. Michael Canter, Shawn E. Keegan, Douglas J. Peebles, Janaki Rao and Greg
J. Wilensky are the investment professionals(1) with the most significant
responsibility for the day-to-day management of the Fund's portfolio. For
additional information about the portfolio management of the Fund, see
"Management of the Fund - Fund Managers" in the Fund's Prospectus.
--------
(1) Investment professionals at the Adviser include portfolio managers and
research analysts. Investment professionals are part of investment groups
(or teams) that service individual fund portfolios. The number of
investment professionals assigned to a particular fund will vary from fund
to fund.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2018 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
---------------------------------------------
Michael Canter None
Shawn E. Keegan None
Douglas J. Peebles None
Janaki Rao None
Greg J. Wilensky None
As of October 31, 2018, employees of the Adviser had approximately
$155,141 invested in shares of the Fund and $50,035,632 invested in shares of
all AB Mutual Funds (excluding AB Government Money Market Portfolio) through
their interests in certain deferred compensation plans, including the Partners
Compensation Plan, including both vested and unvested amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of October
31, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets of Investment Investment
of Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Michael Canter 34 $8,790,000,000 None None
Shawn E. Keegan 1 $341,000,000 None None
Douglas J. Peebles 29 $15,181,000,000 None None
Janaki Rao None None None None
Greg J. Wilensky 34 $8,790,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets of Investment Investment
of Other Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Michael Canter 33 $4,453,000,000 None None
Shawn E. Keegan 38 $44,266,000,000 None None
Douglas J. Peebles 68 $7,964,000,000 None None
Janaki Rao 5 $3,298,000,000 None None
Greg J. Wilensky 33 $4,453,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets of Accounts Accounts
of Other Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Michael Canter 109 $5,715,000,000 3 $423,000,000
Shawn E. Keegan 150 $40,402,000,000 3 $4,835,000,000
Douglas J. Peebles 74 $26,395,000,000 2 $1,638,000,000
Janaki Rao 1 $209,000,000 1 $209,000,000
Greg J. Wilensky 109 $5,715,000,000 3 $423,000,000
LIMITED DURATION
The management of, and investment decisions for, the Fund's
portfolio are made by its senior investment management team. Gershon M.
Distenfeld, Jacqueline Pincus and William Smith are the investment professionals
primarily responsible for the day-to-day management of the Fund's portfolio (the
"Portfolio Managers"). For additional information about the portfolio management
of the Fund, see "Management of the Fund - Portfolio Managers" in the Fund's
Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of September 30, 2018 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(2)
------------------------------------------------
Gershon M. Distenfeld None
Jacqueline Pincus None
William Smith None
--------
(2) The dollar ranges presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan.
As of September 30, 2018, employees of the Adviser had approximately
$52,931,266 in shares of all AB Mutual Funds (excluding AB Government Money
Market Portfolio) through their interests in certain deferred compensation
plans, including the Partners Compensation Plan, including both vested and
unvested amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which each Portfolio Manager also has day-to-day management
responsibilities. The tables provide the numbers of such accounts, the total
assets in such accounts and the number of accounts and total assets whose fees
are based on performance. The information is provided as of September 30, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets of Investment Investment
of Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Gershon M. Distenfeld 15 $10,286,000,000 None None
Jacqueline Pincus 1 $55,000,000 None None
William Smith 1 $21,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets of Investment Investment
of Other Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Gershon M. Distenfeld 60 $36,602,000,000 None None
Jacqueline Pincus None None None None
William Smith 33 $4,332,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets of Accounts Accounts
of Other Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ -------------
Gershon M. Distenfeld 12 $2,883,000,000 None None
Jacqueline Pincus 6 $578,000,000 1 $228,000,000
William Smith 10 $2,244,000,000 None None
UNCONSTRAINED BOND
The management of, and investment decisions for, the Fund's
portfolio are made by the Global Fixed Income Investment Team and the Global
Credit Investment Team. Scott A. DiMaggio, Gershon M. Distenfeld, Douglas J.
Peebles, Dimitri Silva and John Taylor are the investment professionals with the
most significant responsibility for the day-to-day management of the Fund's
portfolio. For additional information about the portfolio management of the
Fund, see "Management of the Fund - Portfolio Managers" in the Fund's
Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2018 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(3)
------------------------------------------------
Scott A. DiMaggio None
Gershon M. Distenfeld None
Douglas J. Peebles Over $1,000,000
Dimitri Silva None
John Taylor None
--------
(3) The dollar ranges presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan.
As of October 31, 2018, employees had approximately $50,035,632
invested in shares of all AB Mutual Funds (excluding AB Government Money Market
Portfolio) through their interests in certain deferred compensation plans,
including the Partners Compensation Plan, including both vested and unvested
amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of October
31, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets of Investment Investment
of Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Scott A. DiMaggio 27 $14,849,000,000 None None
Gershon M. Distenfeld 16 $10,093,000,000 None None
Douglas J. Peebles 29 $15,181,000,000 None None
Dimitri Silva None None None None
John Taylor 2 $333,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Number Other Pooled Other Pooled
of Other Total Assets of Investment Investment
Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------ --------------- ------------ ------------
Scott A. DiMaggio 55 $3,852,000,000 None None
Gershon M. Distenfeld 60 $35,137,000,000 None None
Douglas J. Peebles 68 $7,964,000,000 None None
Dimitri Silva None None None None
John Taylor 11 $2,853,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Total Other of Other
Number of Total Assets Accounts Accounts
Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ---------- --------------- ------------ -------------
Scott A. DiMaggio 57 $24,091,000,000 2 $1,638,000,000
Gershon M. Distenfeld 12 $2,794,000,000 None None
Douglas J. Peebles 74 $26,395,000,000 2 $1,638,000,000
Dimitri Silva None None None None
John Taylor 17 $2,304,000,000 None None
GLOBAL BOND
The management of, and investment decisions for, the Fund's
portfolio are made by the Global Fixed Income Investment Team. Paul J. DeNoon,
Scott A. DiMaggio, Douglas J. Peebles, Matthew S. Sheridan and John Taylor are
the investment professionals with the most significant responsibility for the
day-to-day management of the Fund's portfolio. For additional information about
the portfolio management of the Fund, see "Management of the Fund - Portfolio
Managers" in the Fund's Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of September 30, 2018 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(4)
------------------------------------------------
Paul J. DeNoon Over $1,000,000
Scott A. DiMaggio $100,001-$500,000
Douglas J. Peebles None
Matthew S. Sheridan None
John Taylor None
--------
(4) The dollar ranges presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan.
As of September 30, 2018, employees of the Adviser had approximately
$52,931,266 invested in shares of all AB Mutual Funds (excluding AB Government
Money Market Portfolio) through their interests in certain deferred compensation
plans, including the Partners Compensation Plan, including both vested and
unvested amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of September
30, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets of Investment Investment
of Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Paul J. DeNoon 19 $10,657,000,000 None None
Scott A. DiMaggio 26 $8,424,000,000 None None
Douglas J. Peebles 28 $8,767,000,000 None None
Matthew S. Sheridan 36 $12,155,000,000 None None
John Taylor 2 $343,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets of Investment Investment
of Other Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Paul J. DeNoon 56 $36,834,000,000 None None
Scott A. DiMaggio 61 $3,803,000,000 None None
Douglas J. Peebles 73 $7,754,000,000 None None
Matthew S. Sheridan 87 $35,613,000,000 None None
John Taylor 10 $2,757,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets of Accounts Accounts
of Other Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------ --------------- ------------ -------------
Paul J. DeNoon 38 $8,543,000,000 2 $756,000,000
Scott A. DiMaggio 57 $24,421,000,000 2 $1,660,000,000
Douglas J. Peebles 74 $26,773,000,000 2 $1,660,000,000
Matthew S. Sheridan 42 $20,775,000,000 2 $1,660,000,000
John Taylor 17 $2,352,000,000 None None
HIGH INCOME
The management of, and investment decisions for, the Fund's
portfolio are made by the Global Fixed Income Team and Global Credit Investment
Team. Paul J. DeNoon, Gershon M. Distenfeld, Shamaila Khan, Douglas J. Peebles
and Matthew S. Sheridan are the investment professionals with the most
significant responsibility for the day-to-day management of the Fund's
portfolio. For additional information about the portfolio management of the
Fund, see "Management of the Fund - Portfolio Managers" in the Fund's
Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2018 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(5)
------------------------------------------------
Paul J. DeNoon $500,001-$1,000,000
Gershon M. Distenfeld $500,001-$1,000,000
Shamaila Khan None
Douglas J. Peebles None
Matthew S. Sheridan None
--------
(5) The dollar ranges presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan.
As of October 31, 2018, employees of the Adviser had approximately
$3,113,704 invested in shares of the Fund and approximately $50,035,632 invested
in shares of all AB Mutual Funds (excluding AB Government Money Market
Portfolio) through their interests in certain deferred compensation plans,
including the Partners Compensation Plan, including both vested and unvested
amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of October
31, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets of Investment Investment
of Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Paul J. DeNoon 18 $4,209,000,000 None None
Gershon M. Distenfeld 15 $4,108,000,000 None None
Shamaila Khan 4 $273,000,000 None None
Douglas J. Peebles 29 $15,181,000,000 None None
Matthew S. Sheridan 36 $12,378,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets of Investment Investment
of Other Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Paul J. DeNoon 56 $35,037,000,000 None None
Gershon M. Distenfeld 60 $35,137,000,000 None None
Shamaila Khan 28 $4,074,000,000 None None
Douglas J. Peebles 68 $7,964,000,000 None None
Matthew S. Sheridan 81 $34,356,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------ --------------- ------------ -------------
Paul J. DeNoon 38 $8,777,000,000 2 $881,000,000
Gershon M. Distenfeld 12 $2,794,000,000 None None
Shamaila Khan 36 $8,152,000,000 2 $881,000,000
Douglas J. Peebles 74 $26,395,000,000 2 $1,638,000,000
Matthew S. Sheridan 41 $20,547,000,000 2 $1,638,000,000
INCOME FUND
The management of, and investment decisions for, the Fund's
portfolio are made by the U.S. Investment Grade: Core Fixed Income Investment
Team. Paul J. DeNoon, Scott A. DiMaggio, Gershon M. Distenfeld, Douglas J.
Peebles and Matthew S. Sheridan are the investment professionals with the most
significant responsibility for the day-to-day management of the Fund's
portfolio. For additional information about the portfolio management of the
Fund, see "Management of the Fund - Fund Managers" in the Fund's Prospectus.
The dollar ranges of the Fund's equity securities owned directly or
beneficially by the Fund's portfolio managers as of October 31, 2018 are set
forth below:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
Paul J. DeNoon $100,001-$500,000
Scott A. DiMaggio $50,001-$100,000
Gershon M. Distenfeld None
Douglas J. Peebles Over $1,000,000
Matthew S. Sheridan $50,001-$100,000
As of October 31, 2018, employees of the Adviser had approximately
$50,035,632 invested in shares of all AB Mutual Funds (excluding AB Government
Money Market Portfolio) through their interests in certain deferred compensation
plans, including the Partners Compensation Plan, including both vested and
unvested amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of October
31, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets Investment Investment
of Registered of Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
Paul J. DeNoon 18 $7,701,000,000 None None
Scott A. DiMaggio 27 $14,849,000,000 None None
Gershon M. Distenfeld 15 $7,599,000,000 None None
Douglas J. Peebles 29 $15,181,000,000 None None
Matthew S. Sheridan 36 $15,869,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Total Other Pooled Other Pooled
Number of Total Assets of Investment Investment
Other Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------ --------------- ------------ ------------
Paul J. DeNoon 56 $35,037,000,000 None None
Scott A. DiMaggio 55 $3,852,000,000 None None
Gershon M. Distenfeld 60 $35,137,000,000 None None
Douglas J. Peebles 68 $7,964,000,000 None None
Matthew S. Sheridan 81 $34,356,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Total Other of Other
Number Total Assets Accounts Accounts
of Other of Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------- ------------- ------------ -------------
Paul J. DeNoon 38 $8,777,000,000 2 $881,000,000
Scott A. DiMaggio 57 $24,091,000,000 2 $1,638,000,000
Gershon M. Distenfeld 12 $2,794,000,000 None None
Douglas J. Peebles 74 $26,395,000,000 2 $1,638,000,000
Matthew S. Sheridan 41 $20,547,000,000 2 $1,638,000,000
TAX-AWARE
The management of, and investment decisions for, the Fund's
portfolio are made by Robert B. (Guy) Davidson, III, Terrance T. Hults, Shawn E.
Keegan, Matthew J. Norton and Andrew D. Potter, who are the investment
professionals with the most significant responsibility for the day-to-day
management of the Fund's portfolio. For additional information about the
portfolio management of the Fund, see "Management of the Fund - Portfolio
Managers" in the Fund's Prospectus. As of October 31, 2018 the Fund's portfolio
managers owned none of the Fund's equity securities directly or beneficially.
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(6)
------------------------------------------------
Robert B. (Guy) Davidson, III None
Terrance T. Hults None
Shawn E. Keegan None
Matthew J. Norton $1-$10,000
Andrew D. Potter None
--------
(6) The dollar ranges presented above include any vested shares awarded under
the Adviser's Partners Compensation Plan.
As of October 31, 2018, employees of the Adviser had approximately
$50,035,632 invested in shares of all AB Mutual Funds (excluding AB Government
Money Market Portfolio) through their interests in certain deferred compensation
plans, including the Partners Compensation Plan, including both vested and
unvested amounts.
The following tables provide information regarding registered
investment companies other than the Fund, other pooled investment vehicles and
other accounts over which the Fund's portfolio managers also have day-to-day
management responsibilities. The tables provide the numbers of such accounts,
the total assets in such accounts and the number of accounts and total assets
whose fees are based on performance. The information is provided as of October
31, 2018.
--------------------------------------------------------------------------------
REGISTERED INVESTMENT COMPANIES
(excluding the Fund)
--------------------------------------------------------------------------------
Total
Number of Assets of
Registered Registered
Total Number Total Assets of Investment Investment
of Registered Registered Companies Companies
Investment Investment Managed with Managed with
Companies Companies Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
R.B. (Guy) Davidson, III 53 $26,120,000,000 None None
Terrance T. Hults 53 $26,120,000,000 None None
Shawn E. Keegan 1 $341,000,000 None None
Matthew J. Norton 53 $26,120,000,000 None None
Andrew D. Potter 53 $26,120,000,000 None None
--------------------------------------------------------------------------------
OTHER POOLED INVESTMENT VEHICLES
--------------------------------------------------------------------------------
Total
Number of Assets of
Other Pooled Other Pooled
Total Number Total Assets of Investment Investment
of Other Pooled Other Pooled Vehicles Vehicles
Investment Investment Managed with Managed with
Vehicles Vehicles Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ------------- --------------- ------------ ------------
R.B. (Guy) Davidson, III 38 $3,280,000,000 None None
Terrance T. Hults 38 $3,280,000,000 None None
Shawn E. Keegan 38 $44,266,000,000 None None
Matthew J. Norton 38 $3,280,000,000 None None
Andrew D. Potter 38 $3,280,000,000 None None
--------------------------------------------------------------------------------
OTHER ACCOUNTS
--------------------------------------------------------------------------------
Number of Total Assets
Other of Other
Total Number Total Assets of Accounts Accounts
of Other Other Managed with Managed with
Accounts Accounts Performance- Performance-
Portfolio Manager Managed Managed based Fees based Fees
----------------- ---------------------------- ------------ -------------
R.B. (Guy) Davidson, III 3,472 $20,503,000,000 5 $794,000,000
Terrance T. Hults 3,472 $20,503,000,000 5 $794,000,000
Shawn E. Keegan 150 $40,402,000,000 3 $4,835,000,000
Matthew J. Norton 3,472 $20,503,000,000 5 $794,000,000
Andrew D. Potter 3,472 $20,503,000,000 5 $794,000,000
Investment Professional Conflict of Interest Disclosure
-------------------------------------------------------
As an investment adviser and fiduciary, the Adviser owes its clients
and shareholders an undivided duty of loyalty. The Adviser recognizes that
conflicts of interest are inherent in its business and accordingly has developed
policies and procedures (including oversight monitoring) reasonably designed to
detect, manage and mitigate the effects of actual or potential conflicts of
interest in the area of employee personal trading, managing multiple accounts
for multiple clients, including AB Mutual Funds, and allocating investment
opportunities. Investment professionals, including portfolio managers and
research analysts, are subject to the above-mentioned policies and oversight
monitoring to ensure that all clients are treated equitably. The Adviser places
the interests of its clients first and expects all of its employees to meet
their fiduciary duties.
Employee Personal Trading. The Adviser has adopted a Code of
Business Conduct and Ethics that is designed to detect and prevent conflicts of
interest when investment professionals and other personnel of the Adviser own,
buy or sell securities which may be owned by, or bought or sold for, clients.
Personal securities transactions by an employee may raise a potential conflict
of interest when an employee owns or trades in a security that is owned or
considered for purchase or sale by a client, or recommended for purchase or sale
by an employee to a client. Subject to the reporting requirements and other
limitations of its Code of Business Conduct and Ethics, the Adviser permits its
employees to engage in personal securities transactions, and also allows them to
acquire investments in certain funds managed by the Adviser. The Adviser's Code
of Business Conduct and Ethics requires disclosure of all personal accounts and
maintenance of brokerage accounts with designated broker-dealers approved by the
Adviser. The Code of Business Conduct and Ethics also requires preclearance of
all securities transactions (except transactions in U.S. Treasuries and open-end
mutual funds) and imposes a 60-day holding period for securities purchased by
employees to discourage short-term trading.
Managing Multiple Accounts for Multiple Clients. The Adviser has
compliance policies and oversight monitoring in place to address conflicts of
interest relating to the management of multiple accounts for multiple clients.
Conflicts of interest may arise when an investment professional has
responsibilities for the investments of more than one account because the
investment professional may be unable to devote equal time and attention to each
account. The investment professional or investment professional teams for each
client may have responsibilities for managing all or a portion of the
investments of multiple accounts with a common investment strategy, including
other registered investment companies, unregistered investment vehicles, such as
hedge funds, pension plans, separate accounts, collective trusts and charitable
foundations. Among other things, the Adviser's policies and procedures provide
for the prompt dissemination to investment professionals of initial or changed
investment recommendations by analysts so that investment professionals are
better able to develop investment strategies for all accounts they manage. In
addition, investment decisions by investment professionals are reviewed for the
purpose of maintaining uniformity among similar accounts and ensuring that
accounts are treated equitably. Investment professional compensation reflects a
broad contribution in multiple dimensions to long-term investment success for
clients of the Adviser and is generally not tied specifically to the performance
of any particular client's account, nor is it generally tied directly to the
level or change in level of assets under management.
Allocating Investment Opportunities. The investment professionals at
the Adviser routinely are required to select and allocate investment
opportunities among accounts. The Adviser has adopted policies and procedures
intended to address conflicts of interest relating to the allocation of
investment opportunities. These policies and procedures are designed to ensure
that information relevant to investment decisions is disseminated promptly
within its portfolio management teams and investment opportunities are allocated
equitably among different clients. The policies and procedures require, among
other things, objective allocation for limited investment opportunities (e.g.,
on a rotational basis), and documentation and review of justifications for any
decisions to make investments only for select accounts or in a manner
disproportionate to the size of the account. Portfolio holdings, position sizes,
and industry and sector exposures tend to be similar across similar accounts,
which minimizes the potential for conflicts of interest relating to the
allocation of investment opportunities. Nevertheless, access to portfolio funds
or other investment opportunities may be allocated differently among accounts
due to the particular characteristics of an account, such as size of the
account, cash position, tax status, risk tolerance and investment restrictions
or for other reasons.
The Adviser's procedures are also designed to address potential
conflicts of interest that may arise when the Adviser has a particular financial
incentive, such as a performance-based management fee, relating to an account.
An investment professional may perceive that he or she has an incentive to
devote more time to developing and analyzing investment strategies and
opportunities or allocating securities preferentially to accounts for which the
Adviser could share in investment gains.
Portfolio Manager Compensation
------------------------------
The Adviser's compensation program for portfolio managers is
designed to align with clients' interests, emphasizing each portfolio manager's
ability to generate long-term investment success for the Adviser's clients,
including the Funds. The Adviser also strives to ensure that compensation is
competitive and effective in attracting and retaining the highest caliber
employees.
Portfolio managers receive a base salary, incentive compensation and
contributions to AllianceBernstein's 401(k) plan. Part of the annual incentive
compensation is generally paid in the form of a cash bonus, and part through an
award under the firm's Incentive Compensation Award Plan (ICAP). The ICAP awards
vest over a four-year period. Deferred awards are paid in the form of restricted
grants of the firm's Master Limited Partnership Units, and award recipients have
the ability to receive a portion of their awards in deferred cash. The amount of
contributions to the 401(k) plan is determined at the sole discretion of the
Adviser. On an annual basis, the Adviser endeavors to combine all of the
foregoing elements into a total compensation package that considers industry
compensation trends and is designed to retain its best talent.
The incentive portion of total compensation is determined by
quantitative and qualitative factors. Quantitative factors, which are weighted
more heavily, are driven by investment performance. Qualitative factors are
driven by contributions to the investment process and client success.
The quantitative component includes measures of absolute, relative
and risk-adjusted investment performance. Relative and risk-adjusted returns are
determined based on the benchmark in the Fund's prospectus and versus peers over
one-, three- and five-year calendar periods, with more weight given to
longer-time periods. Peer groups are chosen by Chief Investment Officers, who
consult with the product management team to identify products most similar to
our investment style and most relevant within the asset class. Portfolio
managers of the Funds do not receive any direct compensation based upon the
investment returns of any individual client account, and compensation is not
tied directly to the level or change in level of assets under management.
Among the qualitative components considered, the most important
include thought leadership, collaboration with other investment colleagues,
contributions to risk-adjusted returns of other portfolios in the firm, efforts
in mentoring and building a strong talent pool and being a good corporate
citizen. Other factors can play a role in determining portfolio managers'
compensation, such as the complexity of investment strategies managed, volume of
assets managed and experience.
The Adviser emphasizes four behavioral competencies--relentlessness,
ingenuity, team orientation and accountability--that support its mission to be
the most trusted advisor to its clients. Assessments of investment professionals
are formalized in a year-end review process that includes 360-degree feedback
from other professionals from across the investment teams and the Adviser.
--------------------------------------------------------------------------------
EXPENSES OF THE FUNDS
--------------------------------------------------------------------------------
Distribution Services Agreement
-------------------------------
Each Fund has entered into a Distribution Services Agreement (the
"Agreement") with ABI, the Fund's principal underwriter, to permit ABI to
distribute the Fund's shares and to permit the Fund to pay distribution services
fees to defray expenses associated with distribution of its Class A shares,
Class B shares, Class C shares, Class R shares and Class K shares in accordance
with a plan of distribution that is included in the Agreement and that has been
duly adopted and approved in accordance with Rule 12b-1 adopted by the SEC under
the 1940 Act (the "Plan").
In approving the Plan, the Directors of each Fund determined that
there was a reasonable likelihood that the Plan would benefit the Funds and its
shareholders. The distribution services fee of a particular class will not be
used to subsidize the provision of distribution services with respect to any
other class.
The Adviser may, from time to time, and from its own funds or such
other resources as may be permitted by rules of the SEC, make payments for
distribution services to ABI; the latter may in turn pay part or all of such
compensation to brokers or other persons for their distribution assistance.
The Plan continues in effect with respect to each Fund and each
class of shares thereof for successive one-year periods provided that each such
continuance is specifically approved at least annually by a majority of the
Independent Directors of the Funds who have no direct or indirect financial
interest in the operation of the Plan or any agreement related thereto (the
"Qualified Directors") and by a vote of a majority of the entire Board cast in
person at a meeting called for that purpose. Most recently, the Directors
approved the continuance of the Plan at their meetings held on November 6-8,
2018.
All material amendments to the Agreement will become effective only
upon approval as provided in the preceding paragraph, and the Plan may not be
amended in order to increase materially the costs that the Fund may bear
pursuant to the Agreement without the approval of a majority of the holders of
the outstanding voting shares of the Fund or the class or classes of the Fund
affected. The Agreement may be terminated (a) by the Fund without penalty at any
time by a majority vote of the holders of the Fund's outstanding voting
securities, voting separately by class, or by a majority vote of the Qualified
Directors or (b) by ABI. To terminate the Agreement, any party must give the
other parties 60 days' written notice; to terminate the Plan only, the Fund is
not required to give prior notice to ABI. The Agreement will terminate
automatically in the event of its assignment. The Plan is of a type known as a
"reimbursement plan", which means that it reimburses the distributor for the
actual costs of services rendered.
In the event that the Plan is terminated by either party or not
continued with respect to the Class A, Class B, Class C, Class R or Class K
shares, (i) no distribution services fees (other than current amounts accrued
but not yet paid) would be owed by the Fund to ABI with respect to that class
and (ii) the Fund would not be obligated to pay ABI for any amounts expended
under the Agreement not previously recovered by ABI from distribution services
fees in respect of shares of such class or through deferred sales charges.
During the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond, High Income, Income Fund and Tax-Aware, and during the
fiscal year ended September 30, 2018 for Limited Duration and Global Bond, with
respect to Class A shares, the distribution services fees for expenditures
payable to ABI were as follows:
Percentage per annum of
Distribution the aggregate average
services fees for daily net assets
expenditures attributable to Class A
Fund payable to ABI shares*
---- -------------- -----------------------
Intermediate Bond $573,473 .25%
Limited Duration $51,664 .25%
Unconstrained Bond $79,998 .25%
High Income $4,038,959 .25%
Global Bond $2,278,623 .25%
Income Fund $646,516 .25%
Tax-Aware $16,348 .25%
* The Board has limited the distribution services fee for Class A shares to
0.25%.
For the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond, High Income, Income Fund and Tax-Aware, and during the
fiscal year ended September 30, 2018 for Limited Duration and Global Bond,
expenses incurred by each Fund and costs allocated to each Fund in connection
with activities primarily intended to result in the sale of Class A shares were
as follows:
Category of Expense Intermediate Bond Limited Duration Unconstrained Bond High Income
------------------- ----------------- ---------------- ------------------ -----------
Advertising $14,769 $1,233 $1,902 $113,904
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $3,856 $332 $484 $29,459
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $596,032 $65,992 $78,844 $4,083,947
Compensation to ABI $144,864 $12,287 $18,396 $1,048,457
Compensation to Sales
Personnel $57,852 $8,355 $7,992 $743,654
Interest on Financing $0 $0 $0 $0
Other (includes printing of
sales literature, travel,
entertainment, due
diligence and other
promotional expenses) $42,863 $3,772 $5,435 $324,204
Totals $860,236 $91,971 $113,053 $6,343,625
Category of Expense Global Bond Income Fund Tax-Aware
------------------- ----------- ----------- ---------
Advertising $64,391 $16,024 $0
Printing and Mailing of
Prospectuses to Persons Other
Than Current Shareholders $17,347 $4,166 $206
Compensation to Broker-Dealers
and Other Financial
Intermediaries (excluding ABI) $2,264,723 $807,678 $0
Compensation to ABI $622,532 $5,870 $0
Compensation to Sales Personnel $469,183 $583,871 $0
Interest on Financing $0 $0 $0
Other (includes printing of sales
literature, travel,
entertainment, due diligence and
other promotional expenses) $191,207 $46,653 $0
Totals $3,629,383 $1,464,262 $206
During the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2018 for Global Bond, with respect to Class B shares, the distribution
services fees for expenditures payable to ABI were as follows:
Percentage per annum of
the aggregate average
Distribution services fees daily net assets
for expenditures attributable
Fund payable to ABI to Class B shares
---- -------------- -----------------
Intermediate Bond $6,265 1.00%
Unconstrained Bond $1,266 1.00%
High Income $14,773 1.00%
Global Bond $7,125 1.00%
For the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond and High Income and during the fiscal year ended September
30, 2018 for Global Bond, expenses incurred by each Fund and costs allocated to
each Fund in connection with activities primarily intended to result in the sale
of Class B shares were as follows:
Unconstrained
Category of Expense Intermediate Bond Bond High Income Global Bond
------------------- ----------------- ---- ----------- -----------
Advertising $41 $8 $102 $68
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $11 $2 $26 $18
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $2,593 $256 $5,369 $2,289
Compensation to ABI $(88) $68 $750 $366
Compensation to Sales
Personnel $161 $30 $455 $261
Interest on Financing $0 $0 $0 $0
Other (includes printing of
sales literature, travel,
entertainment, due
diligence and other
promotional expenses) $119 $22 $291 $194
Totals $2,837 $386 $6,993 $3,196
During the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond, High Income, Income Fund and Tax-Aware, and during the
fiscal year ended September 30, 2018 for Limited Duration and Global Bond, with
respect to Class C shares, the distribution services fees for expenditures
payable to ABI were as follows:
Percentage per annum of
the aggregate average
Distribution services fees daily net assets
for expenditures attributable
Fund payable to ABI to Class C shares
---- -------------- -----------------
Intermediate Bond $135,936 1.00%
Limited Duration $242,672 1.00%
Unconstrained Bond $119,284 1.00%
High Income $9,971,346 1.00%
Global Bond $1,815,649 1.00%
Income Fund $808,398 1.00%
Tax-Aware $9,072 1.00%
For the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond, High Income, Income Fund and Tax-Aware, and during the
fiscal year ended September 30, 2018 for Limited Duration and Global Bond,
expenses incurred by each Fund and costs allocated to each Fund in connection
with activities primarily intended to result in the sale of Class C shares were
as follows:
Category of Expense Intermediate Bond Limited Duration Unconstrained Bond High Income
------------------- ----------------- ---------------- ------------------ -----------
Advertising $858 $1,444 $751 $61,934
Printing and Mailing of
Prospectuses to Persons
Other Than Current
Shareholders $221 $390 $193 $16,006
Compensation to
Broker-Dealers and Other
Financial Intermediaries
(excluding ABI) $123,556 $226,464 $111,850 $9,461,087
Compensation to ABI $6,855 $14,728 $6,940 $564,390
Compensation to Sales
Personnel $3,427 $7,054 $2,900 $335,314
Interest on Financing $0 $0 $0 $0
Other (includes printing of
sales literature, travel,
entertainment, due
diligence and other
promotional expenses) $2,475 $4,406 $2,171 $179,760
Totals $137,392 $254,486 $124,805 $10,618,491
Category of Expense Global Bond Income Fund Tax-Aware
------------------- ----------- ----------- ---------
Advertising $10,979 $4,855 $56
Printing and Mailing of
Prospectuses to Persons Other Than
Current Shareholders $2,949 $1,278 $14
Compensation to Broker-Dealers and
Other Financial Intermediaries
(excluding ABI) $1,728,011 $619,206 $9,161
Compensation to ABI $103,959 $(37,392) $364
Compensation to Sales Personnel $58,003 $143,387 $251
Interest on Financing $0 $0 $0
Other (includes printing of sales
literature, travel, entertainment,
due diligence and other
promotional expenses) $33,391 $14,335 $164
Totals $1,937,292 $745,669 $10,010
During the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond and High Income, and during the fiscal year ended September
30, 2018 for Global Bond, with respect to Class R shares, the distribution
services fees for expenditures payable to ABI were as follows:
Percentage per annum of
the aggregate average
Distribution services fees daily net assets
for expenditures attributable
Fund payable to ABI to Class R shares
---- -------------- -----------------
Intermediate Bond $13,045 .50%
Unconstrained Bond $5,843 .50%
High Income $402,210 .50%
Global Bond $405,806 .50%
For the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond and High Income, and during the fiscal year ended September
30, 2018 for Global Bond, expenses incurred by each Fund and costs allocated to
each Fund in connection with activities primarily intended to result in the sale
of Class R shares were as follows:
Unconstrained
Category of Expense Intermediate Bond Bond High Income Global Bond
------------------- ----------------- ---- ----------- -----------
Advertising $252 $122 $8,526 $8,121
Printing and
Mailing of
Prospectuses to
Persons Other Than
Current
Shareholders $68 $32 $2,243 $2,163
Compensation to
Broker-Dealers and
Other Financial
Intermediaries
(excluding ABI) $12,568 $5,883 $393,324 $388,802
Compensation to ABI $2,052 $948 $66,138 $66,753
Compensation to
Sales Personnel $1,100 $510 $57,112 $67,257
Interest on
Financing $0 $0 $0 $0
Other (includes
printing of sales
literature, travel,
entertainment, due
diligence and other
promotional
expenses) $709 $336 $23,448 $23,017
Totals $16,749 $7,831 $550,792 $556,113
During the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond and High Income, and during the fiscal year ended September
30, 2018 for Global Bond, with respect to Class K shares, the distribution
services fees for expenditures payable to ABI were as follows:
Percentage per annum of
the aggregate average
Distribution services fees daily net assets
for expenditures attributable
Fund payable to ABI to Class K shares
---- -------------- -----------------
Intermediate Bond $15,608 .25%
Unconstrained Bond $692 .25%
High Income $312,101 .25%
Global Bond $91,732 .25%
For the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond and High Income, and during the fiscal year ended September
30, 2018 for Global Bond, expenses incurred by each Fund and costs allocated to
each Fund in connection with activities primarily intended to result in the sale
of Class K shares were as follows:
Intermediate Unconstrained
Category of Expense Bond Bond High Income Global Bond
------------------- ---- ---- ----------- -----------
Advertising $85 $5 $12,282 $2,656
Printing and
Mailing of
Prospectuses to
Persons Other Than
Current
Shareholders $23 $1 $3,258 $710
Compensation to
Broker-Dealers and
Other Financial
Intermediaries
(excluding ABI) $15,572 $694 $312,220 $92,805
Compensation to ABI $671 $41 $96,955 $23,395
Compensation to
Sales Personnel $354 $32 $76,652 $14,255
Interest on
Financing $0 $0 $0 $0
Other (includes
printing of sales
literature, travel,
entertainment, due
diligence and other
promotional
expenses) $237 $14 $34,101 $7,450
Totals $16,942 $787 $535,468 $141,271
Distribution services fees are accrued daily and paid monthly and
charged as expenses of each Fund as accrued. The distribution services fees
attributable to the Class B, Class C, Class R and Class K shares are designed to
permit an investor to purchase such shares through broker-dealers without the
assessment of an initial sales charge and at the same time to permit ABI to
compensate broker-dealers in connection with the sale of such shares. In this
regard the purpose and function of the combined contingent deferred sales charge
("CDSC") and respective distribution services fee on the Class B shares and
Class C shares and distribution services fees on the Class R shares and the
Class K shares are the same as those of the initial sales charge and
distribution services fee with respect to the Class A shares in that in each
case the sales charge and/or distribution services fee provide for the financing
of the distribution of the relevant class of the Fund's shares.
