UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2018~~2019



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 000-29961

ALLIANCEBERNSTEIN L.P.

(Exact name of registrant as specified in its charter)



Delaware		13-4064930
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1345 Avenue of the Americas, New York, NY 10105

(Address of principal executive offices)

(Zip Code)

(212) 969-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes	x	No	o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).



Yes	x	No	o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer o	Accelerated filer o

Non-accelerated filer x	Smaller reporting company o

		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Index

Securities registered pursuant to Section 12(g) of the Act:



Title of Each Class	Trading Symbol	Name of Each Exchange on Which Registered
None	None	None

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).



Yes	o	No	x

The number of units of limited partnership interest outstanding as of ~~September~~June 30, ~~2018~~2019 was ~~268,565,762.~~268,815,565.

Index

ALLIANCEBERNSTEIN L.P.

Index to Form 10-Q



		Page

	Part I

	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Condensed Consolidated Statements of Financial Condition	1

	Condensed Consolidated Statements of Income	3

	Condensed Consolidated Statements of Comprehensive Income	4

	Condensed Consolidated Statements of Changes in Partners' Capital	5

	Condensed Consolidated Statements of Cash Flows	57

	Notes to Condensed Consolidated Financial Statements	79

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3331

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5855

Item 4.	Controls and Procedures	5855

	Part II

	OTHER INFORMATION

Item 1.	Legal Proceedings	5956

Item 1A.	Risk Factors	5956

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5956

Item 3.	Defaults Upon Senior Securities	5956

Item 4.	Mine Safety Disclosures	5956

Item 5.	Other Information	6057

Item 6.	Exhibits	6258

SIGNATURE		6359

Index

Part I

FINANCIAL INFORMATION

Item 1. Financial Statements

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(in thousands, except unit amounts)

(unaudited)


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018

ASSETS
Cash and cash equivalents	$	607,109	$	671,930	$	710,335	$	640,206
Cash and securities segregated, at fair value (cost: $1,262,899 and $816,350)	1,262,906		816,350
Cash and securities segregated, at fair value (cost: $1,099,679 and $1,164,375)					1,109,589		1,169,554
Receivables, net:
Brokers and dealers	303,542		199,690		172,457		197,048
Brokerage clients	1,627,419		1,647,059		1,715,075		1,718,629
AB funds fees	209,677		212,115		191,216		217,470
Other fees	111,231		124,164		133,006		127,462
Investments:
Long-term incentive compensation-related	58,414		66,034		48,906		52,429
Other	420,133		377,555		175,797		661,915
Assets of consolidated company-sponsored investment funds:
Cash and cash equivalents	10,438		326,518		10,665		13,118
Investments	303,301		1,246,283		470,435		351,696
Other assets	9,095		35,397		28,619		22,840
Furniture, equipment and leasehold improvements, net	158,475		157,569		146,616		155,519
Goodwill	3,066,700		3,066,700		3,076,926		3,066,700
Intangible assets, net	85,463		105,784		72,848		79,424
Deferred sales commissions, net	16,738		30,126		20,714		17,148
Right-of-use assets					398,966		—
Other assets	297,995		211,893		311,836		297,940
Total assets	$	8,548,636	$	9,295,167	$	8,794,006	$	8,789,098

LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:
Payables:
Brokers and dealers	$	204,986	$	237,861	$	263,603	$	290,960
Securities sold not yet purchased	20,961		29,961		5,404		8,623
Brokerage clients	2,781,140		2,229,371		2,686,086		3,095,458
AB mutual funds	50,436		82,967		72,058		74,599
Accounts payable and accrued expenses	373,596		515,660		229,606		412,313
Lease liabilities					515,664		—
Liabilities of consolidated company-sponsored investment funds	8,579		698,101		35,583		22,610
Accrued compensation and benefits	664,947		270,610		453,802		273,250
Debt	398,242		565,745		442,425		546,267
Total liabilities	4,502,887		4,630,276		4,704,231		4,724,080

Commitments and contingencies (See Note 13)

Index


	September 30, 2018			December 31, 2017			June 30, 2019			December 31, 2018

Commitments and contingencies (See Note 12)

Redeemable non-controlling interest	103,997			601,587			215,634			148,809

Capital:
General Partner	40,553			41,221			40,016			40,240
Limited partners: 268,565,762 and 268,659,333 units issued and outstanding	4,105,882			4,168,841
Limited partners: 268,815,565 and 268,850,276 units issued and outstanding							4,053,360			4,075,306
Receivables from affiliates	(11,630		)	(11,494		)	(9,839		)	(11,430		)
AB Holding Units held for long-term incentive compensation plans	(86,961		)	(42,688		)	(100,453		)	(77,990		)
Accumulated other comprehensive loss	(107,777		)	(94,140		)	(109,963		)	(110,866		)
Partners’ capital attributable to AB Unitholders	3,940,067			4,061,740			3,873,121			3,915,260
Non-redeemable non-controlling interests in consolidated entities	1,685			1,564			1,020			949
Total capital	3,941,752			4,063,304			3,874,141			3,916,209
Total liabilities, redeemable non-controlling interest and capital	$	8,548,636		$	9,295,167		$	8,794,006		$	8,789,098

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per unit amounts)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018			2017			2018		2017		2019		2018		2019		2018
Revenues:
Investment advisory and services fees	$	610,063		$	543,107		$	1,782,287	$	1,572,560	$	596,364	$	598,108	$	1,152,958	$	1,172,224
Bernstein research services	103,581			108,385			324,192		330,596		105,991		106,211		196,226		220,611
Distribution revenues	104,488			106,042			317,610		302,745		108,347		105,118		208,856		213,122
Dividend and interest income	21,942			17,619			71,351		51,023		27,654		21,194		55,000		49,409
Investment gains (losses)	565			18,808			26,860		68,122		10,949		213		26,684		26,295
Other revenues	24,012			24,902			76,548		71,532		24,796		26,026		47,002		52,536
Total revenues	864,651			818,863			2,598,848		2,396,578		874,101		856,870		1,686,726		1,734,197
Less: Interest expense	14,475			6,713			36,147		17,198		16,302		12,132		33,465		21,672
Net revenues	850,176			812,150			2,562,701		2,379,380		857,799		844,738		1,653,261		1,712,525

Expenses:
Employee compensation and benefits	357,442			329,777			1,059,515		979,387		363,702		358,248		703,011		702,073
Promotion and servicing:
Distribution-related payments	106,372			106,106			322,827		300,951		116,254		106,301		222,247		216,455
Amortization of deferred sales commissions	4,651			7,629			17,362		25,015		3,241		6,113		6,743		12,711
Trade execution, marketing, T&E and other	50,793			50,266			164,095		155,993		57,550		59,259		107,198		113,302
General and administrative:
General and administrative	107,526			128,712			337,596		360,395		120,180		108,836		238,028		230,070
Real estate (credit) charges	(155		)	18,655			6,490		39,400
Real estate charges											548		6,909		548		6,645
Contingent payment arrangements	52			(140		)	157		215		829		52		883		105
Interest on borrowings	2,711			2,105			7,952		6,227		3,990		2,629		7,973		5,241
Amortization of intangible assets	6,965			7,013			20,753		20,921		7,285		6,927		14,259		13,788
Total expenses	636,357			650,123			1,936,747		1,888,504		673,579		655,274		1,300,890		1,300,390

Operating income	213,819			162,027			625,954		490,876		184,220		189,464		352,371		412,135

Income taxes	9,419			4,547			32,782		24,869		10,211		7,538		19,132		23,363

Net income	204,400			157,480			593,172		466,007		174,009		181,926		333,239		388,772

Net income of consolidated entities attributable to non-controlling interests	726			16,526			23,637		50,013		7,757		261		17,873		22,911

Net income attributable to AB Unitholders	$	203,674		$	140,954		$	569,535	$	415,994	$	166,252	$	181,665	$	315,366	$	365,861

Net income per AB Unit:
Basic	$	0.75		$	0.53		$	2.09	$	1.54	$	0.61	$	0.66	$	1.17	$	1.34
Diluted	$	0.75		$	0.52		$	2.09	$	1.54	$	0.61	$	0.66	$	1.17	$	1.34

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018

Net income	$	204,400		$	157,480		$	593,172		$	466,007		$	174,009		$	181,926		$	333,239		$	388,772
Other comprehensive income (loss):
Foreign currency translation adjustment, before reclassification and tax	(4,154		)	7,735			(14,889		)	24,091			(2,178		)	(20,656		)	452			(10,735		)
Less: reclassification adjustment for losses included in net income upon liquidation	—			—			(100		)	—
Less: reclassification adjustment for (losses) included in net income upon liquidation													—			(100		)	—			(100		)
Foreign currency translation adjustments, before tax	(4,154		)	7,735			(14,789		)	24,091			(2,178		)	(20,556		)	452			(10,635		)
Income tax benefit	—			—			—			—
Income tax expense													(73		)	—			(150		)	—
Foreign currency translation adjustments, net of tax	(4,154		)	7,735			(14,789		)	24,091			(2,251		)	(20,556		)	302			(10,635		)
Unrealized gains on investments:
Unrealized (losses) gains arising during period	—			(4		)	—			6
Less: reclassification adjustment for gains included in net income	—			—			—			—
Change in unrealized (losses) gains on investments	—			(4		)	—			6
Income tax benefit	—			5			—			3
Unrealized gains on investments, net of tax	—			1			—			9
Changes in employee benefit related items:
Amortization of prior service cost	6			6			17			18			6			5			12			11
Recognized actuarial gain	285			295			853			818			285			286			552			568
Changes in employee benefit related items	291			301			870			836			291			291			564			579
Income tax expense	(5		)	(2		)	(121		)	(81		)
Income tax benefit (expense)													25			2			35			(116		)
Employee benefit related items, net of tax	286			299			749			755			316			293			599			463
Other	—			—			374			—			—			374			—			374
Other comprehensive (loss) income	(3,868		)	8,035			(13,666		)	24,855			(1,935		)	(19,889		)	901			(9,798		)
Less: Comprehensive income in consolidated entities attributable to non-controlling interests	721			16,554			23,608			50,990			7,774			220			17,870			22,887
Comprehensive income attributable to AB Unitholders	$	199,811		$	148,961		$	555,898		$	439,872		$	164,300		$	161,817		$	316,270		$	356,087

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Partners' Capital

(in thousands)

(unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
General Partner’s Capital
Balance, beginning of period	$	39,403		$	41,218		$	40,240		$	41,221
Net income	1,663			1,816			3,154			3,658
Cash distributions to General Partner	(1,521		)	(2,191		)	(3,438		)	(4,670		)
Long-term incentive compensation plans activity	12			30			185			52
Issuance (retirement) of AB Units, net	459			16			(125		)	279
Impact of adoption of revenue recognition standard ASC 606	—			—			—			349
Other	—			(3		)	—			(3		)
Balance, end of period	40,016			40,886			40,016			40,886
Limited Partners' Capital
Balance, beginning of period	3,992,590			4,168,548			4,075,306			4,168,841
Net income	164,589			179,849			312,212			362,203
Cash distributions to Unitholders	(150,465		)	(216,558		)	(340,033		)	(461,852		)
Long-term incentive compensation plans activity	1,270			2,968			18,255			5,036
Issuance (retirement) of AB Units, net	45,376			1,513			(12,380		)	27,491
Impact of adoption of revenue recognition standard ASC 606	—			—			—			34,601
Other	—			(370		)	—			(370		)
Balance, end of period	4,053,360			4,135,950			4,053,360			4,135,950
Receivables from Affiliates
Balance, beginning of period	(11,666		)	(12,489		)	(11,430		)	(11,494		)
Capital contributions from General Partner	—			—			—			19
Compensation plan accrual	—			—			—			352
Long-term incentive compensation awards expense	227			—			692			—
Capital contributions from AB Holding	1,600			784			899			(582		)
Balance, end of period	(9,839		)	(11,705		)	(9,839		)	(11,705		)
AB Holding Units held for Long-term Incentive Compensation Plans
Balance, beginning of period	(69,503		)	(57,366		)	(77,990		)	(42,688		)
Purchases of AB Holding Units to fund long-term compensation plans, net	94			(32,737		)	(58,358		)	(34,864		)
(Issuance) retirement of AB Units, net	(45,860		)	(1,604		)	12,480			(27,875		)
Long-term incentive compensation awards expense	8,011			2,341			26,615			14,825
Re-valuation of AB Holding Units held in rabbi trust	113			1,049			(9,892		)	2,285
Other	6,692			—			6,692			—
Balance, end of period	(100,453		)	(88,317		)	(100,453		)	(88,317		)
Accumulated Other Comprehensive Income (Loss)
Balance, beginning of period	(108,012		)	(84,066		)	(110,866		)	(94,140		)
Foreign currency translation adjustment, net of tax	(2,267		)	(20,516		)	304			(10,612		)
Changes in employee benefit related items, net of tax	316			293			599			463
Other	—			374			—			374
Balance, end of period	(109,963		)	(103,915		)	(109,963		)	(103,915		)

