The AB Active ETFs
PROSPECTUS | OCTOBER 21,
2023
The
AB Active ETFs
|
|
|
|
| |
|
|
| |
 AB Conservative Buffer ETF (Ticker
Symbol: BUFC)
(Exchange:
Nasdaq) |
|
| |
|
The
Securities and Exchange Commission has 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
|
|
Ø Are Not
FDIC Insured
Ø May
Lose Value
Ø Are Not
Bank Guaranteed |
TABLE
OF CONTENTS
SUMMARY
INFORMATION
AB
Conservative Buffer ETF
INVESTMENT
OBJECTIVE
The
Fund’s investment objective is to seek a conservative level of capital
appreciation while providing the potential for some downside protection against
market declines.
FEES
AND EXPENSES OF THE FUND
This
table describes the fees and expenses that you may pay if you buy, hold and sell
shares of the Fund. You may be required to pay
commissions and/or other forms of compensation to a broker for transactions in
shares, which are not reflected in the tables or the examples below.
Shareholder Fees (fees paid directly from your
investment)
None
Annual Fund Operating Expenses (expenses that
you pay each year as a percentage of the value of your investment)
|
|
|
|
| |
| |
|
|
|
|
|
Management
Fees |
|
|
.69% |
(a) |
|
| |
|
Distribution
and/or Service (12b‑1) Fees(b) |
|
|
None |
|
|
| |
|
Other
Expenses(b) |
|
|
.00% |
|
|
| |
|
|
|
|
Total
Annual Fund Operating Expenses(b) |
|
|
.69% |
|
|
| |
|
|
|
| |
|
|
|
|
| (a) |
The
Fund’s investment advisory agreement provides that AllianceBernstein L.P.
(the “Adviser”) will pay substantially all expenses of the Fund (including
expenses of AB Active ETFs, Inc. relating to the Fund), except for the
advisory fees, payments under the Fund’s 12b‑1 plan (if any), interest
expenses, taxes, acquired fund fees and expenses (other than fees and
expenses for funds advised by the Adviser and/or its affiliates), and
litigation and extraordinary expenses not incurred in the ordinary course
of the Fund’s business. Additionally, the Fund shall be responsible for
its non‑operating expenses, including brokerage commissions.
|
| (b) |
These amounts are estimated for the current
fiscal
year. |
Examples
The
Examples are intended to help you compare the cost of investing in the Fund with
the cost of investing in other 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 and that the Fund’s operating expenses stay
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
|
|
|
|
| |
| |
|
|
After
1 Year |
|
$ |
70 |
|
|
| |
|
After
3 Years |
|
$ |
221 |
|
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. The Fund has no operating history and therefore has no
portfolio turnover information.
PRINCIPAL
STRATEGIES
The
Fund is an actively managed exchange-traded fund (“ETF”). The Fund seeks to
achieve its investment objective by investing, under normal conditions,
substantially all of its assets in a combination of exchange-traded options
contracts on an underlying ETF (“Underlying ETF”). The Underlying ETF (initially
expected to be the SPDR®
S&P 500® ETF Trust)
is an ETF that seeks to track the investment results of the S&P 500 Index
(the “Underlying ETF’s Index”), which measures the performance of the
large-capitalization sector of the U.S. equity market, as determined by S&P
Dow Jones Indices LLC. The Fund uses an options strategy that seeks to produce
investment outcomes based on the performance of the Underlying ETF, subject to
an approximate upside limit typically between 2 and 4% (“Hedge Period Cap”),
while also seeking to provide protection against Underlying ETF share price
declines of up to a 15% limit (“Hedge Period Buffer”), over a designated period
(typically 90 days, but may be up to 120 days, after portfolio rebalance)
(each, a “Hedge Period”). Periodically, the Fund may bear a “first loss” of 1%
when doing so permits the Fund to maintain a higher Hedge Period Cap, as
explained below. The Adviser seeks to monitor the performance of this Options
Portfolio (as defined below) and may rebalance the portfolio (by liquidating all
or a portion of the Options Portfolio)
4
at
any time to protect capital or lock‑in some portfolio gains of the Fund (“Upside
Ratchet”), depending on its evaluation of market conditions. If there is an
Upside Ratchet, the Hedge Period may be shorter. The Fund does not pursue a
“defined outcome” strategy and the Hedge Period Buffer may not protect the Fund
against losses. Each Hedge Period is measured from the time of the Fund’s
investment in the Options Portfolio, not from the time that an investor
purchases shares of the Fund. At the time of purchasing Fund shares, an investor
may be unable to determine the Fund’s position relative to the Hedge Period Cap
and Hedge Period Buffer.
The
Underlying ETF’s Index covers approximately 80% of the market capitalization of
all publicly-traded U.S. equity securities. The securities in the Underlying
ETF’s Index are weighted based on the float-adjusted market value of their
outstanding shares. The Underlying ETF’s Index consists of securities from a
broad range of industries. The components of the Underlying ETF’s Index are
likely to change over time.
The
Fund may also invest in equity securities of large capitalization companies or
instruments with similar economic characteristics, S&P 500 Index options,
shares of AB Government Money Market
Portfolio, U.S. Government securities and cash and money market
securities. For these purposes, “large capitalization companies” are those that,
at the time of investment, have market capitalizations within the range of
market capitalizations of companies appearing in the S&P 500 Index.
Investments. The Fund typically
utilizes customized call and put equity or index exchange-traded options
contracts that reference the Underlying ETF, referred to as Flexible Exchange
Options (“FLEX Options”), as well as other listed options that reference the
price performance of the Underlying ETF, the Underlying ETF’s Index, or ETFs
that replicate the Underlying ETF’s Index. FLEX Options provide investors with
the ability to customize key option contract terms such as strike price, style
and expiration date. The Fund intends to transact in four options: long put
options, short put options, short call options and long call options (the
“Options Portfolio”)—for the purposes of implementing the strategy and
establishing the Hedge Period Cap and Hedge Period Buffer.
|
|
| |
| Options Portfolio |
| Investment Type |
|
Strategy Purpose |
| Purchase Call (FLEX Option) |
|
Obtain Economic Exposure to Shares of
Underlying ETF |
|
| |
| Purchase Put
(FLEX Option) |
|
Establish Hedge
Period Buffer |
|
| |
| Write Put (FLEX
Option) |
|
Establish End
of Hedge Period Buffer |
|
| |
| Write Call (FLEX Option) |
|
Establish Hedge Period
Cap |
Hedge Period Cap and
Hedge Period Buffer. The Hedge Period Cap is established by
selling a call option that will limit the Fund’s ability to realize any increase
in the value of the shares of the Underlying ETF above the strike price. The
Fund estimates that the Hedge Period Cap will range from between 2% and 4%. For
each Hedge Period, the Hedge Period Cap is based on the strike price of the
short call options for that Hedge Period. The strike price for the option is
expected to change for each Hedge Period, depending on prevailing market
conditions, resulting in a different Hedge Period Cap for each Hedge Period.
The
Hedge Period Buffer is established by using a combination of options that
operates to provide downside protection against a portion of the Underlying
ETF’s share price decline for the applicable Hedge Period. The Fund may assume a
loss attributable to the first 1% decline in the Underlying ETF’s share price at
the time of establishing the Options Portfolio, and then the Hedge Period Buffer
protects the Fund against further losses attributable to such share price
declines, up to a 15% limit. If prevailing market conditions allow, the Fund
will have less than a first loss of 1%. The Hedge Period Buffer does not protect
the Fund against losses attributable to Underlying ETF share price declines
exceeding 15%.
The
Hedge Period Cap and the Hedge Period Buffer are determined without regard to
any fees or expenses charged to the Fund, which will have the effect of reducing
the Hedge Period Cap or the Hedge Period Buffer for a Hedge Period.
The
Fund seeks to generate returns that match those attributable to the share price
of the Underlying ETF, up to the Hedge Period Cap, while limiting downside
losses attributable to the Underlying ETF share price declines. The hypothetical
graphical illustration provided below is designed to illustrate the outcomes
that the Fund seeks to provide for investors who hold shares for the entirety of
a Hedge Period. There is no guarantee that the Fund will be successful in its
attempt to provide the outcomes for any Hedge Period.