With respect to Class A shares of each Fund, distribution expenses
accrued by ABI in one fiscal year may not be paid from distribution services
fees received from the Fund in subsequent fiscal years. ABI's compensation with
respect to Class B, Class C, Class R and Class K shares under the Plan is
directly tied to the expenses incurred by ABI. Actual distribution expenses for
Class B, Class C, Class R and Class K shares for any given year, however, will
probably exceed the distribution services fees payable under the Plan with
respect to the class involved and, in the case of Class B and Class C shares,
payments received from CDSCs. The excess will be carried forward by ABI and
reimbursed from distribution services fees payable under the Plan with respect
to the class involved and, in the case of Class B and Class C shares, payments
subsequently received through CDSCs, so long as the Plan is in effect.
For the fiscal year ended October 31, 2018 for Intermediate Bond,
Unconstrained Bond, High Income, Income Fund and Tax-Aware, and during the
fiscal year ended September 30, 2018 for Global Bond and Limited Duration,
cumulative unreimbursed distribution expenses incurred and carried over of
reimbursement in future years in respect of the Class B, Class C, Class R and
Class K shares of each Fund were as follows:
Class Intermediate Bond Limited Duration Unconstrained Bond High Income
----- ----------------- ---------------- ------------------ -----------
Class B $0 N/A $8,331,917 $5,714,459
(% of the net
assets of Class B) 0% N/A 7,264.35% 495.43%
Class C $1,194,892 $245,843 $2,171,919 $18,178,641
(% of the net
assets of Class C) 1.43% 1.15% 23.70% 2.16%
Class R $138,090 N/A $45,716 $1,055,746
(% of the net
assets of Class R) 5.29% N/A 4.88% 1.52%
Class K $54,308 N/A $13,268 $1,011,030
(% of the net
assets of Class K) .87% N/A 4.66% .83%
Class Global Bond Income Fund Tax-Aware
----- ----------- ----------- ---------
Class B $25,200,351 N/A N/A
(% of the net
assets of Class B) 4,851.17% N/A N/A
Class C $15,335,367 $410,135 N/A
(% of the net
assets of Class C) 10.48% .51% N/A
Class R $1,038,201 N/A N/A
(% of the net
assets of Class R) 1.38% N/A N/A
Class K $274,919 N/A N/A
(% of the net
assets of Class K) 1.65% N/A N/A
Transfer Agency Agreement
-------------------------
ABIS, an indirect wholly-owned subsidiary of the Adviser, located
principally at 8000 IH 10 W, 4th Floor, San Antonio, Texas 78230, acts as the
transfer agent for the Funds. ABIS registers the transfer, issuance and
redemption of Fund shares and disburses dividends and other distributions to
Fund shareholders.
ABIS receives a transfer agency fee per account holder of each of
the Class A, Class B, Class C, Class R, Class K, Class I, Class Z and Advisor
Class shares of the Funds plus reimbursement for out-of-pocket expenses. For the
fiscal year ended October 31, 2018 for Intermediate Bond, Unconstrained Bond,
High Income, Income Fund and Tax-Aware, and for the fiscal year ended September
30, 2018 for Limited Duration and Global Bond, the Fund paid ABIS $198,178,
$58,196, $1,908,202, $761,625, $18,221, $44,271 and $1,744,954, respectively,
for transfer agency services.
Many Fund shares are owned by selected dealers or selected agents
(as defined below), financial intermediaries or other financial representatives
("financial intermediaries") for the benefit of their customers. In those cases,
the Funds often do not maintain an account for you. Thus, some or all of the
transfer agency functions for these accounts are performed by the financial
intermediaries. Retirement plans may also hold Fund shares in the name of the
plan, rather than the participant. Financial intermediaries and recordkeepers,
which may have affiliated financial intermediaries that sell shares of the AB
Mutual Funds, may be paid by a Fund, the Adviser, ABI and ABIS (i) account fees
in amounts up to $19 per account per annum, (ii) asset-based fees of up to 0.25%
(except in respect of a limited number of intermediaries) per annum of the
average daily assets held through the intermediary, or (iii) a combination of
both. These amounts include fees for shareholder servicing, sub-transfer agency,
sub-accounting and recordkeeping services. These amounts do not include fees for
shareholder servicing that may be paid separately by the Fund pursuant to its
Rule 12b-1 plan. Amounts paid by a Fund for these services are included in
"Other Expenses" under "Fees and Expenses of the Fund" in the Summary
Information section of the Prospectus. In addition, financial intermediaries may
be affiliates of entities that receive compensation from the Adviser or ABI for
maintaining retirement plan "platforms" that facilitate trading by affiliated
and non-affiliated financial intermediaries and recordkeeping for retirement
plans.
Because financial intermediaries and plan recordkeepers may be paid
varying amounts per class for sub-transfer agency and related recordkeeping
services, the service requirements of which may also vary by class, this may
create an additional incentive for financial intermediaries and their financial
advisors to favor one fund complex over another or one class of shares over
another.
Securities Lending Agreement
----------------------------
State Street Bank and Trust Company ("State Street") serves as the
securities lending agent to Intermediate Bond, Limited Duration, Income Fund and
Tax-Aware, and is responsible for the implementation and administration of a
securities lending program pursuant to a Securities Lending Authorization
Agreement ("Securities Lending Agreement"). Pursuant to the Securities Lending
Agreement, State Street provides the following services: effecting loans of Fund
securities to any person on a list of approved borrowers; determining whether a
loan shall be made and negotiating and establishing the terms and conditions of
the loan with the borrower; ensuring payments relating to distributions on
loaned securities are timely and properly credited to a Fund's account;
collateral management (including valuation and daily mark-to-market
obligations); cash collateral reinvestment in accordance with the Securities
Lending Agreement; and maintaining records and preparing reports regarding loans
that are made and the income derived therefrom.
Brown Brothers Harriman & Co. ("BBH") serves as the securities
lending agent to Unconstrained Bond, Global Bond and High Income, and is
responsible for the implementation and administration of a securities lending
program pursuant to a Securities Lending Agency Agreement ("Securities Lending
Agreement"). Pursuant to the Securities Lending Agreement, BBH provides the
following services: effecting loans of Fund securities to any person on a list
of approved borrowers; determining whether a loan shall be made and negotiating
and establishing the terms and conditions of the loan with the borrower;
ensuring that payments relating to distributions on loaned securities are timely
and properly credited to the Fund's account; collateral management (including
valuation and daily mark-to-market obligations); cash collateral reinvestment in
accordance with the Securities Lending Agreement; and maintaining records and
preparing reports regarding loans that are made and the income derived
therefrom.
The Funds did not engage in any securities lending activities
during the most recent fiscal year.
--------------------------------------------------------------------------------
PURCHASE OF SHARES
--------------------------------------------------------------------------------
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Funds".
Effective January 31, 2009, sales of Class B shares of the Funds to
new investors were suspended. Class B shares are only issued (i) upon the
exchange of Class B shares from another AB Fund, (ii) for purposes of dividend
reinvestment, (iii) through the Funds' Automatic Investment Program for accounts
that established the Program prior to January 31, 2009, and (iv) for purchase of
additional Class B shares by Class B shareholders as of January 31, 2009. The
ability to establish a new Automatic Investment Program for accounts containing
Class B shares was suspended as of January 31, 2009.
General
-------
Shares of the Funds are offered on a continuous basis at a price
equal to their NAV plus an initial sales charge at the time of purchase ("Class
A shares"), with a CDSC ("Class B shares"), without any initial sales charge
and, as long as the shares are held for one year or more, without any CDSC
("Class C shares"), to Group Retirement Plans, as defined below, eligible to
purchase Class R shares, without any initial sales charge or CDSC ("Class R
shares"), to Group Retirement Plans eligible to purchase Class K shares, without
any initial sales charge or CDSC ("Class K shares"), to Group Retirement Plans
and certain investment advisory clients of, and certain other persons associated
with, the Adviser and its affiliates eligible to purchase Class I shares,
without any initial sales charge or CDSC ("Class I shares"), with respect to
Intermediate Bond, High Income, Global Bond, and Unconstrained Bond, to
investors, eligible to purchase Class Z shares, without any initial sales charge
or CDSC ("Class Z shares"), or to investors eligible to purchase Advisor Class
shares, without any initial sales charge or CDSC ("Advisor Class shares"), in
each case as described below. "Group Retirement Plans" are defined as 401(k)
plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money
purchase pension plans, defined benefit plans, and non-qualified deferred
compensation plans where plan level or omnibus accounts are held on the books of
the Fund. All of the classes of shares of the Funds, except the Class I, Class Z
and Advisor Class shares, are subject to Rule 12b-1 asset-based sales charges.
Shares of the Funds that are offered subject to a sales charge are offered
through (i) investment dealers that are members of the Financial Industry
Regulatory Authority and have entered into selected dealer agreements with ABI
("selected dealers"), (ii) depository institutions and other financial
intermediaries or their affiliates, that have entered into selected agent
agreements with ABI ("selected agents") and (iii) ABI.
Investors may purchase shares of the Funds either through financial
intermediaries or directly through ABI. A transaction, service, administrative
or other similar fee may be charged by your financial intermediary with respect
to the purchase, sale or exchange of shares made through the financial
intermediary. Such financial intermediary may also impose requirements with
respect to the purchase, sale or exchange of shares that are different from, or
in addition to, those imposed by the Fund, including requirements as to the
classes of shares available through that financial intermediary and the minimum
initial and subsequent investment amounts. A Fund is not responsible for, and
has no control over, the decision of any financial intermediary to impose such
differing requirements. Sales personnel of financial intermediaries distributing
the Fund's shares may receive differing compensation for selling different
classes of shares.
In order to open your account, a Fund or your financial intermediary
is required to obtain certain information from you for identification purposes.
This information may include name, date of birth, physical address, social
security/taxpayer identification number, and ownership/control information (for
certain legal entities). Ownership/control information for legal entities may
include the name, date of birth, physical address, and identification number
(generally a social security or taxpayer identification number) of
owners/controlling persons. It will not be possible to establish your account
without this information. If the Fund or your financial intermediary is unable
to verify the information provided, your account may be closed, and other
appropriate action may be taken as permitted by law.
Frequent Purchases and Sales of Fund Shares
-------------------------------------------
Each Fund's Board has adopted policies and procedures designed to
detect and deter frequent purchases and redemptions of Fund shares or excessive
or short-term trading that may disadvantage long-term Fund shareholders. These
policies are described below. There is no guarantee that the Funds will be able
to detect excessive or short-term trading or to identify shareholders engaged in
such practices, particularly with respect to transactions in omnibus accounts.
Shareholders should be aware that application of these policies may have adverse
consequences, as described below, and should avoid frequent trading in Fund
shares through purchases, sales and exchanges of shares. Each Fund reserves the
right to restrict, reject or cancel, without any prior notice, any purchase or
exchange order for any reason, including any purchase or exchange order accepted
by any shareholder's financial intermediary.
Risks Associated With Excessive or Short-Term Trading Generally.
While the Funds will try to prevent market timing by utilizing the procedures
described below, these procedures may not be successful in identifying or
stopping excessive or short-term trading in all circumstances. By realizing
profits through short-term trading, shareholders that engage in rapid purchases
and sales or exchanges of a Fund's shares dilute the value of shares held by
long-term shareholders. Volatility resulting from excessive purchases and sales
or exchanges of Fund shares, especially involving large dollar amounts, may
disrupt efficient portfolio management and cause a Fund to sell shares at
inopportune times to raise cash to accommodate redemptions relating to
short-term trading. In particular, a Fund may have difficulty implementing its
long-term investment strategies if it is forced to maintain a higher level of
its assets in cash to accommodate significant short-term trading activity. In
addition, a Fund may incur increased administrative and other expenses due to
excessive or short-term trading, including increased brokerage costs and
realization of taxable capital gains.
Funds that may invest significantly in securities of foreign issuers
may be particularly susceptible to short-term trading strategies. This is
because securities of foreign issuers are typically traded on markets that close
well before the time a Fund ordinarily calculates its NAV at 4:00 p.m., Eastern
time, which gives rise to the possibility that developments may have occurred in
the interim that would affect the value of these securities. The time zone
differences among international stock markets can allow a shareholder engaging
in a short-term trading strategy to exploit differences in Fund share prices
that are based on closing prices of securities of foreign issuers established
some time before the Fund calculates its own share price (referred to as "time
zone arbitrage"). The Funds have procedures, referred to as fair value pricing,
designed to adjust closing market prices of securities of foreign issuers to
reflect what is believed to be the fair value of those securities at the time a
Fund calculates its NAV. While there is no assurance, the Funds expect that the
use of fair value pricing, in addition to the short-term trading policies
discussed below, will significantly reduce a shareholder's ability to engage in
time zone arbitrage to the detriment of other Fund shareholders.
A shareholder engaging in a short-term trading strategy may also
target a Fund irrespective of its investments in securities of foreign issuers.
Any Fund that invests in securities that are, among other things, thinly traded,
traded infrequently or that have limited capacity has the risk that the current
market price for the securities may not accurately reflect current market
values. A shareholder may seek to engage in short-term trading to take advantage
of these pricing differences (referred to as "price arbitrage"). All Funds may
be adversely affected by price arbitrage.
Policy Regarding Short-Term Trading. Purchases and exchanges of
shares of the Fund should be made for investment purposes only. The Funds seek
to prevent patterns of excessive purchases and sales or exchanges of Fund shares
to the extent they are detected by the procedures described below, subject to
the Funds' ability to monitor purchase, sale and exchange activity. The Funds
reserve the right to modify this policy, including any surveillance or account
blocking procedures established from time to time to effectuate this policy, at
any time without notice.
o Transaction Surveillance Procedures. The Funds, through
their agents, ABI and ABIS, maintain surveillance procedures
to detect excessive or short-term trading in Fund shares. This
surveillance process involves several factors, which include
scrutinizing transactions in Fund shares that exceed certain
monetary thresholds or numerical limits within a specified
period of time. Generally, more than two exchanges of Fund
shares during any 60-day period or purchases of shares
followed by a sale within 60 days will be identified by these
surveillance procedures. For purposes of these transaction
surveillance procedures, the Funds may consider trading
activity in multiple accounts under common ownership, control
or influence. Trading activity identified by either, or a
combination, of these factors, or as a result of any other
information available at the time, will be evaluated to
determine whether such activity might constitute excessive or
short-term trading. With respect to managed or discretionary
accounts for which the account owner gives his/her broker,
investment adviser or other third party authority to buy and
sell Fund shares, the Funds may consider trades initiated by
the account owner, such as trades initiated in connection with
bona fide cash management purposes, separately in their
analysis. These surveillance procedures may be modified from
time to time, as necessary or appropriate to improve the
detection of excessive or short-term trading or to address
specific circumstances.
o Account Blocking Procedures. If the Funds determine, in
their sole discretion, that a particular transaction or
pattern of transactions identified by the transaction
surveillance procedures described above is excessive or
short-term trading in nature, the Funds will take remedial
action that may include issuing a warning, revoking certain
account-related privileges (such as the ability to place
purchase, sale and exchange orders over the internet or by
phone) or prohibiting or "blocking" future purchase or
exchange activity. However, sales of Fund shares back to a
Fund or redemptions will continue to be permitted in
accordance with the terms of the Fund's current Prospectus. As
a result, unless the shareholder redeems his or her shares,
which may have consequences if the shares have declined in
value, a CDSC is applicable or adverse tax consequences may
result, the shareholder may be "locked" into an unsuitable
investment. A blocked account will generally remain blocked
for 90 days. Subsequent detections of excessive or short-term
trading may result in an indefinite account block or an
account block until the account holder or the associated
broker, dealer or other financial intermediary provides
evidence or assurance acceptable to the Fund that the account
holder did not or will not in the future engage in excessive
or short-term trading.
o Applications of Surveillance Procedures and Restrictions to
Omnibus Accounts. Omnibus account arrangements are common
forms of holding shares of the Funds, particularly among
certain brokers, dealers and other financial intermediaries,
including sponsors of retirement plans and variable insurance
products. The Funds apply their surveillance procedures to
these omnibus account arrangements. As required by SEC rules,
the Funds have entered into agreements with all of their
financial intermediaries that require the financial
intermediaries to provide the Funds, upon the request of the
Funds or their agents, with individual account level
information about their transactions. If the Funds detect
excessive trading through their monitoring of omnibus
accounts, including trading at the individual account level,
the financial intermediaries will also execute instructions
from the Funds to take actions to curtail the activity, which
may include applying blocks to accounts to prohibit future
purchases and exchanges of Fund shares. For certain retirement
plan accounts, the Funds may request that the retirement plan
or other intermediary revoke the relevant participant's
privilege to effect transactions in Fund shares via the
internet or telephone, in which case the relevant participant
must submit future transaction orders via the U.S. Postal
Service (i.e., regular mail).
Purchase of Shares
------------------
A Fund reserves the right to suspend the sale of its shares to the
public in response to conditions in the securities markets or for other reasons.
If the Fund suspends the sale of its shares, shareholders will not be able to
acquire its shares, including through an exchange.
The public offering price of shares of a Fund is its NAV, plus, in
the case of Class A shares of the Fund, a sales charge. On each Fund business
day on which a purchase or redemption order is received by the Fund and trading
in the types of securities in which the Fund invests might materially affect the
value of the Fund's shares, the NAV per share is computed at the Fund Closing
Time, which is the close of regular trading on any day the Exchange is open
(ordinarily 4:00 p.m., Eastern time, but sometimes earlier, as in the case of
scheduled half-day trading or unscheduled suspensions of trading) by dividing
the value of the total assets attributable to a class, less its liabilities, by
the total number of its shares then outstanding. A Fund business day is any day
on which the Exchange is open for trading.
The respective NAVs of the various classes of shares of the Fund are
expected to be substantially the same. However, the NAVs of the Class B, Class C
and Class R shares of the Fund will generally be slightly lower than the NAVs of
the Class A, Class K, Class I, Class Z and Advisor Class shares of the Fund, as
a result of the differential daily expense accruals of the higher distribution
and, in some cases, transfer agency fees applicable with respect to those
classes of shares.
A Fund will accept unconditional orders for its shares to be
executed at the public offering price equal to its NAV next determined (plus
applicable Class A sales charges), as described below. Orders received by ABI
prior to the Fund Closing Time on each day the Exchange is open are priced at
the NAV next computed on that day (plus applicable Class A sales charges). In
the case of orders for purchases of shares placed through financial
intermediaries, the applicable public offering price will be the NAV as so
determined, but only if the financial intermediary receives the order prior to
the Fund Closing Time. The financial intermediary is responsible for
transmitting such orders by a prescribed time to the Fund or its transfer agent.
If the financial intermediary fails to do so, the investor will not receive that
day's NAV. If the financial intermediary receives the order after the Fund
Closing Time, the price received by the investor will be based on the NAV
determined as of the Fund Closing Time on the next business day.
A Fund may, at its sole option, accept securities as payment for
shares of the Fund, including from certain affiliates of the Fund in accordance
with the Fund's procedures, if the Adviser believes that the securities are
appropriate investments for the Fund. The securities are valued by the method
described under "Net Asset Value" below as of the date the Fund receives the
securities and corresponding documentation necessary to transfer the securities
to the Fund. This is a taxable transaction to the shareholder.
Following the initial purchase of the Fund's shares, a shareholder
may place orders to purchase additional shares by telephone if the shareholder
has completed the appropriate portion of the Mutual Fund Application or an
"Autobuy" application, both of which may be obtained by calling the "For
Literature" telephone number shown on the cover of this SAI. Except with respect
to certain omnibus accounts, telephone purchase orders with payment by
electronic funds transfer may not exceed $500,000. Payment for shares purchased
by telephone can be made only by electronic funds transfer from a bank account
maintained by the shareholder at a bank that is a member of the National
Automated Clearing House Association ("NACHA"). Telephone purchase requests must
be received before the Fund Closing Time to receive that day's public offering
price. Telephone purchase requests received after the Fund Closing Time, are
automatically placed the following Fund business day, and the applicable public
offering price will be the public offering price determined as of the Fund
Closing Time on the following day.
Full and fractional shares are credited to a shareholder's account
in the amount of his or her subscription. As a convenience to the subscriber,
and to avoid unnecessary expense to the Fund, the Fund will not issue share
certificates representing shares of the Fund. Ownership of the Fund's shares
will be shown on the books of the Fund's transfer agent. Lost certificates will
not be replaced with another certificate, but will be shown on the books of the
Fund's transfer agent. This facilitates later redemption and relieves the
shareholder of the responsibility for and inconvenience of lost or stolen
certificates.
Each class of shares of a Fund represents an interest in the same
portfolio of investments of the Fund, has the same rights and are identical in
all respects, except that (i) Class A shares bear the expense of the initial
sales charge (or CDSC, when applicable) and Class B shares and Class C shares
bear the expense of the CDSC, (ii) depending on the Fund, Class B shares, Class
C shares and Class R shares typically each bear the expense of a higher
distribution services fee than that borne by Class A shares and Class K shares,
and Class I shares, Class Z shares and Advisor Class shares do not bear such a
fee, (iii) Class B shares and Class C shares are subject to a conversion feature
and will convert to Class A shares under certain circumstances, and (iv) each of
Class A, Class B, Class C, Class R and Class K shares has exclusive voting
rights with respect to provisions of the Plan pursuant to which its distribution
services fee is paid and other matters for which separate class voting is
appropriate under applicable law, provided that, if the Fund submits to a vote
of the Class A shareholders, an amendment to the Plan that would materially
increase the amount to be paid thereunder with respect to the Class A shares,
then such amendment will also be submitted to the Class B and Class C
shareholders because the Class B and Class C shares convert to Class A shares
under certain circumstances, and the Class A shareholders, the Class B
shareholders and the Class C shareholders will vote separately by class. Each
class has different exchange privileges and certain different shareholder
service options available.
The Directors of the Funds have determined that currently no
conflict of interest exists between or among the classes of shares of the Funds.
On an ongoing basis, the Directors of the Funds, pursuant to their fiduciary
duties under the 1940 Act and state law, will seek to ensure that no such
conflict arises.
Alternative Purchase Arrangements
---------------------------------
Classes A, B and C Shares. Class A, Class B and Class C shares have
the following alternative purchase arrangements: Class A shares are generally
offered with an initial sales charge, Class B shares are generally offered with
a CDSC and Class C shares are sold to investors choosing the asset-based sales
charge alternative. Special purchase arrangements are available for Group
Retirement Plans. See "Alternative Purchase Arrangements - Group Retirement
Plans and Tax-Deferred Accounts" below. These alternative purchase arrangements
permit an investor to choose the method of purchasing shares that is most
beneficial given the amount of the purchase, the length of time the investor
expects to hold the shares and other circumstances. Investors should consider
whether, during the anticipated life of their investment in the Fund, the
accumulated distribution services fee and CDSC on Class B or Class C shares
prior to conversion would be less than the initial sales charge and accumulated
distribution services fee on Class A shares purchased at the same time, and to
what extent such differential would be offset by the higher return of Class A
shares. Class A shares will normally be more beneficial than Class B shares to
the investor who qualifies for reduced initial sales charges on Class A shares,
as described below. In this regard, ABI will reject any order (except orders
from certain Group Retirement Plans) for more than $100,000 for Class B shares
(see "Alternative Purchase Arrangements - Group Retirement Plans and
Tax-Deferred Accounts" below). Class C shares will normally not be suitable for
the investor who qualifies to purchase Class A shares at NAV. For this reason,
ABI will reject any order for more than $1,000,000 for Class C shares.
Class A shares are subject to a lower distribution services fee and,
accordingly, pay correspondingly higher dividends per share than Class B shares
or Class C shares. However, because initial sales charges are deducted at the
time of purchase, most investors purchasing Class A shares would not have all of
their funds invested initially and, therefore, would initially own fewer shares.
Investors not qualifying for reduced initial sales charges who expect to
maintain their investment for an extended period of time might consider
purchasing Class A shares because the accumulated continuing distribution
charges on Class B shares or Class C shares may exceed the initial sales charge
on Class A shares during the life of the investment. Again, however, such
investors must weigh this consideration against the fact that, because of such
initial sales charges, not all of their funds will be invested initially.
Other investors might determine, however, that it would be more
advantageous to purchase Class B shares or Class C shares in order to have all
of their funds invested initially, although remaining subject to higher
continuing distribution charges and being subject to a CDSC for a three-year
(four-year for Unconstrained Bond) and one-year period, respectively. For
example, based on current fees and expenses, an investor subject to the 4.25%
initial sales charge on Class A shares would have to hold his or her investment
approximately seven years for the Class C distribution services fee to exceed
the initial sales charge plus the accumulated distribution services fee of Class
A shares. In this example, an investor intending to maintain his or her
investment for a longer period might consider purchasing Class A shares. This
example does not take into account the time value of money, which further
reduces the impact of the Class C distribution services fees on the investment,
fluctuations in NAV or the effect of different performance assumptions.
Those investors who prefer to have all of their funds invested
initially but may not wish to retain Fund shares for the three-year (four-year
for Intermediate Bond) period during which Class B shares are subject to a CDSC
may find it more advantageous to purchase Class C shares.
The following table shows the aggregate amount of underwriting
commissions payable with respect to the Funds' shares and the amounts ABI
received from such commissions payable over the Funds' last three fiscal years
or since inception.
Amounts ABI
Aggregate Received from
Fiscal Year/Period Amount of Aggregate Amount
Ended October 31/ Underwriting of Underwriting
September 30/ Commissions Commissions
August 31 Fund Payable Payable*
--------- ---- ------- --------
2018 Intermediate Bond $136,591 $3,835
2017 76,094 3,747
2016 157,019 8,908
2018 Limited Duration $18,557 $697
2017 33,314 1,814
2016 58,266 3,232
2018 Unconstrained Bond $7,974 $398
2017 9,043 658
2016 30,680 1,512
2018 Global Bond $230,930 $11,321
2017 442,621 20,394
2016 688,437 34,621
2018 High Income $2,137,258 $142,097
2017 3,556,075 229,894
2016 4,450,686 257,875
2018 Income Fund $1,015,549 $58,042
2017 1,162,173 57,304
2016 34,756 758
2018 Tax-Aware $13,892 $42
2017 0 0
2016 0 0
--------
* The amount received by ABI represents that portion of the sales charges
paid on shares of the Fund sold during the year which was not re-allowed to
selected dealers (and was, accordingly, retained by ABI).
The following table shows the CDSCs received by ABI from each share
class during the Funds' last three fiscal years or since inception.
Fiscal Amounts Amounts
Year/Period ABI Received Amounts ABI Received
Ended in CDSCs ABI Received in CDSCs
October 31/ from in CDSCs from
September 30/ Class A from Class C
August 31 Fund Shares Class B Shares Shares
--------- ---- ------ -------------- ------
2018 Intermediate Bond $ 1,600 $491 $1,717
2017 3,712 564 896
2016 2,821 826 702
2018 Limited Duration $ 835 $0 $597
2017 1,131 0 8,125
2016 0 0 964
2018 Unconstrained Bond $ 185 $11 $ 580
2017 366 38 319
2016 126 27 1,211
2018 Global Bond $ 1,085 $198 $11,315
2017 7,246 105 34,110
2016 23,175 405 16,120
2018 High Income $23,676 $ 220 $60,968
2017 63,642 431 118,573
2016 17,602 1,094 103,592
2018 Income Fund $37,088 N/A $50,218
2017 71 N/A 5,248
2016 0 N/A 0
2018 Tax-Aware $ 0 N/A $ 203
2017 0 N/A 492
2016 0 N/A 1,399
Class A Shares
--------------
The public offering price of Class A shares is the NAV plus a sales
charge, as set forth below.
Sales Charge for All Funds except Tax-Aware
-------------------------------------------
Discount or
Commission
to Dealers
or Agents of
As % of Net As % of the up to % of
Amount Public Offering Offering
Amount of Purchase Invested Price Price
------------------ ----------- --------------- ------------
Up to $100,000............. 4.44% 4.25% 4.00%
$100,000 up to $250,000.... 3.36 3.25 3.00
$250,000 up to $500,000.... 2.30 2.25 2.00
$500,000 up to $1,000,000*. 1.78 1.75 1.50
--------
* There is no initial sales charge on transactions of $1,000,000 or more.