Index



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
Total Partners' Capital attributable to AB Unitholders	3,873,121		3,972,899			3,873,121			3,972,899
Non-redeemable Non-controlling Interests in Consolidated Entities
Balance, beginning of period	945		1,630			949			1,564
Net income	58		63			74			118
Foreign currency translation adjustment	17		(39		)	(3		)	(23		)
Distributions from non-controlling interests of our consolidated venture capital fund activities	—		5			—			—
Balance, end of period	1,020		1,659			1,020			1,659
Total Capital	$	3,874,141	$	3,974,558		$	3,874,141		$	3,974,558

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Nine Months Ended September 30,
2018 2017

Cash flows from operating activities:
Net income $ 593,172
$ 466,007

Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of deferred sales commissions 17,362
25,015
Non-cash long-term incentive compensation expense 13,051
26,947
Depreciation and other amortization 52,599
49,995
Unrealized (gains) losses on investments (5,226 ) 3,323
Unrealized gains on investments of consolidated company-sponsored investment funds (23,755 ) (33,062 )
Other, net 585
10,195
Changes in assets and liabilities:

(Increase) decrease in segregated cash and securities (446,556 ) 161,531
(Increase) decrease in receivables (179,020 ) 8,079
Increase in investments (30,130 ) (76,780 )
Decrease (increase) in investments of consolidated company-sponsored investment funds 966,737
(180,966 )
(Increase) decrease in deferred sales commissions (3,974 ) 1,871
Increase in other assets (134,259 ) (33,003 )
(Decrease) increase in other assets and liabilities of consolidated company-sponsored investment funds, net (663,220 ) 327,284
Increase (decrease) in payables 584,282
(58,126 )
(Decrease) increase in accounts payable and accrued expenses (22,908 ) 23,982
Increase in accrued compensation and benefits 395,643
358,586
Net cash provided by operating activities 1,114,383
1,080,878

Cash flows from investing activities:

Purchases of investments —
(11 )
Proceeds from sales of investments —
10
Purchases of furniture, equipment and leasehold improvements (26,993 ) (24,952 )
Proceeds from sales of furniture, equipment and leasehold improvements —
39
Net cash used in investing activities (26,993 ) (24,914 )

Cash flows from financing activities:

Repayment of commercial paper, net (97,303 ) (220,363 )
(Repayment) proceeds of bank loans (75,000 ) —
(Decrease) increase in overdrafts payable (39,025 ) 66,134
Distributions to General Partner and Unitholders (652,991 ) (489,049 )
Redemptions of investments in consolidated company-sponsored investment funds, net (518,601 ) (8,373 )
Capital contributions to non-controlling interests in consolidated entities —
(43,217 )
Purchase of non-controlling interest —
(1,833 )
Capital contributions (to) from affiliates (1,344 ) 79
Payments of contingent payment arrangements (1,146 ) (6,344 )
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units 10,802
17,672
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net (82,710 ) (134,186 )
Purchases of AB Units (129 ) (993 )



	Six Months Ended June 30,
	2019			2018

Cash flows from operating activities:
Net income	$	333,239		$	388,772

Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred sales commissions	6,743			12,711
Non-cash long-term incentive compensation expense	27,307			14,825
Depreciation and other amortization	83,997			35,626
Unrealized (gains) on investments	(16,724		)	(3,257		)
Unrealized (gains) on investments of consolidated company-sponsored investment funds	(32,173		)	(20,463		)
Other, net	11,537			(1,907		)
Changes in assets and liabilities:
Decrease (increase) in segregated cash and securities	59,965			(472,517		)
Decrease (increase) in receivables	43,325			(220,343		)
Decrease (increase) in investments	506,061			(59,219		)
(Increase) decrease in investments of consolidated company-sponsored investment funds	(86,566		)	965,121
(Increase) decrease in deferred sales commissions	(10,309		)	653
(Increase) in right-of-use assets	(577,992		)	—
(Increase) in other assets	(4,515		)	(108,751		)
Increase (decrease) in other assets and liabilities of consolidated company-sponsored investment funds, net	7,194			(663,910		)
(Decrease) increase in payables	(440,029		)	682,703
Increase in lease liabilities	516,918			—
(Decrease) in accounts payable and accrued expenses	(61,705		)	(10,141		)
Increase in accrued compensation and benefits	180,701			225,571
Net cash provided by operating activities	546,974			765,474

Cash flows from investing activities:
Purchases of furniture, equipment and leasehold improvements	(11,276		)	(11,458		)
Acquisition of business, net of cash acquired	5,255			—
Net cash used in investing activities	(6,021		)	(11,458		)

Index


Debt issuance costs	(1,705		)	—
							Six Months Ended June 30,
							2019			2018
Cash flows from financing activities:
(Repayment) issuance of commercial paper, net							(85,888		)	20,058
Repayment of bank loans							(25,000		)	(75,000		)
(Decrease) in overdrafts payable							(19,144		)	(28,952		)
Distributions to General Partner and Unitholders							(343,471		)	(466,522		)
Subscriptions (redemptions) of investments in consolidated company-sponsored investment funds, net							49,026			(515,856		)
Capital contributions from (to) affiliates							495			(1,178		)
Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units							8,951			8,340
Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net							(58,358		)	(34,864		)
Other							291			—
Net cash used in financing activities	(1,459,152		)	(820,473		)	(473,098		)	(1,093,974		)

Effect of exchange rate changes on cash and cash equivalents	(9,139		)	17,458			(179		)	(6,039		)


Net (decrease) increase in cash and cash equivalents	(380,901		)	252,949
Net increase (decrease) in cash and cash equivalents							67,676			(345,997		)
Cash and cash equivalents as of beginning of the period	998,448			994,510			653,324			998,448
Cash and cash equivalents as of end of the period	$	617,547		$	1,247,459		$	721,000		$	652,451

Non-cash investing activities:
Fair value of assets acquired (excluding cash acquired of $11.8 million)							$	28,966		$	—
Fair value of liabilities assumed							$	16,837		$	—

Non-cash financing activities:
Payables recorded under contingent payment arrangements							$	17,384		$	—

See Accompanying Notes to Condensed Consolidated Financial Statements.

Index

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

~~September~~June 30, ~~2018~~2019

(unaudited)

The words “we” and “our” refer collectively to AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to AB. These statements should be read in conjunction with AB’s audited consolidated financial statements included in AB’s Form 10-K for the year ended December 31, ~~2017.~~2018.

1. Business Description Organization and Basis of Presentation

Business Description

We provide research, diversified investment management and related services globally to a broad range of clients. Our principal services include:

Institutional Services – servicing our institutional clients, including private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and affiliates such as AXA S.A. ("AXA"), AXA Equitable Holdings, Inc. ("EQH") and their respective subsidiaries, by means of separately-managed accounts, sub-advisory relationships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles.

Retail Services – servicing our retail clients, primarily by means of retail mutual funds sponsored by AB or an affiliated company, sub-advisory relationships with mutual funds sponsored by third parties, separately-managed account programs sponsored by financial intermediaries worldwide and other investment vehicles.

Private Wealth Management Services – servicing our private clients, including high-net-worth individuals and families, trusts and estates, charitable foundations, partnerships, private and family corporations, and other entities, by means of separately-managed accounts, hedge funds, mutual funds and other investment vehicles.

Bernstein Research Services – servicing institutional investors, such as pension fund, hedge fund and mutual fund managers, seeking high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options.

We also provide distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds we sponsor.

Our high-quality, in-depth research is the foundation of our business. Our research disciplines include economic, fundamental equity, fixed income and quantitative research. In addition, we have experts focused on multi-asset strategies, wealth management and alternative investments.

We provide a broad range of investment services with expertise in:

Actively-managed equity strategies, with global and regional portfolios across capitalization ranges, concentration ranges and investment strategies, including value, growth and core equities;

•Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies;

•Passive management, including index and enhanced index strategies;

Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct ~~real estate investing and direct~~ lending); and

•Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds.

Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world.

Index

Organization

During the second quarter of 2018, AXA ~~Equitable Holdings, Inc. ("EQH"),~~completed the ~~holding company for~~sale of a ~~diversified financial services organization, conducted~~minority stake in EQH through an initial public ~~offering;~~offering ("IPO"). Since then, AXA has completed additional offerings, most recently during the second quarter of 2019. As a ~~French holding company for~~result, AXA ~~Group, a worldwide leader in life, property and casualty and health insurance and asset management owns approximately 72%~~owned 40.1% of the outstanding common stock of EQH as of ~~September~~June 30, ~~2018.~~2019. As part of the latest offering, the underwriters exercised their over-allotment option resulting in AXA owning 38.9% of EQH as of July 8, 2019. AXA has announced its intention to sell its entire remaining interest in EQH over time, subject to market conditions and other factors. AXA is under no obligation to do so and retains the sole discretion to determine the timing of any future sales of shares of EQH common stock.

As of ~~September~~June 30, ~~2018,~~2019, EQH ~~owns~~owned approximately ~~3.9%~~4.2% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding Units”). AllianceBernstein Corporation (an indirect wholly-owned subsidiary of EQH, “General Partner”) is the general partner of both AllianceBernstein Holding L.P. (“AB Holding”) and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB.

As of ~~September~~June 30, ~~2018,~~2019, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, iswas as follows:



EQH and its subsidiaries	63.7	%
AB Holding	~~35.5~~35.6
Unaffiliated holders	~~0.8~~0.7
	100.0	%

Including both the general partnership and limited partnership interests in AB Holding and AB, EQH and its subsidiaries had an approximate ~~65.1%~~65.2% economic interest in AB as of ~~September~~June 30, ~~2018.~~2019.

Basis of Presentation

The interim condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the interim results, have been made. The preparation of the condensed consolidated financial statements requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the interim reporting periods. Actual results could differ from those estimates. The condensed consolidated statement of financial condition as of December 31, ~~2017~~2018 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”).

Principles of Consolidation

The condensed consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated entities that are considered to be variable interest entities (“VIEs”) and voting interest entities (“VOEs”) in which AB has a controlling financial interest. Non-controlling interests on the condensed consolidated statements of financial condition include the portion of consolidated company-sponsored investment funds in which we do not have direct equity ownership. All significant inter-company transactions and balances among the consolidated entities have been eliminated.