5
Hedge Period
The
Fund’s options strategy is designed to be implemented over Hedge Periods.
| • |
|
Options Portfolio Upside Ratchet. Once
the Options Portfolio is established for a Hedge Period, the Adviser
analyzes whether to engage in the Upside Ratchet of the Options Portfolio
based on the Adviser’s assessment of the maximum potential remaining
upside return of the portfolio. As a result of the performance of the FLEX
Options during the Hedge Period to date, the Fund may have little or no
upside available for the remainder of that Hedge Period because the
Underlying ETF’s share price has increased in value substantially above
the Hedge Period Cap. In these circumstances, the Adviser may, before
expiration of the option term, unwind the then-current Options Portfolio
and enter into new FLEX Options that establish a new Hedge Period, which
would expire on the last business day of the next closest month‑end period
beyond three months. By engaging in the Upside Ratchet of the Options
Portfolio, the Fund retains the potential to capture further increases in
value when the market price of the Underlying ETF is increasing. This
rebalancing may be implemented over several days, during which the Fund
may have a blended portfolio consisting of old options and new options.
|
| • |
|
Hedge Period Transitions. If there is no
Upside Ratchet of the Options Portfolio as the Fund approaches the end of
a Hedge Period, the Adviser intends to rebalance the Options Portfolio for
a new Hedge Period. This rebalancing may be implemented over several days,
during which the Fund may have a blended portfolio consisting of expiring
options and new options. At the end of each Hedge Period transition, the
Fund expects to hold only new options as a result of this rebalancing.
|
Additional Information about the Fund’s Investment
Strategy
In
lieu of purchasing a call to obtain economic exposure to the Underlying ETF (as
indicated in the chart above), the Fund may seek to gain equivalent economic
exposure by engaging in the following. The Fund may purchase a longer maturity
near-zero strike call; purchase shares of the Underlying ETF; purchase shares of
one or more other ETFs that replicate the Underlying ETF’s Index; purchase a
combination of equity securities that in the aggregate seek to track the share
price return of the Underlying ETF; or invest in money market funds and/or other
cash equivalents and purchase and sell a combination of call and put options
that seek to replicate exposure to the Underlying ETF.
The
Fund is non‑diversified under the Investment Company Act of 1940, as amended
(the “1940 Act”), which means it may invest a greater portion of its assets in
fewer issuers than would otherwise be the case.
PRINCIPAL
RISKS
| • |
|
Market Risk: The value of the Fund’s
assets will fluctuate as the markets for securities in which the Fund
invests fluctuate. The value of its investments may decline, sometimes
rapidly and unpredictably, simply because of economic changes or other
events, including public health crises (including the occurrence of a
contagious disease or illness), interest rate levels, and regional and
global conflicts, that affect large portions of the market. The Fund is
exposed to market risk indirectly through its targeted exposure to the
Underlying ETF. |
6
| • |
|
Buffered Loss Risk: There can be no
guarantee that the Hedge Period Buffer will be successful in protecting
the Fund from the impact of Underlying ETF price declines. Despite the intended Hedge Period Buffer, a
shareholder may lose money by investing in the Fund. If, during a
Hedge Period, an investor purchases shares of the Fund after the date on
which the Fund has entered into FLEX Options or sells shares of the Fund
prior to the expiration of the FLEX Options, the Hedge Period Buffer that
the Fund seeks to provide may not be available and the investor may not
receive the full, or any, benefit of the Hedge Period Buffer. The Fund
does not provide principal protection, and an investor may experience
significant losses on an investment in the Fund.
|
A
blended portfolio of expiring options and new options could impact the Fund’s
ability to realize the full, or any, benefit of the Hedge Period Buffer and may
subject the Fund’s return to an upside limit that is slightly lower or higher
than the Hedge Period Cap for the applicable Hedge Period. Accordingly, an
investor may bear losses against which the Hedge Period Buffer is anticipated to
protect and may be subject to an upside limit that is lower than the Hedge
Period Cap.
| • |
|
Buffer/Cap Change Risk: A new Hedge
Period Buffer and a new Hedge Period Cap are established each time the
Options Portfolio is implemented, including after an Upside Ratchet event.
The duration of a Hedge Period Cap or Hedge Period Buffer may vary.
|
| • |
|
Capped Upside Risk: If an investor
purchases shares of the Fund after the first day of a Hedge Period and the
value of the Underlying ETF shares is at or near to the Hedge Period Cap
for that Hedge Period, there may be little or no ability for that investor
to experience an investment gain on their Fund shares unless the Fund
engages in an Upside Ratchet of the Fund’s Options Portfolio. If an
investor does not hold its shares of the Fund for an entire Hedge Period,
the returns realized by that investor may not replicate those the Fund
seeks to achieve. If the Underlying ETF experiences gains during a Hedge
Period in excess of the Hedge Period Cap, unless the Fund has engaged in
an Upside Ratchet, the Fund will not participate in those gains beyond the
Hedge Period Cap. |
| • |
|
FLEX Options Correlation Risk: Although
the value of the FLEX Options structure held by the Fund generally
correlates with the share price of the Underlying ETF, the FLEX Options
are exercisable at the strike price only on their expiration date, and
their daily valuation will not change at the same percentage as the share
price of the Underlying ETF. Accordingly, the Fund’s net asset value, or
NAV, or market price will not directly correlate on a day‑to‑day basis
with the share price of the Underlying ETF.
|
| • |
|
FLEX Options Liquidity Risk: The FLEX
Options are listed on an exchange; however, there is no guarantee that a
liquid secondary trading market will exist for the FLEX Options. In the
event that trading in the FLEX Options is limited or absent, the value of
the Fund’s FLEX Options may decrease. In a less liquid market for the FLEX
Options, liquidating the FLEX Options may require the payment of a premium
(for written FLEX Options) or acceptance of a discounted price (for
purchased FLEX Options) and may take longer to complete. A less liquid
trading market may adversely impact the value of the FLEX Options and Fund
shares and result in the Fund being unable to achieve its investment
objective. The trading market for FLEX Options may lack depth and
liquidity when compared to the trading market for certain other
securities. FLEX Options may be less liquid than certain non‑customized
options. In a less liquid market for the FLEX Options, the liquidation of
a large number of options may significantly impact the price. A less
liquid trading market may adversely impact the value of the FLEX Options
and the value of your investment.
|
| • |
|
FLEX Options Valuation Risk: FLEX Options
held by the Fund will be exercisable at the strike price only on their
expiration date. The value of the FLEX Options will be determined based
upon market quotations or using other recognized pricing methods. The
value of a FLEX Option prior to its expiration date may vary because of
related factors other than the value of the Underlying ETF. Factors that
may influence the value of a FLEX Option, other than changes in the value
of the Underlying ETF, may include interest rate changes, changing supply
and demand, decreased liquidity of the FLEX Options and changing
volatility levels of the Underlying ETF. During periods of reduced market
liquidity or in the absence of readily available market quotations for the
holdings of the Fund, FLEX Options may become more difficult to value and
the judgment of the Adviser, as the Fund’s valuation designee, may play a
greater role in the valuation of the Fund’s holdings due to reduced
availability of reliable objective pricing data.
|
| • |
|
Hedge Period Risk: The Fund’s investment
strategy is designed to deliver returns that reference an Underlying ETF
and are based on options contracts that are designed to be in place for
90‑day periods, although in some cases, the Fund will hold options
contracts of longer duration. The Fund may not hold its Options Portfolio
for the full duration of the options contracts, and the Adviser may change
the Options Portfolio at any time, which would begin a new Hedge Period.
Information about the Fund’s holdings is available and updated daily at:
www.abfunds.com. Investors
acquiring shares of the Fund at different time periods will likely have
different investment results based on the price of shares of the
Underlying ETF and how the Hedge Period Buffer and Hedge Period Cap are
applied. Engaging in Upside Ratchets may potentially cause the Fund to
have a higher portfolio turnover rate, and higher cost, than a fund that
does not actively adjust its options portfolio prior to expiration. There
is no guarantee that any Upside Ratchet will be successfully implemented,
or that it will deliver the desired investment result.
|
7
The
Fund’s Hedge Period Cap and Hedge Period Buffer are designed to work over a
particular time frame, the Hedge Period. Investors that acquire Fund shares
after the Hedge Period has commenced, or sell Fund shares before the Hedge
Period ends or an Upside Ratchet is performed, may have a different investment
result than investors who held Fund shares during the entire Hedge Period. The
degree to which an investor may benefit from the Hedge Period Buffer or Hedge
Period Cap will depend on the point in time when the investor purchases Fund
shares and whether the Adviser effectuates an Upside Ratchet. At the time of
purchasing Fund shares, an investor may be unable to determine the Fund’s
position relative to the Hedge Period Cap and Hedge Period Buffer. If the price
of the Underlying ETF is near or has exceeded the strike price of the Fund’s
Options Portfolio, there may be little remaining upside potential during a
particular Hedge Period, until the Options Portfolio expires or the Adviser
effectuates an Upside Ratchet. Investors purchasing Fund shares during this
period would still remain subject to significant downside risk before the
sought-after protection from the Hedge Period Buffer began. Similarly, if the
Underlying ETF has decreased in price significantly to equal or exceed the
Fund’s anticipated Hedge Period Buffer, investors would also remain subject to
significant downside risk and would receive no benefit from the Hedge Period
Buffer. The Fund is continuously offered and a new Hedge Period begins after the
end of the prior Hedge Period, with a new Hedge Period Cap and a new Hedge
Period Buffer. An investor that holds Fund shares over multiple continuous Hedge
Periods may have a different investment result than an investor holding Fund
shares for one Hedge Period. The Fund’s return is measured, with respect to the
Hedge Period Cap and Hedge Period Buffer, over a single Hedge Period. The
Fund’s return over a period longer than a single Hedge Period could differ in
amount and direction from the return of the Underlying ETF.