Sales Charge for Tax-Aware
--------------------------
Discount or
Commission
to Dealers
or Agents of
As % of Net As % of the up to % of
Amount Public Offering Offering
Amount of Purchase Invested Price Price
------------------ ----------- ----- -----
Up to $100,000............. 3.09% 3.00% 3.00%
$100,000 up to $250,000.... 2.04 2.00 2.00
$250,000 up to $500,000.... 1.01 1.00 1.00
$500,000 and above......... 0.00 0.00 0.00
All or a portion of the initial sales charge may be paid to your
financial representative. With respect to purchases of $1,000,000 or more for
all Funds except Tax-Aware, and $500,000 or more for Tax-Aware, Class A shares
redeemed within one year of purchase may be subject to a CDSC of up to 1%. The
CDSC on Class A shares will be waived on certain redemptions, as described below
under "Contingent Deferred Sales Charge".
A Fund receives the entire NAV of its Class A shares sold to
investors. ABI's commission is the sales charge shown in the Prospectus less any
applicable discount or commission re-allowed to selected dealers and agents. ABI
will re-allow discounts to selected dealers and agents in the amounts indicated
in the table above. In this regard, ABI may elect to re-allow the entire sales
charge to selected dealers and agents for all sales with respect to which orders
are placed with ABI. A selected dealer who receives reallowance in excess of 90%
of such a sales charge may be deemed to be an "underwriter" under the Securities
Act.
No initial sales charge is imposed on Class A shares issued (i)
pursuant to the automatic reinvestment of income dividends or capital gains
distributions, (ii) in exchange for Class A shares of other AB Mutual Funds (as
that term is defined under "Combined Purchase Privilege" below), except that an
initial sales charge will be imposed on Class A shares issued in exchange for
Class A shares of AB Government Money Market Portfolio that were purchased for
cash without the payment of an initial sales charge and without being subject to
a CDSC, or (iii) upon the automatic conversion of Class B shares as described
below under "Conversion Feature for Class B and Class C Shares".
For all Funds except Tax-Aware, commissions may be paid to selected
dealers or agents who initiate or are responsible for Class A share purchases by
a single shareholder of $1,000,000 or more that are not subject to an initial
sales charge at up to the following rates: 1.00% on purchase amounts up to
$5,000,000; plus 0.50% on purchase amounts over $5,000,000. Commissions are paid
based on cumulative purchases by a shareholder over the life of an account with
no adjustments for redemptions, transfers or market declines.
For Tax-Aware, commissions may be paid to selected dealers or agents
who initiate or are responsible for Class A share purchases by a single
shareholder of $500,000 or more that are not subject to an initial sales charge
at up to the following rates: 1.00% on purchase amounts up to $5,000,000; plus
0.50% on purchase amounts over $5,000,000. Commissions are paid based on
cumulative purchases by a shareholder over the life of an account with no
adjustments for redemptions, transfers or market declines.
In addition to the circumstances described above, certain types of
investors may be entitled to pay no initial sales charge in certain
circumstances described below.
Class A Shares -- Sales at NAV. A Fund may sell its Class A shares
at NAV (i.e., without any initial sales charge) to certain categories of
investors including:
(i) investment management clients of the Adviser or its
affiliates, including clients and prospective clients of the
Adviser's Institutional Investment Management Division;
(ii) officers and present or former Directors of the Funds or
other investment companies managed by the Adviser, officers,
directors and present or retired full-time employees and
former employees (for subsequent investment accounts
established during the course of their employment) of the
Adviser, ABI, ABIS and their affiliates; officers, directors
and present and full-time employees of selected dealers or
agents; or the spouse or domestic partner, sibling, direct
ancestor or direct descendant (collectively, "Relatives") of
any such person; or any trust, individual retirement account
or retirement plan account for the benefit of any such person;
(iii) the Adviser, ABI, ABIS and their affiliates; certain
employee benefit plans for employees of the Adviser, ABI, ABIS
and their affiliates;
(iv) persons participating in a fee-based program, sponsored
and maintained by a registered broker-dealer or other
financial intermediary, under which such persons pay an
asset-based fee for service in the nature of investment
advisory or administrative services, or clients of
broker-dealers or other financial intermediaries who purchase
Class A shares for their own accounts through self-directed
and/or non-discretionary brokerage accounts with the
broker-dealers or financial intermediaries that may or may not
charge a transaction fee to its clients;
(v) plan participants who roll over amounts distributed from
employer maintained retirement plans to
AllianceBernstein-sponsored IRAs where the plan is a client of
or serviced by the Adviser's Institutional Investment
Management Division or Bernstein Global Wealth Management
Division, including subsequent contributions to those IRAs;
(vi) persons participating in a "Mutual Fund Only" brokerage
program, sponsored and maintained by a registered
broker-dealer or other financial intermediary;
(vii) certain retirement plan accounts as described under
"Alternative Purchase Arrangements - Group Retirement Plans
and Tax-Deferred Accounts";
(viii) current Class A shareholders of AB Mutual Funds and
investors who receive a "Fair Funds Distribution" (a
"Distribution") resulting from an SEC enforcement action
against the Adviser and current Class A shareholders of AB
Mutual Funds who receive a Distribution resulting from any SEC
enforcement action related to trading in shares of AB Mutual
Funds who, in each case, purchase shares of an AB Mutual Fund
from ABI through deposit with ABI of the Distribution check;
and
(ix) certain firm-specific waivers as disclosed in Appendix C
of the Prospectus.
Class B Shares
--------------
Effective January 31, 2009, sales of Class B shares of the Funds to
new investors were suspended. Class B shares are only issued (i) upon the
exchange of Class B shares from another AB Fund, (ii) for purposes of dividend
reinvestment, (iii) through the Fund's Automatic Investment Program for accounts
that established the Program prior to January 31, 2009, and (iv) for purchases
of additional Class B shares by Class B shareholders as of January 31, 2009. The
ability to establish a new Automatic Investment Program for accounts containing
Class B shares was suspended as of January 31, 2009.
Investors may purchase Class B shares at the public offering price
equal to the NAV per share of the Class B shares on the date of purchase without
the imposition of a sales charge at the time of purchase. The Class B shares are
sold without an initial sales charge so that the Fund will receive the full
amount of the investor's purchase payment.
For Intermediate Bond, Global Bond and High Income, six years after
the end of the calendar month in which the shareholder's purchase order was
accepted, Class B shares will automatically convert to Class A shares and will
no longer be subject to a higher distribution services fee. For Unconstrained
Bond, eight years after the end of the calendar month in which the shareholder's
purchase order was accepted, Class B shares will automatically convert to Class
A shares and will no longer be subject to a higher distribution services fee.
Such conversion will occur on the basis of the relative NAVs of the two classes,
without the imposition of any sales load, fee or other charge. The purpose of
the conversion feature is to reduce the distribution services fee paid by
holders of Class B shares that have been outstanding long enough for ABI to have
been compensated for distribution expenses incurred in the sale of the shares.
Class C Shares
--------------
Investors may purchase Class C shares at the public offering price
equal to the NAV per share of the Class C shares on the date of purchase without
the imposition of a sales charge either at the time of purchase or, as long as
the shares are held for one year or more, upon redemption. Class C shares are
sold without an initial sales charge so that the Fund will receive the full
amount of the investor's purchase payment and, as long as the shares are held
for one year or more, without a CDSC so that the investor will receive as
proceeds upon redemption the entire NAV of his or her Class C shares. The Class
C distribution services fee enables the Fund to sell Class C shares without
either an initial sales charge or CDSC, as long as the shares are held for one
year or more. Class C shares incur higher distribution services fees than other
classes of the Fund's shares, and will thus have a higher expense ratio and pay
correspondingly lower dividends than the other classes.
Ten years after the end of the calendar month in which the
shareholder's purchase order was accepted Class C shares will automatically
convert to Class A shares and will no longer be subject to a higher distribution
services fee. Such conversion will occur on the basis of the relative NAVs of
the two classes, without the imposition of any sales load, fee or other charge.
The purpose of the conversion feature is to reduce the distribution services fee
paid by holders of Class C shares that have been outstanding long enough for ABI
to have been compensated for distribution expenses incurred in the sale of the
shares.
Conversion Feature for Class B and Class C Shares
-------------------------------------------------
For purposes of conversion to Class A, Class B or Class C shares
purchased through the reinvestment of dividends and distributions paid in
respect of such shares in a shareholder's account will be considered to be held
in a separate sub-account. Each time any Class B or Class C shares in the
shareholder's account (other than those in the sub-account) convert to Class A
shares, an equal pro-rata portion of such shares in the sub-account will also
convert to Class A shares.
The conversion of Class A shares is subject to the continuing
availability of an opinion of counsel to the effect that the conversion of Class
B or Class C shares to Class A shares does not constitute a taxable event under
federal income tax law. The conversion of Class B or Class C shares to Class A
shares may be suspended if such an opinion is no longer available at the time
such conversion is to occur. In that event, no further conversions of Class B or
Class C shares would occur, and shares might continue to be subject to the
higher distribution services fee for an indefinite period which may extend
beyond the period ending eight years for Class B shares and ten years for Class
C shares after the end of the calendar month in which the shareholder's purchase
order was accepted.
Contingent Deferred Sales Charge. Class B shares that are redeemed
within four years of purchase will be subject to a CDSC at the rates set forth
below charged as a percentage of the dollar amount subject thereto. Class A
share purchases of $1,000,000 or more and Class C shares that, in either case,
are redeemed within one year of purchase will be subject to a CDSC of 1%, as
will Class A share purchases by certain Group Retirement Plans (see "Alternative
Purchase Arrangements -- Group Retirement Plans and Tax-Deferred Accounts"
below). The charge will be assessed on an amount equal to the lesser of the cost
of the shares being redeemed or their NAV at the time of redemption.
Accordingly, no sales charge will be imposed on increases in NAV above the
initial purchase price. In addition, no charge will be assessed on shares
derived from reinvestment of dividends or capital gains distributions.
To illustrate, assume that an investor purchased 100 Class B shares
at $10 per share (at a cost of $1,000) and in the second year after purchase,
the NAV per share is $12 and, during such time, the investor has acquired 10
additional Class B shares upon dividend reinvestment. If at such time the
investor makes his or her first redemption of 50 Class B shares (proceeds of
$600), 10 Class B shares will not be subject to the charge because of dividend
reinvestment. With respect to the remaining 40 Class B shares, the charge is
applied only to the original cost of $10 per share and not to the increase in
NAV of $2 per share. Therefore, $400 of the $600 redemption proceeds will be
charged at a rate of 3.0% (the applicable rate in the second year after purchase
as set forth below).
For Class B shares, the amount of the CDSC, if any, will vary
depending on the number of years from the time of payment for the purchase of
Class B shares until the time of redemption of such shares.
Unconstrained Bond:
Year Since Purchase Contingent Deferred Sales
Charge for the Fund as a % of
Dollar Amount Subject to
Charge
----------------------------------------------------------
First 4.0%
Second 3.0%
Third 2.0%
Fourth 1.0%
Fifth and thereafter None
All Other Funds:
Year Since Purchase Contingent Deferred Sales
Charge for the Fund as a % of
Dollar Amount Subject to
Charge
----------------------------------------------------------
First 3.0%
Second 2.0%
Third 1.0%
Fourth and thereafter None
In determining the CDSC applicable to a redemption of Class B and
Class C shares, it will be assumed that the redemption is, first, of any shares
that are not subject to a CDSC (for example, because the shares were acquired
upon the reinvestment of dividends or distributions) and, second, of shares held
longest during the time they are subject to the sales charge. When shares
acquired in an exchange are redeemed, the applicable CDSC and conversion
schedules will be the schedules that applied at the time of the purchase of
shares of the corresponding class of the AB Mutual Fund originally purchased by
the shareholder. The CDSC period begins with the date of your original purchase,
not the date of exchange for the other Class B shares or Class C shares, as
applicable.
Proceeds from the CDSC are paid to ABI and are used by ABI to defray
the expenses of ABI related to providing distribution-related services to the
Fund in connection with the sale of Fund shares, such as the payment of
compensation to selected dealers and agents for selling Fund shares. The
combination of the CDSC and the distribution services fee enables the Fund to
sell shares without a sales charge being deducted at the time of purchase.
The CDSC is waived on redemptions of shares (i) following the death
or disability, as defined in the Internal Revenue Code of 1986, as amended (the
"Code"), of a shareholder, (ii) to the extent that the redemption represents a
minimum required distribution from an individual retirement account or other
retirement plan to a shareholder who has attained the age of 70 1/2, (iii) that
had been purchased by present or former Directors of the Funds, by a relative of
any such person, by any trust, individual retirement account or retirement plan
account for the benefit of any such person or relative, or by the estate of any
such person or relative, (iv) pursuant to, and in accordance with, a systematic
withdrawal plan (see "Sales Charge Reduction Programs for Class A
Shares--Systematic Withdrawal Plan" below), (v) to the extent that the
redemption is necessary to meet a plan participant's or beneficiary's request
for a distribution or loan from a Group Retirement Plan or to accommodate a plan
participant's or beneficiary's direction to reallocate his or her plan account
among other investment alternatives available under a Group Retirement Plan,
(vi) due to the complete termination of a trust upon the death of the
trustor/grantor, beneficiary or trustee, but only if the trust termination is
specifically provided for in the trust document, or (vii) that had been
purchased with proceeds from a Distribution resulting from any SEC enforcement
action related to trading in shares of AB Mutual Funds through deposit with ABI
of the Distribution check. The CDSC is also waived for (i) permitted exchanges
of shares, (ii) holders of Class A shares who purchased $1,000,000 or more of
Class A shares where the participating broker or dealer involved in the sale of
such shares waived the commission it would normally receive from ABI or (iii)
Class C shares sold through programs offered by financial intermediaries and
approved by ABI where such programs offer only shares that are not subject to a
CDSC, where the financial intermediary establishes a single omnibus account for
the Fund or in the case of a Group Retirement Plan, a single account for each
plan, and where no advance commission is paid to any financial intermediary in
connection with the purchase of such shares.
Class R Shares
--------------
Class R shares are offered to certain Group Retirement Plans. Class
R shares are not available to retail non-retirement accounts, traditional or
Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs,
individual 403(b) plans and to AllianceBernstein-sponsored retirement products.
Class R shares do not have an initial sales charge or CDSC, but incur a .50%
distribution services fee and thus have a higher expense ratio and pay
correspondingly lower dividends than Class A shares.
Class K Shares
--------------
Class K shares are available at NAV to certain Group Retirement
Plans. Class K shares generally are not available to retail non-retirement
accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs,
SAR-SEPs, SIMPLE IRAs, and individual 403(b) plans. Class K shares do not have
an initial sales charge or CDSC but incur a .25% distribution services fee and
thus have (i) a lower expense ratio than Class R shares and pay correspondingly
higher dividends than Class R shares and (ii) a higher expense ratio than Class
I shares and pay correspondingly lower dividends than Class I shares.
Class I Shares
--------------
Class I shares are available at NAV to Group Retirement Plans.
Class I shares are also available to certain institutional investment advisory
clients of, and certain other persons associated with, the Adviser and its
affiliates who invest at least $2 million in the Fund. Class I shares generally
are not available to retail non-retirement accounts, traditional and Roth IRAs,
Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual
403(b) plans and AllianceBernstein-sponsored retirement programs known as the
"Informed Choice" programs. Class I shares are not subject to an initial sales
charge, CDSC or distribution services fee, and thus have a lower expense ratio
and pay correspondingly higher dividends than Class R and Class K shares.
Class Z Shares
--------------
Class Z shares are available at NAV to certain Group Retirement
Plans and certain Alliance-Bernstein-sponsored group retirement plans. Class Z
shares generally are not available to traditional and Roth IRAs, Coverdell
Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs and individual 403(b)
plans. Class Z shares are not currently available to Group Retirement Plans in
the AllianceBernstein-sponsored retirement programs known as the "Informed
Choice" programs. Class Z shares are also available to certain institutional
investment advisory clients of, and certain other persons associated with, the
Adviser and its affiliates who invest at least $2 million in the Fund. Class Z
shares are also available to persons participating in certain fee-based programs
sponsored and maintained by registered broker-dealers or other financial
intermediaries with omnibus account arrangements with a Fund.
Class Z shares are not subject to an initial sales charge, CDSC or
distribution services fee, and thus have a lower expense ratio and pay
correspondingly higher dividends than Class R and Class K shares.
Advisor Class Shares
--------------------
Advisor Class shares may be purchased and held solely (i) through
accounts established under fee-based programs, sponsored and maintained by
registered broker-dealers or other financial intermediaries and approved by ABI;
(ii) through self-directed defined contribution employee benefit plans (e.g.,
401(k) plans) that purchase shares directly without the involvement of a
financial intermediary; (iii) by officers and present or former Directors of the
Funds or other investment companies managed by the Adviser, officers, directors
and present or retired full-time employees and former employees (for subsequent
investments in accounts established during the course of their employment) of
the Adviser, ABI, ABIS and their affiliates; Relatives of any such person; or
any trust, individual retirement account or retirement plan for the benefit of
any such person; (iv) by the categories of investors described in clauses (i),
(iii) and (iv) under "Class A Shares -- Sales at NAV"; or (v) through brokerage
platforms or firms that have agreements with ABI to offer such shares when
acting solely on an agency basis for the purchase or sale of such shares.
Generally, a fee-based program must charge an asset-based or other similar fee
and must invest at least $250,000 in Advisor Class shares of the Fund in order
to be approved by ABI for investment in Advisor Class shares. A commission or
other transaction fee may be charged by your financial intermediary with respect
to the purchase, sale or exchange of Advisor Class shares made through such
financial intermediary. Advisor Class shares are not subject to an initial sales
charge, CDSC or distribution services fees, and thus have a lower expense ratio
and pay correspondingly higher dividends than Class A, Class B, Class C, Class
R, Class K or Class I shares.
Alternative Purchase Arrangements - Group Retirement Plans and Tax-Deferred
---------------------------------------------------------------------------
Accounts
--------
Each Fund offers special distribution arrangements for Group
Retirement Plans. However, plan sponsors, plan fiduciaries and other financial
intermediaries may establish requirements as to the purchase, sale or exchange
of shares of the Fund, including maximum and minimum initial investment
requirements, that are different from those described in this SAI. Group
Retirement Plans also may not offer all classes of shares of the Fund. In
addition, the Class A and Class B CDSC may be waived for investments made
through certain Group Retirement Plans. Therefore, plan sponsors or fiduciaries
may not adhere to these share class eligibility standards as set forth in the
Prospectus and this SAI. A Fund is not responsible for, and has no control over,
the decision of any plan sponsor or fiduciary to impose such differing
requirements.
Class A Shares. Class A shares are available at NAV to Group
Retirement Plans, regardless of size, and to the AllianceBernstein Link,
AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans with
at least $250,000 in plan assets or 100 or more employees. ABI measures the
asset levels and number of employees in these plans once monthly. Therefore, if
a plan that is not eligible at the beginning of a month for purchases of Class A
shares at NAV meets the asset level or number of employees required for such
eligibility, later in that month, all purchases by the plan will be subject to a
sales charge until the monthly measurement of assets and employees. If the plan
terminates the Fund as an investment option within one year, then all plan
purchases of Class A shares will be subject to a 1%, 1-year CDSC on redemption.
Class A shares are also available at NAV to Group Retirement Plans.
The 1%, 1-year CDSC also generally applies. However, the 1%, 1-year CDSC may be
waived if the financial intermediary agrees to waive all commissions or other
compensation paid in connection with the sale of such shares (typically up to a
1% advance payment for sales of Class A shares at NAV) other than the service
fee paid pursuant to the Fund's distribution service plan.
Class B Shares. Class B shares are generally not available for
purchase by Group Retirement Plans. However, Class B shares may continue to be
purchased by Group Retirement Plans that have already selected Class B shares as
an investment alternative under their plan prior to September 2, 2003.
Class C Shares. Class C shares are available to AllianceBernstein
Link, AllianceBernstein Individual 401(k) and AllianceBernstein SIMPLE IRA plans
with less than $250,000 in plan assets and less than 100 employees. If an
AllianceBernstein Link, AllianceBernstein Individual 401(k) or AllianceBernstein
SIMPLE IRA plan holding Class C shares becomes eligible to purchase Class A
shares at NAV, the plan sponsor or other appropriate fiduciary of such plan may
request ABI in writing to liquidate the Class C shares and purchase Class A
shares with the liquidation proceeds. Any such liquidation and repurchase may
not occur before the expiration of the 1-year period that begins on the date of
the plan's last purchase of Class C shares.
Class R Shares. Class R shares are available to certain Group
Retirement Plans. Class R shares are not subject to an initial sales charge or
CDSC, but are subject to a .50% distribution services fee.
Class K Shares. Class K shares are available to certain Group
Retirement Plans. Class K shares are not subject to an initial sales charge or
CDSC, but are subject to a .25% distribution services fee.
Class I Shares. Class I shares are available to certain Group
Retirement Plans. Class I shares generally are not available to retail
non-retirement accounts, traditional and Roth IRAs, Coverdell Education Savings
Accounts, SEPs, SAR-SEPs, SIMPLE IRAs, individual 403(b) plans and
AllianceBernstein-sponsored retirement programs known as the "Informed Choice"
programs. Class I shares are not subject to an initial sales charge, CDSC or a
distribution services fee.
Class Z Shares. Class Z shares are available to certain Group
Retirement Plans. Class Z shares generally are not available to traditional and
Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, SIMPLE IRAs and
individual 403(b) plans. Class Z shares are not currently available to Group
Retirement Plans in the AllianceBernstein-sponsored programs known as the
"Informed Choice" programs. Class Z shares are not subject to an initial sales
charge, CDSC or distribution services fee.
Choosing a Class of Shares for Group Retirement Plans. Plan
sponsors, plan fiduciaries and other financial intermediaries may establish
requirements as to the purchase, sale or exchange of shares of the Fund,
including maximum and minimum initial investment requirements, that are
different from those described in this SAI. Plan fiduciaries should consider how
these requirements differ from the Fund's share class eligibility criteria
before determining whether to invest.
Currently, the Funds also make their Class A shares available at NAV
to Group Retirement Plans. Unless waived under the circumstances described
above, a 1%, 1-year CDSC applies to the sale of Class A shares by a plan.
Because Class K shares have no CDSC and lower Rule 12b-1 distribution services
fees and Class I and Class Z shares have no CDSC or Rule 12b-1 distribution
services fees, plans should consider purchasing Class K, Class I or Class Z
shares, if eligible, rather than Class A shares.
In selecting among the Class A, Class K and Class R shares, plans
purchasing shares through a financial intermediary that is not willing to waive
advance commission payments (and therefore are not eligible for the waiver of
the 1%, 1-year CDSC applicable to Class A shares) should weigh the following:
o the lower Rule 12b-1 distribution services fees (0.30%)
(currently limited to 0.25%) and the 1%, 1-year CDSC
with respect to Class A shares;
o the higher Rule 12b-1 distribution services fees (0.50%)
and the absence of a CDSC with respect to Class R
shares; and
o the lower Rule 12b-1 distribution services fees (0.25%)
and the absence of a CDSC with respect to Class K
shares.
Because Class A and Class K shares have lower Rule 12b-1
distribution services fees than Class R shares, plans should consider purchasing
Class A or Class K shares, if eligible, rather than Class R shares.
As described above, effective January 31, 2009, sales of Class B
shares to new investors were suspended. While Class B shares were generally not
available to Group Retirement Plans, Class B shares are available for continuing
contributions from plans that have already selected Class B shares as an
investment option under their plans prior to September 2, 2003. Plans should
weigh the fact that Class B shares will convert to Class A shares after a period
of time against the fact that Class A, Class R, Class K, Class I and Class Z
shares have lower expenses, and therefore may have higher returns, than Class B
shares, before determining which class to make available to its plan
participants.
Sales Charge Reduction Programs for Class A Shares
--------------------------------------------------
The AB Mutual Funds offer shareholders various programs through
which shareholders may obtain reduced sales charges or reductions in CDSC
through participation in such programs. In order for shareholders to take
advantage of the reductions available through the combined purchase privilege,
rights of accumulation and letters of intent, the Fund must be notified by the
shareholder or his or her financial intermediary that they qualify for such a
reduction. If the Fund is not notified that a shareholder is eligible for these
reductions, the Fund will be unable to ensure that the reduction is applied to
the shareholder's account.
Combined Purchase Privilege. Shareholders may qualify for the sales
charge reductions by combining purchases of shares of a Fund (and/or any other
AB Mutual Fund) into a single "purchase". By combining such purchases,
shareholders may be able to take advantage of the quantity discounts described
under "Alternative Purchase Arrangements". A "purchase" means a single purchase
or concurrent purchases of shares of a Fund or any other AB Mutual Fund,
including AB Institutional Funds, by (i) an individual, his or her spouse or
domestic partner or the individual's children under the age of 21 years
purchasing shares for his, her or their own account(s); (ii) a trustee or other
fiduciary purchasing shares for a single trust, estate or single fiduciary
account with one or more beneficiaries involved; or (iii) the employee benefit
plans of a single employer. The term "purchase" also includes purchases by any
"company", as the term is defined in the 1940 Act, but does not include
purchases by any such company that has not been in existence for at least six
months or that has no purpose other than the purchase of shares of the Fund or
shares of other registered investment companies at a discount. The term
"purchase" does not include purchases by any group of individuals whose sole
organizational nexus is that the participants therein are credit card holders of
a company, policy holders of an insurance company, customers of either a bank or
broker-dealer or clients of an investment adviser.
Currently, the AB Mutual Funds include:
AB Bond Fund, Inc.
- AB All Market Real Return Portfolio
- AB Bond Inflation Strategy
- AB FlexFee(TM) High Yield Portfolio
- AB FlexFee(TM) International Bond Portfolio
- AB Income Fund
- AB Intermediate Bond Portfolio
- AB Limited Duration High Income Portfolio
- AB Municipal Bond Inflation Strategy
- AB Tax-Aware Fixed Income Portfolio
AB Cap Fund, Inc.
- AB All China Equity Portfolio
- AB All Market Income Portfolio
- AB Concentrated Growth Fund
- AB Concentrated International Growth Portfolio
- AB Emerging Markets Core Portfolio
- AB Emerging Markets Multi-Asset Portfolio
- AB FlexFee(TM) Core Opportunities Portfolio
- AB FlexFee(TM) Emerging Markets Growth Portfolio
- AB FlexFee(TM) International Strategic Core Portfolio
- AB FlexFee(TM) Large Cap Growth Portfolio
- AB FlexFee(TM) US Thematic Portfolio
- AB Global Core Equity Portfolio
- AB International Strategic Core Portfolio
- AB Multi-Manager Select Retirement Allocation Fund
- AB Multi-Manager Select 2010 Fund
- AB Multi-Manager Select 2015 Fund
- AB Multi-Manager Select 2020 Fund
- AB Multi-Manager Select 2025 Fund
- AB Multi-Manager Select 2030 Fund
- AB Multi-Manager Select 2035 Fund
- AB Multi-Manager Select 2040 Fund
- AB Multi-Manager Select 2045 Fund
- AB Multi-Manager Select 2050 Fund
- AB Multi-Manager Select 2055 Fund
- AB Select US Equity Portfolio
- AB Select US Long/Short Portfolio
- AB Small Cap Growth Portfolio
- AB Small Cap Value Portfolio
AB Core Opportunities Fund, Inc.
AB Discovery Growth Fund, Inc.
AB Equity Income Fund, Inc.
AB Fixed-Income Shares, Inc.
- AB Government Money Market Portfolio
AB Global Bond Fund, Inc.
AB Global Real Estate Investment Fund, Inc.
AB Global Risk Allocation Fund, Inc.
AB High Income Fund, Inc.
AB Large Cap Growth Fund, Inc.
AB Municipal Income Fund, Inc.
- AB California Portfolio
- AB High Income Municipal Portfolio
- AB National Portfolio
- AB New York Portfolio
AB Municipal Income Fund II
- AB Arizona Portfolio
- AB Massachusetts Portfolio
- AB Minnesota Portfolio
- AB New Jersey Portfolio
- AB Ohio Portfolio
- AB Pennsylvania Portfolio
- AB Virginia Portfolio
AB Relative Value Fund, Inc.
AB Sustainable Global Thematic Fund, Inc.
AB Sustainable International Thematic Fund, Inc.
AB Trust
- AB Discovery Value Fund
- AB International Value Fund
- AB Value Fund
AB Unconstrained Bond Fund, Inc.
The AB Portfolios
- AB All Market Total Return Portfolio
- AB Conservative Wealth Strategy
- AB Growth Fund
- AB Tax-Managed All Market Income Portfolio
- AB Tax-Managed Wealth Appreciation Strategy
- AB Wealth Appreciation Strategy
Sanford C. Bernstein Fund, Inc.
- Emerging Markets Portfolio
- Intermediate California Municipal Portfolio
- Intermediate Diversified Municipal Portfolio
- Intermediate New York Municipal Portfolio
- International Portfolio
- Short Duration Portfolio
- Tax-Managed International Portfolio
Prospectuses for the AB Mutual Funds may be obtained without charge
by contacting ABIS at the address or the "For Literature" telephone number shown
on the front cover of this SAI or on the internet at www.abfunds.com.
Cumulative Quantity Discount (Right of Accumulation). An investor's
purchase of additional Class A shares of a Fund may be combined with the value
of the shareholder's existing accounts, thereby enabling the shareholder to take
advantage of the quantity discounts described under "Alternative Purchase
Arrangements". In such cases, the applicable sales charge on the newly purchased
shares will be based on the total of:
(i) the investor's current purchase;
(ii) the higher of cost or NAV (at the close of business on
the previous day) of (a) all shares of the Fund held by
the investor and (b) all shares held by the investor of
any other AB Mutual Fund, including AB Institutional
Funds; and
(iii) the higher of cost or NAV of all shares described in
paragraph (ii) owned by another shareholder eligible to
combine his or her purchase with that of the investor
into a single "purchase" (see above).
The initial sales charge you pay on each purchase of Class A shares
will take into account your accumulated holdings in all classes of shares of AB
Mutual Funds. Your accumulated holdings will be calculated as (a) the value of
your existing holdings as of the day prior to your additional investment or (b)
the amount you have invested including reinvested distributions but excluding
appreciation less the amount of any withdrawals, whichever is higher.
For example, if an investor owned shares of an AB Mutual Fund that
were purchased for $200,000 and were worth $190,000 at their then current NAV
and, subsequently, purchased Class A shares of a Fund worth an additional
$100,000, the initial sales charge for the $100,000 purchase would be at the
2.25% rate applicable to a single $300,000 purchase of shares of the Fund,
rather than the 3.25% rate.
Letter of Intent. Class A investors may also obtain the quantity
discounts described under "Alternative Purchase Arrangements" by means of a
written Letter of Intent, which expresses the investor's intention to invest at
least $100,000 in Class A shares of a Fund or any AB Mutual Fund within 13
months. Each purchase of shares under a Letter of Intent will be made at the
public offering price or prices applicable at the time of such purchase to a
single transaction of the dollar amount indicated in the Letter of Intent.
Investors qualifying for the Combined Purchase Privilege described
above may purchase shares of the AB Mutual Funds under a single Letter of
Intent. The AB Mutual Funds will use the higher of cost or current NAV of the
investor's existing investments and of those accounts with which investments are
combined via Combined Purchase Privileges toward the fulfillment of the Letter
of Intent. For example, if at the time an investor signs a Letter of Intent to
invest at least $100,000 in Class A shares of the Fund, the investor and the
investor's spouse or domestic partner each purchase shares of the Fund worth
$20,000 (for a total of $40,000), but the current NAV of all applicable accounts
is $45,000 at the time a $100,000 Letter of Intent is initiated, it will only be
necessary to invest a total of $55,000 during the following 13 months in shares
of the Fund or any other AB Mutual Fund, to qualify for the 3.25% sales charge
on the total amount being invested (the sales charge applicable to an investment
of $100,000).