Reclassification

During ~~2018,~~2019, prior period amounts for ~~payments~~revenues related to financial intermediaries for administrative services, sub-accounting services and maintenance of books and records for certain funds previously presented as distribution-related payments are now presented as trade execution, marketing, T&E andour middle market lending business have been reclassified from other ~~expenses~~revenues to investment advisory fees in the condensed consolidated statements of income to conform to the current period's presentation.

During 2019, prior period amounts for research and miscellaneous fees related to our brokers dealers previously presented as changes in other assets are now presented as changes in receivables; and certain income taxes payable and receivable as

Index

well as deferred tax assets and liabilities previously presented as changes in payables are now presented as changes in other assets in the condensed consolidated statements of cash flows to conform to the current period's presentation.


2.	Significant Accounting Policies

Recently Adopted Accounting Pronouncements

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board ~~(“FASB”~~("FASB") ~~issued Accounting Standards Codification (“ASC”) 606,~~ ~~Revenue from Contracts with Customers~~, which outlines a single comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. We adopted this new standard on January 1, 2018 on a modified retrospective basis for contracts that were not completed as of the date of adoption.

The new standard did not change the timing of revenue recognition for our base fees, distribution revenues, shareholder servicing fees and broker-dealer revenues. However, performance-based fees, which, prior to the adoption of ASC 606, were recognized at the end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received (considered performance-based fees), recorded as deferred revenues until no risk of reversal remained, may in certain instances be recognized earlier under the new standard, if it is probable that significant reversal of performance-based fees recognized will not occur.

On January 1, 2018, we recorded a cumulative effect adjustment, net of tax, of a $35.0 million increase to partners’ capital in the condensed consolidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously received, net of revenue sharing payments to investment team members of $42.7 million, with respect to which it is probable that significant reversal will not occur.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230)~~. The amendment is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Statement of Cash Flows (Topic 230): Restricted Cash~~. The new standard requires that the statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Companies are also required to reconcile such total amounts in the balance sheet and disclose the nature of the restrictions. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~. The amendment requires that an employer disaggregate the service cost component from the other components of net benefit costs on the income statement. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

~~In May 2017, the FASB issued ASU 2017-09,~~ ~~Compensation - Stock Compensation, Scope of Modification Accounting~~. The amendment provides clarity and reduces both diversity in practice and cost and complexity when applying the guidance in Topic 718, Compensation - Stock Compensation, to a change to the terms or conditions of a share-based payment award. We adopted this standard on January 1, 2018. The adoption of this standard did not have a material impact on our financial condition or results of operations.

~~Accounting Pronouncements Not Yet Adopted~~

~~In February 2016, the FASB~~ issued ASU 2016-02, Leases. This pronouncement, along with subsequent ASUs issued to clarify certain provisions of ASU 2016-02 is now referred to as Accounting Standards Codification 842 ("ASC 842"). The standard requires ~~lessees~~a lessee to record most leases on ~~their~~its balance sheet while also disclosing key information about those lease arrangements. The classification criteria to distinguish between finance and operating leases are generally consistent with the classification criteria to distinguish between capital and operating leases under ~~existing~~previous lease accounting guidance. ~~This pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018.~~ We ~~plan to adopt the~~adopted this new standard ~~for our fiscal year beginning~~on January 1, 2019 using the ~~simplified transition~~modified retrospective method. Prior comparable periods will not be adjusted under this method.

We applied several practical expedients offered by ASC 842 upon adoption of ~~January 1, 2019, we expect~~this standard. These included continuing to ~~record an increase~~account for existing leases based on judgments made under legacy GAAP as it relates to determining classification of leases, unamortized initial direct costs and whether contracts are leases or contain leases. We also used a practical expedient to use hindsight in determining the lease terms (using knowledge and expectations as of the standard's adoption date instead of the previous assumptions under legacy GAAP) and evaluating impairment of our right-of-use assets ~~ranging between $400 million to $450 million and an increase~~ in ~~liabilities ranging between $550 million to $600 million, respectively, on~~the transition period (using our ~~statement~~most up-to-date information).

Adoption of ~~financial condition as a result~~

~~Index~~

this standard resulted in the recording of ~~recognizing~~operating right-of-use assets and lease liabilities ~~for our real estate leases.~~of $438.7 million and $574.5 million, respectively, and financing right-of-use assets and lease liabilities of $2.4 million as of January 1, 2019. The operating right-of-use assets recognized as of January 1, 2019 are ~~substantially~~ net of deferred rent of $50.0 million and liabilities associated with previously recognized impairments as of December 31, 2018. These estimated ranges are based on our anticipated real estate lease portfolio as of January 1, 2019, and it does not include the potential impacts of re-measurement due to changes in our assessment of the lease term subsequent to our adoption of the standard. In addition, we are evaluating the impact of recording right-of-use assets and lease liabilities$85.8 million. See Note 13, Leases, for ~~non-real estate leases on our statement of financial condition. The adoption of this standard will not have a material impact on our results of operations.~~

~~In June 2016, the FASB issued ASU 2016-03,~~ ~~Financial Instruments - Credit Losses (Topic 326)~~. This new guidance relates to the accounting for credit losses on financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for financial statements issued for fiscal years ending after December 15, 2019, with early adoption permitted. Management currently is evaluating the impact that adoption of this standard will have on our consolidated financial statements.

~~In January 2017, the FASB issued ASU 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The revised guidance will be applied prospectively, and is effective in 2020. The revised guidance is not expected to have a material impact on our financial condition or results of operations.additional disclosures.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits a company to reclassify the disproportionate income tax effects of the 2017 Tax Cuts and Job Act ("2017 Tax Act") on items within Accumulated Other Comprehensive Income ("AOCI") to retained earnings. The FASB refers to these amounts as "stranded tax effects." The ASU also requires certain new disclosures, some of which are applicable for all companies. We adopted this standard on January 1, 2019. The adoption of this standard had no impact on our financial condition or results of operations.

Accounting Pronouncements Not Yet Adopted in 2019

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326). This new guidance relates to the accounting for credit losses on financial instruments. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The new guidance is effective for ~~all companies~~financial statements issued for fiscal years beginning after December 15, ~~2018, and interim periods within those fiscal years. Companies may adopt~~2019, with early adoption permitted. Management currently is evaluating the new guidance using one of two transition methods: (1) retrospective to each period (or periods) in which the income tax effect of the 2017 Tax Act related to items remaining in AOCI are recognized, or (2) at the beginning of the period of adoption. Theimpact that adoption of this standard will have on our financial condition and results of operations.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. As a result of the revised guidance, a goodwill impairment will be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The new guidance is effective for financial statements issued for fiscal years beginning after December 15, 2019 and will be applied prospectively. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The amendment modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The revised guidance is effective for all companies for fiscal years beginning after December 15, 2019, and interim periods within those years. Companies are permitted to early adopt any eliminated or modified disclosure requirements and delay adoption of the additional disclosure requirements until their effective date. The removed and modified disclosures will be adopted on a retrospective basis and the new disclosures will be adopted on a prospective basis. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

Index

In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Topic 715-20). The amendment modifies the disclosure requirements for employers that sponsor defined benefit pension or other ~~postretirement~~post-retirement plans. The revised guidance is effective for financial statements issued for fiscal years ending after December 15, 2020, with early adoption permitted. The revised guidance is not expected to have a material impact on our financial condition or results of operations.

~~Revenue Recognition~~Leases

~~Investment advisory~~We determine if an arrangement is a lease at inception. Both operating and ~~services fees~~

AB provides asset management services by managing customer assets and seeking to deliver investment returns to investors. Each investment management contract between AB and a customer creates a distinct, separately identifiable performance obligation for each day the customer’s assetsfinance leases are managed as the customer can benefit from each day of service. In accordance with ASC 606, a series of distinct goods and services that are substantially the same and have the same pattern of transfer to the customer are treated as a single performance obligation. Accordingly, we have determined that our investment and advisory services are performed over time and entitle us to variable consideration earned based upon the value of the investors’ assets under management (“AUM”).

~~Index~~

We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures; evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for other derivative products. Fair valuation methods include: discounted cash flow models, evaluation of assets versus liabilities or any other methodology that is validated and approved by our Valuation Committee (~~see paragraph immediately below~~ for additional information about our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities.

The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which reports to the Valuation Committee and is responsible for overseeing the pricing process for all investments.

~~We record as revenue investment advisory and services base fees, which we generally calculate as a percentage of AUM. At month-end, all the components of the transaction price (i.e.,~~ the base fee calculation) are no longer variable and the value of the consideration is determined. These fees are not subject to claw back and there is minimal probability that a significant reversal of the revenue recorded will occur.

The transaction price for the asset management performance obligation for certain investment advisory contracts, including those associated with hedge funds or other alternative investments, provide for a performance-based fee (including carried interest), in addition to a base advisory fee, which is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. The performance-based fees are forms of variable consideration and are therefore excluded from the transaction price until it becomes probable that there will not be significant reversal of the cumulative revenue recognized. At each reporting date, we evaluate the constraining factors, ~~discussed below, surrounding the variable consideration to determine the extent to which, if any, revenues associated with the performance-based fee can be recognized.~~

~~Constraining factors impacting the amount of variable consideration~~ included in the ~~transaction price include: the contractual claw-back provisions to which the variable consideration is subject, the length~~right-of-use (“ROU”) assets and lease liabilities in our condensed consolidated statement of time to which the uncertainty of the consideration is subject, the number and range of possible consideration amounts, the probability of significant fluctuations in the fund’s market value, the level at which the fund’s value exceeds the contractual threshold required to earn such a fee, and the materiality of the amount being evaluated.financial condition.

~~Prior~~ROU assets represent our right to use an underlying asset for the ~~adoption of ASC 606~~lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at commencement date based on ~~January 1, 2018, we recognized performance-based fees at~~ the ~~end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received as deferred revenues until no risk of reversal remained.~~

~~Bernstein Research Services~~

Bernstein Research Services revenue consists principally of commissions received for trade execution services and providing equity research services to institutional clients. Brokerage commissions for trade execution services and related expenses are recorded on a trade-date basis when the performance obligations are satisfied. Generally, the transaction price is agreed upon at the point of each trade and based upon the number of shares traded or thepresent value of lease payments over the ~~consideration traded. Research revenues are recognized when the transaction price is quantified, collectability is assured and significant reversal of such revenue is not probable.~~

~~Distribution Revenues~~

~~Two of~~lease term. We use our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Depending upon the contractual arrangements with the customer and the specific product sold, the variable consideration can be determined in different ways, ~~as discussed below, as we satisfy the performance obligation.~~

Most open-end U.S. funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S. funds have such agreements with us, and we have selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares.

~~Index~~

We record 12b-1 fees monthly based upon a percentage of the net asset value (“NAV”) of the funds. At month-end, the variable consideration of the transaction price is no longer constrained as the NAV can be calculated and the value of consideration is determined. These services are separate and distinct from other asset management services as the customer can benefit from these services independently of other services. We accrue the corresponding 12b-1 fees paid to sub-distributors monthly as the expenses are incurred. We are acting in a principal capacity in these transactions; as such, these revenues and expenses are recorded on a gross basis.

We offer back-end load shares in limited instances and charge the investor a contingent deferred sales charge (“CDSC”) if the investment is redeemed within a certain period. The variable consideration for these contracts is contingent upon the timing of the redemption by the investor and the value of the sale proceeds. Due to these constraining factors, we exclude the CDSC fee from the transaction price until the investor redeems the investment. Upon redemption, the cash consideration received for these contractual arrangements are recorded as reductions of unamortized deferred sales commissions.