| • |
|
Active Trading Risk: The Fund expects to
engage in active and frequent trading of its portfolio securities and its
portfolio turnover rate may 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. The Fund’s higher portfolio turnover could also
result in deferral of losses, acceleration of gains or treatment of
short-term capital gains as ordinary income, all of which could adversely
impact Fund shareholders. |
| • |
|
Non‑Diversification Risk: The Fund may
have more risk because it is “non‑diversified”, meaning that it can invest
more of its assets in a smaller number of issuers. Accordingly, changes in
the value of a single security, such as the Underlying ETF, may have a
more significant effect, either negative or positive, on the Fund’s NAV.
|
| • |
|
Underlying ETF Risk: The Fund invests in
FLEX Options that reference an ETF, which subjects the Fund to certain of
the risks of owning shares of an ETF, as well as the types of instruments
in which the Underlying ETF invests. The Underlying ETF is an
exchange-traded unit investment trust that uses a full replication
strategy, meaning it invests entirely in the S&P 500 Index. The
investment objective of the Underlying ETF is to seek to provide
investment results that, before expenses, correspond generally to the
price and yield performance of the S&P 500 Index, which includes
five hundred (500) selected companies, all of which are listed on
national stock exchanges and spans over 24 separate industry groups. The
value of an ETF will fluctuate over time based on fluctuations in the
values of the securities held by the ETF, which may be affected by changes
in general economic conditions, expectations for future growth and
profits, interest rates and the supply and demand for those securities. In
addition, ETFs are subject to authorized participant concentration risk,
market maker risk, premium/discount risk, tracking error risk and trading
issues risk. Brokerage, tax and other expenses may negatively impact the
performance of the Underlying ETF and, in turn, the value of the Fund’s
shares. An ETF that tracks an index may not exactly match the performance
of the index due to differences between the portfolio of the ETF and the
components of the index, expenses, and other factors.
|
| • |
|
Cash Transactions Risk: The Fund intends
to effectuate all or a portion of the issuance and redemption of Creation
Units for cash, rather than in‑kind securities. As a result, an investment
in the Fund may be less tax‑efficient than an investment in an ETF that
effectuates its Creation Units only on an in‑kind basis. A fund that
effects redemptions for cash may be required to sell portfolio securities
in order to obtain the cash needed to distribute redemption proceeds. Any
recognized gain on these sales by the Fund will generally cause the Fund
to recognize a gain it might not otherwise have recognized, or to
recognize such gain sooner than would otherwise be required as compared to
an ETF that distributes portfolio securities in‑kind in redemption of
Creation Units. The Fund intends to distribute gains that arise by virtue
of the issuance and redemption of Creation Units being effectuated in cash
to shareholders to avoid being taxed on this gain at the fund level and
otherwise comply with applicable tax requirements. This may cause
shareholders to be subject to tax on gains to which they would not
otherwise be subject, or at an earlier date than if they had made an
investment in another ETF. Moreover, cash transactions may have to be
carried out over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and taxes. Brokerage
fees, which will be higher than if the Fund sold and redeemed its shares
principally in‑kind, will be passed on to those purchasing and redeeming
Creation Units in the form of creation and redemption transaction fees. In
addition, these factors may result in wider spreads between the bid and
ask prices of Fund shares than for ETFs that receive and distribute
portfolio securities in‑kind. The Fund’s use of cash for creations and
redemptions could also result in dilution to the Fund and increased
transaction costs, which could negatively impact the Fund’s ability to
achieve its investment objective.
|
| • |
|
Derivatives Risk: Derivatives may be
difficult to price or unwind and leveraged so that small changes may
produce disproportionate losses for the Fund. A short position in a
derivative instrument involves the risk of a theoretically unlimited
increase in |
8
| |
the
value of the underlying asset, reference rate or index, which could cause
the Fund to suffer a potentially unlimited loss. Derivatives, especially
over‑the‑counter derivatives, are also subject to counterparty risk, which
is the risk that the counterparty (the party on the other side of the
transaction) on a derivative transaction will be unable or unwilling to
honor its contractual obligations to the Fund.
|
| • |
|
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.
|
| • |
|
Illiquid Investments Risk: Illiquid
investments risk exists when certain investments are or 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. 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 than domestic securities. Illiquid investments risk
may be higher in a rising interest rate environment, when the value and
liquidity of fixed-income securities generally go down.
|
| • |
|
ETF Share Price and Net Asset Value Risk:
The Fund’s shares are listed for trading on the Nasdaq Stock Market LLC
(the “Exchange”). The Fund’s shares are generally bought and sold in the
secondary market at market prices. The NAV per share of the Fund will
fluctuate with changes in the market value of the Fund’s holdings. The
Fund’s NAV is calculated once per day, at the end of the day. The market
price of a share on the Exchange could be higher than the NAV (premium),
or lower than the NAV (discount) and may fluctuate during the trading day.
When all or a portion of the Fund’s underlying securities trade in a
market that is closed when the market for the Fund’s shares is open, there
may be differences between the current value of a security and the last
quoted price for that security in the closed local market, which could
lead to a deviation between the market value of the Fund’s shares and the
Fund’s NAV. Disruptions in the creations and redemptions process or the
existence of extreme market volatility could result in the Fund’s shares
trading above or below NAV. As the Fund may invest in securities traded on
foreign exchanges, Fund shares may trade at a larger premium or discount
to the Fund’s NAV than shares of other ETFs. In addition, in stressed
market conditions, the market for Fund shares may become less liquid in
response to deteriorating liquidity in the markets for the Fund’s
underlying portfolio holdings.
|
| • |
|
Authorized Participant Risk: Only a
limited number of financial institutions that enter into an authorized
participant relationship with the Fund (“Authorized Participants”) may
engage in creation or redemption transactions. If the Fund’s Authorized
Participants decide not to create or redeem Fund shares, Fund shares may
trade at a larger premium or discount to the Fund’s NAV, or the Fund could
face trading halts or de‑listing.
|
| • |
|
Active Trading Market Risk: There is no
guarantee that an active trading market for Fund shares will exist at all
times. In times of market stress, markets can suffer erratic or
unpredictable trading activity, extraordinary volatility or wide bid/ask
spreads, which could cause some market makers and Authorized Participants
to reduce their market activity or “step away” from making a market in ETF
shares. Market makers and Authorized Participants are not obligated to
place or execute purchase and redemption orders. This could cause the
Fund’s market price to deviate, materially, from the NAV, and reduce the
effectiveness of the ETF arbitrage process. Any absence of an active
trading market for Fund shares could lead to a heightened risk that there
will be a difference between the market price of a Fund share and the
underlying value of the Fund share.
|
| • |
|
Management Risk: The Fund is subject to
management risk because it is an actively-managed ETF. 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. Some of these techniques may incorporate, or rely upon,
quantitative models, but there is no guarantee that these models will
generate accurate forecasts, reduce risk or otherwise perform as expected.
|
As with all
investments, you may lose money by investing in the
Fund.
BAR
CHART AND PERFORMANCE INFORMATION
No
performance information is presented for the Fund because it has not yet been in
operation for a full calendar year.
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 |
| Alexander Barenboym |
|
Since December 2023 |
|
Senior Vice President of the Adviser |
|
|
| |
| Joshua Lisser |
|
Since December 2023 |
|
Senior Vice President of the Adviser |
|
|
| |
| Benjamin Sklar |
|
Since December 2023 |
|
Senior Vice President of the
Adviser |
9
PURCHASE
AND SALE OF FUND SHARES
The
Fund is an actively managed ETF and does not seek to track the performance of an
index. Individual shares of the Fund are listed on the Exchange. Most investors
will buy and sell shares of the Fund through a broker-dealer. The price of Fund
shares is based on market price, and because ETF shares trade at market prices
rather than at NAV, shares may trade at a price greater than NAV (a premium) or
less than NAV (a discount). The Fund will only issue or redeem shares that have
been aggregated into blocks of 25,000 shares or multiples thereof (“Creation
Units”) to a limited number of Authorized Participants who have entered into
agreements with the Fund’s distributor. The Fund generally will issue or redeem
Creation Units in return for a designated basket of cash and/or portfolio
securities that the Fund specifies each day. To the extent the Fund’s Creation
Units are issued or redeemed for cash, the Fund may incur transaction and other
costs, and/or capital gains, which may or may not be offset, in whole or in
part, by a transaction fee paid by an Authorized Participant.
Information
about the Fund’s NAV, market price, premiums and discounts, and bid‑ask spreads
are available on the Fund’s website at www.abfunds.com.
TAX
INFORMATION
The
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
The
Adviser and its affiliates make payments to brokers, dealers and other financial
intermediaries for the sale of Fund shares and other 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.
10
ADDITIONAL
INFORMATION ABOUT THE FUND’S STRATEGIES, RISKS AND INVESTMENTS
Below
is additional information about the Fund’s investment strategies, 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 section does not describe all of the
Fund’s investment practices that are non‑principal strategies or all of the
related risks of such strategies. The Fund’s principal strategies and risks are
described in its summary prospectus in the Summary Information section above,
and additional information about the Fund’s risks and investments can be found
in the Fund’s Statement of Additional Information (“SAI”).