The Letter of Intent is not a binding obligation upon the investor
to purchase the full amount indicated. The minimum initial investment under a
Letter of Intent is 5% of such amount. Shares purchased with the first 5% of
such amount will be held in escrow (while remaining registered in the name of
the investor) to secure payment of the higher sales charge applicable to the
shares actually purchased if the full amount indicated is not purchased, and
such escrowed shares will be involuntarily redeemed at their then NAV to pay the
additional sales charge, if necessary. Dividends on escrowed shares, whether
paid in cash or reinvested in additional Fund shares, are not subject to escrow.
When the full amount indicated has been purchased, the escrow will be released.
Investors wishing to enter into a Letter of Intent in conjunction
with their initial investment in Class A shares of a Fund can obtain a form of
Letter of Intent by contacting ABIS at the address or telephone numbers shown on
the cover of this SAI.
Reinstatement Privilege. A shareholder who has redeemed any or all
of his or her Class A shares may reinvest all or any portion of the proceeds
from that redemption in Class A shares of any AB Mutual Fund at NAV without any
sales charge, provided that such reinvestment is made within 120 calendar days
after the redemption or repurchase date. Shares are sold to a reinvesting
shareholder at the NAV next determined as described above. A reinstatement
pursuant to this privilege will not cancel the redemption or repurchase
transaction; therefore, any gain or loss so realized will be recognized for
federal income tax purposes except that no loss will be recognized to the extent
that the proceeds are reinvested in shares of the Fund within 30 calendar days
after the redemption or repurchase transaction. Investors may exercise the
reinstatement privilege by written request sent to the Fund at the address shown
on the cover of this SAI.
Dividend Reinvestment Program. Under a Fund's Dividend Reinvestment
Program, unless you specify otherwise, your dividends and distributions will be
automatically reinvested in the same class of shares of the Fund without an
initial sales charge or CDSC. If you elect to receive your distributions in
cash, you will only receive a check if the distribution is equal to or exceeds
$25.00. Distributions of less than $25.00 will automatically be reinvested in
Fund shares. To receive distributions of less than $25.00 in cash, you must have
bank instructions associated to your account so that distributions can be
delivered to you electronically via Electronic Funds Transfer using the
Automated Clearing House or "ACH". If you elect to receive distributions by
check, your distributions and all subsequent distributions may nonetheless be
reinvested in additional shares of the Fund under the following circumstances:
(a) the postal service is unable to deliver your checks to
your address of record and the checks are returned to the
Fund's transfer agent as undeliverable; or
(b) your checks remain uncashed for nine months.
Additional shares of the Fund will be purchased at the then current
NAV. You should contact the Fund's transfer agent to change your distribution
option. Your request to do so must be received by the transfer agent before the
record date for a distribution in order to be effective for that distribution.
No interest will accrue on amounts represented by uncashed distribution checks.
Dividend Direction Plan. A shareholder who already maintains
accounts in more than one AB Mutual Fund may direct that income dividends and/or
capital gains paid by one AB Mutual Fund be automatically reinvested, in any
amount, without the payment of any sales or service charges, in shares of any
eligible class of one or more other AB Mutual Fund(s) in which the shareholder
maintains an account. Further information can be obtained by contacting ABIS at
the address or the "For Literature" telephone number shown on the cover of this
SAI. Investors wishing to establish a dividend direction plan in connection with
their initial investment should complete the appropriate section of the Mutual
Fund Application. Current shareholders should contact ABIS to establish a
dividend direction plan.
Systematic Withdrawal Plan
--------------------------
General. Any shareholder who owns or purchases shares of a Fund
having a current NAV of at least $5,000 may establish a systematic withdrawal
plan under which the shareholder will periodically receive a payment in a stated
amount of not less than $50 on a selected date. The $5,000 account minimum does
not apply to a shareholder owning shares through an individual retirement
account or other retirement plan who has attained the age of 70- 1/2 who wishes
to establish a systematic withdrawal plan to help satisfy a required minimum
distribution. Systematic withdrawal plan participants must elect to have their
dividends and distributions from the Fund automatically reinvested in additional
shares of the Fund.
Shares of a Fund owned by a participant in the Fund's systematic
withdrawal plan will be redeemed as necessary to meet withdrawal payments and
such payments will be subject to any taxes applicable to redemptions and, except
as discussed below with respect to Class A, Class B and Class C shares, any
applicable CDSC. Shares acquired with reinvested dividends and distributions
will be liquidated first to provide such withdrawal payments and thereafter
other shares will be liquidated to the extent necessary, and depending upon the
amount withdrawn, the investor's principal may be depleted. A systematic
withdrawal plan may be terminated at any time by the shareholder or the Fund.
Withdrawal payments will not automatically end when a shareholder's
account reaches a certain minimum level. Therefore, redemptions of shares under
the plan may reduce or even liquidate a shareholder's account and may subject
the shareholder to the Fund's involuntary redemption provisions. See "Redemption
and Repurchase of Shares -- General". Purchases of additional shares
concurrently with withdrawals are undesirable because of sales charges
applicable when purchases are made. While an occasional lump-sum investment may
be made by a holder of Class A shares who is maintaining a systematic withdrawal
plan, such investment should normally be an amount equivalent to three times the
annual withdrawal or $5,000, whichever is less.
Payments under a systematic withdrawal plan may be made by check or
electronically via the Automated Clearing House ("ACH") network. Investors
wishing to establish a systematic withdrawal plan in conjunction with their
initial investment in shares of a Fund should complete the appropriate portion
of the Mutual Fund Application, while current Fund shareholders desiring to do
so can obtain an application form by contacting ABIS at the address or the "For
Literature" telephone number shown on the cover of this SAI.
CDSC Waiver for Class A Shares, Class B Shares and Class C Shares.
Under the systematic withdrawal plan, up to 1% monthly, 2% bi-monthly or 3%
quarterly of the value at the time of redemption of the Class A, Class B or
Class C shares in a shareholder's account may be redeemed free of any CDSC.
Class B shares that are not subject to a CDSC (such as shares
acquired with reinvested dividends or distributions) will be redeemed first and
will count toward the foregoing limitations. Remaining Class B shares that are
held the longest will be redeemed next. Redemptions of Class B shares in excess
of the foregoing limitations will be subject to any otherwise applicable CDSC.
With respect to Class A and Class C shares, shares held the longest
will be redeemed first and will count toward the foregoing limitations.
Redemptions in excess of those limitations will be subject to any otherwise
applicable CDSC.
Payments to Financial Advisors and Their Firms
----------------------------------------------
Financial intermediaries market and sell shares of the Funds. These
financial intermediaries employ financial advisors and receive compensation for
selling shares of the Funds. This compensation is paid from various sources,
including any sales charge, CDSC and/or Rule 12b-1 fee that you or the Fund may
pay. Your individual financial advisor may receive some or all of the amounts
paid to the financial intermediary that employs him or her.
In the case of Class A shares, all or a portion of the initial sales
charge that you pay may be paid by ABI to financial intermediaries selling Class
A shares. ABI may also pay these financial intermediaries a fee of up to 1% on
purchases of $1 million or more. Additionally, up to 100% of the Rule 12b-1 fees
applicable to Class A shares each year may be paid to financial intermediaries,
including your financial intermediary, that sell Class A shares.
In the case of Class B shares, ABI may pay, at the time of your
purchase, a commission to financial intermediaries selling Class B shares in an
amount equal to 3% of your investment (4% with respect to sales of Class B
shares of Unconstrained Bond). Additionally, up to 30% of the Rule 12b-1 fees
applicable to Class B shares each year may be paid to financial intermediaries,
including your financial intermediary, that sell Class B shares.
In the case of Class C shares, ABI may pay, at the time of your
purchase, a commission to firms selling Class C shares in an amount equal to 1%
of your investment. Additionally, up to 100% of the Rule 12b-1 fee applicable to
Class C shares each year may be paid to financial intermediaries, including your
financial intermediary, that sell Class C shares.
In the case of Class R and Class K shares, up to 100% of the Rule
12b-1 fee applicable to Class R and Class K shares each year may be paid to
financial intermediaries, including your financial intermediary, that sell Class
R and Class K shares.
In the case of Advisor Class shares, your financial advisor may
charge ongoing fees or transactional fees. ABI may pay a portion of "ticket" or
other transactional charges.
Your financial advisor's firm receives compensation from the Fund,
ABI and/or the Adviser in several ways from various sources, which include some
or all of the following:
o upfront sales commissions;
o Rule 12b-1 fees;
o additional distribution support; o defrayal of costs for
educational seminars and training; and
o payments related to providing recordkeeping and/or transfer
agency services.
Please read your Prospectus carefully for information on this
compensation. Please also refer to Appendix C--Financial Intermediary Waivers in
the Prospectus.
Other Payments for Distribution Services and Educational Support
----------------------------------------------------------------
In addition to the commissions paid to financial intermediaries at
the time of sale and the fees described under "Asset-Based Sales Charges or
Distribution and/or Service (Rule 12b-1) Fees", in your Prospectus, some or all
of which may be paid to financial intermediaries (and, in turn, to your
financial advisor), ABI, at its expense, currently provides additional payments
to firms that sell shares of the AB Mutual Funds. Although the individual
components may be higher and the total amount of payments made to each
qualifying firm in any given year may vary, the total amount paid to a financial
intermediary in connection with the sale of shares of the AB Mutual Funds will
generally not exceed the sum of (a) 0.25% of the current year's fund sales by
that firm and (b) 0.10% of average daily net assets attributable to that firm
over the year. These sums include payments for distribution analytical data
regarding AB Mutual Fund sales by financial advisors of these firms and to
reimburse directly or indirectly the costs incurred by these firms and their
employees in connection with educational seminars and training efforts about the
AB Mutual Funds for the firms' employees and/or their clients and potential
clients. The costs and expenses associated with these efforts may include
travel, lodging entertainment and meals.
For 2019, ABI's additional payments to these firms for distribution
services and educational support related to the AB Mutual Funds are expected to
be approximately 0.05% of the average monthly assets of the AB Mutual Funds, or
approximately $22 million. In 2018, ABI is expected to pay approximately 0.05%
of the average monthly assets of the AB Mutual Funds or approximately $20
million for distribution services and educational support related to the AB
Mutual Funds.
A number of factors are considered in determining the additional
payments, including each firm's AB Mutual Fund sales, assets and redemption
rates, and the willingness and ability of the firm to give ABI access to its
financial advisors for educational or marketing purposes. In some cases, firms
will include the AB Mutual Funds on a "preferred list". ABI's goal is to make
the financial advisors who interact with current and prospective investors and
shareholders more knowledgeable about the AB Mutual Funds so that they can
provide suitable information and advice about the funds and related investor
services.
Each Fund and ABI also make payments for recordkeeping and other
transfer agency services to financial intermediaries that sell AB Mutual Fund
shares. Please see "Expenses of the Fund - Transfer Agency Agreement" above.
These expenses paid by the Fund are included in "Other Expenses" under "Fees and
Expenses of the Fund -- Annual Fund Operating Expenses" in your Prospectus.
If one mutual fund sponsor makes greater distribution assistance
payments than another, your financial advisor and his or her firm may have an
incentive to recommend one fund complex over another. Similarly, if your
financial advisor or his or her firm receives more distribution assistance for
one share class versus another, then they may have an incentive to recommend
that class.
Please speak with your financial advisor to learn more about the
total amounts paid to your financial advisor and his or her firm by the Fund,
the Adviser, ABI and by sponsors of other mutual funds he or she may recommend
to you. You should also consult disclosures made by your financial advisor at
the time of your purchase.
ABI anticipates that the firms that will receive additional payments
for distribution services and/or educational support include:
AIG Advisor Group
American Enterprise Investment Services
AXA Advisors
Cadaret, Grant & Co.
Citigroup Global Markets
Citizens Securities
Commonwealth Financial Network
Donegal Securities
Great-West Life & Annuity Insurance Co.
Institutional Cash Distributors (ICD)
JP Morgan Securities
Lincoln Financial Advisors Corp.
Lincoln Financial Securities Corp.
LPL Financial
Merrill Lynch
Morgan Stanley
Northwestern Mutual Investment Services
PNC Investments
Raymond James
RBC Wealth Management
Robert W. Baird
UBS Financial Services
US Bancorp Investments
Voya Financial Partners
Waddell & Reed, Inc
Wells Fargo Advisors
ABI expects that additional firms may be added to this list from
time to time.
Although the Funds may use brokers and dealers that sell shares of
the Funds to effect portfolio transactions, the Funds do not consider the sale
of AB Mutual Fund shares as a factor when selecting brokers or dealers to effect
portfolio transactions.
--------------------------------------------------------------------------------
REDEMPTION AND REPURCHASE OF SHARES
--------------------------------------------------------------------------------
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Funds". If you are an Advisor
Class shareholder through an account established under a fee-based program or
commission-based brokerage program, your program may impose requirements with
respect to the purchase, sale or exchange of Advisor Class shares of the Fund
that are different from those described herein. A commission or other
transaction fee may be charged by your financial intermediary with respect to
the purchase, sale or exchange of Advisor Class shares made through such
financial intermediary. Similarly, if you are a shareholder through a Group
Retirement Plan, your plan may impose requirements with respect to the purchase,
sale or exchange of shares of a Fund that are different from those imposed
below. Each Fund has authorized one or more brokers to receive on its behalf
purchase and redemption orders. Such brokers are authorized to designate other
intermediaries to receive purchase and redemption orders on the Fund's behalf.
In such cases, orders will receive the NAV next computed after such order is
properly received by the authorized broker or designee and accepted by the Fund.
Redemption
----------
Subject only to the limitations described below, each Fund will
redeem the shares tendered to it, as described below, at a redemption price
equal to their NAV as next computed following the receipt of shares tendered for
redemption in proper form. Except for any CDSC which may be applicable to Class
A, Class B or Class C shares, there is no redemption charge. Each Fund expects
that it will typically take one to three business days following the reception
of a shareholder's redemption request in proper form to pay out redemption
proceeds. However, while not expected, payment of redemption proceeds may take
up to seven days after the day it is received in proper form by the Fund by the
Fund closing time. If a shareholder is in doubt about what documents are
required by his or her investment program or employee benefit plan, the
shareholder should contact his or her financial intermediary.
The right of redemption may not be suspended or the date of payment
upon redemption postponed for more than seven days after shares are tendered for
redemption, except for any period during which the Exchange is closed (other
than customary weekend and holiday closings), or during which the SEC determines
that trading thereon is restricted, or for any period during which an emergency
(as determined by the SEC) exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or as a result of which it
is not reasonably practicable for the Fund fairly to determine the value of its
net assets, or for such other periods as the SEC may by order permit for the
protection of security holders of the Fund.
Payment of the redemption price normally will be made in cash but
may be made, at the option of the Fund, in kind. No interest will accrue on
uncashed redemption checks. The value of a shareholder's shares on redemption or
repurchase may be more or less than the cost of such shares to the shareholder,
depending upon the market value of the Fund's portfolio securities at the time
of such redemption or repurchase. Redemption proceeds from Class A, Class B and
Class C shares will reflect the deduction of the CDSC, if any. Payment received
by a shareholder upon redemption or repurchase of his or her shares, assuming
the shares constitute capital assets in his or her hands, will result in
long-term or short-term capital gains (or loss) depending upon the shareholder's
holding period and basis in respect of the shares redeemed.
To redeem shares of a Fund for which no share certificates have been
issued, the registered owner or owners should forward a letter to the Fund
containing a request for redemption. The Fund may require the signature or
signatures on the letter to be Medallion Signature Guaranteed. Please contact
ABIS to confirm whether a Medallion Signature Guarantee is needed.
To redeem shares of a Fund represented by share certificates, the
investor should forward the appropriate share certificate or certificates,
endorsed in blank or with blank stock powers attached, to the Fund with the
request that the shares represented thereby, or a specified portion thereof, be
redeemed. The stock assignment form on the reverse side of each share
certificate surrendered to the Fund for redemption must be signed by the
registered owner or owners exactly as the registered name appears on the face of
the certificate or, alternatively, a stock power signed in the same manner may
be attached to the share certificate or certificates or, where tender is made by
mail, separately mailed to the relevant Fund. The signature or signatures on the
assignment form must be guaranteed in the manner described above.
Telephone Redemption by Electronic Funds Transfer. Each Fund
shareholder is entitled to request redemption by electronic funds transfer (of
shares for which no share certificates have been issued) by telephone at (800)
221-5672 if the shareholder has completed the appropriate portion of the Mutual
Fund Application or, if an existing shareholder has not completed this portion,
by an "Autosell" application obtained from ABIS (except for certain omnibus
accounts). A telephone redemption request by electronic funds transfer may not
exceed $100,000, and must be made before the Fund Closing Time, on a Fund
business day as defined above. Proceeds of telephone redemptions will be sent by
electronic funds transfer to a shareholder's designated bank account at a bank
selected by the shareholder that is a member of the NACHA.
Telephone Redemption by Check. Each Fund shareholder is eligible to
request redemption by check of Fund shares for which no share certificates have
been issued by telephone at (800) 221-5672 before the Fund Closing Time, on a
Fund business day in an amount not exceeding $100,000. Proceeds of such
redemptions are remitted by check to the shareholder's address of record. A
shareholder otherwise eligible for telephone redemption by check may cancel the
privilege by written instruction to ABIS, or by checking the appropriate box on
the Mutual Fund Application.
Telephone Redemptions - General. During periods of drastic economic,
market or other developments, such as the terrorist attacks on September 11,
2001, it is possible that shareholders would have difficulty in reaching ABIS by
telephone (although no such difficulty was apparent at any time in connection
with the attacks). If a shareholder were to experience such difficulty, the
shareholder should issue written instructions to ABIS at the address shown on
the cover of this SAI. The Funds reserve the right to suspend or terminate their
telephone redemption service at any time without notice. Telephone redemption is
not available with respect to shares (i) for which certificates have been
issued, (ii) held in nominee or "street name" accounts, (iii) held by a
shareholder who has changed his or her address of record within the preceding 30
calendar days or (iv) held in any retirement plan account. Neither the Funds,
the Adviser, ABI nor ABIS will be responsible for the authenticity of telephone
requests for redemptions that the Funds reasonably believe to be genuine. The
Fund will employ reasonable procedures in order to verify that telephone
requests for redemptions are genuine, including, among others, recording such
telephone instructions and causing written confirmations of the resulting
transactions to be sent to shareholders. If the Funds did not employ such
procedures, they could be liable for losses arising from unauthorized or
fraudulent telephone instructions. Financial intermediaries may charge a
commission for handling telephone requests for redemptions.
Redemptions Through Intermediaries. A Fund may redeem shares through
ABI or financial intermediaries. The redemption price will be the NAV next
determined after ABI receives the request (less the CDSC, if any, with respect
to the Class A, Class B and Class C shares), except that requests placed through
financial intermediaries before the Fund Closing Time will be executed at the
NAV determined as of the Fund Closing Time on that day if received by ABI prior
to a designated later time (pursuant to an agreement between the financial
intermediary and ABI permitting such an arrangement; the designated time will
vary by financial intermediary). The financial intermediary is responsible for
transmitting the request to ABI on time. If the financial intermediary fails to
do so, the shareholder's right to receive that day's closing price must be
settled between the shareholder and that financial intermediary. Neither the
Funds nor ABI charges a fee or commission in connection with the redemption of
shares (except for the CDSC, if any, with respect to Class A, Class B and Class
C shares). Normally, if shares of the Fund are offered through a financial
intermediary, the redemption is settled by the shareholder as an ordinary
transaction with or through the financial intermediary, who may charge the
shareholder for this service.
Account Closure
---------------
Each Fund reserves the right to close out an account that has
remained below $1,000 for 90 days. No CDSC will be deducted from the proceeds of
this redemption. In the case of a redemption or repurchase of shares of a Fund
recently purchased by check, redemption proceeds will not be made available
until the Fund is reasonably assured that the check has cleared, normally up to
15 calendar days following the purchase date.
--------------------------------------------------------------------------------
SHAREHOLDER SERVICES
--------------------------------------------------------------------------------
The following information supplements that set forth in your
Prospectus under the heading "Investing in the Funds". The shareholder services
set forth below are applicable to all classes of shares unless otherwise
indicated.
If you are an Advisor Class shareholder through an account
established under a fee-based program or commission-based brokerage program or a
shareholder in a Group Retirement Plan, your fee-based program or retirement
plan may impose requirements with respect to the purchase, sale or exchange of
shares of the Fund that are different from those described herein. A commission
or other transaction fee may be charged by your financial intermediary with
respect to the purchase, sale or exchange of Advisor Class shares made through
such intermediary.
Automatic Investment Program
----------------------------
Investors may purchase shares of a Fund through an automatic
investment program utilizing electronic funds transfer drawn on the investor's
own bank account. Under such a program, pre-authorized monthly drafts for a
fixed amount are used to purchase shares through the financial intermediary
designated by the investor at the public offering price next determined after
ABI receives the proceeds from the investor's bank. The monthly drafts must be
in minimum amounts of either $50 or $200, depending on the investor's initial
purchase. If an investor makes an initial purchase of at least $2,500, the
minimum monthly amount for pre-authorized drafts is $50. If an investor makes an
initial purchase of less than $2,500, the minimum monthly amount for
pre-authorized drafts is $200 and the investor must commit to a monthly
investment of at least $200 until the investor's account balance is $2,500 or
more. In electronic form, drafts can be made on or about a date each month
selected by the shareholder. Investors wishing to establish an automatic
investment program in connection with their initial investment should complete
the appropriate portion of the Mutual Fund Application. As of January 31, 2009,
the Automatic Investment Program is available for purchase of Class B shares
only if a shareholder was enrolled in the Program prior to January 31, 2009.
Current shareholders should contact ABIS at the address or telephone numbers
shown on the cover of this SAI to establish an automatic investment program.
Shareholders committed to monthly investments of $25 or more through
the Automatic Investment Program by October 15, 2004 are able to continue their
program despite the $50 monthly minimum.
Exchange Privilege
------------------
You may exchange your investment in a Fund for shares of the same
class of other AB Mutual Funds if the other AB Mutual Fund in which you wish to
invest offers shares of the same class. In addition, (i) present officers and
full-time employees of the Adviser, (ii) present Directors or Trustees of any AB
Mutual Fund, (iii) certain employee benefit plans for employees of the Adviser,
ABI, ABIS and their affiliates and (iv) certain persons participating in a
fee-based program, sponsored and maintained by a registered broker-dealer or
other financial intermediary and approved by ABI, under which such persons pay
an asset-based fee for service in the nature of investment advisory or
administrative services may, on a tax-free basis, exchange Class A, Class B,
Class C, Class R, Class K, Class I and Class Z shares of the Fund for Advisor
Class shares of the Fund or Class C shares of the Fund for Class A shares of the
Fund. Exchanges of shares are made at the NAV next determined and without sales
or service charges. Exchanges may be made by telephone or written request. In
order to receive a day's NAV, ABIS must receive and confirm a telephone exchange
request by the Fund Closing Time on that day.
Shares will continue to age without regard to exchanges for purpose
of determining the CDSC, if any, upon redemption and, in the case of Class B or
Class C shares, for the purpose of conversion to Class A shares. After an
exchange, your Class B or Class C shares will automatically convert to Class A
shares in accordance with the conversion schedule applicable to the Class B or
Class C shares of the AB Mutual Fund you originally purchased for cash
("original shares"). When redemption occurs, the CDSC applicable to the original
shares is applied.
Please read carefully the prospectus of the AB Mutual Fund into
which you are exchanging before submitting the request. Call ABIS at (800)
221-5672 to exchange uncertificated shares. Except with respect to exchanges of
Class A, Class B, Class C, Class R, Class K, Class I or Class Z shares of a Fund
for Advisor Class shares or Class C shares for Class A shares of the same Fund,
exchanges of shares as described above in this section are taxable transactions
for federal income tax purposes. The exchange service may be modified,
restricted, or terminated on 60 days' written notice.
All exchanges are subject to the minimum investment requirements and
any other applicable terms set forth in the prospectus for the AB Mutual Fund
whose shares are being acquired. An exchange is effected through the redemption
of the shares tendered for exchange and the purchase of shares being acquired at
their respective NAVs as next determined following receipt by the AB Mutual Fund
whose shares are being exchanged of (i) proper instructions and all necessary
supporting documents as described in such fund's prospectus, or (ii) a telephone
request for such exchange in accordance with the procedures set forth in the
following paragraph. Exchanges of shares of AB Mutual Funds will generally
result in the realization of a capital gain or loss for federal income tax
purposes.
Each Fund shareholder and the shareholder's financial intermediary
are authorized to make telephone requests for exchanges unless ABIS receives
written instruction to the contrary from the shareholder, or the shareholder
declines the privilege by checking the appropriate box on the Mutual Fund
Application. Such telephone requests cannot be accepted with respect to shares
then represented by share certificates. Shares acquired pursuant to a telephone
request for exchange will be held under the same account registration as the
shares redeemed through such exchange.
Eligible shareholders desiring to make an exchange should telephone
ABIS with their account number and other details of the exchange at (800)
221-5672 before the Fund Closing Time, on the Fund business day as defined
above. Telephone requests for exchanges received before the Fund Closing Time,
on a Fund business day will be processed as of the close of business on that
day. During periods of drastic economic, market or other developments, such as
the terrorist attacks on September 11, 2001, it is possible that shareholders
would have difficulty in reaching ABIS by telephone (although no such difficulty
was apparent at any time in connection with the attacks). If a shareholder were
to experience such difficulty, the shareholder should issue written instructions
to ABIS at the address shown on the cover of this SAI.
A shareholder may elect to initiate a monthly "Auto Exchange"
whereby a specified dollar amount's worth of his or her Fund shares (minimum
$25) is automatically exchanged for shares of another AB Mutual Fund.
None of the AB Mutual Funds, the Adviser, ABI or ABIS will be
responsible for the authenticity of telephone requests for exchanges that the
Fund reasonably believes to be genuine. The Fund will employ reasonable
procedures in order to verify that telephone requests for exchanges are genuine,
including, among others, recording such telephone instructions and causing
written confirmations of the resulting transactions to be sent to shareholders.
If the Fund did not employ such procedures, it could be liable for losses
arising from unauthorized or fraudulent telephone instructions. Financial
intermediaries may charge a commission for handling telephone requests for
exchanges.
The exchange privilege is available only in states where shares of
the AB Mutual Funds being acquired may legally be sold. Each AB Mutual Fund
reserves the right, at any time on 60 days' notice to its shareholders, to
reject any order to acquire its shares through exchange or otherwise to modify,
restrict or terminate the exchange privilege.
Statements and Reports
----------------------
Each shareholder of a Fund receives semi-annual and annual reports
which include a portfolio of investments, financial statements and, in the case
of the annual report, the report of the Fund's independent registered public
accounting firm, Ernst & Young LLP, 5 Times Square, New York, New York 10036, as
well as a confirmation of each purchase and redemption. By contacting his or her
financial intermediary or ABIS, a shareholder can arrange for copies of his or
her account statements to be sent to another person.
Shareholder Services Applicable to Class A and Class C Shareholders Only
------------------------------------------------------------------------
Checkwriting (not available to shareholders of High Income, Limited Duration
----------------------------------------------------------------------------
High Income and Tax-Aware)
--------------------------
A new Class A or Class C investor may fill out the Signature Card to
authorize the Fund to arrange for a checkwriting service through State Street
Bank and Trust Company (the "Bank") to draw against Class A or Class C shares of
the Fund redeemed from the investor's account. Under this service, checks may be
made payable to any payee in any amount not less than $500 and not more than 90%
of the NAV of the Class A or Class C shares in the investor's account (excluding
for this purpose the current month's accumulated dividends and shares for which
certificates have been issued). A Class A or Class C shareholder wishing to
establish this checkwriting service subsequent to the opening of his or her Fund
account should contact the Fund by telephone or mail. Corporations, fiduciaries
and institutional investors are required to furnish a certified resolution or
other evidence of authorization. This checkwriting service will be subject to
the Bank's customary rules and regulations governing checking accounts, and the
Fund and the Bank each reserve the right to change or suspend the checkwriting
service. There is no charge to the shareholder for the initiation and
maintenance of this service or for the clearance of any checks.
When a check is presented to the Bank for payment, the Bank, as the
shareholder's agent, causes the Fund to redeem, at the NAV next determined, a
sufficient number of full and fractional shares of the Fund in the shareholder's
account to cover the check. Because the level of net assets in a shareholder's
account constantly changes due to, among various factors, market fluctuations, a
shareholder should not attempt to close his or her account by use of a check. In
this regard, the Bank has the right to return checks (marked "insufficient
funds") unpaid to the presenting bank if the amount of the check exceeds 90% of
the assets in the account. Canceled (paid) checks are returned to the
shareholder. The checkwriting service enables the shareholder to receive the
daily dividends declared on the shares to be redeemed until the day that the
check is presented to the Bank for payment.
--------------------------------------------------------------------------------
NET ASSET VALUE
--------------------------------------------------------------------------------
The NAV of each Fund is calculated at the close of regular trading
on any day the Exchange is open (ordinarily, 4:00 p.m., Eastern time, but
sometimes earlier, as in the case of scheduled half-day trading or unscheduled
suspensions of trading) following receipt of a purchase or redemption order by a
Fund on each Fund business day on which such an order is received and on such
other days as the Board deems appropriate or necessary in order to comply with
Rule 22c-1 under the 1940 Act. A Fund's per share NAV is calculated by dividing
the value of the Fund's total assets, less its liabilities, by the total number
of its shares then outstanding.
Portfolio securities are valued at current market value or, if
market quotations are not readily available or are unreliable, at fair value as
determined in accordance with applicable rules under the 1940 Act and the Fund's
pricing policies and procedures (the "Pricing Policies") established by and
under the general supervision of the Board. The Board has delegated to the
Adviser, subject to the Board's continuing oversight, certain of the Board's
duties with respect to the Pricing Policies. The Adviser has established a
Valuation Committee, which operates under policies and procedures approved by
the Boards, to value a Fund's assets on behalf of the Fund.
Whenever possible, securities are valued based on market information
on the business day as of which the value is being determined, as follows:
(a) an equity security listed on the Exchange, or on another
national or foreign exchange (other than securities listed on the Nasdaq Stock
Exchange ("NASDAQ")), is valued at the last sale price reflected on the
consolidated tape at the close of the exchange. If there has been no sale on the
relevant business day, the security is then valued at the last-traded price;
(b) an equity security traded on NASDAQ is valued at the NASDAQ
Official Closing Price;
(c) an OTC equity security is valued at the mid level between the
current bid and ask prices. If the mid price is not available, the security will
be valued at the bid price. An equity security traded on more than one exchange
is valued in accordance with paragraph (a) above by reference to the principal
exchange on which the security is traded (as determined by the Adviser);
(d) a listed or OTC put or call option is valued at the mid level
between the current bid and ask prices (for options or futures contracts, see
item (e)). If neither a current bid nor a current ask price is available, the
Adviser will have discretion to determine the best valuation (e.g., last trade
price) and then bring the issue to the Valuation Committee the next day;
(e) an open futures contract and any option thereon are valued at
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 relevant business
day, the security is valued at the last available closing settlement price;
(f) a listed right is valued at the last-traded price provided by
approved vendors. If there has been no sale on the relevant business day, the
right is valued at the last-traded price from the previous day. On the following
day, the security is valued in good faith at fair value. For an unlisted right,
the calculation used in determining a value is the price of the reference
security minus the subscription price multiplied by the terms of the right.