~~Our Luxembourg subsidiary, the management company for most of our non-U.S. funds, earns a management fee which is accrued daily and paid monthly, at an annual~~incremental borrowing rate based on the ~~average daily net assets~~information available as of the ~~fund. With respect~~date we adopted ASC 842 in determining the present value of lease payments. Our lease terms may include options to extend or terminate the lease. These options to extend or terminate are assessed on a lease-by-lease basis, and the ROU assets and lease liabilities are adjusted when it is reasonably certain ~~share classes, the management fee may also contain a component~~ that ~~is paid to distributors and other financial intermediaries and service providers to cover shareholder servicing and other administrative expenses (also referred to as~~ an All-in-Fee). As we have concluded that asset management is distinct from distribution, we allocate a portion of the investment and advisory fee to distribution revenues for the servicing component based on standalone selling prices.option will be exercised.

~~Other Revenues~~

~~Revenues from contracts~~When calculating the measurement of ROU assets and lease liabilities, we utilize the fixed payments associated with ~~customers~~the lease and do not include ~~a portion of~~ other ~~revenues, which consists primarily of shareholder servicing fees,~~variable contractual obligations, such as ~~well~~operating expenses, real estate taxes and employee parking. These costs are accounted for as ~~mutual fund reimbursements~~period costs and ~~other brokerage income.~~expensed as incurred.

~~We provide shareholder services, which include transfer agency, administrative~~Additionally, we exclude any intangible assets such as software licensing agreements as stated in ASC 842-10-15-1. These arrangements will continue to follow the guidance of ASC 350, Intangibles - Goodwill and recordkeeping services provided to company-sponsored mutual funds. The consideration for these services is based on a percentage of the NAV of the fund or a fixed-fee based on the number of shareholder accounts being serviced. The revenues are recorded at month-end when the constraining factors involved with determining NAV or the number of shareholders’ accounts are resolved.

~~Non-Contractual Revenues~~

Dividend and interest income is accrued as earned. Investment gains and losses on the condensed consolidated statements of income include unrealized gains and losses of trading and private equity investments stated at fair value, equity in earnings of our limited partnership hedge fund investments, and realized gains and losses on investments sold.

~~Contract Assets and Liabilities~~

We use the practical expedient for contracts that have an original duration of one year or less. Accordingly, we do not consider the time value of money and, instead, accrue the incremental costs of obtaining the contract when incurred. As of September 30, 2018, the balances of contract assets and contract liabilities are not considered material and, accordingly, no further disclosures are necessary.Other.

Index

3. Revenue Recognition

~~See Note 2, Significant Accounting Policies, Revenue Recognition~~, for descriptions of revenues presented in the table below. The adoption of ASC 606 had no significant impact on revenue recognition during the first nine months of 2018, except for the recognition of $49.3 million of performance fees from two funds in liquidation that is not probable of significant reversal, that under the previous revenue accounting standard would not be recognized until final liquidation. Revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 consisted of the following:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(in thousands)								(in thousands)
Subject to contracts with customers:
Investment advisory and services fees
Base fees	$	568,918	$	538,552	$	1,699,584	$	1,547,213	$	585,077	$	562,810	$	1,137,307	$	1,130,666
Performance-based fees	41,145		4,555		82,703		25,347		11,287		35,298		15,651		41,558
Bernstein research services	103,581		108,385		324,192		330,596		105,991		106,211		196,226		220,611
Distribution revenues
All-in-management fees	62,807		64,495		193,884		177,637		68,494		64,329		130,267		131,077
12b-1 fees	22,136		23,199		66,746		71,677		20,182		22,075		39,768		44,609
Other	19,545		18,348		56,980		53,431		19,671		18,714		38,821		37,436
Other revenues
Shareholder servicing fees	19,017		19,106		57,533		55,618		19,563		18,985		37,393		38,515
Other	4,293		4,879		15,827		12,948		4,496		5,781		8,514		11,534
	841,442		781,519		2,497,449		2,274,467		834,761		834,203		1,603,947		1,656,006
Not subject to contracts with customers:
Dividend and interest income, net of interest expense	7,467		10,906		35,204		33,825		11,352		9,062		21,535		27,737
Investment gains (losses)	565		18,808		26,860		68,122		10,949		213		26,684		26,295
Other revenues	702		917		3,188		2,966		737		1,260		1,095		2,487
	8,734		30,631		65,252		104,913		23,038		10,535		49,314		56,519

Total net revenues	$	850,176	$	812,150	$	2,562,701	$	2,379,380	$	857,799	$	844,738	$	1,653,261	$	1,712,525


4.	Long-term Incentive Compensation Plans

We maintain several unfunded, non-qualified long-term incentive compensation plans, under which we grant annual awards to employees, generally in the fourth quarter, and to members of the Board of Directors of the General Partner, who are not employed by our company or by any of our affiliates (“Eligible Directors”).

We fund our restricted AB Holding Unit awards either by purchasing AB Holding Units on the open market or purchasing newly-issued AB Holding Units from AB Holding, and then keeping all of these AB Holding Units in a consolidated rabbi trust until delivering them or retiring them. In accordance with the Amended and Restated Agreement of Limited Partnership of AB (“AB Partnership Agreement”), when AB purchases newly-issued AB Holding Units from AB Holding, AB Holding is required to use the proceeds it receives from AB to purchase the equivalent number of newly-issued AB Units, thus increasing its percentage ownership interest in AB. AB Holding Units held in the consolidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB.

During the ~~three and nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we purchased ~~1.6 million and 2.9~~2.0 million AB Holding Units for ~~$48.0~~$58.6 million ~~and $83.2 million, respectively~~ (on a trade date basis). ~~These~~As there were no open-market purchases during the second quarter of 2019, these amounts reflect open-market purchases of ~~1.6 million and 2.8~~1.9 million AB Holding Units for ~~$48.0~~$55.2 million ~~and $80.9 million, respectively,~~during the three months ended March 31, 2019, with the remainder relating to purchases of AB Holding Units from employees to allow them to fulfill statutory tax withholding requirements at the time of

~~Index~~

delivery of long-term incentive compensation awards. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, we~~2018, AB purchased ~~0.3~~approximately 1.2 million and ~~5.9~~1.2 million AB Holding Units for ~~$6.9~~$32.9 million and ~~$134.6~~$35.2 million, respectively (on a trade date basis). These amounts reflect open-market purchases of ~~0.3 million and 5.2~~1.2 million AB Holding Units for ~~$6.8~~$32.9 million ~~and $117.1 million, respectively,~~during the second quarter of 2018 with the remainder relating to purchases of AB Holding Units from employees to allow them to fulfill statutory tax withholding requirements at the time of delivery of long-term incentive compensation awards. Purchases of AB Holding

Index

Units reflected on the condensed consolidated statements of cash flows are net of AB Holding Unit purchases by employees as part of a distribution reinvestment election.

Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rules 10b5-1 and 10b-18 under the Exchange Act. A plan of this type allows a company to repurchase its shares at times when it otherwise might be prevented from doing so because of self-imposed trading blackout periods or because it possesses material non-public information. Each broker we select has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. ~~The~~There was no plan adopted during the ~~third~~first or second quarter of ~~2018 expired at the close of business on October 22, 2018.~~2019. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.

During the first ~~nine~~six months of ~~2018~~2019 and ~~2017,~~2018, we granted to employees and Eligible Directors ~~2.5~~1.7 million and ~~2.1~~2.4 million restricted AB Holding Unit awards, respectively. We used AB Holding Units repurchased during the periods and newly-issued AB Holding Units to fund these awards.

During the first ~~nine~~six months of ~~2018~~2019 and ~~2017,~~2018, AB Holding issued ~~0.6~~0.4 million and ~~1.0~~0.5 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of ~~$10.8~~$9.0 million and ~~$17.7~~$8.3 million, respectively, received from employees as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units.


5.	~~Real Estate Charges~~

~~Since 2010, we have sub-leased over one million square feet of office space. The activity in the liability account relating to our global space consolidation initiatives for the following periods is:~~

Nine Months Ended
September 30, 2018 Twelve Months Ended
December 31, 2017
(in thousands)
Balance as of beginning of period $ 113,635
$ 112,932
Expense incurred 6,490
28,507
Deferred rent —
7,083
Payments made (32,868 ) (39,122 )
Interest accretion 3,284
4,235
Balance as of end of period $ 90,541
$ 113,635

~~Index~~


6.	Net Income per Unit

Basic net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the basic weighted average number of limited partnership units outstanding for each period. Diluted net income per unit is derived by reducing net income for the 1% general partnership interest and dividing the remaining 99% by the total of the diluted weighted average number of limited partnership units outstanding for each period.


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017		2019		2018		2019		2018
	(in thousands, except per unit amounts)								(in thousands, except per unit amounts)
Net income attributable to AB Unitholders	$	203,674	$	140,954	$	569,535	$	415,994	$	166,252	$	181,665	$	315,366	$	365,861

Weighted average limited partnership units outstanding – basic	269,603		265,585		269,783		267,448		268,475		270,564		267,909		269,870
Dilutive effect of compensatory options to buy AB Holding Units	245		400		282		455		48		272		60		303
Weighted average limited partnership units outstanding – diluted	269,848		265,985		270,065		267,903		268,523		270,836		267,969		270,173
Basic net income per AB Unit	$	0.75	$	0.53	$	2.09	$	1.54	$	0.61	$	0.66	$	1.17	$	1.34
Diluted net income per AB Unit	$	0.75	$	0.52	$	2.09	$	1.54	$	0.61	$	0.66	$	1.17	$	1.34

For both the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we excluded ~~824,245~~29,056 options ~~and 844,973 options, respectively,~~ from the diluted net income computation due to their anti-dilutive effect. For ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018 , we excluded ~~2,427,527~~850,155 options and 1,211,906 options, respectively, from the diluted net income computation due to their anti-dilutive effect.

7.6. Cash Distributions

AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and to the General Partner. Available Cash Flow can be summarized as the cash flow received by AB from operations minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB for use in its business, or plus such amounts as the General Partner determines, in its sole discretion, should be released from previously retained cash flow.

Typically, Available Cash Flow has been the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available

Index

Cash Flow will be based on adjusted diluted net income per unit, unless management determines, with the concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation.

On ~~October 24, 2018,~~July 25, 2019, the General Partner declared a distribution of ~~$0.76~~$0.63 per AB Unit, representing a distribution of Available Cash Flow for the three months ended ~~September~~June 30, ~~2018.~~2019. The General Partner, as a result of its 1% general partnership interest, is entitled to receive 1% of each distribution. The distribution is payable on ~~November 15, 2018~~August 22, 2019 to holders of record on ~~November~~August 5, ~~2018.~~2019.


8.7.	Cash and Securities Segregated Under Federal Regulations and Other Requirements

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017, $1.3~~2018, $1.1 billion and ~~$0.8~~$1.2 billion, respectively, of U.S. Treasury Bills were segregated in a special reserve bank custody account for the exclusive benefit of our brokerage customers under Rule 15c3-3 of the Exchange Act.

~~Index~~


9.8.	Investments


Investments consist of:
	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(in thousands)				(in thousands)
U.S. Treasury Bills	$	22,774	$	52,609	$	—	$	392,424
Equity securities:
Long-term incentive compensation-related	43,647		51,758		34,956		38,883
Seed capital	118,158		160,672		84,947		105,951
Other	120,705		81,154		14,917		73,409
Exchange-traded options	1,100		4,981		2,291		2,568
Investments in limited partnership hedge funds:
Long-term incentive compensation-related	14,767		14,276		13,950		13,546
Seed capital	101,732		22,923		52,881		67,153
Private equity (seed capital)	36,450		38,186
Time deposits	8,835		5,138		8,487		8,783
Other	10,379		11,892		12,274		11,627
Total investments	$	478,547	$	443,589	$	224,703	$	714,344

Total investments related to long-term incentive compensation obligations of ~~$58.4~~$48.9 million and ~~$66.0~~$52.4 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively, consist of company-sponsored mutual funds and hedge funds. For long-term incentive compensation awards granted before 2009, we typically made investments in company-sponsored mutual funds and hedge funds that were notionally elected by plan participants and maintained them (and continue to maintain them) in a consolidated rabbi trust or separate custodial account. The rabbi trust and custodial account enable us to hold such investments separate from our other assets for the purpose of settling our obligations to participants. The investments held in the rabbi trust and custodial account remain available to the general creditors of AB.

