AB 2020 Form 10-K

requirements of the SEC, in addition to the specific regulatory requirements applicable to BDCs under the 1940 Act and RICs under the Code. From time to time, the Adviser may pursue investment opportunities in which it has more limited experience. The Fund may also be unable to replicate the historical performance of the members of the Adviser’s Investment Committee in prior investment funds. In addition, the Fund may be unable to generate sufficient revenue from its operations to make or sustain distributions to its stockholders. The Adviser has no prior experience managing a BDC or a RIC. Although AB has experience managing RICs, the Adviser has no experience managing a BDC or a RIC other than the Fund. Therefore, the Adviser may not be able to successfully operate the Fund’s business or achieve the Fund’s investment objective. As a result, an investment in Shares may entail more risk than shares of common stock of a comparable company with a substantial operating history. The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to the other types of investment vehicles. For example, under the 1940 Act, BDCs are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private or thinly traded companies. Moreover, qualification for RIC tax treatment under Subchapter M of the Code requires, among other things, satisfaction of source-of-income, diversification and other requirements. The failure to comply with these provisions in a timely manner could prevent the Fund from qualifying as a BDC or RIC or could force the Fund to pay unexpected taxes and penalties, which could be material. The Adviser’s lack of experience in managing a portfolio of assets under such constraints may hinder its ability to take advantage of attractive investment opportunities and, as a result, achieve the Fund’s investment objective. The Fund’s investment portfolio will be recorded at fair value, with the Board having final responsibility for overseeing, reviewing and approving, in good faith, its estimate of fair value and, as a result, there will be uncertainty as to the value of the Fund’s portfolio investments. Under the 1940 Act, the Fund is required to carry its portfolio investments at market value or, if there is no readily available market value, at fair value as determined by the Fund with its Board having final responsibility for overseeing, reviewing and approving, in good faith, the Fund’s estimate of fair value. Typically, there will not be a public market for the securities of the privately held companies in which the Fund will invest. As a result, the Fund will value these securities quarterly at fair value based on input from management, a third-party independent valuation firm and the Fund’s audit committee and with the oversight, review and approval of the Board. The determination of fair value and consequently, the amount of unrealized gains and losses in the Fund’s portfolio, are to a certain degree, subjective and dependent on a valuation process approved by the Board. Certain factors that may be considered in determining the fair value of the Fund’s investments include external events, such as private mergers, sales and acquisitions involving comparable companies. Because such valuations, and particularly valuations of private securities and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The Fund’s determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. Due to this uncertainty, the Fund’s fair value determinations may cause the Fund’s net asset value on a given date to materially understate or overstate the value that the Fund may ultimately realize on one or more of its investments. As a result, investors purchasing the Fund’s common stock based on an overstated net asset value would pay a higher price than the value of the Fund’s investments might warrant. Conversely, investors selling Shares during a period in which the net asset value understates the value of the Fund’s investments will receive a lower price for their Shares than the value of the Fund’s investments might warrant. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Fund uses the pricing indicated by the external event to corroborate its valuation. The Fund records decreases in the market values or fair values of its investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in the Fund’s portfolio. The effect of all these factors on the Fund’s portfolio may reduce the Fund’s net asset value by increasing unrealized depreciation in the Fund’s portfolio. Depending on market conditions, the Fund could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on the Fund’s business, financial condition, results of operations and cash flows. The Fund’s financial condition and results of operations will depend on its ability to effectively manage and deploy capital. The Fund’s ability to achieve its investment objective will depend on its ability to effectively manage and deploy capital, which will depend, in turn, on the Adviser’s ability to identify, evaluate and monitor, and the Fund’s ability to finance and invest in, companies that meet the Fund’s investment criteria. 30