There may be some instances when the subscription price is greater than the
referenced security right. In such instances, the right would be valued as
worthless;
(g) a listed warrant is valued at the last-traded price provided by
approved vendors. If there is no sale on the relevant business day, the warrant
is valued at the last-traded price from the previous day. On the following day,
the security is valued in good faith at fair value. All unlisted warrants are
valued in good faith at fair value. Once a warrant has expired, it will no
longer be valued;
(h) preferred securities are valued based on prices received from
approved vendors that use last trade data for listed preferreds and evaluated
bid prices for non-listed preferreds, as well as for listed preferreds when
there is no trade activity;
(i) U.S. Government securities and any other debt instrument having
60 days or less remaining until maturity generally are valued at market by an
independent pricing service, if a market price is available. If a market price
is not available, the securities are valued at amortized cost. This methodology
pertains to 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 in which amortized cost is utilized, the
Valuation Committee must reasonably conclude that the utilization of amortized
cost is approximately the same as the fair value of the security. The factors
the Valuation Committee will consider include, but are not limited to, an
impairment of the creditworthiness of the issuer or material changes in interest
rates. The Adviser is responsible for monitoring any instances when a market
price is not applied to a short term security and will report any instances to
the Valuation Committee for review;
(j) a fixed-income security is typically valued on the basis of bid
prices provided by an approved pricing vendor when the Adviser reasonably
believes that such prices reflect the fair market value of the security. In
certain markets, the market convention may be to use the mid price between bid
and offer. Fixed-income securities may be valued on the basis of mid prices when
such prices reflect the conventions of the particular markets. The prices
provided by an approved pricing vendor may take into account many factors,
including institutional size trading in similar groups of securities and any
developments related to specific securities. If the Adviser determines that an
appropriate pricing vendor does not exist for a security in a market that
typically values such security on the basis of a bid price, the security is
valued on the basis of a quoted bid price or spread over the applicable yield
curve (a bid spread) by a broker/dealer in such security. If the Adviser
receives multiple broker quotes, the Adviser will utilize the broker quote which
it believes is the most reliable (e.g., a market maker for that security). If
the Adviser receives multiple broker quotes that are deemed to be reliable, then
the Adviser will utilize the second highest broker quote. If an appropriate
pricing vendor does not exist for a security in a market where convention is to
use the mid price, the security is valued on the basis of a quoted mid price by
a broker-dealer in such security;
(k) bank loans are valued on the basis of bid prices provided by a
pricing vendor;
(l) bridge loans are valued at fair value, which equates to the
outstanding loan amount unless it is determined by the Adviser that any
particular bridge loan should be valued at something other than outstanding loan
amount. This may occur, due to, for example, a significant change in the high
yield market and/or a significant change in the status of any particular issuer
or issuers of bridge loans;
(m) whole loans: residential and commercial mortgage whole loans and
whole loan pools are market priced by an approved vendor or broker-dealer;
(n) forward and spot currency pricing is provided by an independent
pricing vendor. The rate provided by the approved vendor is a mid price for
forward and spot rates. In most instances whenever both an "onshore" rate and an
"offshore" (i.e., NDF) rate is available, the Adviser will use the offshore
(NDF) rate. NDF contracts are used for currencies where it is difficult (and
sometimes impossible) to take actual delivery of the currency;
(o) OTC derivatives pricing: various independent pricing vendors are
used to obtain derivatives values or obtain information used to derive a price
for each investment. This information is placed into various pricing models that
can be sourced by the Adviser or from approved vendors (depending on the type of
derivative) to derive a price for each investment. These pricing models are
monitored/reviewed on an ongoing basis by the Adviser;
(p) mutual funds and other pooled vehicles: the Adviser receives
pricing information for mutual funds and other pooled vehicles from various
sources (including AB Global Fund Administrator and the external custodian
banks). Open-end mutual funds are valued at the closing NAV per share and
closed-end funds and ETFs are valued at the closing market price per share;
(q) repurchase agreements and reverse repurchase agreements:
repurchase agreements and reverse repurchase agreements will be valued based on
their original cost plus accrued interest;
(r) hedge funds: hedge funds will be priced at the most recent
available closing NAV per share;
(s) equity-linked notes: prices are sourced at the end of the
pricing day from approved vendors. The vendor methodology is to source the
relevant underlying non-U.S. dollar exchange closing prices and convert them to
U.S. dollars; and
(t) credit-linked notes: prices are sourced on the reference bond
consistent with fixed-income security methodology as noted above, which are
passed through as the price on the credit-linked note. Alternatively, broker
marks are obtained.
If the Adviser becomes aware of any news/market events that would
cause the Valuation Committee to believe the last traded or market-based price,
as applicable, does not reflect fair value, the security is then valued in good
faith at fair value by, or in accordance with, procedures approved by the Board.
When a Fund uses fair value pricing, it may take into account any
factors it deems appropriate. A Fund may determine fair value based upon
developments related to a specific security, current valuations of foreign stock
indices (as reflected in U.S. futures markets) and/or U.S. sector or broader
stock market indices. The prices of securities used by the Fund to calculate its
NAV may differ from quoted or published prices for the same securities. Fair
value pricing involves subjective judgments and it is possible that the fair
value determined for a security is materially different than the value that
could be realized upon the sale of that security.
Each Fund expects to use fair value pricing for securities primarily
traded on U.S. exchanges only under very limited circumstances, such as the
early closing of the exchange on which a security is traded or suspension of
trading in the security. Each Fund may use fair value pricing more frequently
for securities primarily traded in non-U.S. markets because, among other things,
most foreign markets close well before the Fund ordinarily 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. For example, the Fund believes that foreign
security values may be affected by events that occur after the close of foreign
securities markets. To account for this, the Fund may frequently value many of
its foreign equity securities using fair value prices based on third party
vendor modeling tools to the extent available.
Each Fund's Board may suspend the determination of its NAV (and the
offering and sale of shares), subject to the rules of the SEC and other
governmental rules and regulations, at a time when: (1) the Exchange is closed,
other than customary weekend and holiday closings; (2) an emergency exists as a
result of which it is not reasonably practicable for the Fund to dispose of
securities owned by it or to determine fairly the value of its net assets; or
(3) for the protection of shareholders, the SEC by order permits a suspension of
the right of redemption or a postponement of the date of payment on redemption.
For purposes of determining a Fund's NAV per share, all assets and
liabilities initially expressed in a foreign currency will be converted into
U.S. Dollars at the mean of the current bid and ask prices of such currency
against the U.S. Dollar last quoted by a major bank that is a regular
participant in the relevant foreign exchange market or on the basis of a pricing
service that takes into account the quotes provided by a number of such major
banks. If such quotations are not available as of the close of the Exchange, the
rate of exchange will be determined in good faith by, or under the direction of,
the Board.
The assets attributable to the Class A shares, Class B shares, Class
C shares, Class R shares, Class K shares, Class I shares, Class Z shares and
Advisor Class shares are invested together in a single portfolio. The NAV of
each class will be determined separately by subtracting the liabilities
allocated to that class from the assets belonging to that class in conformance
with the provisions of a plan adopted by the Fund in accordance with Rule 18f-3
under the 1940 Act.
--------------------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
--------------------------------------------------------------------------------
U.S. Federal Income Taxation of Dividends and Distributions
-----------------------------------------------------------
General. Each Fund intends for each taxable year to qualify to be
taxed as a "regulated investment company" under the Code. To so qualify, a Fund
must, among other things: (i) derive at least 90% of its gross income in each
taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currency, certain other income (including, but not limited to, gains from
options, futures contracts or forward currency exchange contracts) derived with
respect to its business of investing in stock, securities or currency or net
income derived from interests in certain "qualified publicly traded
partnerships"; and (ii) diversify its holdings so that, at the end of each
quarter of its taxable year, the following two conditions are met: (a) at least
50% of the value of the Fund's assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies and
other securities with respect to which the Fund's investment is limited, in
respect of any one issuer, to an amount not greater than 5% of the value of the
Fund's assets and not more than 10% of the outstanding voting securities of such
issuer and (b) not more than 25% of the value of the Fund's assets is invested
in securities of any one issuer (other than U.S. Government securities or
securities of other regulated investment companies), securities (other than
securities of other regulated investment companies) of any two or more issuers
which the Fund controls and which are engaged in the same or similar trades or
businesses or related trades or businesses, or securities of one or more
"qualified publicly traded partnerships".
If a Fund qualifies as a regulated investment company for any
taxable year and makes timely distributions to its shareholders of 90% or more
of its investment company taxable income for that year (calculated without
regard to its net capital gain, i.e., the excess of its net long-term capital
gain over its net short-term capital loss) it will not be subject to federal
income tax on the portion of its taxable income for the year (including any net
capital gain) that it distributes to shareholders.
It is the present policy of each Fund to distribute to shareholders
all net investment income monthly and to distribute net realized capital gains,
if any, annually. The amount of any such distributions must necessarily depend
upon the realization by the Fund of income and capital gains from investments.
Each Fund will also avoid the 4% federal excise tax that would
otherwise apply to certain undistributed income for a given calendar year if it
makes timely distributions to the shareholders equal to at least the sum of (i)
98% of its ordinary income for that year, (ii) 98.2% of its capital gain net
income and foreign currency gains for the twelve-month period ending on October
31 of that year or, if later during the calendar year, the last day of the
Fund's taxable year (i.e., November 30 or December 31) if the Fund is permitted
to so elect and so elects, and (iii) any ordinary income or capital gain net
income from the preceding calendar year that was not distributed during such
year. For this purpose, income or gain retained by the Fund that is subject to
corporate income tax will be considered to have been distributed by the Fund
during such year. For federal income and excise tax purposes, dividends declared
and payable to shareholders of record as of a date in October, November or
December of a given year but actually paid during the immediately following
January will be treated as if paid by the Fund on December 31 of such earlier
calendar year, and will be taxable to these shareholders in the year declared,
and not in the year in which the shareholders actually receive the dividend.
The information set forth in the Prospectus and the following
discussion relate solely to the significant United States federal income taxes
on dividends and distributions by a Fund and assume that the Fund qualifies to
be taxed as a regulated investment company. An investor should consult his or
her own tax advisor with respect to the specific tax consequences of being a
shareholder in a Fund, including the effect and applicability of federal, state,
local and foreign tax laws to his or her own particular situation and the
possible effects of changes therein.
Dividends and Distributions (All Funds, except Tax-Aware). Each Fund
intends to make timely distributions of the Fund's taxable income (including any
net capital gain) so that the Fund will not be subject to federal income and
excise taxes. Dividends of the Fund's net ordinary income and distributions of
any net realized short-term capital gain are taxable to shareholders as ordinary
income.
Some or all of the distributions from a Fund may be treated as
"qualified dividend income", taxable to individuals, trusts and estates at the
reduced tax rates applicable to long-term capital gains, provided that both the
fund and the shareholder satisfy certain holding period and other requirements.
Based upon the investment policies of the Funds, it is expected that only a
small portion, if any, of the Funds' distributions would be treated as
"qualified dividend income".
Distributions of net capital gain are taxable as long-term capital
gain, regardless of how long a shareholder has held shares in the Funds. Any
dividend or distribution received by a shareholder on shares of a Fund will have
the effect of reducing the NAV of such shares by the amount of such dividend or
distribution. Furthermore, a dividend or distribution made shortly after the
purchase of such shares by a shareholder, although in effect a return of capital
to that particular shareholder, would be taxable to him or her as described
above. Dividends are taxable in the manner discussed regardless of whether they
are paid to the shareholder in cash or are reinvested in additional shares of a
Fund. The investment objectives of the Funds are such that only a small portion,
if any, of the Funds' distributions is expected to qualify for the
dividends-received deduction for corporate shareholders.
Income dividends generally are declared daily and paid monthly,
except with respect to Unconstrained Bond, which generally declares and pays
monthly; capital gains distributions generally occur annually in December.
After the end of the calendar year, a Fund will notify shareholders
of the federal income tax status of any distributions made by the Fund to
shareholders during such year.
Dividends and Distributions (Tax-Aware). For shareholders' federal
income tax purposes, distributions to shareholders out of tax-exempt interest
income earned by Tax-Aware are not subject to federal income tax if, at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
the Fund's total assets consists of tax-exempt obligations. Tax-Aware intends to
meet this requirement. However, interest income earned and distributed to
shareholders on non-municipal securities would not be exempt from federal income
tax. Insurance proceeds received by Tax-Aware under any insurance policies in
respect of scheduled interest payments on defaulted municipal securities, as
described herein, will be excludable from gross income in the same manner as
interest payments from the insured municipal securities, and consequently such
insurance proceeds may be included in exempt-interest dividends which are
designated and paid by the Fund.
A substantial portion of the dividends paid by Tax-Aware are
anticipated to be exempt from federal income taxes. See, however, "Investment
Policies and Restrictions--Alternative Minimum Tax" below. Shortly after the
close of each calendar year, a notice is sent to each shareholder advising him
of the total dividends paid into his account for the year and the portion of
such total that is exempt from federal income taxes. This portion is determined
by the ratio of the tax-exempt income to total income for the entire year and,
thus, is an annual average rather than a day-by-day determination for each
shareholder.
Distributions out of taxable interest income, other investment
income, and short-term capital gains are taxable to shareholders as ordinary
income. Since Tax-Aware's investment income is derived from interest rather than
dividends, no portion of such distributions is eligible for the
dividends-received deduction available to corporations. Furthermore, since
Tax-Aware's investment income is derived from interest rather than dividends, it
is expected that for non-corporate shareholders no portion of such distributions
will be treated as "qualified dividend income" taxable at the same preferential
tax rates applicable to long-term capital gains. Long-term capital gains, if
any, distributed by Tax-Aware to a shareholder are taxable to the shareholder as
long-term capital gain, irrespective such shareholder's holding period in his or
her shares.
If Tax-Aware's distributions exceed its income and capital gains
realized in any year and the Fund has current and accumulated earnings and
profits for federal income tax purposes, then all or a portion of those
distributions may be treated as ordinary income to shareholders for federal
income tax purposes.
Income dividends generally are declared daily and paid monthly;
capital gains distributions generally occur annually in December. After the end
of the calendar year, Tax-Aware will notify shareholders of the federal income
tax status of any distributions made by the Fund's to shareholders during such
year.
Sales and Redemptions. Any gain or loss arising from a sale or
redemption of Fund shares generally will be a capital gain or loss if Fund
shares are held as a capital asset, and will be a long-term capital gain or loss
if the shareholder has held such shares for more than one year at the time of
the sale or redemption; otherwise it will be a short-term capital gain or loss.
If a shareholder has held shares in the Fund for six months or less and during
that period has received a distribution of net capital gain, any loss recognized
by the shareholder on the sale of those shares during the six-month period will
be treated as a long-term capital loss to the extent of the distribution. In
determining the holding period of such shares for this purpose, any period
during which a shareholder's risk of loss is offset by means of options, short
sales or similar transactions is not counted.
Any loss realized by a shareholder on a sale or exchange of shares
of a Fund will be disallowed to the extent the shares disposed of are reacquired
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are sold or exchanged. For this purpose, acquisitions pursuant to the
Dividend Reinvestment Plan would constitute a reacquisition if made within the
period. If a loss is so disallowed, then such loss will be reflected in an
upward adjustment to the basis of the shares acquired.
Cost Basis Reporting. As part of the Energy Improvement and
Extension Act of 2008, mutual funds are required to report to the Internal
Revenue Service (the "IRS") the "cost basis" of shares acquired by a shareholder
on or after January 1, 2012 ("covered shares") and subsequently redeemed. These
requirements do not apply to investments through a tax-deferred arrangement,
such as a 401(k) plan or an individual retirement plan. The "cost basis" of a
share is generally its purchase price adjusted for dividends, return of capital,
and other corporate actions. Cost basis is used to determine whether a sale of
the shares results in a gain or loss. The amount of gain or loss recognized by a
shareholder on the sale or redemption of shares is generally the difference
between the cost basis of such shares and their sale price. If you redeem
covered shares during any year, then the Funds will report the cost basis of
such covered shares to the IRS and you on Form 1099-B along with the gross
proceeds received on the redemption, the gain or loss realized on such
redemption and the holding period of the redeemed shares.
Your cost basis in your covered shares is permitted to be calculated
using any one of three alternative methods: Average Cost, First In-First Out
(FIFO) and Specific Share Identification. You may elect which method you want to
use by notifying the Funds. This election may be revoked or changed by you at
any time up to the date of your first redemption of covered shares. If you do
not affirmatively elect a cost basis method then a Fund's default cost basis
calculation method, which is currently the Average Cost method - will be applied
to your account(s). The default method will also be applied to all new accounts
established unless otherwise requested.
If you hold Fund shares through a broker (or another nominee),
please contact that broker (nominee) with respect to the reporting of cost basis
and available elections for your account.
You are encouraged to consult your tax advisor regarding the
application of the new cost basis reporting rules and, in particular, which cost
basis calculation method you should elect.
Qualified Plans. A dividend or capital gains distribution with
respect to shares of a Fund held by a tax-deferred or qualified plan, such as an
individual retirement account, section 403(b)(7) retirement plan or corporate
pension or profit-sharing plan, generally will not be taxable to the plan.
Distributions from such plans will be taxable to individual participants under
applicable tax rules without regard to the character of the income earned by the
qualified plan.
Backup Withholding. Any distributions and redemption proceeds
payable to a shareholder may be subject to "backup withholding" tax (at a rate
of 24%) if such shareholder fails to provide a Fund with his or her correct
taxpayer identification number, fails to make certain required certifications or
is notified by the IRS that he or she is subject to backup withholding.
Corporate shareholders and certain other shareholders specified in the Code are
exempt from such backup withholding. Backup withholding is not an additional
tax; rather, a shareholder generally may obtain a refund of any amounts withheld
under backup withholding rules that exceed such shareholder's U.S. federal
income tax liability by filing a refund claim with the IRS, provided that the
required information is furnished to the IRS.
Foreign Income Taxes. Investment income received by a Fund also may
be subject to foreign income taxes, including taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle a Fund to a reduced rate of such taxes or exemption from taxes on such
income. It is impossible to determine the effective rate of foreign tax in
advance since the amount of a Fund's assets to be invested within various
countries is not known.
If more than 50% of the value of a Fund's assets at the close of its
taxable year consists of stocks or securities of foreign corporations (which for
this purpose should include obligations issued by foreign governments), the Fund
will be eligible and intends to file an election with the IRS to pass through to
its shareholders the amount of foreign taxes paid by the Fund. However, there
can be no assurance that a Fund will be able to do so. If a Fund makes this
election, a shareholder will be required to (i) include in gross income (in
addition to taxable dividends actually received), his or her pro rata share of
foreign taxes paid by the Fund, (ii) treat his or her pro rata share of such
foreign taxes as having been paid by him and (iii) either deduct such pro rata
share of foreign taxes in computing his or her taxable income or treat such
foreign taxes as a credit against U.S. federal income taxes. Shareholders who
are not liable for federal income taxes, such as retirement plans qualified
under section 401 of the Code, will not be affected by any such pass-through of
taxes by a Fund. No deduction for foreign taxes may be claimed by an individual
shareholder who does not itemize deductions. In addition, certain shareholders
may be subject to rules which limit or reduce their ability to fully deduct, or
claim a credit for, their pro rata share of the foreign taxes paid by the Fund.
A shareholder's foreign tax credit with respect to a dividend received from a
Fund will be disallowed unless the shareholder holds shares in the Fund on the
ex-dividend date and for at least 15 other days during the 30-day period
beginning 15 days prior to the ex-dividend date. Each shareholder will be
notified within 60 days after the close of the Fund's taxable year whether the
foreign taxes paid by the Fund will pass through for that year and, if so, such
notification will designate (i) the shareholder's portion of the foreign taxes
paid, to each such country and (ii) the portion of dividends that represents
income derived from sources within each such country.
The federal income tax status of each year's distributions by the
Fund will be reported to shareholders and to the IRS. The foregoing is only a
general description of the treatment of foreign taxes under the U.S. federal
income tax laws. Because the availability of a foreign tax credit or deduction
will depend on the particular circumstances of each shareholder, potential
investors are advised to consult their own tax advisers.
U.S. Federal Income Taxation of the Funds
-----------------------------------------
The following discussion relates to certain significant U.S. federal
income tax consequences to a Fund with respect to the determination of its
"investment company taxable income" each year. This discussion assumes that each
Fund will be taxed as a regulated investment company for each of its taxable
years.
Original Issue Discount and Market Discount Obligations. Under the
original issue discount rules, a Fund will receive net investment income in the
form of interest by virtue of holding debt obligations that have an issue price
that is less than their stated redemption price at maturity (a "discount
obligation"). These rules require that a holder (such as a Fund) of a discount
obligation accrue a portion of the discount at which the security was purchased
as income each year even though the Fund receives no interest payment in cash on
the security during the year. Accordingly, a Fund may be required to pay out as
an income distribution each year an amount that is greater than the total amount
of cash interest the Fund actually received. Such distributions will be made
from the cash assets of the Fund or by liquidation of portfolio securities, if
necessary. If a distribution of cash necessitates the liquidation of portfolio
securities, the Adviser will select which securities to sell. A Fund may realize
a gain or loss from such sales. In the event a Fund realizes net capital gains
from such transactions, its shareholders may receive a larger capital gain
distribution, if any, than they would have in the absence of such transactions.
Under the market discount rules, a Fund may recognize ordinary income from the
sale of bonds which it purchased at a discount to their issue price in the
secondary market.
Options, Futures Contracts, and Forward Currency Exchange Contracts.
Certain listed options, regulated futures contracts, and forward currency
exchange contracts are considered "section 1256 contracts" for federal income
tax purposes. Section 1256 contracts held by a Fund at the end of each taxable
year will be "marked to market" and treated for federal income tax purposes as
though sold for fair market value on the last business day of such taxable year.
Gain or loss realized by a Fund on section 1256 contracts other than forward
currency exchange contracts will be considered 60% long-term and 40% short-term
capital gain or loss, although the Fund may elect to have the gain or loss it
realizes on certain contracts taxed as "section 988" gain or loss. Gain or loss
realized by a Fund on forward currency exchange contracts generally will be
treated as section 988 gain or loss and will therefore be characterized as
ordinary income or loss and will increase or decrease the amount of the Fund's
net investment income available to be distributed to shareholders as ordinary
income, as described above. A Fund can elect to exempt its section 1256
contracts which are part of a "mixed straddle" (as described below) from the
application of section 1256.
With respect to OTC put and call options, gain or loss realized by a
Fund upon the lapse or sale of such options held by the Fund will be either
long-term or short-term capital gain or loss depending upon the Fund's holding
period with respect to such option. However, gain or loss realized upon the
lapse or closing out of such options that are written by a Fund will be treated
as short-term capital gain or loss. In general, if a Fund exercises an option,
or if an option that the Fund has written is exercised, gain or loss on the
option will not be separately recognized but the premium received or paid will
be included in the calculation of gain or loss upon disposition of the property
underlying the option.
Gain or loss realized by a Fund on the lapse or sale of put and call
options on foreign currencies which are traded OTC or on certain foreign
exchanges will be treated as section 988 gain or loss and will therefore be
characterized as ordinary income or loss and will increase or decrease the
amount of the Fund's net investment income available to be distributed to
shareholders as ordinary income, as described above. The amount of such gain or
loss shall be determined by subtracting the amount paid, if any, for or with
respect to the option (including any amount paid by a Fund upon termination of
an option written by the Fund) from the amount received, if any, for or with
respect to the option (including any amount received by the Fund upon
termination of an option held by the Fund). In general, if a Fund exercises such
an option on a foreign currency, or if such an option that the Fund has written
is exercised, gain or loss on the option will be recognized in the same manner
as if the Fund had sold the option (or paid another person to assume the Fund's
obligation to make delivery under the option) on the date on which the option is
exercised, for the fair market value of the option. The foregoing rules will
also apply to other put and call options which have as their underlying property
foreign currency and which are traded OTC or on certain foreign exchanges to the
extent gain or loss with respect to such options is attributable to fluctuations
in foreign currency exchange rates.
Stripped Mortgage-Related Securities. Certain classes of SMRS which
are issued at a discount, the payments of which are subject to acceleration by
reason of prepayments of the underlying mortgage assets securing such classes,
are subject to special rules for determining the portion of the discount at
which the class was issued which must be accrued as income each year. Under Code
section 1272(a)(6), a principal-only class or a class which receives a portion
of the interest and a portion of the principal from the underlying mortgage
assets is subject to rules which require accrual of interest to be calculated
and included in the income of a holder (such as a Fund) based on the increase in
the present value of the payments remaining on the class, taking into account
payments includable in the class's stated redemption price at maturity which are
received during the accrual period. For this purpose, the present value
calculation is made at the beginning of each accrual period (i) using the yield
to maturity determined for the class at the time of its issuance (determined on
the basis of compounding at the close of each accrual period and properly
adjusted for the length of the accrual period), calculated on the assumption
that certain prepayments will occur, and (ii) taking into account any
prepayments that have occurred before the close of the accrual period. Since
interest included in a Fund's income as a result of these rules will have been
accrued and not actually paid, the Fund may be required to pay out as an income
distribution each year an amount which is greater than the total amount of cash
interest it actually received, with possible results as described above.
Tax Straddles. Any option, futures contract or other position
entered into or held by a Fund in conjunction with any other position held by
the Fund may constitute a "straddle" for federal income tax purposes. A straddle
of which at least one, but not all, the positions are section 1256 contracts may
constitute a "mixed straddle". In general, straddles are subject to certain
rules that may affect the character and timing of the Fund's gains and losses
with respect to straddle positions by requiring, among other things, that: (i)
loss realized on disposition of one position of a straddle not be recognized to
the extent that the Fund has unrealized gains with respect to the other position
in such straddle; (ii) the Fund's holding period in straddle positions be
suspended while the straddle exists (possibly resulting in gain being treated as
short-term capital gain rather than long-term capital gain); (iii) losses
recognized with respect to certain straddle positions which are part of a mixed
straddle and which are non-section 1256 positions be treated as 60% long-term
and 40% short-term capital loss; (iv) losses recognized with respect to certain
straddle positions which would otherwise constitute short-term capital losses be
treated as long-term capital losses; and (v) the deduction of interest and
carrying charges attributable to certain straddle positions may be deferred.
Various elections are available to the Fund which may mitigate the effects of
the straddle rules, particularly with respect to mixed straddles. In general,
the straddle rules described above do not apply to any straddles held by the
Fund, all of the offsetting positions of which consist of section 1256
contracts.
Zero-coupon Municipal Securities. Under current federal income tax
law, Tax-Aware will include in its net investment income as interest each year,
in addition to stated interest received on obligations held by the Fund,
tax-exempt interest income attributable to the Fund from holding zero-coupon
municipal securities. Current federal income tax law requires that a holder
(such as Tax-Aware) of a zero-coupon municipal security accrue as income each
year a portion of the original issue discount (i.e., the amount equal to the
excess of the stated redemption price of the security at maturity over its issue
price) attributable to such obligation even though the Fund does not receive
interest payments in cash on the security during the year which reflect the
accrued discount. As a result of the above rules, in order to make the
distributions necessary for Tax-Aware not to be subject to federal income or
excise taxes, the Fund may be required to pay out as an income distribution each
year an amount greater than the total amount of cash which the Fund has actually
received as interest during the year. Such distributions will be made from the
cash assets of the Fund, from borrowings or by liquidation of portfolio
securities, if necessary. If a distribution of cash necessitates the liquidation
of portfolio securities, the Adviser will select which securities to sell.
Tax-Aware may realize a gain or loss from such sales. In the event Tax-Aware
realizes capital gains from such sales, its shareholders may receive larger
distributions than they would receive in the absence of such sales.
Currency Fluctuations -- "Section 988" Gains and Losses. Under the
Code, gains or losses attributable to fluctuations in exchange rates which occur
between the time a Fund accrues interest or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities are treated as
ordinary income or ordinary loss. Similarly, gains or losses from the
disposition of foreign currencies, from the disposition of debt securities
denominated in a foreign currency, or from the disposition of a forward currency
exchange contract denominated in a foreign currency which are attributable to
fluctuations in the value of the foreign currency between the date of
acquisition of the asset and the date of disposition also are treated as
ordinary income or loss. These gains or losses, referred to under the Code as
"section 988" gains or losses, increase or decrease the amount of a Fund's
investment company taxable income available to be distributed to its
shareholders as ordinary income, rather than increasing or decreasing the amount
of the Fund's net capital gain. Because section 988 losses reduce the amount of
ordinary dividends a Fund will be allowed to distribute for a taxable year, such
section 988 losses may result in all or a portion of prior dividend
distributions for such year being recharacterized as a non-taxable return of
capital to shareholders, rather than as an ordinary dividend, reducing each
shareholder's basis in his or her Fund shares. To the extent that such
distributions exceed such shareholder's basis, each will be treated as a gain
from the sale of shares.
Alternative Minimum Tax
-----------------------
Under current federal income tax law, interest on tax-exempt
municipal securities issued after August 7, 1986 which are "specified private
activity bonds," and the proportionate share of any exempt-interest dividend
paid by a regulated investment company that receives interest from such
specified private activity bonds, will be treated as an item of tax preference
for purposes of the alternative minimum tax ("AMT") imposed on individuals,
though for regular federal income tax purposes such interest will remain fully
tax-exempt. Such private activity bonds ("AMT-Subject Bonds"), which include
industrial development bonds and bonds issued to finance such projects as
airports, housing projects, solid waste disposal facilities, student loan
programs and water and sewage projects, have provided, and may continue to
provide, somewhat higher yields than other comparable municipal securities.
In most instances, no state, municipality or other governmental unit
with taxing power will be obligated with respect to AMT-Subject Bonds.
AMT-Subject Bonds are in most cases revenue bonds and do not generally have the
pledge of the credit or the taxing power, if any, of the issuer of such bonds.
AMT-Subject Bonds are generally limited obligations of the issuer supported by
payments from private business entities and not by the full faith and credit of
a state or any governmental subdivision. Typically the obligation of the issuer
of AMT-Subject bonds is to make payments to bond holders only out of and to the
extent of, payments made by the private business entity for whose benefit the
AMT-Subject Bonds were issued. Payment of the principal and interest on such
revenue bonds depends solely on the ability of the user of the facilities
financed by the bonds to meet its financial obligations and the pledge, if any,
of real and personal property so financed as security for such payment. It is
not possible to provide specific detail on each of these obligations in which
assets of Tax-Aware may be invested.
Other Taxation
--------------
A Fund may be subject to state and local taxes. A shareholder's
state of residence may impose income tax on distributions of tax-exempt interest
income, which are exempt from Federal income tax. Shareholders are urged to
consult their own tax advisors regarding the state and local income tax
consequences of an investment in the Funds.
Taxation of Foreign Stockholders
--------------------------------
Taxation of a shareholder who, under the Code, is a nonresident
alien individual, foreign trust or estate, foreign corporation or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by the
foreign shareholder.
If the income from a Fund is not effectively connected with the
foreign shareholder's U.S. trade or business, then, except as discussed below,
distributions of the Fund attributable to ordinary income paid to a foreign
shareholder by the Fund will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the distribution.
Distributions of a Fund attributable to U.S. source portfolio interest income
are not subject to this withholding tax if so designated.
A foreign shareholder generally would be exempt from Federal income
tax on distributions of a Fund attributable to net long-term and short-term
capital gain and on gain realized from the sale or redemption of shares of the
Fund. Special rules apply in the case of a shareholder that is a foreign trust
or foreign partnership.
If the income from a Fund is effectively connected with a foreign
shareholder's U.S. trade or business, then ordinary income distributions,
capital gain distributions, and any gain realized upon the sale of shares of the
Fund will be subject to Federal income tax at the rates applicable to U.S.
citizens or U.S. corporations.
The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein.
The tax rules of other countries with respect to an investment in a
Fund can differ from the Federal income taxation rules described above. These
foreign rules are not discussed herein. Foreign shareholders are urged to
consult their own tax advisors as to the consequences of foreign tax rules with
respect to an investment in the Fund.