The underlying investments of the hedge funds in which we invest include long and short positions in equity securities, fixed income securities (including various agency and non-agency asset-based securities), currencies, commodities and derivatives (including various swaps and forward contracts). These investments are valued at quoted market prices or, where quoted market prices are not available, are fair valued based on the pricing policies and procedures of the underlying funds.

U.S. Treasury Bills, the majority of which are pledged as collateral with clearing organizations, are held in our investment account. These clearing organizations have the ability by contract or custom to sell or re-pledge this collateral.

We allocate seed capital to our investment teams to help develop new products and services for our clients. A portion of our seed capital investments are equity and fixed income products, primarily in the form of separately-managed account portfolios, U.S. mutual funds, Luxembourg funds, Japanese investment trust management funds or Delaware business trusts. We also may allocate seed capital to investments in private equity ~~funds, such as a third-party venture capital fund that invests in communications, consumer, digital media, healthcare and information technology markets.~~funds. In regard to our seed capital investments, the amounts above reflect those funds in which we are not the primary beneficiary of a VIE or hold a controlling financial interest in a VOE. During 2018, our seed capital in limited partnership hedge funds increased $78.8 million primarily due to the deconsolidation of a fund in which we have a seed investment of $79.0 million due to no longer having a controlling financial interest. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, our total seed capital investments were ~~$468.3~~$398.9 million and ~~$523.2~~$391.6 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using

Index

published net asset values or non-published net asset values if they are not listed on an active exchange but have net asset values that are comparable to funds with published net asset values and have no redemption restrictions.

In addition, we also have long positions in corporate equities and long exchange-traded options traded through our options desk.

~~Index~~

The portion of unrealized gains (losses) ~~for the three and nine months ended September 30, 2018 and 2017~~ related to equity securities, as defined by ASC 321-10, held as of ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands)
Net gains (losses) recognized during the period $ 3,429
$ (1,869 ) $ (177 ) $ 15,721
Less: net gains recognized during the period on equity securities sold during the period 1,156
366
2,820
14,067
Unrealized gains (losses) recognized during the period on equity securities held $ 2,273
$ (2,235 ) $ (2,997 ) $ 1,654



	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
	(in thousands)
Net gains recognized during the period	$	7,586	$	1,774		$	21,580	$	1,332
Less: net gains (losses) recognized during the period on equity securities sold during the period	1,409		(4,674		)	4,541		(1,779		)
Unrealized gains recognized during the period on equity securities held	$	6,177	$	6,448		$	17,039	$	3,111


~~10.~~9.	Derivative Instruments

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of derivative instruments held by our consolidated company-sponsored investment funds.

We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have currency forwards that help us to economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under ~~Accounting Standards Codification (“ASC”)~~ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 for derivative instruments (excluding derivative instruments relating to our options desk trading activities discussed below) not designated as hedging instruments were as follows:


			Fair Value						Fair Value
	Notional Value		Asset Derivatives		Liability Derivatives		Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)						(in thousands)
September 30, 2018:
June 30, 2019:
Exchange-traded futures	$	143,281	$	915	$	965	$	185,680	$	220	$	3,075
Currency forwards	88,091		7,888		7,622		90,925		7,116		7,241
Interest rate swaps	87,222		1,251		1,044		95,146		1,885		2,537
Credit default swaps	87,679		1,264		3,031		150,244		2,211		5,832
Total return swaps	120,455		79		1,275		98,083		39		2,644
Total derivatives	$	526,728	$	11,397	$	13,937	$	620,078	$	11,471	$	21,329

December 31, 2017:
December 31, 2018:
Exchange-traded futures	$	163,458	$	948	$	2,540	$	218,657	$	1,594	$	2,534
Currency forwards	126,503		8,306		8,058		87,019		7,647		7,582
Interest rate swaps	43,309		951		870		112,658		1,649		1,959
Credit default swaps	74,600		1,247		2,465		94,657		2,888		2,685
Total return swaps	68,106		167		390		99,038		3,301		62
Total derivatives	$	475,976	$	11,619	$	14,323	$	612,029	$	17,079	$	14,822

Index

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our condensed consolidated statements of financial condition.

~~Index~~

The gains and losses for derivative instruments (excluding our options desk trading activities discussed below) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 recognized in investment gains (losses) in the condensed consolidated statements of income were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)												(in thousands)
Exchange-traded futures	$	157		$	(3,290	)	$	1,699		$	(12,123	)	$	(3,436	)	$	717		$	(8,551	)	$	1,542
Currency forwards	673			(62		)	947			(992		)	(75		)	257			(115		)	274
Interest rate swaps	157			151			424			(97		)	(331		)	(7		)	(645		)	267
Credit default swaps	(1,117		)	(273		)	(1,212		)	(1,182		)	(1,465		)	(169		)	(3,805		)	(95		)
Total return swaps	(5,625		)	(1,417		)	(5,665		)	(5,376		)	(3,810		)	(1,217		)	(15,766		)	(40		)
Net (losses) gains on derivative instruments	$	(5,755	)	$	(4,891	)	$	(3,807	)	$	(19,770	)	$	(9,117	)	$	(419	)	$	(28,882	)	$	1,948

We may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. We minimize our counterparty exposure through a credit review and approval process. In addition, we have executed various collateral arrangements with counterparties to the over-the-counter derivative transactions that require both pledging and accepting collateral in the form of cash. As of ~~both September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we held ~~$0.5~~$0.3 million and $4.8 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our condensed consolidated statements of financial condition.

Although notional amount is the most commonly used measure of volume in the derivative market, it is not used as a measure of credit risk. Generally, the current credit exposure of our derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received. A derivative with positive value (a derivative asset) indicates existence of credit risk because the counterparty would owe us if the contract were closed. Alternatively, a derivative contract with negative value (a derivative liability) indicates we would owe money to the counterparty if the contract were closed. Generally, if there is more than one derivative transaction with a single counterparty, a master netting arrangement exists with respect to derivative transactions with that counterparty to provide for aggregate net settlement.

Certain of our standardized contracts for over-the-counter derivative transactions (“ISDA Master Agreements”) contain credit risk related contingent provisions pertaining to each counterparty’s credit rating. In some ISDA Master Agreements, if the counterparty’s credit rating, or in some agreements, our assets under management (“AUM”), falls below a specified threshold, either a default or a termination event permitting the counterparty to terminate the ISDA Master Agreement would be triggered. In all agreements that provide for collateralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counterparty. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we delivered ~~$5.3~~$6.9 million and ~~$8.8~~$4.5 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our condensed consolidated statements of financial condition.

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we held ~~$1.1~~$2.3 million and ~~$5.0~~$2.6 million, respectively, of long exchange-traded equity options, which are included in other investments on our condensed consolidated statements of financial condition. In addition, as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we held ~~$10.8~~$2.2 million and ~~$13.6~~$3.8 million, respectively, of short exchange-traded equity options, which are included in securities sold not yet purchased on our condensed consolidated statements of financial condition. Our options desk provides our clients with equity derivative strategies and execution for exchange-traded options on single stocks, exchange-traded funds and indices. While predominately agency-based, the options desk may commit capital to facilitate a client’s transaction. Our options desk hedges the risks associated with this activity by taking offsetting positions in equities. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recognized ~~a $5.7~~$3.5 million ~~gain~~ and ~~a $3.2~~$11.1 million, ~~loss,~~ respectively, of losses on equity ~~options~~option activity. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, we recognized ~~$12.7~~$4.7 million and ~~$21.8~~$8.9 million, respectively, of losses on equity options activity. These losses are recognized in investment gains (losses) in the condensed consolidated statements of income.

Index


~~11.~~10.	Offsetting Assets and Liabilities

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of offsetting assets and liabilities of our consolidated company-sponsored investment funds.

Offsetting of assets as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments			Cash Collateral Received			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments			Cash Collateral Received			Net Amount
	(in thousands)														(in thousands)
September 30, 2018:
June 30, 2019:
Securities borrowed	$	46,175	$	—	$	46,175	$	(42,514	)	$	—		$	3,661	$	70,481	$	—	$	70,481	$	(69,582	)	$	—		$	899
Derivatives	$	11,397	$	—	$	11,397	$	—		$	(530	)	$	10,867	$	11,471	$	—	$	11,471	$	—		$	(280	)	$	11,191
Long exchange-traded options	$	1,100	$	—	$	1,100	$	—		$	—		$	1,100	$	2,291	$	—	$	2,291	$	—		$	—		$	2,291
December 31, 2017:
December 31, 2018:
Securities borrowed	$	85,371	$	—	$	85,371	$	(82,353	)	$	—		$	3,018	$	64,856	$	—	$	64,856	$	(64,217	)	$	—		$	639
Derivatives	$	11,619	$	—	$	11,619	$	—		$	(519	)	$	11,100	$	17,079	$	—	$	17,079	$	—		$	(4,831	)	$	12,248
Long exchange-traded options	$	4,981	$	—	$	4,981	$	—		$	—		$	4,981	$	2,568	$	—	$	2,568	$	—		$	—		$	2,568

Offsetting of liabilities as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows:


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments			Cash Collateral Pledged			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments			Cash Collateral Pledged			Net Amount
	(in thousands)														(in thousands)
September 30, 2018:
June 30, 2019:
Securities loaned	$	—	$	—	$	—	$	—		$	—		$	—	$	—	$	—	$	—	$	—		$	—		$	—
Derivatives	$	13,937	$	—	$	13,937	$	—		$	(5,279	)	$	8,658	$	21,329	$	—	$	21,329	$	—		$	(6,881	)	$	14,448
Short exchange-traded options	$	10,799	$	—	$	10,799	$	—		$	—		$	10,799	$	2,177	$	—	$	2,177	$	—		$	—		$	2,177
December 31, 2017:
December 31, 2018:
Securities loaned	$	37,960	$	—	$	37,960	$	(37,922	)	$	—		$	38	$	59,526	$	—	$	59,526	$	(59,526	)	$	—		$	—
Derivatives	$	14,323	$	—	$	14,323	$	—		$	(8,794	)	$	5,529	$	14,822	$	—	$	14,822	$	—		$	(4,458	)	$	10,364
Short exchange-traded options	$	13,585	$	—	$	13,585	$	—		$	—		$	13,585	$	3,782	$	—	$	3,782	$	—		$	—		$	3,782

Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.

Index


~~12.~~11.	Fair Value

See Note 14, Consolidated Company-Sponsored Investment Funds, for disclosure of fair value of our consolidated company-sponsored investment funds.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly transaction between market participants at the measurement date. The three broad levels of fair value hierarchy are as follows:

• Level 1 – Quoted prices in active markets are available for identical assets or liabilities as of the reported date.

Level 2 – Quoted prices in markets that are not active or other pricing inputs that are either directly or indirectly observable as of the reported date.