ESG
Integration
The
Adviser integrates environmental, social and corporate governance (“ESG”)
considerations into its research and investments analysis with the goal of
maximizing return and considering risk within the Fund’s investment objective
and strategies. Combining third-party ESG data with its own views and research,
the Adviser analyzes the ESG practices of companies and issuers to identify
potentially material ESG factors that can vary across companies and issuers. ESG
considerations may include but are not limited to environmental impact,
corporate governance and ethical business practices. ESG considerations may not
be applicable to all types of instruments or investments.
Market
Risk
The
market value of a security may move up or down, sometimes rapidly and
unpredictably. These fluctuations may cause a security to be worth less than the
price originally paid for it, or less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy or the
market as a whole. The Fund is exposed to market risk indirectly due to its
exposure to the Underlying ETF. Global economies and financial markets are
increasingly interconnected, which increases the probabilities that conditions
in one country or region might adversely impact issuers in a different country
or region. Conditions affecting the general economy, including interest rate
levels and political, social, or economic instability at the local, regional, or
global level may also affect the market value of a security. Health crises, such
as pandemic and epidemic diseases, as well as other incidents that interrupt the
expected course of events, such as natural disasters, including fires,
earthquakes and flooding, war or civil disturbance, acts of terrorism, supply
chain disruptions, power outages and other unforeseeable and external events,
and the public response to or fear of such diseases or events, have had, and may
in the future have, an adverse effect on the Fund’s investments and NAV and can
lead to increased market volatility. For example, the diseases or events
themselves or any preventative or protective actions that governments may take
in respect of such diseases or events may result in periods of business
disruption, inability to obtain raw materials, supplies and component parts, and
reduced or disrupted operations. The occurrence and pendency of such diseases or
events could adversely affect the economies and financial markets either in
specific countries or worldwide. Rates of inflation have recently risen. The
value of assets or income from an investment may be worth less in the future as
inflation decreases the value of money. As inflation increases, the real value
of the Fund’s assets may decline.
Derivatives
The
Fund uses derivatives 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. The 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 the Fund’s derivatives trade counterparty is an exchange or
clearinghouse, and non‑cleared bilateral “over‑the‑counter” transactions that
are privately negotiated and 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 bilateral and
privately negotiated.
The
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
Fund’s 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 Fund’s investments in forward contracts
may include the following: |
| |
– |
Forward
Currency Exchange Contracts. The Fund may purchase or sell forward
currency exchange contracts for |
11
| |
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.
The 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. The
Fund may purchase or sell futures contracts and options thereon to hedge
against changes in interest rates, securities (through index futures or
options) or currencies. The 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.
|
| • |
|
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. The 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 the Fund
were permitted to expire without being sold or exercised, its premium
would represent a loss to the Fund. The Fund’s investments in options
include the following: |
| |
– |
Options
on Foreign Currencies. The Fund may invest in options on foreign
currencies that are privately negotiated 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
the 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, the Fund may forfeit the entire amount
of the premium plus related transaction costs. The Fund may also invest in
options on foreign currencies for non‑hedging purposes as a means of
making direct investments in foreign currencies.
|
| |
– |
Options
on Securities. The Fund may purchase or write a put or call option on
securities. The 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. |
| • |
|
FLEX Options. FLEX Options are customized
option contracts that trade on an exchange but provide investors with the
ability to customize key contract terms like strike price, style and
expiration date while achieving price discovery in competitive,
transparent auctions markets and avoiding the counterparty exposure of
over‑the‑counter options positions. Like traditional exchange-traded
options, FLEX Options are guaranteed for settlement by the Options
Clearing Corporation (“OCC”), a market clearinghouse that guarantees
performance by counterparties to certain derivatives contracts.
|
| • |
|
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 or 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 the Fund receiving or paying,
as the case may be, only the net amount of the two payments). Certain
standardized swaps, including certain interest rate swaps and credit
default swaps, are subject to mandatory central clearing and are required
to be executed through a regulated swap execution facility. 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. The
Fund posts initial and variation margin to support its obligations under
cleared swaps by making payments to its clearing member FCMs. Central
clearing is intended to reduce counterparty credit risks and increase
liquidity, but central clearing does not make swap transactions risk free.
The Securities and Exchange Commission (the “SEC”) may adopt similar
clearing and execution requirements in respect of certain security-based
swaps under its jurisdiction. Privately negotiated swap
|
12
| |
agreements
are two‑party contracts entered into primarily by institutional investors
and are not cleared through a third party, nor are these required to be
executed on a regulated swap execution facility. The Fund’s investments in
swap transactions include the following: |
| |
– |
Interest
Rate Swaps, Swaptions, Caps and Floors. Interest rate swaps involve the
exchange by the 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 the
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 the 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 in an
effort to preserve a return or spread on a particular investment or a portion of
the Fund’s portfolio or to protect against an increase in the price of
securities the Fund anticipates purchasing at a later date. Interest rate swaps
may also be used to leverage the 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 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 inflation increases. The 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. The Fund may be either the buyer or seller
in the transaction. If the 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, the Fund, as seller, 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 face amount and the current market
value of the reference obligation. As a buyer, if a credit event occurs,
the Fund would be the receiver of such contingent payments, either
delivering the reference obligation in exchange for the full notional
(face) value of a reference obligation that may have little or no value,
or receiving a payment equal to the difference between the face amount and
the current market value of the 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 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 the Fund had invested in the
reference obligation directly. Credit default swaps are subject to general
market risk and credit risk and may be illiquid.
13
| |
– |
Currency
Swaps. The 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. Currency swaps
involve the exchange by the 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. The 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. The Fund may enter into variance or correlation
swaps to hedge market risk or adjust exposure to the 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 securities within a given 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 index. If two assets are
said to be closely correlated, it means that their daily returns vary in
similar proportions or along similar trajectories.
|
Clearing
Member Default Risk
Transactions
in some types of derivatives, including FLEX Options utilized by the Fund, are
required to be centrally cleared (“cleared derivatives”). In a transaction
involving cleared derivatives, the Fund’s counterparty is a clearing house, such
as the OCC, rather than a bank or broker. Since the Fund is not a member of
clearing houses and only members of a clearing house (“clearing members”) can
participate directly in the clearing house, the Fund will hold cleared
derivatives through accounts at clearing members. In cleared derivatives
positions, the Fund will make payments (including margin payments) to, and
receive payments from, a clearing house through their accounts at clearing
members. Customer funds held at a clearing organization in connection with any
option contracts are held in a commingled omnibus account and are not identified
to the name of the clearing member’s individual customers. As a result, assets
deposited by the Fund with any clearing member as margin for its FLEX Options
may, in certain circumstances, be used to satisfy losses of other clients of the
Fund’s clearing member. In addition, although clearing members guarantee
performance of their clients’ obligations to the clearing house, there is a risk
that the assets of the Fund might not be fully protected in the event of the
clearing member’s bankruptcy, as the Fund would be limited to recovering only a
pro rata share of all available funds segregated on behalf of the clearing
member’s customers for the relevant account class. The Fund is also subject to
the risk that a limited number of clearing members are willing to transact on
the Fund’s behalf, which heightens the risks associated with a clearing member’s
default. If a clearing member defaults, the Fund could lose some or all of the
benefits of a transaction entered into by the Fund with the clearing member. The
loss of a clearing member for the Fund to transact with could result in
increased transaction costs and other operational issues that could impede the
Fund’s ability to implement its investment strategy. If the Fund cannot find a
clearing member to transact with on the Fund’s behalf, the Fund may be unable to
effectively implement its investment strategy.
Illiquid
Securities
The
Fund limits its investments in illiquid securities to 15% of its net assets.
Under Rule 22e‑4 under the Investment Company Act of 1940 (the “1940 Act”), the
term “illiquid securities” means any security or investment that the 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 (“Rule 144A Securities”) under the Securities Act of 1933
(“Securities Act”) or certain commercial paper) may be more difficult to trade
than other types of securities.
Investment
in Other Exchange-Traded Funds and Other Investment Companies
The
Fund may invest in other investment companies, such as closed‑end investment
companies, unit investment trusts, other ETFs, and other open‑end investment
companies, including AB Mutual Funds and ETFs, provided that the investment is
consistent with the Fund’s investment policies and restrictions. The Fund’s
investments in other investment companies will not exceed 10% of the Fund’s
total assets. As a shareholder of another investment company, the Fund would
bear, along with other shareholders, its pro rata portion of the other
investment company’s expenses, including advisory fees. These expenses would be
in addition to the management fee that the Fund bears
14
directly
in connection with its own operations. The Fund’s investments in other
investment companies will comply with applicable 1940 Act rules.
The
Fund’s investments in other investment companies may include money market funds
managed by the Adviser, including the AB
Government Money Market Portfolio, a series of AB Fixed-Income Shares,
Inc. Investments in money market funds are not subject to the 10% limitation set
forth above.