--------------------------------------------------------------------------------
PORTFOLIO TRANSACTIONS
--------------------------------------------------------------------------------
Subject to the general oversight of each Fund's Board, the Adviser
is responsible for the investment decisions and the placing of orders for
portfolio transactions for the Funds. The Adviser determines the broker or
dealer to be used in each specific transaction with the objective of negotiating
a combination of the most favorable commission (for transactions on which a
commission is payable) and the best price obtainable on each transaction
(generally defined as "best execution"). In connection with seeking best price
and execution, a Fund does not consider sales of shares of the Fund or other
investment companies managed by the Adviser as a factor in the selection of
brokers and dealers to effect portfolio transactions and has adopted a policy
and procedures reasonably designed to preclude such considerations.
Most transactions for the Funds, including transactions in listed
securities, are executed in the OTC market by approximately fifteen principal
market maker dealers with whom the Adviser maintains regular contact. Most
transactions made by the Funds will be principal transactions at net prices and
the Funds will incur little or no brokerage costs. However, a Fund may make
opportunistic investments in equities from time to time and Tax-Aware regularly
invests in equity securities. The Funds will incur brokerage commissions on
those transactions. Where possible, securities will be purchased directly from
the issuer or from an underwriter or market maker for the securities unless the
Adviser believes a better price and execution are available elsewhere. Purchases
from underwriters of newly-issued securities for inclusion in a Fund usually
will include a concession paid to the underwriter by the issuer and purchases
from dealers serving as market makers will include the spread between the bid
and ask price.
When consistent with the objective of obtaining best execution,
brokerage may be directed to persons or firms supplying investment information
to the Adviser. There may be occasions where the transaction cost charged by a
broker may be greater than that which another broker may charge if it is
determined in good faith that the amount of such transaction cost is reasonable
in relation to the value of the brokerage, research and statistical services
provided by the executing broker.
Tax-Aware may deal in some instances in securities that are not
listed on a national stock exchange but are traded in the OTC market. Tax-Aware
may also purchase listed securities through the third market, i.e., from a
dealer that is not a member of the exchange on which a security is listed. Where
transactions are executed in the OTC market or third market, Tax-Aware will seek
to deal with the primary market makers, but when necessary in order to obtain
the best price and execution, it will utilize the services of others. In all
cases, Tax-Aware will attempt to negotiate best execution.
Many of Tax-Aware's portfolio transactions in equity securities will
occur on foreign stock exchanges. Transactions on stock exchanges involve the
payment of brokerage commissions. On many foreign stock exchanges these
commissions are fixed. Securities traded in foreign OTC markets (including most
fixed-income securities) are purchased from and sold to dealers acting as
principal. OTC transactions generally do not involve the payment of a stated
commission, but the price usually includes an undisclosed commission or markup.
The prices of underwritten offerings, however, generally include a stated
underwriter's discount. The Adviser expects to effect the bulk of its
transactions in securities of companies based in foreign countries through
brokers, dealers or underwriters located in such countries.
No Fund has an obligation to enter into transactions in portfolio
securities with any broker, dealer, issuer, underwriter or other entity. In
placing orders, it is the policy of a Fund to obtain the best price and
execution for its transactions. Where best price and execution may be obtained
from more than one broker or dealer, the Adviser may, in its discretion,
purchase and sell securities through brokers and dealers who provide research,
statistical and other information to the Adviser. Such services may be used by
the Adviser for all of its investment advisory accounts and, accordingly, not
all such services may be used by the Adviser in connection with the Funds. The
supplemental information received from a dealer is in addition to the services
required to be performed by the Adviser under the Advisory Agreements, and the
expenses of the Adviser will not necessarily be reduced as a result of the
receipt of such information.
Neither the Funds nor the Adviser have entered into agreements or
understandings with any brokers regarding the placement of securities
transactions because of research services they provide. To the extent that such
persons or firms supply investment information to the Adviser for use in
rendering investment advice to the Funds, such information may be supplied at no
cost to the Adviser and, therefore, may have the effect of reducing the expenses
of the Adviser in rendering advice to the Funds. While it is impracticable to
place an actual dollar value on such investment information, its receipt by the
Adviser probably does not reduce the overall expenses of the Adviser to any
material extent.
The investment information provided to the Adviser is of the type
described in Section 28(e) of the Securities Exchange Act of 1934, as amended,
and is designed to augment the Adviser's own internal research and investment
strategy capabilities. Research services furnished by brokers through which the
Funds effect securities transactions are used by the Adviser in carrying out its
investment management responsibilities with respect to all its clients'
accounts.
Investment decisions for a Fund are made independently from those
for other investment companies and other advisory accounts managed by the
Adviser. It may happen, on occasion, that the same security is held in the
portfolio of a Fund and one or more of such other companies or accounts.
Simultaneous transactions are likely when several funds or accounts are managed
in accordance with a similar strategy by the Adviser, particularly when a
security is suitable for the investment objectives of more than one of such
companies or accounts. When two or more companies or accounts managed by the
Adviser are simultaneously engaged in the purchase or sale of the same security,
the transactions are allocated to the respective companies or accounts both as
to amount and price, in accordance with a method deemed equitable to each
company or account. In some cases, this system may adversely affect the price
paid or received by the Fund or the size of the position obtainable for the
Fund.
Allocations are made by the officers of a Fund or of the Adviser.
Purchases and sales of portfolio securities are determined by the Adviser and
are placed with broker-dealers by the order department of the Adviser.
The Adviser continuously monitors and evaluates the performance and
execution capabilities of brokers that transact orders for the Funds to ensure
consistent quality executions. This information is reported to the Adviser's
Brokerage Allocation Committee and Best Execution Committee, which oversee
broker-selection issues. In addition, the Adviser periodically reviews the
Funds' transaction costs in light of current market circumstances using internal
tools and analysis as well as statistical analysis and other relevant
information from external vendors.
During the fiscal years ended September 30, 2018, September 30, 2017
and September 30, 2016, Global Bond paid brokerage commissions amounting in the
aggregate to $225,132, $141,444 and $127,032, respectively.
During the fiscal years ended October 31, 2018, October 31, 2017 and
October 31, 2016, Intermediate Bond paid brokerage commissions amounting in the
aggregate to $17,760, $17,782 and $12,026, respectively.
During the fiscal years ended October 31, 2018, October 31, 2017 and
October 31, 2016, Unconstrained Bond paid brokerage commissions amounting in the
aggregate to $76,675, $147,246 and $124,770, respectively.
During the fiscal years ended October 31, 2018, October 31, 2017 and
October 31, 2016, High Income paid brokerage commissions amounting in the
aggregate to $479,829, $382,435 and $183,473, respectively.
During the fiscal years ended September 30, 2018, September 30, 2017
and September 30, 2016, Limited Duration paid brokerage commissions amounting in
the aggregate to $23,755, $56,525 and $39,525, respectively.
During the fiscal years ended October 31, 2018 and October 31, 2017
and the fiscal period ended October 31, 2016, Income Fund paid brokerage
commissions amounting in the aggregate to $186,916, $382,435 and $74,559,
respectively.
During the fiscal years ended October 31, 2018, October 31, 2017 and
October 31, 2016, Tax-Aware did not pay any brokerage commissions.
The Funds may, from time to time, place orders for the purchase or
sale of securities (including listed call options) with SCB & Co. and SCB
Limited (a UK broker-dealer), affiliates of the Adviser (the "Affiliated
Brokers"). In such instances the placement of orders with the Affiliated Brokers
would be consistent with the Fund's objective of obtaining best execution and
would not be dependent upon the fact that the Affiliated Brokers are affiliates
of the Adviser. With respect to orders placed with the Affiliated Brokers for
execution on a national securities exchange, commissions received must conform
to Section 17(e)(2)(A) of the 1940 Act and Rule 17e-1 thereunder, which permit
an affiliated person of a registered investment company (such as the Funds), or
any affiliated person of such person, to receive a brokerage commission from
such registered investment company provided that such commission is reasonable
and fair compared to the commissions received by other brokers in connection
with comparable transactions involving similar securities during a comparable
period of time.
The Funds paid no brokerage commissions to the Affiliated Brokers
during the three most recent fiscal years or since inception, as applicable.
As of the end of the most recent fiscal year or period, each Fund
listed below owned securities of its regular brokers or dealers (as defined in
Rule 10b-1 under the 1940 Act) or their parents as follows:
Aggregate Value
Fund Broker/Dealer of Securities Held
---- ------------- ------------------
Limited Duration Morgan Stanley $685,038
Income Fund Goldman Sachs Group, Inc. $225,015
Morgan Stanley $431,043
Barclays Bank PLC $4,949,995
Credit Suisse Group AG $4,360,721
UBS Group Funding Switzerland AG $1,928,615
Global Bond JP Morgan Chase & Co. $59,446,123
Bank of America Corp. $49,993,390
Morgan Stanley $47,434,237
Citigroup, Inc. $45,879,516
Goldman Sachs Group, Inc. $30,755,616
Barclays PLC $24,637,876
Royal Bank of Scotland Group PLC $13,563,201
UBS Group Funding Switzerland AG $13,318,924
Deutsche Bank AG $161,125
High Income Credit Suisse Group AG $36,154,321
JP Morgan Chase & Co. $27,269,246
Bank of America Corp. $27,241,383
Citigroup, Inc. $24,461,576
Goldman Sachs Group, Inc. $23,384,677
UBS Group Funding Switzerland AG $15,392,781
BNP Paribas SA $12,186,759
Morgan Stanley $5,207,361
Deutsche Bank AG $2,556,227
Unconstrained Bond JP Morgan Chase & Co. $1,061,074
Goldman Sachs Group, Inc. $756,353
Morgan Stanley $675,117
Deutsche Bank AG $292,500
Barclays PLC $247,604
BNP Paribas SA $242,921
UBS Group Funding Switzerland AG $208,065
Credit Suisse Group AG $202,606
Bank of America Corp. $202,224
Disclosure of Portfolio Holdings
--------------------------------
Each Fund believes that the ideas of the Adviser's investment staff
should benefit the Fund and its shareholders, and does not want to afford
speculators an opportunity to profit by anticipating Fund trading strategies or
using Fund information for stock picking. However, each Fund also believes that
knowledge of the Fund's portfolio holdings can assist shareholders in monitoring
their investment, making asset allocation decisions, and evaluating portfolio
management techniques.
The Adviser has adopted, on behalf of each Fund, policies and
procedures relating to disclosure of the Fund's portfolio securities. The
policies and procedures relating to disclosure of the Fund's portfolio
securities are designed to allow disclosure of portfolio holdings information
where necessary to the Fund's operation or useful to the Fund's shareholders
without compromising the integrity or performance of the Fund. Except when there
are legitimate business purposes for selective disclosure and other conditions
(designed to protect the Fund and its shareholders) are met, the Fund does not
provide or permit others to provide information about the Fund's portfolio
holdings on a selective basis.
The Fund includes portfolio holdings information as required in
regulatory filings and shareholder reports, discloses portfolio holdings
information as required by federal or state securities laws and may disclose
portfolio holdings information in response to requests by governmental
authorities. In addition, the Adviser may post portfolio holdings information on
the Adviser's website (www.abfunds.com). The Adviser generally posts on the
website a complete schedule of the Fund's portfolio securities, generally as of
the last day of each calendar month, approximately 30 days after the end of that
month. This posted information generally remains accessible on the website for
three months. For each portfolio security, the posted information includes its
name, the number of shares held by the Fund, the market value of the Fund's
holdings, and the percentage of the Fund's assets represented by the portfolio
security. In addition to the schedule of portfolio holdings, the Adviser may
post information about the number of securities the Fund holds, a summary of the
Fund's top ten holdings (including name and the percentage of the Fund's assets
invested in each holding), and a percentage breakdown of the Fund's investments
by country, sector, and industry, as applicable, approximately 10-15 days after
the end of the month. The day after portfolio holdings information is publicly
available on the website, it may be mailed, e-mailed or otherwise transmitted to
any person.
The Adviser may distribute or authorize the distribution of
information about the Fund's portfolio holdings that is not publicly available,
on the website or otherwise, to the Adviser's employees and affiliates that
provide services to the Fund. In addition, the Adviser may distribute or
authorize distribution of information about the Fund's portfolio holdings that
is not publicly available, on the website or otherwise, (i) to the Fund's
service providers who require access to the information in order to fulfill
their contractual duties relating to the Fund (including, without limitation,
pricing services and proxy voting services), (ii) to facilitate the review of
the Fund by ratings agencies, (iii) for the purpose of due diligence regarding a
merger or acquisition, or (iv) for the purpose of effecting in-kind redemption
of securities to facilitate orderly redemption of portfolio assets and minimal
impact on remaining Fund shareholders. The Adviser does not expect to disclose
information about the Fund's portfolio holdings to the Fund's individual or
institutional investors or to intermediaries that distribute the Fund's shares
without making such information public as described herein. Information may be
disclosed with any frequency and any lag, as appropriate.
Before any non-public disclosure of information about the Fund's
portfolio holdings is permitted, however, the Adviser's Chief Compliance Officer
(or his designee) must determine that the Fund has a legitimate business purpose
for providing the portfolio holdings information, that the disclosure is in the
best interests of the Fund's shareholders, and that the recipient agrees or has
a duty to keep the information confidential and agrees not to trade directly or
indirectly based on the information or to use the information to form a specific
recommendation about whether to invest in the Fund or any other security. Under
no circumstances may the Adviser or its affiliates receive any consideration or
compensation for disclosing the information.
The Adviser has established procedures to ensure that each Fund's
portfolio holdings information is only disclosed in accordance with these
policies. Only the Adviser's Chief Compliance Officer (or his designee) may
approve the disclosure, and then only if he or she and a designated senior
officer in the Adviser's product management group determine that the disclosure
serves a legitimate business purpose of the Fund and is in the best interest of
the Fund's shareholders. The Adviser's Chief Compliance Officer (or his
designee) approves disclosure only after considering the anticipated benefits
and costs to the Fund and its shareholders, the purpose of the disclosure, any
conflicts of interest between the interests of the Fund and its shareholders and
the interests of the Adviser or any of its affiliates, and whether the
disclosure is consistent with the policies and procedures governing disclosure.
Only someone approved by the Adviser's Chief Compliance Officer (or his
designee) may make approved disclosures of portfolio holdings information to
authorized recipients. The Adviser reserves the right to request certifications
from senior officers of authorized recipients that the recipient is using the
portfolio holdings information only in a manner consistent with the Adviser's
policy and any applicable confidentiality agreement. The Adviser's Chief
Compliance Officer (or his designee) or another member of the compliance team
reports all arrangements to disclose portfolio holdings information to the
Fund's Board on a quarterly basis. If the Board determines that disclosure was
inappropriate, the Adviser will promptly terminate the disclosure arrangement.
In accordance with these procedures, each of the following third
parties has been approved to receive information concerning each Fund's
portfolio holdings: (i) the Fund's independent registered public accounting
firm, for use in providing audit opinions; (ii) Donnelley Financial Solutions,
Inc., Data Communique International and, from time to time, other financial
printers, for the purpose of preparing Fund regulatory filings; (iii) the Fund's
custodian in connection with its custody of the Fund's assets; (iv)
Institutional Shareholder Services, Inc. for proxy voting services; and (v) data
aggregators, such as Vestek. Information may be provided to these parties at any
time with no time lag. Each of these parties is contractually and ethically
prohibited from sharing the Fund's portfolio holdings information unless
specifically authorized.
--------------------------------------------------------------------------------
GENERAL INFORMATION
--------------------------------------------------------------------------------
Description of the Funds
------------------------
Intermediate Bond
-----------------
Intermediate Bond is a series of AB Bond Fund, Inc. (the "Company"),
a Maryland corporation organized in 1973 under the name "Alliance Bond Fund,
Inc." The Company's name was changed to "AllianceBernstein Bond Fund, Inc." on
March 31, 2003 and "AB Bond Fund, Inc." on January 20, 2015. The name of the
Fund was changed from "AllianceBernstein Intermediate Bond Portfolio" to "AB
Intermediate Bond Portfolio" on January 20, 2015.
Limited Duration
----------------
Limited Duration is a series of AB Bond Fund, Inc., a Maryland
corporation. The Fund was organized in 2011 under the name "AllianceBernstein
Limited Duration High Income Portfolio". The name of the Fund was changed from
"AllianceBernstein Limited Duration High Income Portfolio" to "AB Limited
Duration High Income Portfolio" on January 20, 2015.
Unconstrained Bond
------------------
The Fund is a Maryland corporation organized in 1995 under the name
of "Alliance Global Strategic Income Trust, Inc." The name became
"AllianceBernstein Global Strategic Income Trust, Inc. on March 31, 2003,
"AllianceBernstein Diversified Yield Fund, Inc." on November 5, 2007,
"AllianceBernstein Unconstrained Bond Fund, Inc." on February 3, 2011, and "AB
Unconstrained Bond Fund, Inc." on January 20, 2015.
Global Bond
-----------
The Fund is a Maryland corporation organized in 1992 under the name
of "Alliance North American Government Income Fund, Inc." The name became
"Alliance Americas Government Income Trust, Inc." on March 1, 2002,
"AllianceBernstein Americas Government Income Trust, Inc." on March 31, 2003,
"AllianceBernstein Global Government Income Trust, Inc." on February 1, 2006,
"AllianceBernstein Global Bond Fund, Inc." on November 5, 2007, and "AB Global
Bond Fund, Inc." on January 20, 2015.
High Income
-----------
The Fund is a Maryland corporation organized in 1993 under the name
of "Alliance Global Dollar Government Fund, Inc." The name became "Alliance
Emerging Market Debt Fund, Inc." on March 1, 2002, "AllianceBernstein Emerging
Market Debt Fund, Inc." on March 31, 2003, "AllianceBernstein High Income Fund,
Inc." on January 28, 2008, and "AB High Income Fund, Inc." on January 20, 2015.
Income Fund
-----------
Income Fund is a series of AB Bond Fund, Inc., a Maryland
corporation. The Fund was organized in 2015 under the name "AB Income Fund."
Tax-Aware
---------
Tax-Aware is a series of AB Bond Fund, Inc., a Maryland corporation.
The Fund was organized in 2013 under the name "AllianceBernstein Tax-Aware Fixed
Income Portfolio". The name of the Fund was changed from "AllianceBernstein
Tax-Aware Fixed Income Portfolio" to "AB Tax-Aware Fixed Income Portfolio" on
January 20, 2015.
All Funds
---------
It is anticipated that annual shareholder meetings will not be held;
shareholder meetings will be held only when required by federal or state law.
Shareholders have available certain procedures for the removal of directors.
A shareholder will be entitled to share pro rata with other holders
of the same class of shares all dividends and distributions arising from a
Fund's assets and, upon redeeming shares, will receive the then current NAV of
the Fund represented by the redeemed shares less any applicable CDSC. A Fund is
empowered to establish, without shareholder approval, additional portfolios,
which may have different investment objectives and policies than those of the
Fund, and additional classes of shares within the Fund. If an additional
portfolio or class were established in the Fund, each share of the portfolio or
class would normally be entitled to one vote for all purposes. Generally, shares
of each portfolio and class would vote together as a single class on matters,
such as the election of Directors, that affect each portfolio and class in
substantially the same manner. Each class of shares of a Fund has the same
rights and is identical in all respects except that each of Class A, Class B,
Class C, Class R and Class K shares of a Fund bears its own distribution
expenses; Class B shares convert to Class A shares under certain circumstances;
and Class C shares convert to Class A shares under certain circumstances. Each
class of shares of a Fund votes separately with respect to the Fund's Plan and
other matters for which separate class voting is appropriate under applicable
law. Shares are, when issued, fully paid and non-assessable, freely
transferable, entitled to dividends as determined by the Directors and, in
liquidation of a Fund, are entitled to receive the net assets of the Fund.
Each class of shares of a Fund represents an interest in the same
portfolio of investments, and has the same rights and is identical in all
respects, except that expenses related to the distribution of each class are
borne solely by each class and each class of shares has exclusive voting rights
with respect to provisions of the Plan which pertain to a particular class and
other matters for which separate class voting is appropriate under applicable
law, provided that, if the Fund submits to a vote of the Class A shareholders an
amendment to the Plan that would materially increase the amount to be paid
thereunder with respect to the Class A shares, then such amendment will also be
submitted to the Class B shareholders, and the Class A shareholders and the
Class B shareholders will vote separately by class.
A Fund's Board may, without shareholder approval, increase or
decrease the number of authorized but unissued shares of the Fund's Class A,
Class B, Class C, Class R, Class K, Class I, Class Z and Advisor Class Common
Stock.
Principal and Controlling Holders
---------------------------------
INTERMEDIATE BOND
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
MLPF&S 3,097,983 15.12%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Pershing LLC 1,800,819 8.79%
P.O. Box 2052
Jersey City, NJ 07303-2052
Wells Fargo Clearing Services, LLC 1,352,314 6.60%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class B
-------
Ascensus Trust Company 2,741 5.84%
Custody for Lorcan Coffey IRA
Brooklyn, NY 11214-2502
Ascensus Trust Company 2,409 5.13%
Kington Management LLC
Myron R. Neuhauser
Barboursville, VA 22923-1831
Pershing LLC 2,360 5.03%
P.O. Box 2052
Jersey City, NJ 07303-2052
Class C
-------
LPL Financial 68,677 6.32%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 113,666 10.47%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 94,238 8.68%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 96,598 8.89%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 176,496 16.25%
P.O. Box 2052
Jersey City, NJ 07303-2052
UBS WM USA 74,803 6.89%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd.
Weehawken, NJ 07086-6761
Wells Fargo Clearing Services, LLC 220,763 20.33%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Advisor Class
-------------
LPL Financial 538,312 6.92%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 2,026,432 26.05%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 562,960 7.24%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 663,438 8.53%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310-1995
Raymond James 417,823 5.37%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
UBS WM USA 646,823 8.31%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Wells Fargo Clearing Services, LLC 1,013,834 13.03%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class R
-------
Capital Bank & Trust Co. 38,467 14.32%
TTEE F River Garden 401K PSP
C/O Fascore LLC
8515 E. Orchard Rd. #2T2
Greenwood Village, CO 80111-5002
First Colonial Family Practice TTEE 113,068 42.10%
First Colonial Family Practice 401K
c/o Fascore LLC
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
George Maynard TTEE FBO 36,963 13.76%
Spencer Research Inc. 401K PSP
c/o Fascore LLC
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
MLPF&S 21,333 7.94%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Class K
-------
Anthony Waterman 47,387 7.11%
FBO Waterman Engineering & Consulting 401K PSP & Trust
Bowie, MD 20721-3019
Ascensus Trust Co. FBO 35,446 5.32%
International Integrated Solutions
LTD 401(k) Profit Sharing Plan and Trust
P.O. Box 10758
Fargo, ND 58106-0758
Ascensus Trust Co. FBO 43,085 6.46%
Stepbrand Enterprises
401(k) PS Plan & Trust
P.O. Box 10758
Fargo, ND 58106-0758
Great-West Trust Company LLC TTEE C 186,098 27.91%
Minnesota Surgical Associates
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
Great-West Trust Company LLC TTEE C 92,766 13.91%
TAP & Affiliates 401(k)
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
Great-West Trust Company LLC TTEE 39,231 5.88%
FBO Urology Centers of Alabama P.C.
401K Profit Sharing Retirement Plan
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
State Street Bank and Trust 67,775 10.17%
As TTEE and/or Custodian FBO ADP Access Product
1 Lincoln St.
Boston, MA 02111-2901
Class I
-------
Ascensus Trust Company FBO 17,772 6.49%
Kerns Frost & Pearlman Retirement Plan
P.O. Box 10758
Fargo, ND 58106-0758
Charles Schwab & Co. 55,097 20.13%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
Diversified Investment Advisors 22,559 8.24%
FBO TRS FBO Various Retirement Plans
TransAmerica Retirement Solutions
Harrison, NY 10528
Mid Atlantic Trust Co. 34,945 12.77%
FBO LatexCo US East LLC 401K Profit Sharing
1251 Waterfront Pl., Ste. 525
Pittsburgh, PA 15222-4228
Nationwide Trust Company FSB 134,050 48.97%
c/o IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Class Z
-------
Ascensus Trust Company 54,531 7.64%
FBO The PTR Group Inc. Safe Harbor 401(K)
P.O. Box 10758
Fargo, ND 58106-0758
NFS LLC 93,687 13.13%
FEBO FIIOC Agent
FBO Qualified Employee Plans (401K) FINOPS-IC Funds
100 Magellan Way #KWIC
Covington, KY 41015-1987
Saxon & Co. 475,713 66.65%
VI Omnibus Account VICA
P.O. Box 7780-1888
Philadelphia, PA 19182-0001
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
LIMITED DURATION
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
Charles Schwab & Co. 147,340 8.25%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
Charles Schwab & Co. Inc. 104,453 5.85%
Special Custody Account FBO Customers
Attn: Mutual Funds
211 Main Street
San Francisco, CA 94105-1905
LPL Financial 91,900 5.14%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 148,493 8.31%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 232,176 12.99%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 115,794 6.48%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 260,545 14.58%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 93,006 5.21%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
RBC Capital Markets LLC 125,854 7.04%
Mutual Fund Omnibus Processing
Omnibus
Attn: Mutual Fund Operations Manager
60 S. 6th St. MSC P08
Minneapolis, MN 55402-4413
UBS WM USA 236,810 13.25%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Class C
-------
MLPF&S 374,012 18.10%
For the Sole Benefit of Its Customers
Attn: Fund Admin
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 773,265 37.43%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 116,810 5.65%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 142,676 6.91%
P.O. Box 2052
Jersey City, NJ 07303-2052
UBS WM USA 182,080 8.81%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd, 5th Floor
Weehawken, NJ 07086-6761
Advisor Class
-------------
MLPF&S 1,054,555 5.14%
For the Sole Benefit of Its Customers
Attn: Fund Admin
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 2,222,134 10.83%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
UBS WM USA 1,445,927 7.05%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Class R
-------
AllianceBernstein L.P. 1,003 99.93%
Attn: Brent Mather-Seed Account
1 N. Lexington Avenue
White Plains, NY 10601-1712
Class K
-------
AllianceBernstein L.P. 1,003 99.93%
Attn: Brent Mather-Seed Account
1 N. Lexington Avenue
White Plains, NY 10601-1712
Class I
-------
AllianceBernstein L.P. 943 99.93%
Attn: Brent Mather-Seed Account
1 N. Lexington Avenue
White Plains, NY 10601-1712
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
UNCONSTRAINED BOND
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
LPL Financial 143,539 5.78%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 263,050 10.59%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
National Financial Services LLC 255,678 10.29%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 317,038 12.76%
P.O. Box 2052
Jersey City, NJ 07303-2052
Sanford Bernstein & Co. LLC 235,000 9.46%
1 N. Lexington Ave.
White Plains, NY 10601-1712
Wells Fargo Clearing Services, LLC 201,144 8.10%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class B
-------
Ascensus Trust Company 1,828 15.07%
C/F Donna Arciuolo SEP IRA
Ridgefield Park, NJ 07660-1557
Ascensus Trust Company 950 7.83%
Fredericktown Veterinary Clinic
Rachel Ann Lashley
Danville, OH 43014-9502
Ascensus Trust Company 2,706 22.30%
Phoenix Boys Choir
Georg W. Stangelberger
Phoenix, AZ 85014-1056
Charles Schwab & Co., Inc. 1,000 8.24%
Special Custody Account for the Benefit of Customers
Attn: Mutual Funds
211 Main Street
San Francisco, CA 94105-1905
MLPF&S 1,232 10.15%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
3,140 25.88%
Pershing LLC
P.O. Box 2052
Jersey City, NJ 07303-2052
Class C
-------
MLPF&S 151,330 17.00%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 95,710 10.75%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 135,146 15.18%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 101,146 11.36%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 105,065 11.80%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
Wells Fargo Clearing Services, LLC 94,352 10.60%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Advisor Class
-------------
Charles Schwab & Co. 1,857,882 8.58%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
National Financial Services LLC 2,197,792 10.15%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310-1995
Pershing LLC 1,503,913 6.95%
P.O. Box 2052
Jersey City, NJ 07303-2052
UBS WM USA 1,666,722 7.70%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Wells Fargo Clearing Services, LLC 1,095,659 5.06%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class R
-------
Matrix Trust Company Cust. FBO 44,292 46.65%
Miscor Group 401(K) Plan & Trust
717 17th Street, Suite 1300
Denver, CO 80202-3304
Minnesota Life Insurance Company 27,103 28.54%
400 Robert Street N., Ste. A
Saint Paul, MN 55101-2099
State Street Bank and Trust 5,824 6.13%
As TTEE and/or Cust. FBO ADP Access Product
1 Lincoln St.
Boston, MA 02111-2901
Structura Inc. Trustee FBO 7,272 7.66%
Structura Inc. 401K Plan
C/O Fascore LLC
8515 E. Orchard Rd. #2T2
Greenwood Village, CO 80111-5002
Voya Institutional Trust Company 6,091 6.42%
Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773
Class K
-------
Great-West Trust Company LLC TTEE C 18,488 53.92%
Stoner, Albright & Company Retirement Plan
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
Great-West Trust Co. LLC TTEE 8,056 23.50%
FBO Associated Specialist in Nephrology and Hypertension LLC 401K PSP
8515 E. Orchard Rd., #2T2
Greenwood Village, CO 80111-5002
Mid Atlantic Trust Company FBO 1,859 5.42%
B. C. Flynn Contracting Corp. 401(K) Plan
1251 Waterfront Place, Suite 525
Pittsburgh, PA 15222-4228
Mid Atlantic Trust Company FBO 3,750 10.94%
Roadside Development LLC 401(K) PRO
1251 Waterfront Place, Suite 525
Pittsburgh, PA 15222-4228
Class I
-------
Ascensus Trust Company 2,810 42.21%
C/F Winxnet 401(K) Plan
P.O. Box 10758
Fargo, ND 58106-0758
Wells Fargo Bank 3,846 57.75%
FBO Aero Precision Repair & Overhaul
1525 West WT Harris Blvd.
Charlotte, NC 28288-1076
Class Z
-------
AB MMSRetirement Vintage 2015 105,719 6.93%
1345 Avenue of the Americas
New York, NY 10105-0302
AB MMSRetirement Vintage 2020 236,356 15.48%
1345 Avenue of the Americas
New York, NY 10105-0302
AB MMSRetirement Vintage 2025 367,117 24.05%
1345 Avenue of the Americas
New York, NY 10105-0302
AB MMSRetirement Vintage 2030 148,718 9.74%
1345 Avenue of the Americas
New York, NY 10105-0302
AB Multi-Manager Retirement 2020 CIT 110,365 7.23%
1345 Avenue of the Americas
New York, NY 10105-0302
AB Multi-Manager Retirement 2025 CIT 172,207 11.28%
1345 Avenue of the Americas
New York, NY 10105-0302
AB Multi-Manager Retirement 2030 CIT 174,423 11.43%
1345 Avenue of the Americas
New York, NY 10105-0302
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
GLOBAL BOND
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
Charles Schwab & Co. 5,836,142 6.13%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
MLPF&S 8,427,035 8.85%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 5,015,339 5.27%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 3,933,012 14.63%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 5,550,192 5.83%
P.O. Box 2052
Jersey City, NJ 07303-2052
Wells Fargo Clearing Services, LLC 5,017,840 5.27%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class B
-------
LPL Financial 3,302 5.37%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
National Financial Services LLC 8,571 13.94%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd, 4th Floor
Jersey City, NJ 07310
Pershing LLC 13,033 21.19%
P.O. Box 2052
Jersey City, NJ 07303-2052
Class C
-------
Charles Schwab & Co., Inc. 926,840 5.59%
Special Custody Account FBO Customers
Attn: Mutual Funds
211 Main St.
San Francisco, CA 94105-1905
LPL Financial 1,130,783 6.82%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 1,962,216 11.83%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 2,546,113 15.35%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 1,308,462 7.89%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 1,658,548 10.00%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 1,048,321 6.32%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
UBS WM USA 1,510,929 9.11%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Wells Fargo Clearing Services, LLC 2,025,430 12.21%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Advisor Class
-------------
National Financial Services LLC 46,461,073 8.71%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 46,490,169 8.71%
P.O. Box 2052
Jersey City, NJ 07303-2052
Class R
-------
Hartford Life Insurance Company 2,221,230 25.87%
Separate Account 401
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999
MassMutual Financial Group 857,531 9.99%
Cust. FBO Massachusetts Mutual Insurance Company
1295 State Street
Springfield, MA 01111-0001
MLPF&S 557,928 6.50%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
State Street Bank & Trust as TTEE 1,987,239 23.14%
And/or Cust. FBO ADP Access Product
1 Lincoln St.
Boston, MA 02111-2901
Voya Retirement Insurance and Annuity Co. 1,062,825 12.38%
Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773
Class K
-------
Great-West Trust Company LLC TTEE F 243,096 11.60%
Social Studies School Service 401K
8515 E. Orchard Rd. 2T2
Greenwood Village, CO 80111-5002
Voya Retirement Insurance and Annuity Co. 217,469 10.38%
Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773
Class I
-------
John Hancock Trust Company LLC 15,925,753 17.60%
Southern California IBEW-NECA Defin.