Level 3 – Prices or valuation techniques that are both significant to the fair value measurement and unobservable as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

~~Index~~

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Valuation of our financial instruments by pricing observability levels as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows (in thousands):


	Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total		Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total
September 30, 2018:
June 30, 2019:
Money markets	$	110,654	$	—	$	—	$	—	$	—	$	110,654	$	114,136	$	—	$	—	$	—	$	—	$	114,136
Securities segregated (U.S. Treasury Bills)	—		1,262,906		—		—		—		1,262,906		—		1,109,589		—		—		—		1,109,589
Derivatives	915		10,482		—		—		—		11,397		220		11,251		—		—		—		11,471
Investments
U.S. Treasury Bills	—		22,774		—		—		—		22,774		—		—		—		—		—		—
Equity securities	272,053		10,028		117		312		—		282,510		126,007		8,378		117		318		—		134,820
Long exchange-traded options	1,100		—		—		—		—		1,100		2,291		—		—		—		—		2,291
Limited partnership hedge funds⁽²⁾	—		—		—		—		116,499		116,499		—		—		—		—		66,831		66,831
Private equity	—		—		—		36,450		—		36,450
Time deposits⁽³⁾	—		—		—		—		8,835		8,835		—		—		—		—		8,487		8,487
Other investments	—		—		—		—		10,379		10,379		5,374		—		—		—		6,900		12,274
Total investments	273,153		32,802		117		36,762		135,713		478,547		133,672		8,378		117		318		82,218		224,703
Total assets measured at fair value	$	384,722	$	1,306,190	$	117	$	36,762	$	135,713	$	1,863,504	$	248,028	$	1,129,218	$	117	$	318	$	82,218	$	1,459,899

Securities sold not yet purchased
Short equities – corporate	$	10,162	$	—	$	—	$	—	$	—	$	10,162	$	3,227	$	—	$	—	$	—	$	—	$	3,227
Short exchange-traded options	10,799		—		—		—		—		10,799		2,177		—		—		—		—		2,177
Derivatives	965		12,972		—		—		—		13,937		3,075		18,254		—		—		—		21,329
Contingent payment arrangements	—		—		11,013		—		—		11,013		—		—		25,603		—		—		25,603
Total liabilities measured at fair value	$	21,926	$	12,972	$	11,013	$	—	$	—	$	45,911	$	8,479	$	18,254	$	25,603	$	—	$	—	$	52,336

Index


	Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total		Level 1		Level 2		Level 3		NAV Expedient⁽¹⁾		Other		Total
December 31, 2017:
December 31, 2018:
Money markets	$	62,071	$	—	$	—	$	—	$	—	$	62,071	$	102,888	$	—	$	—	$	—	$	—	$	102,888
Securities segregated (U.S. Treasury Bills)	—		816,350		—		—		—		816,350		—		1,169,554		—		—		—		1,169,554
Derivatives	948		10,671		—		—		—		11,619		1,594		15,485		—		—		—		17,079
Investments
U.S. Treasury Bills	—		52,609		—		—		—		52,609		—		392,424		—		—		—		392,424
Equity securities	276,755		16,618		117		94		—		293,584		209,414		8,372		142		315		—		218,243
Long exchange-traded options	4,981		—		—		—		—		4,981		2,568		—		—		—		—		2,568
Limited partnership hedge funds⁽²⁾	—		—		—		—		37,199		37,199		—		—		—		—		80,699		80,699
Private equity	—		—		954		37,232		—		38,186
Time deposits⁽³⁾	—		—		—		—		5,138		5,138		—		—		—		—		8,783		8,783
Other investments	—		—		—		—		11,892		11,892		4,269		—		—		—		7,358		11,627
Total investments	281,736		69,227		1,071		37,326		54,229		443,589		216,251		400,796		142		315		96,840		714,344
Total assets measured at fair value	$	344,755	$	896,248	$	1,071	$	37,326	$	54,229	$	1,333,629	$	320,733	$	1,585,835	$	142	$	315	$	96,840	$	2,003,865

Securities sold not yet purchased
Short equities – corporate	$	16,376	$	—	$	—	$	—	$	—	$	16,376	$	4,841	$	—	$	—	$	—	$	—	$	4,841
Short exchange-traded options	13,585		—		—		—		—		13,585		3,782		—		—		—		—		3,782
Derivatives	2,540		11,783		—		—		—		14,323		2,534		12,288		—		—		—		14,822
Contingent payment arrangements	—		—		10,855		—		—		10,855		—		—		7,336		—		—		7,336
Total liabilities measured at fair value	$	32,501	$	11,783	$	10,855	$	—	$	—	$	55,139	$	11,157	$	12,288	$	7,336	$	—	$	—	$	30,781

⁽¹⁾Investments measured at fair value using NAV (or its equivalent) as a practical expedient.

⁽²⁾ Investments in equity method investees that are not measured at fair value in accordance with GAAP.

⁽³⁾ Investments carried at amortized cost that are not measured at fair value in accordance with GAAP.

One of our private equity investments (measured at fair value using NAV as a practical expedient) is a venture capital fund with a fair value of $36.4 million and no unfunded commitment as of September 30, 2018. This partnership invests in communications, consumer, digital media, healthcare and information technology markets. The fair value of this investment has been estimated using the capital account balances provided by the partnership. The interest in this partnership cannot be redeemed without specific approval by the general partner.

Other investments include (i) an investment in a start-up company that does not have a readily available fair value ($~~3.6 million and $4.6~~0.9 million as of ~~September~~both June 30, ~~2018~~2019 and December 31, ~~2017, respectively)~~2018), (ii) an investment in an equity method investee that is not measured at fair value in accordance with GAAP ($~~3.6~~2.7 million as of ~~September~~June 30, ~~2018~~2019 and ~~$4.1~~$3.4 million as of December 31, ~~2017)~~2018), and (iii) broker dealer exchange memberships that are not measured at fair value in accordance with GAAP ($~~3.1~~3.3 million as of ~~September~~June 30, ~~2018~~2019 and ~~$3.2~~$3.1 million as of December 31, ~~2017)~~2018).

We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy:

Money markets: We invest excess cash in various money market funds that are valued based on quoted prices in active markets; these are included in Level 1 of the valuation hierarchy.

Treasury Bills: We hold U.S. Treasury Bills, which are primarily segregated in a special reserve bank custody account as required by Rule 15c3-3 of the Exchange Act. These securities are valued based on quoted yields in secondary markets and are included in Level 2 of the valuation hierarchy.

~~Index~~

Equity securities: Our equity securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income mutual funds with quoted prices in active markets, which are included in Level 1 of the valuation hierarchy. In addition, some securities are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

Derivatives: We hold exchange-traded futures with counterparties that are included in Level 1 of the valuation hierarchy. In addition, we also hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total

Index

return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy.

• Options: We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy.

~~Private equity~~: Generally, the valuation of private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Private equity investments are valued initially at cost. The carrying values of private equity investments are adjusted either up or down from cost to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing review in accordance with our valuation policies and procedures. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation, including current operating performance and future expectations of investee companies, industry valuations of comparable public companies, changes in market outlooks, and the third party financing environment over time. In determining valuation adjustments resulting from the investment review process, particular emphasis is placed on current company performance and market conditions. For these reasons, which make the fair value of private equity investments unobservable, equity investments are included in Level 3 of the valuation hierarchy. If private equity investments become publicly traded, they are included in Level 1 of the valuation hierarchy; provided, however, if they contain trading restrictions, publicly-traded equity investments are included in Level 2 of the valuation hierarchy until the trading restrictions expire.

Securities sold not yet purchased: Securities sold not yet purchased, primarily reflecting short positions in equities and exchange-traded options, are included in Level 1 of the valuation hierarchy.

Contingent payment arrangements: Contingent payment arrangements relate to contingent payment liabilities associated with various acquisitions. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid based upon probability-weighted AUM and revenue projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy.

During the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we had a transfer of $3.2 million from Level 2 to Level 1; there were no transfers between Level 12 and Level 23 securities.

The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity and equity securities, is as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,						Three Months Ended June 30,					Six Months Ended June 30,
	2018		2017			2018			2017			2019		2018			2019			2018
	(in thousands)											(in thousands)
Balance as of beginning of period	$	117	$	5,028		$	1,071		$	5,023		$	115	$	1,071		$	142		$	1,071
Purchases	—		—			—			—			—		—			—			—
Sales	—		—			—			—			—		—			—			—
Realized gains (losses), net	—		—			—			—			—		—			—			—
Unrealized gains (losses), net	—		(3,958		)	(954		)	(3,953		)	2		(954		)	(25		)	(954		)
Balance as of end of period	$	117	$	1,070		$	117		$	1,070		$	117	$	117		$	117		$	117

Transfers into and out of all levels of the fair value hierarchy are reflected at end-of-period fair values. Realized and unrealized gains and losses on Level 3 financial instruments are recorded in investment gains and losses in the condensed consolidated statements of income.

~~Index~~

As of December 31, 2017, we had an investment in a private equity fund focused exclusively on the energy sector (fair value of $1.0 million) that was classified as Level 3 and written off during the second quarter of 2018.This investment's valuation was based on a market approach, considering recent transactions in the fund and the industry.

We acquired Autonomous Research LLP ("Autonomous") in 2019 and Ramius Alternative Solutions LLC in 2016, ~~CPH Capital Fondsmaeglerselskab A/S in 2014 and SunAmerica's alternative investment group in 2010, all~~both of which included contingent consideration arrangements as part of the purchase price. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017			2018		2017			2019		2018		2019		2018
	(in thousands)										(in thousands)
Balance as of beginning of period	$	10,960	$	16,777		$	10,855	$	17,589		$	7,390	$	10,908	$	7,336	$	10,855
Addition											17,384		—		17,384		—
Accretion	53		53			158		408			829		52		883		105
Change in estimates	—		(193		)	—		(193		)
Payments	—		(4,534		)	—		(5,701		)	—		—		—		—
Balance as of end of period	$	11,013	$	12,103		$	11,013	$	12,103		$	25,603	$	10,960	$	25,603	$	10,960

During 2018, we amended the ~~third quarter of 2017, we made the final~~ contingent ~~consideration~~ payment relating to our ~~2014~~2016 acquisition by modifying the earnout structure and extending it one year. As part of this amendment, we recorded a change in estimate and wrote off $2.4 million related to the ~~remaining~~ contingent consideration ~~payable relating to our 2010 acquisition.~~in the fourth quarter of 2018. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017, one~~2018, acquisition-related contingent ~~liability~~liabilities with a fair value of ~~$11.0~~$25.6 million and ~~$10.9~~$7.3 million, respectively, ~~remains~~remain relating to our 2019 and 2016

Index

acquisitions. For our 2019 acquisition the contingent consideration liability, payable in five years, was valued using expected revenue growth rates ranging from 0.7% to 2.5% per year and a discount rate of 10.4%, reflecting a 3.5% risk-free rate, based on our cost of debt, and a 6.9% market price of risk adjustment rate. The 2016 acquisition ~~which~~ was valued using a revenue growth rate of ~~31%~~26% and a discount rate ranging from ~~1.4%~~3.2% to ~~2.3%~~3.7%.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

We did not have any material assets or liabilities that were measured at fair value for impairment on a nonrecurring basis during the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 or during the year ended December 31, ~~2017.~~2018.


~~13.~~12.	Commitments and Contingencies

Legal Proceedings

With respect to all significant litigation matters, we consider the likelihood of a negative outcome. If we determine the likelihood of a negative outcome is probable and the amount of the loss can be reasonably estimated, we record an estimated loss for the expected outcome of the litigation. If the likelihood of a negative outcome is reasonably possible and we are able to determine an estimate of the possible loss or range of loss in excess of amounts already accrued, if any, we disclose that fact together with the estimate of the possible loss or range of loss. However, it is often difficult to predict the outcome or estimate a possible loss or range of loss because litigation is subject to inherent uncertainties, particularly when plaintiffs allege substantial or indeterminate damages. Such is also the case when the litigation is in its early stages or when the litigation is highly complex or broad in scope. In these cases, we disclose that we are unable to predict the outcome or estimate a possible loss or range of loss.