SPECIAL
RISKS OF EXCHANGE-TRADED SHARES
Fluctuation
of Net Asset Value and Share Price
The
NAV of the Fund’s shares will generally fluctuate with changes in the market
value of the Fund’s holdings. The Fund’s shares are listed on the Exchange and
can be bought and sold in the secondary market at market prices. Although a
share’s market price is expected to approximate its NAV, it is possible that the
market price and NAV will vary significantly. As a result, you may sustain
losses if you pay more than the shares’ NAV when you purchase shares, or receive
less than the shares’ NAV when you sell shares, in the secondary market. During
periods of disruptions to creations and redemptions, the existence of extreme
market volatility, or lack of an active trading market for the Fund’s shares,
the market price of Fund shares is more likely to differ significantly from the
Fund’s NAV. During such periods, you may incur significant losses if you sell
your shares. There are various methods by which investors can purchase and sell
shares and various orders that may be placed. Investors should consult their
financial intermediary before purchasing or selling shares of the Fund.
Disruptions at market makers, Authorized Participants or market participants may
also result in significant differences between the market price of the Fund’s
shares and the Fund’s NAV. In addition, in stressed market conditions, the
market for shares may become less liquid in response to deteriorating liquidity
in the markets for the Fund’s underlying portfolio holdings.
The
market price of shares during the trading day, like the price of any
exchange-traded security, includes a “bid/ask” spread, which can be greater
(wider) when there is little trading volume in Fund shares on the Exchange and
lower (narrower) when there is a lot of trading volume in Fund shares. In times
of severe market disruption, the bid/ask spread can increase significantly.
Non‑U.S.
Markets and Foreign Securities
Securities
held by the Fund may be traded in non‑U.S. markets that close at a different
time than the Exchange. During the time when the Exchange is open but after the
applicable local market closing, fixing or settlement times, bid‑ask spreads and
the resulting premium or discount to the Fund’s NAV may widen. The Adviser
expects that, under normal market conditions, large discounts or premiums to NAV
will not be sustained in the long term because of arbitrage opportunities.
During the time when the Exchange is open but after the applicable local market
has closed, the price of a foreign security that is included in the Fund’s
portfolio (and the Fund’s NAV) will be the closing price on that security’s
local market, updated for currency changes, until that local market opens again.
As a result, the Fund’s NAV may be calculated using “stale” prices of foreign
securities. This may contribute to the Fund’s NAV varying more widely from its
market price.
Information
about the premiums and discounts at which the Fund’s shares have traded is
available at www.abfunds.com.
Trading
Issues
Although
the Fund’s shares are listed on the Exchange, there can be no assurance that an
active trading market for the Fund’s shares will be maintained or that
requirements to remain listed will be met. Only an Authorized Participant may
engage in creation or redemption transactions directly with the Fund. The Fund
has a limited number of intermediaries that act as Authorized Participants.
There are no obligations of market makers to make a market in the Fund’s shares
or of Authorized Participants to submit purchase or redemption orders for
Creation Units. Decisions by market makers or Authorized Participants to reduce
their role with respect to market making or creation and redemption activities
during times of market stress, or a decline in the number of Authorized
Participants due to decisions to exit the business, bankruptcy, or other
factors, could inhibit the effectiveness of the arbitrage process in maintaining
the relationship between the underlying value of the Fund’s portfolio securities
and the market price of Fund shares. To the extent no other Authorized
Participants step forward to create or redeem Creation Units, Fund shares may
trade at a discount to NAV and possibly face delisting. In addition, trading of
Fund shares in the secondary market may be halted, for example, due to
activation of individual or market-wide “circuit breakers” affecting the Fund or
its portfolio securities. If trading halts or an unanticipated early closing of
the Exchange occurs, a shareholder may be unable to purchase or sell shares of
the Fund. Foreside Fund Services, LLC (“Foreside” or the “Distributor”), the
distributor of the Fund’s shares, does not maintain a secondary market in the
shares.
If
the Fund’s shares are delisted from the Exchange, the Adviser may seek to list
the Fund shares on another market, merge the Fund with another ETF or
traditional mutual fund, or redeem the Fund shares at NAV.
Shares
of the Fund, similar to shares of other issuers listed on a stock exchange, may
be sold short and are therefore subject to the risk of increased volatility and
price decreases associated with being sold short.
ADDITIONAL
RISKS AND OTHER CONSIDERATIONS
Investments
in the Fund involve the risk considerations described below.
Borrowings
and Leverage
The
Fund may use borrowings for investment purposes subject to its investment
policies and procedures and to applicable statutory or regulatory requirements.
Borrowings by the Fund result in leveraging of the Fund’s shares. The Fund may
also use leverage for investment purposes by entering into transactions such as
reverse repurchase agreements, forward contracts, and dollar rolls or certain
other derivatives. This
15
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
the 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.
The
SEC has adopted Rule 18f‑4 under the 1940 Act, which imposes limits on the
amount of derivatives and certain other forms of leverage into which a fund can
enter. Rule 18f‑4, among other things, permits a fund to treat certain financing
transactions either as borrowings (subject to asset coverage requirements under
the 1940 Act) or as “derivatives transactions” subject to certain risk-based
limits of Rule 18f‑4.
Foreign
(Non‑U.S.) Securities
Investing
in securities of foreign issuers 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 securities of
foreign issuers 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. Sanctions imposed by the U.S. or
a foreign country may restrict the Fund’s ability to purchase or sell foreign
securities or may require the Fund to divest its holdings in foreign securities,
which could adversely affect the value or liquidity of such holdings. The
imposition of sanctions could also adversely affect global sectors and economies
and thereby negatively affect the value of the Fund’s investments beyond any
direct exposure to the countries or regions subject to the sanctions.
In
addition, the securities markets of some foreign countries may be closed on
certain days when the Fund is open for business, including during normal trading
days and on certain days (e.g., local
holidays). When the Fund holds securities traded in foreign markets, the market
price for the Fund’s shares may be based on the last quoted price of securities
traded on a foreign exchange, which may cause a deviation between the market
price of the Fund’s share and the NAV per share, which could cause the Fund’s
shares to trade at a larger premium or discount. In addition, when a foreign
exchange is closed for trading, such as for local holidays the Fund will be
unable to add to or exit its positions in certain foreign securities even though
it may otherwise be attractive to do so.
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 the
Fund. In addition, the repatriation of investment income, capital or the
proceeds of sales of securities from certain 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. Income from certain investments held by the Fund could be reduced
by foreign income taxes, including withholding taxes.
The
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 the Fund to adopt special procedures or seek local governmental
approvals or other actions, any of which may involve additional costs to the
Fund. These factors may affect the liquidity of the Fund’s investments in any
country and the Adviser will monitor the effect of any such factor or factors on
the 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 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 securities of foreign issuers 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,
16
public
health crises (including the occurrence of a contagious disease or illness),
revolutions, wars or diplomatic developments could affect adversely the economy
of a foreign country. In the event of nationalization, expropriation, or other
confiscation, the 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 Fund than that provided by U.S. laws.
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, the Fund may engage in certain currency hedging
transactions, as described above, which involve certain special risks.
The
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 the Fund’s
NAV to fluctuate.
Management
Risk—Quantitative Models
The
Adviser may use investment techniques that incorporate, or rely upon,
quantitative models. These models may not work as intended and may not enable
the Fund to achieve its investment objective. In addition, certain models may be
constructed using data from external providers, and these inputs may be
incorrect or incomplete, thus potentially limiting the effectiveness of the
models. Finally, the Adviser may change, enhance and update its models and its
usage of existing models at its discretion.
Future
Developments
The
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 Objective and Policies
The
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.
Unless otherwise noted, all other investment policies of the 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, the Fund may invest in certain types of
short-term, liquid, investment grade or high-quality (depending on the Fund)
debt securities. While the Fund is investing for temporary defensive purposes,
it may not meet its investment objective.
Portfolio
Holdings
A
description of the Fund’s policies and procedures with respect to the disclosure
of the Fund’s portfolio securities is available in the Fund’s SAI.
On
each business day, before commencement of trading on the Exchange, the Fund will
disclose on www.abfunds.com the
identities and quantities of the Fund’s portfolio holdings that will form the
basis for the Fund’s calculation of NAV at the end of the business day. Other
information concerning the Fund’s portfolio holdings may also be published on
the Fund’s website from time to time.