690 Canton St., Ste. 100
Westwood, MA 02090-2324
MLPF&S 9,144,911 10.11%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Sanford Bernstein & Co. LLC 12,758,127 14.10%
1 N. Lexington Ave., 17th Floor
White Plains, NY 10601-1712
Class Z
-------
DCGT Trustee and/or Custodian 3,385,714 5.56%
FBO PLIC Various Retirement Plans Omnibus
Attn: NPIO Trade Desk
711 High Street
Des Moines, IA 50392-0001
FIIOC as Agent for Certain Employee 3,192,613 5.24%
Benefits Plans
100 Magellan Way KWIC
Covington, KY 41015-1987
Sanford Bernstein & Co. LLC 6,027,946 9.90%
1 N. Lexington Ave.
White Plains, NY 10601-1712
U.S. Bank 4,243,815 6.97%
P.O. Box 1787
Milwaukee, WI 53201-1787
Voya Retirement Insurance and Annuity Co. 5,317,505 8.73%
Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
HIGH INCOME
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
LPL Financial 7,793,226 5.03%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 15,586,451 10.05%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 12,902,800 8.32%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 16,374,207 10.56%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 16,730,532 10.79%
P.O. Box 2052
Jersey City, NJ 07303-2052
Wells Fargo Clearing Services, LLC 12,154,113 7.84%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class B
-------
Miguel Velazquez Villanueva 13,600 11.04%
MD Retirement Plan
FBO Master Account
San Juan, PR 00910-1587
Pershing LLC 6,576 5.34%
P.O. Box 2052
Jersey City, NJ 07303-2052
Class C
-------
MLPF&S 9,020,046 9.47%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 16,073,201 16.87%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 4,975,431 5.22%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 14,623,095 15.35%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 5,762,894 6.05%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
UBS WM USA 5,883,416 6.18%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Wells Fargo Clearing Services, LLC 16,804,521 17.64%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Advisor Class
-------------
LPL Financial 20,015,075 5.99%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 33,783,172 10.12%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 41,692,969 12.49%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 38,848,150 11.63%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310-1995
Pershing LLC 23,686,274 7.09%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 19,710,549 5.90%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Pkwy.
St. Petersburg, FL 33716-1102
UBS WM USA 25,785,273 7.72%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Wells Fargo Clearing Services, LLC 28,723,835 8.60%
Special Custody Account for the Exclusive Benefit of Customer
2801 Market St.
Saint Louis, MO 63103-2523
Class R
-------
Hartford Life Insurance Company 3,014,478 37.04%
Separate Account 401
Attn: UIT Operations
P.O. Box 2999
Hartford, CT 06104-2999
MassMutual Financial Group 961,243 11.81%
Cust. FBO Massachusetts Mutual Insurance Company
1295 State Street
Springfield, MA 01111-0001
MLPF&S 717,260 8.81%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
National Financial Services LLC 709,720 8.72%
499 Washington Blvd.
Jersey City, NJ 07310-1995
Voya Retirement Insurance and Annuity Co. 494,627 6.08%
Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773
Class K
-------
National Financial Services LLC 730,240 5.07%
499 Washington Blvd.
Jersey City, NJ 07310-1995
National Financial Services LLC 10,165,174 70.54%
499 Washington Blvd.
Jersey City, NJ 07310-1995
State of Florida Employees Deferred Compensation Plan 1,419,945 9.85%
FBO Participating Employees
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Class I
-------
Charles Schwab & Co. 1,461,796 6.54%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
MLPF&S 1,966,946 8.80%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
National Financial Services LLC 6,424,748 28.73%
499 Washington Blvd.
Jersey City, NJ 07310-1995
Nationwide Trust Company FSB 2,753,511 12.31%
C/O IPO Portfolio Accounting
P.O. Box 182029
Columbus, OH 43218-2029
Class Z
-------
AB All Market Income 6,086,040 13.60%
1345 Avenue of the Americas
New York, NY 10105-0302
AB Conservative Wealth Strategy 2,341,726 5.23%
1345 Avenue of the Americas
New York, NY 10105-0302
JP Morgan Securities LLC 4,532,977 10.13%
For the Exclusive Benefit of Customers
4 Chase Metrotech Center
Brooklyn, NY 11245-0001
MAC & Co. 2,748,297 6.14%
Attn: Mutual Fund Operations
500 Grant Street
Room 151-1010
Pittsburgh, PA 15219-2502
MLPF&S 2,659,952 5.94%
For the Sole Benefit of Its Customers
Attn: Fund Admin.
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Voya Retirement Insurance and Annuity Co. 2,640,452 5.90%
Qualified Plan
1 Orange Way, #B3N
Windsor, CT 06095-4773
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
INCOME FUND
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
Charles Schwab & Co. 5,961,486 26.02%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
JP Morgan Securities LLC 1,587,675 6.93%
For the Exclusive Benefit of Customers
4 Chase Metrotech Center
Brooklyn, NY 11245-0001
Morgan Stanley Smith Barney 3,185,593 13.90%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 2,569,001 11.21%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310
Pershing LLC 2,740,160 11.96%
P.O. Box 2052
Jersey City, NJ 07303-2052
UBS WM USA 1,770,624 7.73%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Class C
-------
JP Morgan Securities LLC 783,901 6.94%
For the Exclusive Benefit of Customers
4 Chase Metrotech Center
Brooklyn, NY 11245-0001
LPL Financial 738,639 6.54%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
Morgan Stanley Smith Barney 3,460,578 30.63%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
Pershing LLC 2,352,579 20.83%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 908,822 8.05%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
UBS WM USA 824,672 7.30%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
Advisor Class
-------------
Charles Schwab & Co. 18,255,787 6.76%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
LPL Financial 25,777,371 9.55%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
MLPF&S 20,350,430 7.54%
For the Sole Benefit of Its Customers
Attn: Fund Admin
4800 Deer Lake Dr. East, 2nd Floor
Jacksonville, FL 32246-6484
Morgan Stanley Smith Barney 39,874,829 14.77%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
National Financial Services LLC 37,333,174 13.83%
For the Exclusive Benefit of Our Customers
Attn: Mutual Funds Dept.
499 Washington Blvd., 4th Floor
Jersey City, NJ 07310-1995
Pershing LLC 20,087,504 7.44%
P.O. Box 2052
Jersey City, NJ 07303-2052
Raymond James 15,860,933 5.87%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Parkway
St. Petersburg, FL 33716-1102
UBS WM USA 27,638,593 10.24%
Omni Account M/F
Attn: Department Manager
1000 Harbor Blvd., 5th Floor
Weehawken, NJ 07086-6761
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
TAX-AWARE
To the knowledge of the Fund, as of January 2, 2019, the following
persons owned of record or beneficially 5% or more of the noted class of shares
of the Fund:
Name and Address No. of Shares of Class % of Class
---------------- ---------------------- ----------
Class A
-------
LPL Financial 32,058 5.65%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
Morgan Stanley Smith Barney 152,416 26.86%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
Raymond James 42,823 7.55%
Omnibus for Mutual Funds
House Account Firm
Attn: Courtney Waller
880 Carillon Pkwy.
St. Petersburg, FL 33716-1102
RBC Capital Markets, LLC 274,071 48.30%
Mutual Fund Omnibus Processing Omnibus
Attn: Mutual Fund Operations Manager
60 S. 6th Street, MSC P08
Minneapolis, MN 55402-4413
Class C
-------
LPL Financial 11,775 12.63%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
Morgan Stanley Smith Barney 76,565 82.15%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
Advisor Class
-------------
AllianceBernstein L.P. 902,604 17.39%
Attn: Brent Mather-Seed Account
1 N. Lexington Avenue
White Plains, NY 10601-1712
Charles Schwab & Co. 1,818,854 35.04%
For the Exclusive Benefit of Customers
Mutual Fund Operations
211 Main Street
San Francisco, CA 94105-1905
LPL Financial 797,628 15.36%
Omnibus Customer Account
Attn: Mutual Fund Trading
4707 Executive Dr.
San Diego, CA 92121-3091
Morgan Stanley Smith Barney 1,031,696 19.87%
Harborside Financial Center
Plaza II, 3rd Floor
Jersey City, NJ 07311
A shareholder who beneficially owns more than 25% of a Fund's
outstanding voting securities is presumed to "control" the Fund, as that term is
defined in the 1940 Act, and may have a significant impact on matters submitted
to a shareholder vote. To the knowledge of the Fund, no person beneficially
owned more than 25% of the Fund's outstanding voting securities as of January 2,
2018.
Custodians and Accounting Agents
--------------------------------
State Street, c/o State Street Corporation CCB/5, 1 Iron Street,
Boston, Massachusetts 02210, acts as the custodian and as accounting agent for
Intermediate Bond, Limited Duration, Income Fund and Tax-Aware, but plays no
part in deciding on the purchase or sale of portfolio securities. Subject to the
supervision of each Fund's Directors, State Street may enter into subcustodial
agreements for the holding of the Fund's foreign securities.
BBH, 50 Post Office Square, Boston, MA 02110, acts as the custodian
and as accounting agent for Unconstrained Bond, Global Bond and High Income but
plays no part in deciding the purchase or sale of portfolio securities. Subject
to the supervision of each Fund's Directors, BBH may enter into subcustodial
agreements for the holding of the Fund's foreign securities.
Principal Underwriter
---------------------
ABI, an indirect wholly-owned subsidiary of the Adviser, located at
1345 Avenue of the Americas, New York, NY 10105, is the Principal Underwriter of
shares of the Funds, and as such may solicit orders from the public to purchase
shares of the Funds. Under the Distribution Services Agreement, each Fund has
agreed to indemnify ABI, in the absence of its willful misfeasance, bad faith,
gross negligence or reckless disregard of its obligations thereunder, against
certain civil liabilities, including liabilities under the Securities Act.
Counsel
-------
Legal matters in connection with the issuance of the shares of a
Fund offered hereby are passed upon by Seward & Kissel LLP, 901 K Street NW,
Suite 800, Washington, DC 20001.
Independent Registered Public Accounting Firm
---------------------------------------------
Ernst & Young LLP, 5 Times Square, New York, NY 10036, has been
appointed as the independent registered public accounting firm for the Funds.
Code of Ethics and Proxy Voting Policies and Procedures
-------------------------------------------------------
The Funds, the Adviser and ABI have each adopted codes of ethics
pursuant to Rule 17j-1 of the 1940 Act. These codes of ethics permit personnel
subject to the codes to invest in securities, including securities that may be
purchased or held by the Fund.
The Funds have adopted the Adviser's proxy voting policies and
procedures. A description of the Adviser's proxy voting policies and procedures
is attached as Appendix A.
Information regarding how each Fund voted proxies related to
portfolio securities during the most recent 12-month period ended June 30 is
available: (1) without charge, upon request, by calling (800) 227-4618; or
through the Fund's website at www.abfunds.com; or both; and (2) on the SEC's
website at www.sec.gov.
Additional Information
----------------------
Shareholder inquiries may be directed to the shareholder's financial
intermediary or to ABIS at the address or telephone numbers shown on the front
cover of this SAI. This SAI does not contain all the information set forth in
the Registration Statement filed by a Fund with the SEC under the Securities
Act. Copies of the Registration Statement may be obtained at a reasonable charge
from the SEC or may be examined, without charge, at the offices of the SEC in
Washington, D.C., or on the Internet at www.abfunds.com.
--------------------------------------------------------------------------------
FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
The financial statements of each of Intermediate Bond, Unconstrained
Bond, High Income, Income Fund and Tax-Aware for the fiscal year ended October
31, 2018 and the report of Ernst & Young LLP, the independent registered public
accounting firm, are incorporated herein by reference to the Fund's annual
report. The annual reports were filed on Form N-CSR with the SEC on January 4,
2019.
The financial statements of Limited Duration and Global Bond for the
fiscal year ended September 30, 2018 and the report of Ernst & Young LLP,
independent registered public accounting firm, are incorporated herein by
reference to the Fund's annual report. The Funds' annual reports were filed on
Form N-CSR with the SEC on December 7, 2018.
The annual reports are available without charge upon request by
calling ABIS at (800) 227-4618 or on the Internet at www.abfunds.com.
Appendix A
Proxy Voting and Governance Policy Statement
Introduction
As an investment adviser, we are shareholder advocates and have a fiduciary duty
to make investment decisions that are in our clients' best interests by
maximizing the value of their shares. Proxy voting is an integral part of this
process, through which we support strong corporate governance structures,
shareholder rights and transparency.
We have an obligation to vote proxies in a timely manner and we apply the
principles in our Proxy Voting and Governance Policy ("Proxy Voting and
Governance Policy" or "Policy") and this policy statement to our proxy
decisions. We believe a company's environmental, social and governance ("ESG")
practices may have a significant effect on the value of the company, and we take
these factors into consideration when voting. For additional information
regarding our ESG policies and practices, please refer to our firm's Statement
of Policy Regarding Responsible Investment ("RI Policy").
Our Proxy Voting and Governance Policy, which outlines our policies for proxy
voting and includes a wide range of issues that often appear on proxies, applies
to all of AB's investment management subsidiaries and investment services groups
investing on behalf of clients globally. Both this Statement and the Policy are
intended for use by those involved in the proxy voting decision-making process
and those responsible for the administration of proxy voting ("Proxy Managers"),
in order to ensure that our proxy voting policies and procedures are implemented
consistently. Copies of the Policy, the RI Policy and our voting records, as
noted below in "Voting Transparency", can be found on our Internet site
(www.alliancebernstein.com).
We sometimes manage accounts where proxy voting is directed by clients or
newly-acquired subsidiary companies. In these cases, voting decisions may
deviate from the Policy.
Research Underpins Decision Making
As a research-driven firm, we approach our proxy voting responsibilities with
the same commitment to rigorous research and engagement that we apply to all our
investment activities. The different investment philosophies utilized by our
investment teams may occasionally result in different conclusions being drawn
regarding certain proposals and, in turn, may result in the Proxy Manager making
different voting decisions on the same proposal. Nevertheless, the Proxy Manager
votes proxies with the goal of maximizing the value of the securities in client
portfolios.
In addition to our firm-wide proxy voting policies, we have a Proxy Voting and
Governance Committee, which provides oversight and includes senior investment
professionals from Equities, Legal personnel and Operations personnel. It is the
responsibility of the Proxy Voting and Governance Committee to evaluate and
maintain proxy voting procedures and guidelines, to evaluate proposals and
issues not covered by these guidelines, to consider changes in policy, and to
review this Statement and the Policy no less frequently than annually. In
addition, the Proxy Voting and Governance Committee meets at least three times a
year and as necessary to address special situations.
Research Services
We subscribe to the corporate governance and proxy research services of
Institutional Shareholder Services ("ISS"). All our investment professionals can
access these materials via the Proxy Manager and/or Proxy Voting and Governance
Committee.
Engagement
In evaluating proxy issues and determining our votes, we welcome and seek out
the points of view of various parties. Internally, the Proxy Manager may consult
the Proxy Voting and Governance Committee, Chief Investment Officers, Directors
of Research, and/or Research Analysts across our equities platforms, and
Portfolio Managers in whose managed accounts a stock is held. Externally, we may
engage with companies in advance of their Annual General Meeting, and throughout
the year. We believe engagement provides the opportunity to share our
philosophy, our corporate governance values, and more importantly, affect
positive change. Also, these meetings often are joint efforts between the
investment professionals, who are best positioned to comment on company-specific
details, and the Proxy Manager(s), who offer a more holistic view of governance
practices and relevant trends. In addition, we engage with shareholder proposal
proponents and other stakeholders to understand different viewpoints and
objectives.
Proxy Voting Guidelines
Our proxy voting guidelines are both principles-based and rules-based. We adhere
to a core set of principles that are described in the Proxy Voting and
Governance Policy. We assess each proxy proposal in light of these principles.
Our proxy voting "litmus test" will always be what we view as most likely to
maximize long-term shareholder value. We believe that authority and
accountability for setting and executing corporate policies, goals and
compensation generally should rest with the board of directors and senior
management. In return, we support strong investor rights that allow shareholders
to hold directors and management accountable if they fail to act in the best
interests of shareholders.
Our proxy voting guidelines pertaining to specific issues are set forth in the
Policy and include guidelines relating to board and director proposals,
compensation proposals, capital changes and anti-takeover proposals, auditor
proposals, shareholder access and voting proposals, and environmental, social
and disclosure proposals. The following are examples of specific issues within
each of these broad categories:
Board and Director Proposals: Election of Directors
---------------------------------------------------
The election of directors is an important vote. We expect directors to represent
shareholder interests at the company and maximize shareholder value. We
generally vote in favor of the management-proposed slate of directors while
considering a number of factors, including local market best practice. We
believe companies should have a majority of independent directors and
independent key committees. However, we will incorporate local market regulation
and corporate governance codes into our decision making. We may support more
progressive requirements than those implemented in a local market if we believe
more progressive requirements may improve corporate governance practices. We
will generally regard a director as independent if the director satisfies the
criteria for independence (i) espoused by the primary exchange on which the
company's shares are traded, or (ii) set forth in the code we determine to be
best practice in the country where the subject company is domiciled and may take
into account affiliations, related-party transactions and prior service to the
company. We consider the election of directors who are "bundled" on a single
slate to be a poor governance practice and vote on a case-by-case basis
considering the amount of information available and an assessment of the group's
qualifications.
Capital Changes and Anti-Takeover Proposals: Authorize Share Repurchase
-----------------------------------------------------------------------
We generally support share repurchase proposals that are part of a
well-articulated and well-conceived capital strategy. We assess proposals to
give the board unlimited authorization to repurchase shares on a case-by-case
basis. Furthermore, we would generally support the use of derivative instruments
(e.g., put options and call options) as part of a share repurchase plan absent a
compelling reason to the contrary. Also, absent a specific concern at the
company, we will generally support a repurchase plan that could be continued
during a takeover period.
Auditor Proposals: Appointment of Auditors
------------------------------------------
We believe that the company is in the best position to choose its accounting
firm, and we generally support management's recommendation.
We recognize that there may be inherent conflicts when a company's independent
auditors perform substantial non-audit related services for the company.
Therefore, in reviewing a proposed auditor, we will consider the amount of fees
paid for non-audit related services performed compared to the total audit fees
paid by the company to the auditing firm, and whether there are any other
reasons for us to question the independence or performance of the firm's auditor
such as, for example, tenure. We generally will deem as excessive the non-audit
fees paid by a company to its auditor if those fees account for 50% or more of
total fees paid. In the UK market, which utilizes a different standard, we
adhere to a non-audit fee cap of 100% of audit fees. Under these circumstances,
we generally vote against the auditor and the directors, in particular the
members of the company's audit committee. In addition, we generally vote against
authorizing the audit committee to set the remuneration of such auditors. We
exclude from this analysis non-audit fees related to IPOs, bankruptcy emergence,
and spin-offs and other extraordinary events. We may vote against or abstain due
to a lack of disclosure of the name of the auditor while taking into account
local market practice.
Shareholder Access and Voting Proposals: Proxy Access for Annual Meetings
-------------------------------------------------------------------------
These proposals allow "qualified shareholders" to nominate directors. We
generally vote in favor of management and shareholder proposals for proxy access
that employ guidelines reflecting the SEC framework for proxy access (adopted by
the US Securities and Exchange Commission ("SEC") in 2010, but vacated by the DC
Circuit Court of Appeals in 2011), which would have allowed a single
shareholder, or group of shareholders, who hold at least 3% of the voting power
for at least three years continuously to nominate up to 25% of the current board
seats, or two directors, for inclusion in the subject company's annual proxy
statement alongside management nominees.
We may vote against proposals that use requirements that are stricter than the
SEC's framework including implementation restrictions and against individual
board members, or entire boards, who exclude from their ballot properly
submitted shareholder proxy access proposals or include their own competing,
more strict, proposals on the same ballot.
We will evaluate on a case-by-case basis proposals with less stringent
requirements than the vacated SEC framework.
From time to time we may receive requests to join with other shareholders to
support a shareholder action. We may, for example, receive requests to join a
voting block for purposes of influencing management. If the third parties
requesting our participation are not affiliated with us and have no business
relationships with us, we will consider the request on a case-by-case basis.
However, where the requesting party has a business relationship with us (e.g.,
the requesting party is a client or a significant service provider), agreeing to
such a request may pose a potential conflict of interest. As a fiduciary we have
an obligation to vote proxies in the best interest of our clients (without
regard to our own interests in generating and maintaining business with our
other clients) and given our desire to avoid even the appearance of a conflict,
we will generally decline such a request.
Environmental, Social and Disclosure Proposals: Lobbying and Political Spending
-------------------------------------------------------------------------------
We generally vote in favor of proposals requesting increased disclosure of
political contributions and lobbying expenses, including those paid to trade
organizations and political action committees, whether at the federal, state, or
local level. These proposals may increase transparency.
We generally vote proposals in accordance with these guidelines but, consistent
with our "principles-based" approach to proxy voting, we may deviate from the
guidelines if warranted by the specific facts and circumstances of the situation
(i.e., if, under the circumstances, we believe that deviating from our stated
policy is necessary to help maximize long-term shareholder value). In addition,
these guidelines are not intended to address all issues that may appear on all
proxy ballots. Proposals not specifically addressed by these guidelines, whether
submitted by management or shareholders, will be evaluated on a case-by-case
basis, always keeping in mind our fiduciary duty to make voting decisions that,
by maximizing long-term shareholder value, are in our clients' best interests.
Conflicts of Interest
As a fiduciary, we always must act in our clients' best interests. We strive to
avoid even the appearance of a conflict that may compromise the trust our
clients have placed in us, and we insist on strict adherence to fiduciary
standards and compliance with all applicable federal and state securities laws.
We have adopted a comprehensive Code of Business Conduct and Ethics ("Code") to
help us meet these obligations. As part of this responsibility and as expressed
throughout the Code, we place the interests of our clients first and attempt to
avoid any perceived or actual conflicts of interest.
We recognize that there may be a potential material conflict of interest when we
vote a proxy solicited by an issuer that sponsors a retirement plan we manage
(or administer), that distributes AB-sponsored mutual funds, or with which we or
one or more of our employees have another business or personal relationship that
may affect how we vote on the issuer's proxy. Similarly, we may have a potential
material conflict of interest when deciding how to vote on a proposal sponsored
or supported by a shareholder group that is a client. In order to avoid any
perceived or actual conflict of interest, we have established procedures for use
when we encounter a potential conflict to ensure that our voting decisions are
based on our clients' best interests and are not the product of a conflict.
These procedures include compiling a list of companies and organizations whose
proxies may pose potential conflicts of interest (e.g., if such company is our
client) and reviewing our proposed votes for these companies and organizations
in light of the Policy and ISS's recommendations. If our proposed vote is
contrary to, or not contemplated in, the Policy, is consistent with a client's
position and is contrary to ISS's recommendation, we refer to proposed vote to
our Conflicts Officer for his determination.
In addition, our Proxy Voting and Governance Committee takes reasonable steps to
verify that ISS continues to be independent, including an annual review of ISS's
conflict management procedures. When reviewing these conflict management
procedures, we consider, among other things, whether ISS (i) has the capacity
and competency to adequately analyze proxy issues; and (ii) can offer research
in an impartial manner and in the best interests of our clients.
Voting Transparency
We publish our voting records on our Internet site (www.alliancebernstein.com)
quarterly, 30 days after the end of the previous quarter. Many clients have
requested that we provide them with periodic reports on how we voted their
proxies. Clients may obtain information about how we voted proxies on their
behalf by contacting their Advisor. Alternatively, clients may make a written
request to the Chief Compliance Officer.
Recordkeeping
All of the records referenced in our Policy will be kept in an easily accessible
place for at least the length of time required by local regulation and custom,
and, if such local regulation requires that records are kept for less than five
years from the end of the fiscal year during which the last entry was made on
such record, we will follow the U.S. rule of five years. We maintain the vast
majority of these records electronically. We will keep paper records, if any, in
one of our offices for at least two years.
PART C
OTHER INFORMATION
ITEM 28. Exhibits
(a) (1) Articles of Amendment and Restatement of Articles of
Incorporation of the Registrant, dated February 1, 2006 and
filed February 23, 2006 - Incorporated by reference to Exhibit
(a) to Post-Effective Amendment No. 35 of Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 31, 2007.
(2) Articles Supplementary to Articles of Incorporation of the
Registrant, dated October 23, 2007 and filed October 23, 2007
- Incorporated by reference to Exhibit (a)(2) to
Post-Effective Amendment No. 36 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on October 22, 2007.
(3) Articles of Amendment to Articles of Incorporation of the
Registrant, dated October 31, 2007 and filed October 31, 2007
- Incorporated by reference to Exhibit (a)(3) to
Post-Effective Amendment No. 37 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 28, 2008.
(4) Articles Supplementary to Articles of Incorporation of the
Registrant, dated September 24, 2013 and filed October 2, 2013
- Incorporated by reference to Exhibit (a)(4) to
Post-Effective Amendment No. 47 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on October 15, 2013.
(5) Articles of Amendment to Articles of Incorporation of the
Registrant, effective January 20, 2015 and filed January 20,
2015 - Incorporated by reference to Exhibit (a)(5) to
Post-Effective Amendment No. 51 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 30, 2015.
(b) Amended and Restated By-Laws of the Registrant - Incorporated by
reference of Exhibit 99.77Q1 of Registrant's Semi-Annual Report on
Form NSAR-A (File No. 811-06554), filed with the Securities and
Exchange Commission on May 30, 2006.
(c) Not applicable.
(d) Advisory Agreement between the Registrant and AllianceBernstein
L.P., dated July 22, 1992, as amended, September 13, 2006 -
Incorporated by reference to Exhibit (d) to Post-Effective Amendment
No. 57 of the Registrant's Registration Statement on Form N-1A (File
Nos. 33-45328 and 811-06554), filed with the Securities and Exchange
Commission on January 31, 2018.
(e) (1) Distribution Services Agreement between the Registrant and
AllianceBernstein Investments, Inc. (formerly known as
Alliance Fund Distributors, Inc.) - Incorporated by reference
to Exhibit No. 6(a) to Post-Effective Amendment No. 16 of
Registrant's Registration Statement on Form N-1A (File Nos.
33-45328 and 811-06554), filed with the Securities and
Exchange Commission on October 31, 1997.
(2) Amendment to Distribution Services Agreement dated June 4,
1996 - Incorporated by reference to Exhibit No. 6 to
Post-Effective Amendment No. 14 of Registrant's Registration
Statement on Form N-1A (File Nos. 33-45328 and 811-06554),
filed with the Securities and Exchange Commission on October
31, 1996.
(3) Selected Dealer Agreement between AllianceBernstein
Investments, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated making available shares of the Registrant
effective April 30, 2009 - Incorporated by reference to
Exhibit (e)(8) to Post-Effective Amendment No. 39 of the
Registration Statement on Form N-1A of AllianceBernstein Large
Cap Growth Fund, Inc. (File Nos. 33-49530 and 811-06730),
filed with the Securities and Exchange Commission on October
15, 2009.
(4) Load Fund Operating Agreement between AllianceBernstein
Investments, Inc. and Charles Schwab & Co., Inc. making
available shares of the Registrant, dated as of June 1, 2007 -
Incorporated by reference to Exhibit (e)(9) to Post-Effective
Amendment No. 39 of the Registration Statement on Form N-1A of
AllianceBernstein Large Cap Growth Fund, Inc. (File Nos.
33-49530 and 811-06730), filed with the Securities and
Exchange Commission on October 15, 2009.
(5) Cooperation Agreement between AllianceBernstein Investments,
Inc. (formerly known as AllianceBernstein Research and
Management, Inc.) and UBS AG, dated November 1, 2005 -
Incorporated by reference to Exhibit (e)(10) to Post-Effective
Amendment No. 39 of the Registration Statement on Form N-1A of
AllianceBernstein Large Cap Growth Fund, Inc. (File Nos.
33-49530 and 811-06730), filed with the Securities and
Exchange Commission on October 15, 2009.
(6) Form of Selected Agreement for Broker-Dealers between
AllianceBernstein Investments, Inc. and selected dealers
offering shares of the Registrant - Incorporated by reference
to Exhibit (e)(7) to Post-Effective Amendment No. 112 of the
Registration Statement on Form N-1A of The AB Portfolios (File
Nos. 33-12988 and 811-05088), filed with the Securities and
Exchange Commission on December 29, 2017.
(7) Form of Selected Agent Agreement for Depository Institutions
and their Subsidiaries between AllianceBernstein Investments,
Inc. and selected agents making available shares of the
Registrant - Incorporated by reference to Exhibit (e)(8) to
Post-Effective Amendment No. 112 of the Registration Statement
on Form N-1A of The AB Portfolios (File Nos. 33-12988 and
811-05088), filed with the Securities and Exchange Commission
on December 29, 2017.
(8) Amendment to Distribution Services Agreement between the
Registrant and AllianceBernstein Investments, Inc. (formerly
known as Alliance Fund Distributors, Inc.), dated September
13, 2006 - Incorporated by reference to Exhibit (e)(8) to
Post-Effective Amendment No. 57 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 31, 2018.
(9) Amendment to Distribution Services Agreement between the
Registrant and AllianceBernstein Investments, Inc. (formerly
known as Alliance Fund Distributors, Inc.), dated November 2,
2007 - Incorporated by reference to Exhibit (e)(9) to
Post-Effective Amendment No. 57 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 31, 2018.
(10) Amendment to Distribution Services Agreement between the
Registrant and AllianceBernstein Investments, Inc. (formerly
known as Alliance Fund Distributors, Inc.), dated August 9,
2013 - Incorporated by reference to Exhibit (e)(10) to
Post-Effective Amendment No. 57 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 31, 2018.
(f) Not applicable.
(g) (1) Custodian Agreement between the Registrant and Brown Brothers
Harriman & Co., dated September 14, 2009 - Incorporated by
reference to Exhibit (g) to Post-Effective Amendment No. 29 of
the Registration Statement on Form N-1A of AllianceBernstein
International Growth Fund, Inc. (File Nos. 33-76598 and
811-08426), filed with the Securities and Exchange Commission
on October 29, 2010.
(2) Form of Novation and Amendment Agreement to Custodian
Agreement dated, as of September 14, 2009 between the
Registrant and Brown Brothers Harriman & Co. - Incorporated by
reference to Exhibit (g)(3) to Post-Effective Amendment No.