AB may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. It is reasonably possible that we could incur losses pertaining to these matters, but we cannot currently estimate any such losses.

Management, after consultation with legal counsel, currently believes that the outcome of any individual matter that is pending or threatened, or all of them combined, will not have a material adverse effect on our results of operations, financial condition or liquidity. However, any inquiry, proceeding or litigation has an element of uncertainty; management cannot determine whether further developments relating to any individual matter that is pending or threatened, or all of them combined, will have a material adverse effect on our results of operation, financial condition or liquidity in any future reporting period.


13.	Leases

We lease office space, furniture and office equipment under various operating and financing leases. Our current leases have remaining lease terms of 1 year to 11 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

Since 2010, we have sub-leased over one million square feet of office space. The liability relating to our global space consolidation initiatives was $85.8 million as of December 31, 2018 ("Liability"). Upon adoption of ASC 842 on January 1, 2019, we recorded the Liability as a reduction to our operating right-of-use assets.

Index

Leases included in the condensed consolidated statement of financial condition as of June 30, 2019 were as follows:



	Classification	June 30, 2019
		(in thousands)
Operating Leases
Operating lease right-of-use assets	Right-of-use assets	$	397,187
Operating lease liabilities	Lease liabilities	513,875

Finance Leases
Property and equipment, gross	Right-of-use assets	2,356
Accumulated depreciation	Right-of-use assets	(577		)
Property and equipment, net		1,779
Finance lease liabilities	Lease liabilities	1,789

The components of lease expense included in the condensed consolidated statement of income as of June 30, 2019 were as follows:



		Three Months Ended June 30,			Six Months Ended June 30,
	Classification	2019			2019
		(in thousands)
Operating lease cost	General and administrative	$	26,506		$	53,648

Financing lease cost:
Amortization of right-of-use assets	General and administrative	291			577
Interest on lease liabilities	Interest expense	15			32
Total finance lease cost		306			609
Variable lease cost ⁽¹⁾	General and administrative	9,876			19,749
Sublease income	General and administrative	(13,988		)	(28,451		)
Net lease cost		$	22,700		$	45,555

⁽¹⁾ Variable lease expense includes operating expenses, real estate taxes and employee parking.

The sublease income represents all revenues received from subtenants. It is primarily fixed base rental payments combined with variable reimbursements such as operating expenses, real estate taxes and employee parking. The vast majority of subtenant income is derived from our New York metro subtenant agreements. Subtenant income related to base rent is recorded on a straight-line basis.

Index

Maturities of lease liabilities were as follows:



	Operating Leases			Financing Leases			Total
Year ending December 31,	(in thousands)
2019 (excluding the six months ended June 30, 2019)	$	63,580		$	599		$	64,179
2020	111,011			941			111,952
2021	102,040			296			102,336
2022	88,118			—			88,118
2023	81,395			—			81,395
Thereafter	120,111			—			120,111
Total lease payments	566,255			1,836			568,091
Less interest	(52,380		)	(47		)
Present value of lease liabilities	$	513,875		$	1,789

During October 2018, we signed a lease, which commences in mid-2020, relating to 205,000 square feet of space at our new Nashville headquarters. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 15 year initial lease term is $126 million. During April 2019, we signed a lease, which commences in 2024, relating to approximately 190,000 square feet of space in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 20 year lease term is approximately $448 million.



Lease term and discount rate:
Weighted average remaining lease term (years)
Operating leases	5.53
Finance leases	1.75
Weighted average discount rate
Operating leases	3.5	%
Finance leases	3.14	%

Supplemental cash flow information related to leases was as follows:



	Six Months Ended June 30, 2019
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	69,309
Operating cash flows from financing leases	32
Financing cash flows from finance leases	567
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	4,156
Finance leases	—

Index

14. Consolidated Company-Sponsored Investment Funds

We regularly provide seed capital to new company-sponsored investment funds. As such, we may consolidate or de-consolidate a variety of company-sponsored investment funds each quarter. Due to the similarity of risks related to our involvement with each company-sponsored investment fund, disclosures required under the VIE model are aggregated, such as disclosures regarding the carrying amount and classification of assets.

We are not required to provide financial support to company-sponsored investment funds and only the assets of such funds are available to settle each fund's own liabilities. Our exposure to loss in regard to consolidated company-sponsored investment funds is limited to our investment in, and our management fee earned from, such funds. Equity and debt holders of such funds have no recourse to AB’s assets or to the general credit of AB.

The balances of consolidated VIEs and VOEs included in our condensed consolidated statements of financial condition were as follows:

September 30, 2018 December 31, 2017
(in thousands)
VIEs VOEs Total VIEs VOEs Total
Cash and cash equivalents $ 9,736
$ 702
$ 10,438
$ 326,158
$ 360
$ 326,518
Investments 186,386
116,915
303,301
1,189,835
56,448
1,246,283
Other assets 5,544
3,551
9,095
33,931
1,466
35,397
Total assets $ 201,666
$ 121,168
$ 322,834
$ 1,549,924
$ 58,274
$ 1,608,198

Liabilities $ 6,077
$ 2,502
$ 8,579
$ 695,997
$ 2,104
$ 698,101
Redeemable non-controlling interest 80,436
20,673
101,109
596,241
(18 ) 596,223
Partners' capital attributable to AB Unitholders 114,495
97,993
212,488
256,929
56,188
313,117
Non-redeemable non-controlling interests in consolidated entities 658
—
658
757
—
757
Total liabilities, redeemable non-controlling interest and partners' capital $ 201,666
$ 121,168
$ 322,834
$ 1,549,924
$ 58,274
$ 1,608,198

During 2018, we deconsolidated a fund in which we have a seed investment of $79.0 million due to no longer having a controlling financial interest. This VIE had significant consolidated assets and liabilities as of December 31, 2017.

~~Index~~



	June 30, 2019						December 31, 2018
	(in thousands)
	VIEs		VOEs		Total		VIEs		VOEs		Total
Cash and cash equivalents	$	8,915	$	1,750	$	10,665	$	11,880	$	1,238	$	13,118
Investments	304,067		166,368		470,435		217,840		133,856		351,696
Other assets	14,450		14,169		28,619		6,024		16,816		22,840
Total assets	$	327,432	$	182,287	$	509,719	$	235,744	$	151,910	$	387,654

Liabilities	$	17,536	$	18,047	$	35,583	$	5,215	$	17,395	$	22,610
Redeemable non-controlling interest	166,285		46,461		212,746		117,523		28,398		145,921
Partners' capital attributable to AB Unitholders	143,611		117,779		261,390		113,006		106,117		219,123
Total liabilities, redeemable non-controlling interest and partners' capital	$	327,432	$	182,287	$	509,719	$	235,744	$	151,910	$	387,654

Fair Value

Cash and cash equivalents include cash on hand, demand deposits, overnight commercial paper and highly liquid investments with original maturities of three months or less. Due to the short-term nature of these instruments, the recorded value has been determined to approximate fair value.

Index

Valuation of consolidated company-sponsored investment funds' financial instruments by pricing observability levels as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows (in thousands):


	Level 1		Level 2		Level 3		NAV Expedient		Total		Level 1		Level 2		Level 3		NAV Expedient		Total
September 30, 2018:
June 30, 2019:
Investments - VIEs	$	19,818	$	160,266	$	6,302	$	—	$	186,386	$	27,049	$	266,235	$	10,783	$	—	$	304,067
Investments - VOEs	66,384		50,339		192		—		116,915		95,439		69,878		1,051		—		166,368
Derivatives - VIEs	108		2,519		—		—		2,627		1,454		2,575		—		—		4,029
Derivatives - VOEs	102		1,003		—		—		1,105		145		972		—		—		1,117
Total assets measured at fair value	$	86,412	$	214,127	$	6,494	$	—	$	307,033	$	124,087	$	339,660	$	11,834	$	—	$	475,581

Derivatives - VIEs	519		2,994		—		—		3,513		317		3,686		—		—		4,003
Derivatives - VOEs	60		455		—		—		515		345		922		—		—		1,267
Total liabilities measured at fair value	$	579	$	3,449	$	—	$	—	$	4,028	$	662	$	4,608	$	—	$	—	$	5,270

December 31, 2017:
December 31, 2018:
Investments - VIEs	$	1,053,824	$	133,796	$	2,205	$	10	$	1,189,835	$	22,149	$	187,626	$	8,065	$	—	$	217,840
Investments - VOEs	5,491		50,898		59		—		56,448		68,063		65,485		308		—		133,856
Derivatives - VIEs	252		30,384		—		—		30,636		1,486		1,924		—		—		3,410
Derivatives - VOEs	49		251		—		—		300		124		3,692		—		—		3,816
Total assets measured at fair value	$	1,059,616	$	215,329	$	2,264	$	10	$	1,277,219	$	91,822	$	258,727	$	8,373	$	—	$	358,922

Short equities - VIEs	$	669,258	$	—	$	—	$	—	$	669,258
Derivatives - VIEs	421		21,820		—		—		22,241		$	72	$	3,819	$	—	$	—	$	3,891
Derivatives - VOEs	12		619		—		—		631		197		3,633		—		—		3,830
Total liabilities measured at fair value	$	669,691	$	22,439	$	—	$	—	$	692,130	$	269	$	7,452	$	—	$	—	$	7,721

See Note 1211 for a description of the fair value methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

~~Index~~

The change in carrying value associated with Level 3 financial instruments carried at fair value within consolidated company-sponsored investment funds was as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)												(in thousands)

Balance as of beginning of period	$	5,871		$	2,797		$	2,264		$	5,741		$	10,261		$	5,901		$	8,373		$	2,264
Deconsolidated funds	—			—			—			(6,697		)
Transfers (out) in	(406		)	(35		)	(82		)	378			(89		)	337			(186		)	324
Purchases	1,247			346			7,381			5,358			5,680			2,100			7,791			6,134
Sales	(197		)	(1,148		)	(2,820		)	(3,045		)	(4,065		)	(2,290		)	(4,349		)	(2,623		)
Realized gains (losses), net	2			5			(97		)	1			21			(104		)	23			(99		)
Unrealized (losses) gains, net	(25		)	52			(158		)	269
Unrealized gains (losses), net													20			(75		)	169			(133		)
Accrued discounts	2			1			6			13			6			2			13			4
Balance as of end of period	$	6,494		$	2,018		$	6,494		$	2,018		$	11,834		$	5,871		$	11,834		$	5,871

The Level 3 securities primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.

Index

Derivative Instruments

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the VIEs held ~~$0.9~~$0.1 million and ~~$8.4~~$0.5 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, we recognized ~~$0.5~~$1.6 million ~~of losses~~ and ~~$0.4~~$2.7 million of gains, respectively, on these derivatives. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018 we recognized ~~$3.8~~$15.8 million and ~~$18.8~~$0.9 million of gains, respectively, on these ~~derivative positions.~~derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, the VIEs held ~~$0.7~~$1.4 million and $0.9 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our condensed consolidated statements of financial condition. As of June 30, 2019 and December 31, 2018, the VIEs delivered $2.7 million and $0.8 million, respectively, of cash collateral into brokerage accounts. The VIEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.

As of both June 30, 2019 and December 31, 2018, the VOEs held $0.1 million, (net) of futures, forwards, options and swaps within their portfolios. For the three and six months ended June 30, 2019, we recognized $0.6 million and $0.5 million of losses, respectively, on these derivatives. For the three and six months ended June 30, 2018 we recognized $1.8 million and $1.3 million of gains, respectively, on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of June 30, 2019 and December 31, 2018, the VOEs held $0.4 million and $0.2 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our condensed consolidated statements of financial condition. As of ~~September~~June 30, ~~2018~~2019 and December 31, 2017, the VIEs delivered $1.9 million and $2.9 million, respectively, of cash collateral into brokerage accounts. The VIEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.