Website
Disclosures
The
following information about the Fund is available on the Fund’s website, www.abfunds.com, which is publicly
available and free of charge:
| • |
|
Complete
portfolio holdings, including for each security, the ticker symbol, CUSIP
or other identifying symbol, description and the quantity and weight of
each security in the Fund; |
| • |
|
The
names and quantities of securities that constitute the Fund’s Creation
Unit and estimated balancing amount (which will be posted before the
commencement of the trading day); |
| • |
|
The
current NAV per share, market price, and premium/discount, each as of the
end of the prior business day; |
| • |
|
A
table showing the number of days that the Fund shares traded at a premium
or discount during the most recently completed fiscal year and quarter (or
for the life of the Fund for new funds); |
| • |
|
A
line graph showing the Fund’s premiums or discounts for the most recently
completed calendar year and calendar quarter (or for the life of the Fund
for new funds); |
| • |
|
The
median bid/ask spread for the Fund on a rolling 30‑day basis; and
|
| • |
|
If
the premium or discount is greater than 2% for more than seven consecutive
trading days, a statement that the premium/discount was greater than 2%
and a discussion of the factors that are reasonably believed to have
materially contributed to this premium/discount.
|
Cyber
Security Risk
As
the use of the Internet and other technologies has become more prevalent in the
course of business, the Fund and its service providers, including the Adviser,
have become more
17
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 Fund or its service providers or the
issuers of securities in which the Fund invests have the ability to cause
disruptions and impact business operations, potentially resulting in financial
losses, the inability of Fund shareholders to transact business, violations of
applicable privacy and other laws, regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs, and/or additional compliance
costs. While measures have been developed which are designed to reduce the risks
associated with cyber security incidents, there can be no assurance that those
measures will be effective, particularly since the Fund does not control the
cyber security defenses or plans of its service providers, financial
intermediaries and companies with which those entities do business and companies
in which the Fund invests.
Cyber
security incidents, both intentional and unintentional, may allow an
unauthorized party to gain access to Fund or shareholder assets, Fund or
customer data (including private shareholder information), or proprietary
information, or cause the Fund, the Adviser, and/or the Fund’s service providers
(including, but not limited to, fund accountants, custodians, sub‑custodians,
transfer agents and financial intermediaries) to suffer data breaches, data
corruption or lose operational functionality, or prevent Fund shareholders from
purchasing, redeeming, or exchanging shares or receiving distributions. The Fund
and the Adviser have limited ability to prevent or mitigate cyber security
incidents affecting third-party service providers. Cyber security incidents may
result in financial losses to the Fund and its shareholders, and substantial
costs may be incurred in seeking to prevent or minimize future cyber security
incidents.
18
INVESTING
IN THE FUND
This
section discusses how to buy, sell or redeem, or exchange shares of the Fund
that are offered through this Prospectus.
HOW
TO BUY SHARES
Shares
of the Fund may be acquired or redeemed directly from the Fund only in Creation
Units or multiples thereof. Only an Authorized Participant (as defined under
“Creations and Redemptions”) may engage in creation or redemption transactions
directly with the Fund. Once created, shares of the Fund generally trade in the
secondary market in amounts less than a Creation Unit.
Shares
of the Fund are listed and traded on the Exchange, and individual investors can
purchase or sell shares in the secondary market through a financial
intermediary. The Fund does not impose any minimum investment for shares of the
Fund purchased on an exchange or otherwise in the secondary market. The Fund’s
shares trade under the ticker symbol “BUFC.”
When
buying or selling shares of the Fund through a financial intermediary, you may
incur a brokerage commission and other charges. The commission is frequently a
fixed amount and may be a significant proportional cost for investors seeking to
buy or sell small amounts of shares. In addition, you may incur the cost of the
“spread,” that is, any difference between the bid price and the ask price. The
spread varies over time for shares of the Fund based on the Fund’s trading
volume and market liquidity, and is generally lower if the Fund has high trading
volume and market liquidity, and higher if the Fund has little trading volume
and market liquidity (which is often the case for funds that are newly launched
or small in size). The Fund’s spread may also be impacted by the liquidity of
the underlying securities held by the Fund, particularly for newly launched or
smaller funds or in instances of significant volatility of the underlying
securities.
Your
ownership of Fund shares will be shown on the records of the financial
intermediary through which you hold the shares. The Fund will not have any
record of your ownership. Your account information will be maintained by your
financial intermediary, which will provide you with account statements,
confirmations of your purchases and sales of Fund shares, and tax information.
Your financial intermediary also will be responsible for ensuring that you
receive income and capital gains distributions, as well as shareholder reports
and other communications from the Fund whose shares you own. You will receive
other services (e.g., dividend
reinvestment and average cost information) only if your financial intermediary
offers these services.
BOOK
ENTRY
Shares
are held in book-entry form, which means that no share certificates are issued.
The Depository Trust Company (“DTC”) or its nominee is the record owner of all
outstanding shares of the Fund and is recognized as the owner of all shares for
all purposes.
Investors
owning shares are beneficial owners as shown on the records of DTC or its
participants. DTC serves as the securities depository for all shares.
Participants in DTC include securities brokers and dealers, banks, trust
companies, clearing corporations and other institutions that directly or
indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of share certificates
or to have shares registered in your name, and you are not considered a
registered owner of shares. Therefore, to exercise any right as an owner of
shares, you must rely upon the procedures of DTC and its participants. These
procedures are the same as those that apply to any other stocks that you hold in
book-entry or “street name” form.
SHARE
TRADING PRICE
The
trading prices of the Fund’s shares in the secondary market generally differ
from the Fund’s daily NAV and are affected by market forces such as the supply
of and demand for ETF shares and underlying securities held by the Fund,
economic conditions and other factors.
The
trading price of the Fund’s shares on the Exchange may differ from the Fund’s
daily NAV. The Exchange disseminates the approximate value of shares of the Fund
every fifteen seconds. This approximate value should not be viewed as a
“real-time” update of the NAV per share of the Fund because the approximate
value may not be calculated in the same manner as the NAV, which is computed
only once a day. The approximate value is generally determined by using both
current market quotations and/or price quotations obtained from broker-dealers
and other market intermediaries that may trade in the portfolio securities held
by the Fund. As the respective international local markets close, the
approximate value will continue to be updated for foreign exchange rates for the
remainder of the U.S. trading day at the prescribed 15‑second interval, but
certain holdings may not be updated otherwise if such holdings do not trade in
the United States. The Fund is not involved in, or responsible for, the
calculation or dissemination of the approximate value, and the Fund does not
make any representation or warranty as to its accuracy.
FREQUENT
PURCHASES AND REDEMPTIONS OF FUND SHARES
The
Fund’s Board has not adopted a policy of monitoring for frequent purchases and
redemptions of Fund shares (“frequent trading”) that appear to attempt to take
advantage of potential arbitrage opportunities presented by a lag between a
change in the value of the Fund’s portfolio securities after the close of the
primary markets for the Fund’s portfolio securities and the reflection of that
change in the Fund’s NAV (“market timing”). The Board believes this is
appropriate because an ETF, such as the Fund, is intended to be attractive to
arbitrageurs, as trading activity is critical to ensuring that the market price
of Fund shares remains at or close to NAV. Since the Fund issues and redeems
Creation Units at NAV plus applicable transaction fees, and the Fund’s shares
may be purchased and sold on the
19
Exchange
at prevailing market prices, the risks of frequent trading are limited.
Although
the Fund does not impose any restrictions on the frequency of purchases and
redemptions, the Fund reserve the right to reject or limit purchases at any time
as described in the SAI.
PREMIUM
AND DISCOUNT INFORMATION
Most
investors will buy and sell shares of the Fund in secondary market transactions
through brokers at market prices, and the Fund’s shares will trade at market
prices. The market price of shares may be greater than, equal to, or less than
NAV. Market forces of supply and demand, economic conditions and other factors
may affect the trading prices of shares of the Fund.
Information
about the Fund’s daily market price and how often shares of the Fund traded on
the Exchange are at a price above (i.e.,
at a premium) or below (i.e., at a
discount) the NAV of the Fund (during the Fund’s four previous calendar quarters
(or for the life of the Fund, if shorter)) can be found at www.abfunds.com.
CREATIONS
AND REDEMPTIONS
Prior
to trading in the secondary market, shares of the Fund are “created” at NAV by
Authorized Participants for market makers, large investors and institutions only
in block‑size Creation Units (25,000 shares) or multiples thereof. Each
“creator” or Authorized Participant has entered into an agreement with the
Distributor.
A
creation transaction, which is subject to acceptance by the Distributor and the
Fund, generally takes place when an Authorized Participant deposits into the
Fund a designated portfolio of securities (including any portion of such
securities for which cash may be substituted) and a specified amount of cash
approximating the holdings of the Fund in exchange for a specified number of
Creation Units. To the extent practicable, the composition of such portfolio
generally corresponds pro rata to the holdings of the Fund. However, Creation
Units will generally correspond to the price and yield performance of the Fund.
The Fund may, in certain circumstances, offer Creation Units partially or solely
for cash.
Similarly,
shares can be redeemed only in Creation Units, generally for a designated
portfolio of securities (including any portion of such securities for which cash
may be substituted) held by the Fund and a specified amount of cash. Except when
aggregated in Creation Units, shares are not redeemable by the Fund.
The
prices at which creations and redemptions occur are based on the next
calculation of NAV after a creation or redemption order is received in an
acceptable form under the authorized participant agreement.
Only
an Authorized Participant may create or redeem Creation Units with the Fund.