117 of the Registration Statement on Form N-1A of
AllianceBernstein Cap Fund, Inc. (File Nos. 2-29901 and
811-01716), filed with the Securities and Exchange Commission
on June 29, 2012.
(3) Form of Novation and Amendment Agreement to Custodian
Agreement dated, as of December 5, 2011 between the Registrant
and Brown Brothers Harriman & Co. - Incorporated by reference
to Exhibit (g)(4) to Post-Effective Amendment No. 117 of the
Registration Statement on Form N-1A of AllianceBernstein Cap
Fund, Inc. (File Nos. 2-29901 and 811-01716), filed with the
Securities and Exchange Commission on June 29, 2012.
(4) Novation and Amendment Agreement between the Registrant and
Brown Brothers Harriman & Co.- Incorporated by reference to
Exhibit (g)(19) to Post-Effective Amendment No. 215 to the
Registration Statement on Form N-1A of AB Cap Fund, Inc. (File
Nos. 2-29901 and 811-01716), filed with the Securities and
Exchange Commission on October 28, 2016.
(5) Amendment to Custodian Agreement, dated August 8, 2017,
between the Registrant and Brown Brothers Harriman & Co. -
Incorporated by reference to Exhibit (g)(21) to Post-Effective
Amendment No. 248 of the Registration Statement on Form N-1A
of AB Cap Fund, Inc. (File Nos. 2-29901 and 811-01716), filed
with the Securities and Exchange Commission on November 29,
2017.
(6) Form of Novation and Amendment Agreement, between the
Registrant and Brown Brothers Harriman & Co., regarding the AB
High Yield Portfolio - Incorporated by reference to Exhibit
(g)(21) to Post-Effective Amendment No. 255 to the
Registration Statement on Form N-1A of AB Cap Fund, Inc. (File
Nos. 2-29901 and 811-01716), filed with the Securities and
Exchange Commission on May 4, 2018.
(h) (1) Transfer Agency Agreement between the Registrant and Alliance
Global Investor Services, Inc. - Incorporated by reference to
Exhibit No. 9 to Post-Effective Amendment No. 16 of
Registrant's Registration Statement on Form N-1A (File Nos.
33-45328 and 811-06554), filed with the Securities and
Exchange Commission on October 31, 1997.
(2) Management Fee Waiver Undertaking, dated June 1, 2016, by
AllianceBernstein L.P. - Incorporated by reference to Exhibit
(h)(15) to Post-Effective Amendment No. 172 of the
Registration Statement on Form N-1A of AB Bond Fund, Inc.
(File Nos. 2-48227 and 811-02383), filed with the Securities
and Exchange Commission on February 23, 2018.
(3) Amendment to Transfer Agency Agreement, dated September 13,
2006, between the Registrant and AllianceBernstein Investor
Services, Inc. (formerly known as Alliance Fund Services,
Inc.) - Incorporated by reference to Exhibit (h)(3) to
Post-Effective Amendment No. 57 of the Registrant's
Registration Statement on Form N-1A (File Nos. 33-45328 and
811-06554), filed with the Securities and Exchange Commission
on January 31, 2018.
(i) Opinion and Consent of Seward & Kissel LLP - Filed herewith.
(j) Consent of Independent Registered Public Accounting Firm - Filed
herewith.
(k) Not applicable.
(l) Not applicable.
(m) Rule 12b-1 Plan - See Exhibit (e)(1) hereto.
(n) Amended and Restated Rule 18f-3 Plan, dated May 5, 2017 -
Incorporated by reference to Exhibit (n) to Post-Effective Amendment
No. 57 of the Registrant's Registration Statement on Form N-1A (File
Nos. 33-45328 and 811-06554), filed with the Securities and Exchange
Commission on January 31, 2018.
(o) Reserved.
(p) (1) Code of Ethics for the Fund - Incorporated by reference to
Exhibit (p)(1) to Post-Effective Amendment No. 74 of the
Registration Statement on Form N-1A of AllianceBernstein Bond
Fund, Inc. (File Nos. 2-48227 and 811-02383), filed with the
Securities and Exchange Commission on October 6, 2000, which
is substantially identical in all material respects except as
to the party which is the Registrant.
(2) Code of Ethics for AllianceBernstein L.P. and
AllianceBernstein Investments, Inc. - Incorporated by
reference to Exhibit (p)(3) to Post-Effective Amendment No.
146 of the Registration Statement on Form N-1A of
AllianceBernstein Cap Fund, Inc. (File Nos. 2-29901 and
811-01716), filed with the Securities and Exchange Commission
on February 26, 2014.
Other Exhibits:
Powers of Attorney for: Michael J. Downey, Nancy P. Jacklin, Robert
M. Keith, Carol C. McMullen, Garry L. Moody, Marshall C. Turner, Jr.
and Earl D. Weiner - Filed herewith.
ITEM 29. Persons Controlled by or under Common Control with the Fund.
None.
ITEM 30. Indemnification
It is the Registrant's policy to indemnify its directors and
officers, employees and other agents to the maximum extent permitted
by Section 2-418 of the General Corporation Law of the State of
Maryland, which is incorporated by reference herein, and as set
forth in Article EIGHTH of Registrant's Articles of Amendment and
Restatement of Articles of Incorporation, filed as Exhibit (a),
Article IX of the Registrant's Amended and Restated By-Laws filed as
Exhibit (b) and Section 10 of the Distribution Services Agreement
filed as Exhibit (e)(1), all as set forth below.
The liability of the Registrant's directors and officers is dealt
with in Article EIGHTH of Registrant's Amended and Restated Articles
of Incorporation, and Article IX of the Registrant's Amended and
Restated By-Laws, as set forth below. The Adviser's liability for
any loss suffered by the Registrant or its shareholders is set forth
in Section 4 of the Advisory Agreement incorporated by reference as
Exhibit (d) to this Registration Statement, as set forth below.
ARTICLE EIGHTH OF THE REGISTRANT'S ARTICLES OF AMENDMENT AND RESTATEMENT OF
ARTICLES OF INCORPORATION READS AS FOLLOWS:
(1) To the maximum extent that Maryland law in effect from time to
time permits limitation of the liability of directors and officers of a
corporation, no present or former director or officer of the Corporation shall
be liable to the Corporation or its stockholders for money damages.
(2) The Corporation shall have the power, to the maximum extent
permitted by Maryland law in effect from time to time, to obligate itself to
indemnify, and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to, (a) any individual who is a present or former
director or officer of the Corporation or (b) any individual who, while a
director or officer of the Corporation and at the request of the Corporation,
serves or has served as a director, officer, partner or trustee of another
corporation, real estate investment trust, partnership, joint venture, trust,
employee benefit plan or any other enterprise from and against any claim or
liability to which such person may become subject or which such person may incur
by reason of his status as a present or former director or officer of the
Corporation. The Corporation shall have the power, with the approval of the
Board of Directors, to provide such indemnification and advancement of expenses
to a person who served a predecessor of the Corporation in any of the capacities
described in (a) or (b) above and to any employee or agent of the Corporation or
a predecessor of the Corporation.
(3) The provisions of this Article EIGHTH shall be subject to the
limitations of the Investment Company Act.
(4) Neither the amendment nor repeal of this Article EIGHTH, nor the
adoption or amendment of any other provision of the Charter or Bylaws
inconsistent with this Article EIGHTH, shall apply to or affect in any respect
the applicability of the preceding sections of this Article EIGHTH with respect
to any act or failure to act which occurred prior to such amendment, repeal or
adoption.
ARTICLE IX OF THE REGISTRANT'S AMENDED AND RESTATED BY-LAWS READS AS FOLLOWS:
To the maximum extent permitted by Maryland law in effect from time to time, the
Corporation shall indemnify and, without requiring a preliminary determination
of the ultimate entitlement to indemnification, shall pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to (a) any
individual who is a present or former director or officer of the Corporation and
who is made or threatened to be made a party to the proceeding by reason of his
or her service in any such capacity or (b) any individual who, while a director
or officer of the Corporation and at the request of the Corporation, serves or
has served as a director, officer, partner or trustee of another corporation,
real estate investment trust, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made or threatened to be made a
party to the proceeding by reason of his or her service in any such capacity.
The Corporation may, with the approval of its Board of Directors or any duly
authorized committee thereof, provide such indemnification and advance for
expenses to a person who served a predecessor of the Corporation in any of the
capacities described in (a) or (b) above and to any employee or agent of the
Corporation or a predecessor of the Corporation. The termination of any claim,
action, suit or other proceeding involving any person, by judgment, settlement
(whether with or without court approval) or conviction or upon a plea of guilty
or nolo contendere, or its equivalent, shall not create a presumption that such
person did not meet the standards of conduct required for indemnification or
payment of expenses to be required or permitted under Maryland law, these Bylaws
or the Charter. Any indemnification or advance of expenses made pursuant to this
Article shall be subject to applicable requirements of the 1940 Act. The
indemnification and payment of expenses provided in these Bylaws shall not be
deemed exclusive of or limit in any way other rights to which any person seeking
indemnification or payment of expenses may be or may become entitled under any
bylaw, regulation, insurance, agreement or otherwise.
Neither the amendment nor repeal of this Article, nor the adoption or amendment
of any other provision of the Bylaws or Charter inconsistent with this Article,
shall apply to or affect in any respect the applicability of the preceding
paragraph with respect to any act or failure to act which occurred prior to such
amendment, repeal or adoption.
The Advisory Agreement between Registrant and AllianceBernstein L.P. provides
that AllianceBernstein L.P. will not be liable under such agreements for any
mistake of judgment or in any event whatsoever except for lack of good faith and
that nothing therein shall be deemed to protect AllianceBernstein L.P. against
any liability to Registrant or its security holders to which it would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties thereunder, or by reason of reckless disregard of
its duties and obligations thereunder.
The Distribution Services Agreement between the Registrant and AllianceBernstein
Investments, Inc. ("ABI") (formerly known as Alliance Fund Distributors, Inc.)
provides that the Registrant will indemnify, defend and hold ABI, and any person
who controls it within the meaning of Section 15 of the Securities Act of 1933
(the "Securities Act"), free and harmless from and against any and all claims,
demands, liabilities and expenses which ABI or any controlling person may incur
arising out of or based upon any alleged untrue statement of a material fact
contained in Registrant's Registration Statement, Prospectus or Statement of
Additional Information or arising out of, or based upon any alleged omission to
state a material fact required to be stated in any one of the foregoing or
necessary to make the statements in any one of the foregoing not misleading.
The foregoing summaries are qualified by the entire text of Registrant's
Articles of Amendment and Restatement of Articles of Incorporation and Amended
and Restated By-Laws, the Advisory Agreement between Registrant and
AllianceBernstein L.P. and the Distribution Services Agreement between
Registrant and ABI which are Exhibits (a), (b), (d) and (e)(1), respectively, in
response to Item 28 and each of which are incorporated by reference herein.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officer and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
In accordance with Release No. IC-11330 (September 2, 1980), the Registrant will
indemnify its directors, officers, investment manager and principal underwriters
only if (1) a final decision on the merits was issued by the court or other body
before whom the proceeding was brought that the person to be indemnified (the
"indemnitee") was not liable by reason or willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office ("disabling conduct") or (2) a reasonable determination is made, based
upon a review of the facts, that the indemnitee was not liable by reason of
disabling conduct, by (a) the vote of a majority of a quorum of the directors
who are neither "interested persons" of the Registrant as defined in section
2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding
("disinterested, non-party directors"), or (b) an independent legal counsel in a
written opinion. The Registrant will advance attorneys fees or other expenses
incurred by its directors, officers, investment adviser or principal
underwriters in defending a proceeding, upon the undertaking by or on behalf of
the indemnitee to repay the advance unless it is ultimately determined that he
is entitled to indemnification and, as a condition to the advance, (1) the
indemnitee shall provide a security for his undertaking, (2) the Registrant
shall be insured against losses arising by reason of any lawful advances, or (3)
a majority of a quorum of disinterested, non-party directors of the Registrant,
or an independent legal counsel in a written opinion, shall determine, based on
a review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.
The Registrant participates in a joint directors' liability insurance policy
issued by the ICI Mutual Insurance Company. Under this policy, outside trustees
and directors are covered up to the limits specified for any claim against them
for acts committed in their capacities as trustee or director. A pro rata share
of the premium for this coverage is charged to each participating investment
company. In addition, the Adviser's liability insurance policy, which is issued
by a number of underwriters, including Greenwich Insurance Company as primary
underwriter, extends to officers of the Registrant and such officers are covered
up to the limits specified for any claim against them for acts committed in
their capacities as officers of the investment companies sponsored by the
Adviser.
ITEM 31. Business and Other Connections of Investment Adviser.
The descriptions of AllianceBernstein L.P. under the captions
"Management of the Fund" in the Prospectus and in the Statement of
Additional Information constituting Parts A and B, respectively, of
this Registration Statement are incorporated by reference herein.
The information as to the directors and executive officers of
AllianceBernstein L.P., set forth in its Form ADV filed with the
Securities and Exchange Commission on March 31, 2014 (File No.
801-56720) and amended through the date hereof, is incorporated by
reference herein.
ITEM 32. Principal Underwriters
(a) ABI is the Registrant's Principal Underwriter in connection with
the sale of shares of the Registrant. ABI is the Principal
Underwriter or Distributor for the following investment companies:
AB Bond Fund, Inc.
AB Cap Fund, Inc.
AB Core Opportunities Fund, Inc.
AB Corporate Shares
AB Discovery Growth Fund, Inc.
AB Equity Income Fund, Inc.
AB Fixed-Income Shares, Inc.
AB Global Real Estate Investment Fund, Inc.
AB Global Risk Allocation Fund, Inc.
AB High Income Fund, Inc.
AB Institutional Funds, Inc.
AB Intermediate California Municipal Portfolio(1)
AB Intermediate Diversified Municipal Portfolio(1)
AB Intermediate New York Municipal Portfolio(1)
AB International Portfolio(2)
AB Large Cap Growth Fund, Inc.
AB Municipal Income Fund, Inc.
AB Municipal Income Fund II
AB Relative Value Fund, Inc.
AB Short Duration Portfolio(3)
AB Sustainable Global Thematic Fund, Inc.
AB Sustainable International Thematic Fund, Inc.
AB Tax-Managed International Portfolio(4)
AB Trust
AB Unconstrained Bond Fund, Inc.
AB Variable Products Series Fund, Inc.
Emerging Markets Portfolio(5)
Sanford C. Bernstein Fund II, Inc.
The AB Portfolios
-----------
1 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
Classes A, B, C and Advisor Class Shares.
2 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
AB Classes A, B, C, R and Z Shares.
3 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
AB Classes A, B, C and R Shares.
4 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
Classes A, B, C and Z Shares.
5 This is a Portfolio of Sanford C. Bernstein Fund, Inc. which consists of
Class Z Shares.
(b) The following are the Directors and Officers of ABI, the
principal place of business of which is 1345 Avenue of the Americas,
New York, NY 10105.
POSITIONS AND POSITIONS AND
OFFICES WITH OFFICES WITH
NAME UNDERWRITER REGISTRANT
---- ----------- ----------
Directors
---------
Robert M. Keith Director President and Chief
Executive Officer
Christopher Bricker Director
Laurence E. Cranch Director
Gary Krueger Director
David Lesser Director
Mark R. Manley Director, and Secretary
William Siemers Director
Officers
--------
Emilie D. Wrapp Senior Vice President, Secretary
Assistant General Counsel
and Assistant Secretary
Laurence H. Bertan Senior Vice President and
Assistant Secretary
Richard A. Brink Senior Vice President
Peter G. Callahan Senior Vice President
Kevin T. Cannon Senior Vice President
Michael A. Capella Senior Vice President
Nelson Kin Hung Chow Senior Vice President
Flora Chi Ju Chuang Senior Vice President
Russell R. Corby Senior Vice President
Jose Cosio Senior Vice President
John W. Cronin Senior Vice President
Silvio Cruz Senior Vice President
Christine M. Dehil Senior Vice President
John C. Endahl Senior Vice President
John Edward English Senior Vice President
Daniel Ennis Senior Vice President
Robert K. Forrester Senior Vice President
Mark A. Gessner Senior Vice President
Kenneth L. Haman Senior Vice President
Michael S. Hart Senior Vice President
Ajai M. Kaul Senior Vice President
Scott M. Krauthamer Senior Vice President
Jonathan M. Liang Senior Vice President
Karen (Yeow Ping) Lim Senior Vice President
James M. Liptrot Senior Vice President and
Assistant Controller
William Marsalise Senior Vice President
Brendan Murray Senior Vice President
Joanna D. Murray Senior Vice President
John J. O'Connor Senior Vice President
Suchet Padhye (Pandurang) Senior Vice President
Guy Prochilo Senior Vice President
John D. Prosperi Senior Vice President
Kevin Rosenfeld Senior Vice President
Miguel A. Rozensztroch Senior Vice President
John Schmidt Senior Vice President
Elizabeth M. Smith Senior Vice President
Christian G. Wilson Senior Vice President
Derek Yung Senior Vice President
Robert J. Amberger Vice President
Elizabeth Anderson Vice President
Eric Anderson Vice President
Constantin L. Andreae Vice President
Steven Arts Vice President
Helena Bayer Vice President
DeAnna D. Beedy Vice President
Corey S. Beckerman Vice President
Christopher M. Berenbroick Vice President
Chris Boeker Vice President
Brandon W. Born Vice President
James J. Bracken Vice President
Robert A. Brazofsky Vice President
Friederike Grote Brink Vice President
James Broderick Vice President
Steven B. Bruce Vice President
Kathleen Byrnes Vice President
Christopher J. Carrelha Vice President
Tso Hsiang Chang Vice President
Chester Chappell Vice President
Debby Jui Ying Cheng Vice President
Mikhail Cheskis Vice President
Daisy (Sze Kie) Chung Vice President
Peter T. Collins Vice President
Joseph (Don) Connell Vice President
Dwight P. Cornell Vice President
Nora E. (Murphy) Connerty Vice President
Massimo Dalla Vedova Vice President
Francesca Dattola Vice President
Kevin M. Dausch Vice President
Giovanni De Mare Vice President
Frank de Wit Vice President
Michael Deferro Vice President
Marc J. Della Pia Vice President
Patrick R. Denis Vice President
Ralph A. DiMeglio Vice President
Martin Dilg Vice President
Joseph T. Dominguez Vice President
Barbara Anne Donovan Vice President
Steve Doss Vice President
Sarah Entzeroth Hartzke Vice President
Gregory M. Erwinski Vice President
Nathalie Faure Vice President
Robert Fiorentino Vice President
Susan A. Flanagan Vice President
Carey Fortnam Vice President
Taylor K. Fragapane Vice President
Eric C. Freed Vice President Assistant Secretary
Ignacio Fuenzalida Vice President
Shigehiro Fukuyama Vice President
Yuko Funato Vice President
Ryan Garcia Vice President
Kimberly A. Collins Gorab Vice President
Joseph Haag Vice President
Brian P. Hanna Vice President
Kenneth Handler Vice President
Gregory Handrahan Vice President
Terry L. Harris Vice President
Nancy E. Hay Vice President Assistant Secretary
Philippe Hemery Vice President
David Henry Vice President
Olivier Herson Vice President
Alexander Hoffmann Vice President
Brian Horvath Vice President
Eric S. Indovina Vice President
Tina Kao Vice President
Jeffrey Kelly Vice President
Amir Khorami Vice President
Gunnar Knierim Vice President
Anthony D. Knight Vice President
Tomas Kukla Vice President
Stephen J. Laffey Vice President and Counsel Assistant Secretary
Christopher J. Larkin Vice President
Chang Hyun Lee Vice President
Matthews Lee Vice President
Ginnie Li Vice President
Albert Yen Po Lien Vice President
Jim Lui (Chi-Hsiung) Vice President
Darren L. Luckfield Vice President
Matthew J. Malvey Vice President
Robert Mancini Vice President
Todd Mann Vice President
Osama Mari Vice President
Nicola Meotti Vice President
Yuji Mihashi Vice President
Aimee Minora Vice President
David Mitchell Vice President
Benjamin Moore Vice President
Paul S. Moyer Vice President
Jennifer A. Mulhall Vice President
Masaru Nakabachi Vice President
Robert D. Nelms Vice President
Stephen Nguyen Vice President
Jamie A. Nieradka Vice President
Markus Novak Vice President
Mayumi Okujo Vice President
Bryan R. Pacana Vice President
Alex E. Pady Vice President
David D. Paich Vice President
Kim Chu Perrington Vice President
Jared M. Piche Vice President
Joseph J. Proscia Vice President
Diana Quesada Mihanovich Vice President
Damien Ramondo Vice President
Carol H. Rappa Vice President
Jessie A. Reich Vice President
Lauryn A. Rivello Vice President
Phillip R. Rollins Vice President
Claudio Rondolini Vice President
Susanne Russotto Vice President
David Saslowsky Vice President
Richard A. Schwam Vice President
Craig Schorr Vice President
Harish Sidaganahalli Vice President
Louis Sideropoulos Vice President
John F. Skahan Vice President
Chang Min Song Vice President
Daniel L. Stack Vice President
Jason P. Stevens Vice President
Keng-Hsien Su Vice President
Yukari Takahashi Vice President
Scott M. Tatum Vice President
Derek Tay Vice President
James Taylor Vice President
Kin Yip Keynes Tin Vice President
Megan Tracy Vice President
Andrew Tseng-Chi Tsai Vice President
Ming Tung (Ming Kai) Vice President
Christian B. Verlingo Vice President
Shimon Wakamatsu Vice President
Vivi Wang Vice President
Raleigh Watson Vice President
Pascal Weber Vice President
Wendy Weng Vice President
Stephen M. Woetzel Vice President Assistant Controller
Chapman Tsan Wong Vice President
Brandon Hung-Wen Yang Vice President
Isabelle (Hsin-I) Yen Vice President
Oscar Zarazua Vice President
Martin J. Zayac Vice President
Armand H. Amrit Assistant Vice President
Douglas Caggiano Assistant Vice President
Jessica Chung Hui Chang Assistant Vice President
Cora Pei Chen Assistant Vice President
Eddie Pei Yuan Chen Assistant Vice President
Rita Yi Hua Chen Assistant Vice President
William Chen Assistant Vice President
Eun Jun Choi Assistant Vice President
Melissa Mei Ling Chou Assistant Vice President
Charles Cochran Assistant Vice President
Hanna Edelman Assistant Vice President
Nataliya Fomenko Assistant Vice President
Isabelle Husson Assistant Vice President
Naoko Imami Assistant Vice President
Eitaro Kajiwara Assistant Vice President
Yvonne Khng (Sock Koon) Assistant Vice President
William R. Krofcheck Assistant Vice President
John Lancashire Assistant Vice President
Nathan Lyden Assistant Vice President
Emily Ming Yi Ma Assistant Vice President
Sonja Noothout Assistant Vice President
Miyako Otake Assistant Vice President
Charissa A. Pal Assistant Vice President
Brian W. Paulson Assistant Vice President
Pablo Perez Assistant Vice President
Thomas Perini Assistant Vice President
Kirsten Rieder Assistant Vice President
Timothy Ryan Assistant Vice President
Matthew L. Santora Assistant Vice President
Barbara Stuyt Assistant Vice President
Michiyo Tanaka Assistant Vice President
Miyako Taniguchi Assistant Vice President
Thomas Tracy Assistant Vice President
Misty Kai-Chen Tseng Assistant Vice President
Laurence Vandecasteele Assistant Vice President
William Wielgolewski Assistant Vice President
Henry M. Winchester Assistant Vice President
Frank Ching Han Wu Assistant Vice President
Colin T. Burke Assistant Secretary
(c) Not applicable.
ITEM 33. Location of Accounts and Records.
The majority of the accounts, books and other documents required to
be maintained by Section 31(a) of the Investment Company Act of 1940
and the rules thereunder are maintained as follows: journals,
ledgers, securities records and other original records are
maintained principally at the offices of AllianceBernstein Investor
Services, Inc., P.O. Box 786003, San Antonio, TX 78278-6003 and at
the offices of Brown Brothers Harriman & Co., the Registrant's
Custodian, 40 Water Street, Boston, MA 02109. All other records so
required to be maintained are maintained at the offices of
AllianceBernstein L.P., 1345 Avenue of the Americas, New York, NY
10105.
ITEM 34. Management Services.
Not applicable.
ITEM 35. Undertakings.
Not applicable.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant certifies
that it meets all of the requirements for effectiveness to this amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Post-Effective Amendment to its Registration Statement
to be signed on its behalf by the undersigned, duly authorized, in the City of
New York and the State of New York, on the 30th day of January, 2019.
AB GLOBAL BOND FUND, INC.
By: /s/ Robert M. Keith
-------------------
Robert M. Keith
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment to the Registration Statement has been signed
below by the following persons in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
1. Principal Executive
Officer:
/s/ Robert M. Keith President and January 30, 2019
------------------- Chief Executive
Robert M. Keith Officer
2. Principal Financial
and Accounting Officer:
/s/ Joseph J. Martineo Treasurer and January 30, 2019
---------------------- Chief Financial
Joseph J. Martineo Officer
3. All of the Directors:
Michael J. Downey*
Nancy P. Jacklin*
Robert M. Keith*
Carol C. McMullen*
Garry L. Moody*
Marshall C. Turner, Jr.*
Earl D. Weiner *
*By: /s/ Stephen J. Laffey January 30, 2019
---------------------
Stephen J. Laffey
(Attorney-in-Fact)
Index to Exhibits
-----------------
Exhibit No. Description of Exhibits
----------- -----------------------
(i) Opinion and Consent of Seward & Kissel LLP
(j) Consent of Independent Registered Public Accounting Firm
Other Exhibits Powers of Attorney
Exhibit (i)
SEWARD & KISSEL LLP
901 K Street, NW
Suite 800
Washington, DC 20001
Telephone: (202) 737-8833
Facsimile: (202) 737-5184
www.sewkis.com
January 30, 2019
AB Bond Fund, Inc.
- AB Intermediate Bond Portfolio
- AB Limited Duration High Income Portfolio
- AB Income Fund
- AB Tax-Aware Fixed Income Portfolio
AB Global Bond Fund, Inc.
AB High Income Fund, Inc.
AB Unconstrained Bond Fund, Inc.
1345 Avenue of the Americas
New York, New York 10105
Ladies and Gentlemen:
We have acted as counsel for each of the corporations named above (each, a
"Company," and collectively, the "Companies") and the individual portfolios of
certain of the Companies (each, a "Portfolio"), as applicable, in connection
with the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of an indefinite number of shares, par value per share as set
forth in each Company's Charter, of Class A Common Stock, Class B Common Stock,
Class C Common Stock, Class R Common Stock, Class K Common Stock, Class I Common
Stock, Class Z Common Stock and Advisor Class Common Stock, as applicable (each,
a "Class," and collectively, the "Shares"), of each Company or Portfolio, as
applicable. Each Company is a Maryland corporation and is registered under the
Investment Company Act of 1940, as amended, as an open-end management investment
company. This opinion is rendered to each Company severally, and not to the
Companies jointly.
As counsel for a Company, we have participated in the preparation of the
Post-Effective Amendment to that Company's Registration Statement on Form N-1A
to be filed with the Securities and Exchange Commission (the "Commission") to
become effective on January 31, 2019, pursuant to paragraph (b) of Rule 485
under the Securities Act (as so amended, the "Registration Statement") in which
this letter is included as Exhibit (i). We have examined the Charter and By-laws
of that Company and any amendments and supplements thereto and have relied upon
such corporate records of that Company and such other documents and certificates
as to factual matters as we have deemed necessary to render the opinion
expressed herein.
Based on such examination, we are of the opinion that the Shares of each
Company to be offered for sale pursuant to the Registration Statement of that
Company are, to the extent of the numbers of Shares of the relevant Classes of
each Portfolio in the Company, as applicable, authorized to be issued by that
The AB Bond Funds
January 30, 2019
Page 2
Company in its Charter, duly authorized, and, when sold, issued and paid for as
contemplated by the Registration Statement, will have been validly issued and
will be fully paid and non-assessable under the laws of the State of Maryland.
We do not express an opinion with respect to any laws other than the laws
of Maryland applicable to the due authorization, valid issuance and
non-assessability of shares of common stock of corporations formed pursuant to
the provisions of the Maryland General Corporation Law. Accordingly, our opinion
does not extend to, among other laws, the federal securities laws or the
securities or "blue sky" laws of Maryland or any other jurisdiction. Members of
this firm are admitted to the bars of the State of New York and the District of
Columbia.
We hereby consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the reference to our firm under the
caption "General Information--Counsel" in Part B thereof.
Very truly yours,
/s/ Seward & Kissel LLP
Exhibit (j)
Consent of Independent Registered Public Accounting Firm
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Shareholder Services - Statements and
Reports", "General Information - Independent Registered Public Accounting Firm"
and "Financial Statements and Report of Independent Registered Public Accounting
Firm" within the Statement of Additional Information and to the use of our
report dated November 28, 2018 with respect to the financial statements of AB
Global Bond Fund, Inc. for the fiscal year ended September 30, 2018, which is
incorporated by reference in this Post-Effective Amendment No. 59 to the
Registration Statement (Form N-1A No. 33-45328) of AB Global Bond Fund, Inc.
/s/ Ernst & Young LLP
New York, New York
January 28, 2019
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Michael J. Downey
------------------------
Michael J. Downey
Dated: May 3, 2018
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Nancy P. Jacklin
------------------------
Nancy P. Jacklin
Dated: May 3, 2018
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A and any other filings of:
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Robert M. Keith
------------------------
Robert M. Keith
Dated: May 3, 2018
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A and any other filings of:
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Carol C. McMullen
------------------------
Carol C. McMullen
Dated: May 3, 2018
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Garry L. Moody
------------------------
Garry L. Moody
Dated: May 3, 2018
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Marshall C. Turner, Jr.
---------------------------
Marshall C. Turner, Jr.
Dated: May 3, 2018
POWER OF ATTORNEY
-----------------
KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature
appears below hereby revokes all prior powers granted by the undersigned to the
extent inconsistent herewith and constitutes and appoints Robert M. Keith,
Emilie D. Wrapp, Eric C. Freed, Nancy E. Hay and Stephen J. Laffey and each of
them, to act severally as attorney-in-fact and agent, with power of substitution
and resubstitution, for the undersigned in any and all capacities, solely for
the purpose of signing the respective Registration Statements, and any
amendments thereto, on Form N-1A of
-AB Bond Fund, Inc.
-AB Cap Fund, Inc.
-AB Core Opportunities Fund, Inc.
-AB Corporate Shares
-AB Discovery Growth Fund, Inc.
-AB Equity Income Fund, Inc.
-AB Fixed-Income Shares, Inc.
-AB Global Bond Fund, Inc.
-AB Global Real Estate Investment Fund, Inc.
-AB Global Risk Allocation Fund, Inc.
-AB High Income Fund, Inc.
-AB Institutional Funds, Inc.
-AB Large Cap Growth Fund, Inc.
-AB Municipal Income Fund, Inc.
-AB Municipal Income Fund II
-AB Relative Value Fund, Inc.
-AB Sustainable Global Thematic Fund, Inc.
-AB Sustainable International Thematic Fund, Inc.
-AB Trust
-AB Unconstrained Bond Fund, Inc.
-AB Variable Products Series Fund, Inc.
-The AB Portfolios
-Sanford C. Bernstein Fund II, Inc.
and filing the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or their substitute or substitutes,
may do or cause to be done by virtue hereof.
/s/ Earl D. Weiner
------------------------
Earl D. Weiner
Dated: May 3, 2018
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