Authorized Participants may create or redeem Creation Units for their own
accounts or for customers, including, without limitation, affiliates of the
Fund.
In
the event of a system failure or other interruption, including disruptions at
market makers or Authorized Participants, orders to purchase or redeem Creation
Units either may not be executed according to the Fund’s instructions or may not
be executed at all, or the Fund may not be able to place or change orders.
To
the extent the Fund engages in in‑kind transactions, the Fund intends to comply
with the U.S. federal securities laws in accepting securities for deposit and
satisfying redemptions with portfolio securities by, among other means, assuring
that any securities accepted for deposit and any securities used to satisfy
redemption requests will be sold in transactions that would be exempt from
registration under the Securities Act. Further, an Authorized Participant that
is not a “qualified institutional buyer,” as such term is defined in Rule 144A
under the Securities Act, will not be able to receive restricted securities
eligible for resale under Rule 144A.
Creations
and redemptions must be made through a firm that is either a member of the
Continuous Net Settlement System of the National Securities Clearing Corporation
or a DTC participant that has executed an agreement with the Distributor with
respect to creations and redemptions of Creation Unit aggregations. Information
about the procedures regarding creation and redemption of Creation Units
(including the cut‑off times for receipt of creation and redemption orders) is
included in the Fund’s SAI.
COSTS
ASSOCIATED WITH CREATIONS AND REDEMPTIONS
The
Fund may impose a creation transaction fee and a redemption transaction fee to
offset transfer and other transaction costs associated with the issuance and
redemption of Creation Units of shares. The creation and redemption transaction
fees applicable to the Fund have both fixed and variable components. The
standard creation transaction fee, which is fixed, is charged to the Authorized
Participant on the day such Authorized Participant creates a Creation Unit, and
is the same regardless of the number of Creation Units purchased by the
Authorized Participant on the applicable business day. Similarly, the standard
redemption transaction fee, which is a fixed fee, is charged to the Authorized
Participant on the day such Authorized Participant redeems a Creation Unit, and
is the same regardless of the number of Creation Units redeemed by the
Authorized Participant on the applicable business day. Creations and redemptions
for cash are also subject to a variable additional fee (up to the maximum amount
of 3% of the amount of a creation transaction and 2% of the amount of a
redemption transaction). This fee is intended to compensate for transaction,
foreign exchange, execution, market impact and other costs and expenses related
to cash transactions. From time to time, the transaction fees may be waived when
believed to be in the best interests of the Fund.
The
Distributor may refuse any order to purchase shares. The 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.
20
DISTRIBUTION
PLAN
The
Fund has adopted a Distribution Plan pursuant to Rule 12b‑1 of the 1940 Act
which permits the Fund to pay Rule 12b‑1 fees not to exceed 0.25% per year of
the Fund’s average daily net assets. No such fee is currently paid, and the
Board has not approved the commencement of payments under the Rule 12b‑1
Distribution Plan. The Fund does not plan to make payments under the Rule 12b‑1
Plan within one year of the Fund’s effective date. The Fund will provide 60
days’ notice to shareholders before making payments under the Rule 12b‑1 Plan.
The Rule 12b‑1 Distribution Plan covers materials that may be furnished, at the
Adviser’s expense, to financial intermediaries and other service providers that
relate to the Fund.
ADDITIONAL
PAYMENTS TO BROKERS, DEALERS AND OTHER FINANCIAL INTERMEDIARIES
In
addition to the commissions paid to or charged by financial intermediaries at
the time of sale of Fund shares, the Adviser and its affiliates, at their own
expense, provide additional payments to brokers, dealers or other financial
intermediaries and service providers for distribution, marketing, promotional,
educational and other services. These payments are often referred to as “revenue
sharing” payments. In some circumstances, these payments may relate to
information provided by brokers, dealers and financial intermediaries about
investors in the Fund. In other circumstances, these payments may relate to
intermediaries making Fund shares available to their customers, including
through technology platforms, “preferred fund” programs, reduced commission
programs or to defray or reduce all or a portion of “ticket” or other
transactional charges imposed by the intermediary. These types of payments may
be viewed as an incentive for a broker, dealer or financial intermediary or its
representatives to recommend or offer shares of the Fund to its customers. You
should ask your broker, dealer or financial intermediary for more details about
any such payments it receives.
The
Fund may use brokers and dealers that are also Authorized Participants to
effectuate portfolio transactions. The Fund does not consider Authorized
Participants’ activities as a factor when selecting brokers or dealers to effect
portfolio transactions.
The
Adviser or an affiliate may pay fees to an exchange as part of a program to
provide compensation to market makers for liquidity and secondary market support
services. These fees are provided to market makers that meet certain liquidity
and other market quality standards with respect to the Fund. These fees are
subject to approval by the SEC and are not paid by the Fund.
HOW
THE FUND VALUES ITS SHARES
The
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, the 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 the Fund invests in securities that are primarily traded
in non‑U.S. markets which 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
Fund values its securities at 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 approved by the
Fund’s Board.
Foreign
markets normally close earlier in the day than U.S. markets. The Fund generally
determines the value of a security that is primarily traded on a non‑U.S.
exchange as of the close of trading on that exchange. The value of that security
is then converted to its U.S. dollar equivalent at the foreign exchange rate in
effect at 4:00 p.m., London time, on the day the value of the security is
determined.
Pursuant
to the valuation procedures, the Adviser, as the Fund’s valuation designee
pursuant to Rule 2a‑5 of the 1940 Act, is responsible for making all fair value
determinations relating to the Fund’s portfolio investments, subject to the
oversight of the Fund’s Board. When making a fair value determination, the
Adviser may take into account any factors it deems appropriate. The Adviser 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. Making a fair value determination
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
Fund expects to use fair value pricing for securities primarily traded on U.S.
exchanges under certain 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). 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
Fund may value its securities using fair value prices based on independent
pricing services.
The
Fund may use fair value pricing 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 may have occurred in the interim. The Adviser monitors for significant
events following the close of trading in foreign markets.
The
Adviser has established a valuation committee of senior officers and employees
(“Valuation Committee”) to fulfill the Adviser’s responsibilities as the Fund’s
valuation designee, 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 Fund’s assets is available in the Fund’s SAI.
21
MANAGEMENT
OF THE FUND
INVESTMENT
ADVISER
The
Fund’s investment adviser is AllianceBernstein L.P., 501 Commerce Street,
Nashville, TN 37203. The Adviser, which is a controlled indirect subsidiary of
Equitable Holdings, Inc., is a leading global investment adviser supervising
client accounts with assets as of June 30, 2023 totaling approximately
$692 billion (of which approximately $134 billion represented assets
of registered investment companies sponsored by the Adviser). As of
June 30, 2023, the Adviser managed retirement assets for many of the
largest public and private employee benefit plans (including 16 of the nation’s
FORTUNE 100 companies), for public employee retirement funds in 32 of the 50
states, for investment companies, and for foundations, endowments, banks and
insurance companies worldwide. The 28 registered investment companies
managed by the Adviser, comprising approximately 93 separate investment
portfolios, had as of June 30, 2023 approximately 2.6 million
shareholder accounts.
The
Adviser provides investment advisory services and order placement facilities for
the Fund. The Adviser is paid an annual unitary management fee by the Fund as
set forth below and is responsible for the Fund’s expenses, including the cost
of transfer agency, custody, fund administration, legal, audit and other
services as well as acquired fund fees and expenses for affiliated money market
funds, but excluding fee payments under the Fund’s investment advisory
agreement, interest, taxes, acquired fund fees and expenses for unaffiliated
funds, if any, brokerage commissions and other expenses connected with the
execution of portfolio transactions, distribution and service fees payable
pursuant to a Rule 12b‑1 plan, if any, litigation, and extraordinary expenses.
|
|
|
|
|
| |
| Fund |
|
Fee as a Percentage of
Average
Daily Net
Assets |
|
AB
Conservative Buffer ETF |
|
|
|
.69 |
% |
A
discussion regarding the basis for the Board’s approval of the Fund’s investment
advisory agreement will be available in the Fund’s semi-annual report to
shareholders for the fiscal period ending May 31, 2024.
The
Adviser acts 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 Fund. Certain other clients of the Adviser have investment objectives
and policies similar to those of the 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 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 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 Fund.
When two or more of the clients of the Adviser (including the Fund) are
purchasing or selling the same security on a given day from the same broker or
dealer, such transactions are averaged as to price. The securities are then
allocated to participating accounts using automated algorithms designed to
achieve a fair, equitable and objective distribution of the securities over
time.
PORTFOLIO
MANAGERS
The
management of, and investment decisions for, the Fund are made by the Adviser’s
Buffer Investment Team. The Buffer Investment 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 the Fund’s
investments.
The
following table lists each person within the Buffer Investment Team with the
most significant responsibility for day‑to‑day management of the 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:
|
|
| |
| Employee; Year; Title |
|
Principal Occupation(s) During
the Past
Five (5) Years |
| Alexander Barenboym; since
December 2023; Senior Vice President of the Adviser |
|
Senior Vice President of the Adviser,
with which he has been associated in a substantially similar capacity to
his current position since prior to 2018. |
|
| |
| Joshua Lisser; since December 2023; Senior
Vice President of the Adviser |
|
Senior Vice President of the Adviser, with
which he has been associated in a substantially similar capacity to his
current position since prior to 2018. He is also Chief Investment Officer
of Index Strategies. |
|
| |
| Benjamin Sklar; since December 2023;
Senior Vice President of the Adviser |
|
Senior Vice President of the Adviser, with
which he has been associated in a substantially similar capacity to his
current position since prior to 2018. |
The
Fund’s 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 Fund.
22
DIVIDENDS,
DISTRIBUTIONS AND TAXES
DIVIDENDS
AND DISTRIBUTIONS INFORMATION
Dividends
from net investment income from the Fund, if any, are declared and paid at least
annually by the Fund. The Fund distributes its net realized capital gains, if
any, to shareholders at least annually. During the fourth quarter of the
calendar year, typically in early November, an estimate of the Fund’s capital
gains distribution, if any, will be made available at www.alliancebernstein.com/investments/us/tax‑center.htm.
If you purchased your shares in the secondary market, your broker is responsible
for distributing the income and capital gain distributions to you.
Distributions
in cash may be reinvested automatically in additional whole shares only if the
broker through whom you purchased shares makes such option available. Such
shares will generally be reinvested by the broker based upon the market price of
those shares and investors may be subject to customary brokerage commissions
charged by the broker.
TAX
INFORMATION
Any
investment in the Fund typically involves several tax considerations. The
information below is intended as a general summary for U.S. citizens and
residents. Please see the SAI for additional information. Because each person’s
tax situation is different, you are encouraged to consult your tax adviser about
the tax implications of an investment in the Fund in your particular situation.
You also can visit the Internal Revenue Service (IRS) website at www.irs.gov for more information about
applicable tax rates and other information.
Taxation
of Distributions
While
it is the intention of the 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 the Fund will pay any
distributions or realize any capital gains. The final determination of the
amount of the Fund’s return of capital distributions for the period will be made
after the end of each calendar year.
The
distributions you receive from the Fund are taxable, whether you take the
distributions in cash or reinvest them in additional shares. The Fund’s
distributions may be treated either as ordinary income or as long-term capital
gain.
Distributions
of net capital gains from the sale of investments that the Fund owned for more
than one year and that are properly designated as capital gains distributions
are taxable as long-term capital gains, taxable at a maximum rate of 20% for
individuals, trusts and estates. The Fund may also make distributions that are
treated as “qualified dividend income”, which is taxed at the same rates as
long-term capital gains, to the extent such distributions are attributable to,
and properly designated by the Fund as, “qualified dividend income”. “Qualified
dividend income” generally is income derived from dividends from U.S.
corporations and “qualified foreign corporations”. The Fund will notify you as
to how much of the Fund’s distributions, if any, qualify for these reduced tax
rates. The Fund’s income is primarily derived from investments earning interest
income, and therefore, under normal circumstances, the Fund expects that none or
only a very small portion of its distributions would be “qualified dividend
income”.
Other
distributions by the 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.
Under
certain circumstances, if the 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 your tax basis in your Fund shares (which
will increase the capital gain or reduce the capital loss that you subsequently
realize on a sale of your shares). If that basis is reduced to zero (which could
happen if you do not reinvest distributions and returns of capital are
significant), any further returns of capital will be taxable to you as a capital
gain.
Taxation
of Sales of Shares
If
you sell your Fund shares in the secondary market on an exchange, you may
realize gain (or loss). The amount of your gain (or loss) will be the difference
between the proceeds of the sale (the market price per share on the date of sale
times the number Fund shares sold reduced by the expenses of the sale, if any)
and your adjusted basis in those Fund shares sold. Any capital gain or loss is
generally treated as long-term capital gain or loss if the shares have been held
for more than one year and as short-term capital gain or loss if the shares have
been held for one year or less. Long-term capital gains are taxable at a maximum
rate of 20% for individuals, trusts and estates. Capital loss realized on the
sale or exchange of shares held for six months or less will be treated as
long-term capital loss to the extent of any capital gain dividends received by
the shareholder. The ability to deduct capital losses may be limited.
Taxation
of Creation Units
If
an Authorized Participant exchanges securities for Creation Units, the
Authorized Participant will generally recognize capital gain or capital loss
from the exchange. The gain or loss will be equal to the difference between the
market value of the Creation Units at the time of the exchange and the
Authorized Participant’s aggregate tax basis in the securities surrendered plus
any cash paid for the Creation Units. If the Authorized Participant exchanges
Creation Units for securities, the Authorized Participant will generally
recognize capital gain or capital loss equal to the difference between the
Authorized Participant’s tax basis in the Creation Units and the aggregate
market value of the securities and the amount of cash received.
23
Net
Investment Income Tax
Individuals,
trusts, and estates whose income exceeds certain threshold amounts are subject
to a 3.8% tax on “net investment income.” Net investment income takes into
account distributions paid by the Fund and capital gains from any sale of
shares.
Foreign
Taxes and Foreign Tax Credit
Investment
income received by the Fund from sources within foreign countries may be subject
to foreign income taxes withheld at the source. To the extent that the Fund is
liable for foreign income taxes withheld at the source, the Fund may be eligible
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 the Fund will be so eligible, and a fund that
invests primarily in U.S. securities will not be so eligible. Furthermore, a
shareholder’s ability to claim a foreign tax credit or deduction for foreign
taxes paid by the 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.
General
If
you buy shares 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.
Each
year shortly after December 31, the 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.
Dividend
distributions and capital gains distributions that you receive, as well as your
gains or losses from any sale of shares, may be subject to state and local
income taxes.
Non‑U.S.
Shareholders
If
you are a nonresident alien individual or a foreign corporation for federal
income tax purposes, please see the Fund’s SAI for information on how you will
be taxed as a result of holding shares in the Fund.
24
GENERAL
INFORMATION
Under
unusual circumstances, the Fund may suspend redemptions or postpone payment for
up to seven days or longer, as permitted by federal securities law.
Householding. Householding is an
option available to certain investors. Householding is a method of delivery,
based on the preference of the individual investor, in which a single copy of
certain shareholder documents can be delivered to investors who share the same
address, even if their accounts are registered under different names.
Householding for the Fund is available through certain broker-dealers. Please
contact your broker-dealer if you are interested in enrolling in householding
and receiving a single copy of prospectuses and other shareholder documents, or
if you are currently enrolled in householding and wish to change your
householding status.
25
GLOSSARY
OF INVESTMENT TERMS
Equity securities include (i) common stocks,
partnership interests, business trust shares and other equity or ownership
interests in business enterprises and (ii) securities convertible into, and
rights and warrants to subscribe for the purchase of, such stocks, shares and
interests.
Fixed-income securities are investments,
such as bonds, that pay a fixed rate of return.
S&P 500 Index is a stock market index
containing the stocks of 500 U.S. large‑cap corporations. Widely regarded as the
best single gauge of the U.S. equities market, the S&P 500 Index includes a
representative sample of 500 leading companies in leading industries of the U.S.
economy.
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.
26
FINANCIAL
HIGHLIGHTS
Financial
highlights information is not available because the Fund has not yet commenced
operations as of the date of this Prospectus.
27
For
more information about the Fund, the following documents are available upon
request:
| • |
|
ANNUAL/SEMI-ANNUAL
REPORTS TO SHAREHOLDERS |
The
Fund’s annual and semi-annual reports to shareholders, once available, will
contain additional information on the Fund’s investments. In the annual report,
you will find a discussion of the market conditions and investment strategies
that significantly affected the Fund’s performance during its last fiscal year.
| • |
|
STATEMENT
OF ADDITIONAL INFORMATION (SAI) |
The
Fund has an SAI, which contains more detailed information about the Fund,
including its operations and investment policies. The Fund’s SAI is incorporated
by reference into (and is legally part of) this Prospectus.
You
may request a free copy of the current annual/semi-annual report, once
available, or the SAI, or make inquiries concerning the Fund, by contacting your
broker or other financial intermediary, or by contacting the Adviser:
|
|
| |
| By Mail: |
|
c/o
Foreside Fund Services, LLC
Three
Canal Plaza, Suite 100
Portland,
Maine 04101 |
|
| |
| By Phone: |
|
For
Information and Literature:
(800)
243‑5994 |
|
| |
| On the Internet: |
|
www.abfunds.com |
You
may also view reports and other information about the Fund, including the SAI,
by visiting the EDGAR database on the Securities and Exchange Commission’s
website (
http://www.sec.gov).
Copies of this information can be obtained, for a duplicating fee, by electronic
request at the following e‑mail address:
[email protected].
You
also may find these documents and more information about the Adviser and the
Fund on the Internet at: www.abfunds.com.
The
[A/B] Logo is a service mark of AllianceBernstein and AllianceBernstein® is a registered trademark
used by permission of the owner, AllianceBernstein L.P.
PRO-ETF06-1023