As of September 30, 2018 and December 31, 2017, the VOE held $0.6 million and $0.3 million, respectively, (net) of futures, forwards, options and swaps within their portfolios. For the three and nine months ended September 30, 2018, we recognized $0.2 million and $1.5 million of gains, respectively, on these derivatives. For both the three and nine months ended September 30, 2017, we recognized losses of $0.2 million on these derivatives. These gains and losses are recognized in investment gains (losses) in the condensed consolidated statements of income. As of September 30, 2018, the VOEs held $0.1 million of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated company-sponsored investment funds in our condensed consolidated statements of financial condition. As of September 30, 2018 and December 31, 2017, the VOEs held $0.4delivered $0.8 million and ~~$0.2~~$0.5 million, respectively, of cash collateral in brokerage accounts. The VOEs report this cash collateral in the consolidated company-sponsored investment funds cash and cash equivalents in our condensed consolidated statements of financial condition.

~~Index~~

Offsetting Assets and Liabilities

Offsetting of derivative assets of consolidated company-sponsored investment funds as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows:


	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received			Net Amount		Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Assets Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Received			Net Amount
	(in thousands)													(in thousands)
September 30, 2018:
June 30, 2019:
Derivatives - VIEs	$	2,627	$	—	$	2,627	$	—	$	(691	)	$	1,936	$	4,029	$	—	$	4,029	$	—	$	(1,351	)	$	2,678
Derivatives - VOEs	$	1,105	$	—	$	1,105	$	—	$	(115	)	$	990	$	1,117	$	—	$	1,117	$	—	$	(422	)	$	695
December 31, 2017:
December 31, 2018:
Derivatives - VIEs	$	30,636	$	—	$	30,636	$	—	$	(194	)	$	30,442	$	3,410	$	—	$	3,410	$	—	$	(856	)	$	2,554
Derivatives - VOEs	$	300	$	—	$	300	$	—	$	(37	)	$	263	$	3,816	$	—	$	3,816	$	—	$	(225	)	$	3,591

Index

Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 was as follows:


	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged			Net Amount		Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Condition		Net Amounts of Liabilities Presented in the Statement of Financial Condition		Financial Instruments		Cash Collateral Pledged			Net Amount
	(in thousands)													(in thousands)
September 30, 2018:
June 30, 2019:
Derivatives - VIEs	$	3,513	$	—	$	3,513	$	—	$	(1,948	)	$	1,565	$	4,003	$	—	$	4,003	$	—	$	(2,690	)	$	1,313
Derivatives - VOEs	$	515	$	—	$	515	$	—	$	(405	)	$	110	$	1,267	$	—	$	1,267	$	—	$	(824	)	$	443
December 31, 2017:
December 31, 2018:
Derivatives - VIEs	$	22,241	$	—	$	22,241	$	—	$	(2,884	)	$	19,357	$	3,891	$	—	$	3,891	$	—	$	(829	)	$	3,062
Derivatives - VOEs	$	631	$	—	$	631	$	—	$	(228	)	$	403	$	3,830	$	—	$	3,830	$	—	$	(547	)	$	3,283

Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty.

Non-Consolidated VIEs

As of ~~September~~June 30, ~~2018,~~2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately ~~$58.2~~$100.9 billion, and our maximum risk of loss is our investment of ~~$6.4~~$13.1 million in these VIEs and our advisory fee receivables from these VIEs, which are not material.


15.	Units Outstanding

Changes in AB Units outstanding during the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2018~~2019 were as follows:

~~Index~~




Outstanding as of December 31, ~~2017~~2018	~~268,659,333~~268,850,276
Options exercised	~~629,493~~406,235
Units issued	~~2,712,263~~2,068,514
Units retired ⁽¹⁾	(~~3,435,327~~2,509,460	)
Balance as of ~~September~~June 30, ~~2018~~2019	~~268,565,762~~268,815,565

⁽¹⁾ Includes ~~4,546~~882 AB Units purchased in private transactions and retired during the first ~~nine~~six months of ~~2018.~~2019.


16.	Debt

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, AB had ~~$399.9~~$444.1 million and ~~$491.8~~$523.2 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately ~~2.2% and 1.6%, respectively.~~2.7% for both periods. Debt included in the statement of financial condition is presented net of issuance costs of $1.7 million and ~~$1.1~~$1.9 million as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, respectively. The commercial paper is short term in nature, and as such, recorded value is estimated to approximate fair value (and considered a Level 2 security in the fair value hierarchy). Average daily borrowings of commercial paper during the first ~~nine~~six months of ~~2018~~2019 and the full year ~~2017~~2018 were ~~$372.2~~$516.7 million and ~~$482.2~~$350.3 million, respectively, with weighted average interest rates of approximately ~~1.9%~~2.7% and ~~1.2%~~2.0%, respectively.

On September 27, 2018, AB amended and restated the existing $1.0 billion committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, reducing the principal amount to $800.0 million and extending the maturity to September 27, 2023. The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit Facility is available for AB and Sanford C. Bernstein & Co., LLC ("SCB LLC") business purposes, including the support of AB’s commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.

Index

June 30, ~~2018,~~2019, we had noamounts outstanding under the Revolver. As of December 31, ~~2017,~~2018, we had ~~$75.0~~$25.0 million outstanding under the Revolver with an interest rate of ~~2.4%~~3.4%. Average daily borrowing under the Revolver during the first ~~nine~~six months of ~~2018~~2019 and full year ~~2017~~2018 were ~~$16.7~~$33.0 million and ~~$21.4~~$19.4 million, respectively, with weighted average interest rates of approximately ~~2.7%~~3.4% and ~~2.0%~~2.8%, respectively.

~~Index~~


~~17.~~	~~Changes in Capital~~

~~Changes in capital during the nine-month period ended September 30, 2018 were as follows:~~

Partners’ Capital Attributable to AB Unitholders Non-Redeemable Non-Controlling Interests In Consolidated Entities Total Capital
(in thousands)
Balance as of December 31, 2017 $ 4,061,740
$ 1,564
$ 4,063,304
Comprehensive income:

Net income 569,535
150
569,685
Other comprehensive income, net of tax:

Foreign currency translation adjustments (14,760 ) (29 ) (14,789 )
Changes in employee benefit related items 749
—
749
Other 374
—
374
Comprehensive income 555,898
121
556,019

Distributions to General Partner and unitholders (652,991 ) —
(652,991 )
Compensation-related transactions (58,857 ) —
(58,857 )
Capital contributions to affiliates (1,344 ) —
(1,344 )
Impact of adoption of revenue recognition standard ASC 606 and ASU 2016-01 34,577
—
34,577
Other 1,044
—
1,044
Balance as of September 30, 2018 $ 3,940,067
$ 1,685
$ 3,941,752

~~Index~~

~~Changes in capital during the nine-month period ended September 30, 2017 were as follows:~~

Partners’ Capital Attributable to AB Unitholders Non-redeemable Non-Controlling Interests In Consolidated Entities Total Capital
(in thousands)
Balance as of December 31, 2016 $ 4,032,017
$ 36,172
$ 4,068,189
Comprehensive income:

Net income 415,994
9,680
425,674
Other comprehensive income, net of tax:

Unrealized gains on investments 9
—
9
Foreign currency translation adjustments 23,114
977
24,091
Changes in employee benefit related items 755
—
755
Comprehensive income 439,872
10,657
450,529

Distributions to General Partner and unitholders (489,049 ) —
(489,049 )
Compensation-related transactions (89,567 ) —
(89,567 )
Capital contributions from affiliates 79
—
79
Purchase of non-controlling interest 172
(2,005 ) (1,833 )
Distributions to non-controlling interests of our consolidated venture capital fund —
(43,217 ) (43,217 )
Other 1,257
—
1,257
Balance as of September 30, 2017 $ 3,894,781
$ 1,607
$ 3,896,388


~~18.~~17.	Non-controlling Interests

Non-controlling interest in net income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017~~2018 consisted of the following:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017		2019		2018			2019		2018
	(in thousands)										(in thousands)
Non-redeemable non-controlling interests:
Consolidated company-sponsored investment funds	$	(46	)	$	21	$	(99	)	$	9,436	$	—	$	(11	)	$	—	$	(53	)
Other	78			50		249			245		58		73			74		171
Total non-redeemable non-controlling interests	32			71		150			9,681		58		62			74		118
Redeemable non-controlling interests:
Consolidated company-sponsored investment funds	694			16,455		23,487			40,332		7,699		199			17,799		22,793
Total non-controlling interest in net income	$	726		$	16,526	$	23,637		$	50,013	$	7,757	$	261		$	17,873	$	22,911

~~Index~~

Non-redeemable non-controlling interest as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(in thousands)				(in thousands)
Consolidated company-sponsored investment funds	$	658	$	757	$	—	$	—
CPH Capital Fondsmaeglerselskab A/S	1,027		807
CPH					1,020		949
Total non-redeemable non-controlling interest	$	1,685	$	1,564	$	1,020	$	949

Redeemable non-controlling interest as of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017~~2018 consisted of the following:


	September 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(in thousands)				(in thousands)
Consolidated company-sponsored investment funds	$	101,109	$	596,223	$	212,746	$	145,921
CPH Capital Fondsmaeglerselskab A/S acquisition	2,888		5,364
CPH					2,888		2,888
Total redeemable non-controlling interest	$	103,997	$	601,587	$	215,634	$	148,809

18.Acquisition

Acquisitions are accounted for under ASC 805, Business Combinations.

On April 1, 2019, we acquired a 100% interest in Autonomous, an institutional research firm. On the acquisition date, we made a cash payment of $6.5 million and recorded a contingent consideration payable of $17.4 million based on projected fee revenues over a five year measurement period. The excess of the purchase price over the current fair value of identifiable net assets acquired of $5.6 million resulted in the recognition of $10.2 million of goodwill and $8.1 million of intangible assets relating to customer relationships and trademarks. Also, in accordance with GAAP, additional cash payments and contingent consideration payable to the owners of Autonomous on the acquisition date are considered compensation expense to be amortized over two-year and five-year periods, respectively, not purchase price consideration, due to service conditions

Index

at the time of acquisition. The Autonomous acquisition did not have a material impact on our financial condition or results of operations.

Index

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Executive Overview

Our total assets under management (“AUM”) as of ~~September~~June 30, ~~2018~~2019 were ~~$550.4~~$580.8 billion, up ~~$10.6~~$26.1 billion, or ~~2.0%~~4.7%, compared to March 31, 2019, and up $41.0 billion, or 7.6%, compared to June 30, ~~2018, and up $15.5 billion, or 2.9%, compared to September 30, 2017.~~2018. During the ~~third~~second quarter of ~~2018,~~2019, AUM increased as a result of market appreciation of ~~$9.3~~$17.5 billion and net inflows of ~~$1.3~~$9.5 billion (Retail net inflows of ~~$1.2~~$5.9 billion and ~~$0.3~~Institutional net inflows of $4.2 billion, ~~for Private Wealth Management,~~ offset by net outflows of ~~$0.2~~$0.6 billion for ~~Institutions)~~Private Wealth Management). During the twelve months ended ~~September~~June 30, ~~2018,~~2019, AUM increased as a result of market appreciation of ~~$20.2~~$29.3 billion ~~offset by net outflows of $4.7 billion (Institutional net outflows of $8.0 billion, offset by~~and net inflows of ~~$3.0~~$12.6 billion ~~for Private Wealth Management and $0.3 billion for Retail).~~

~~Institutional AUM increased $2.6 billion, or 1.0%, to $257.0 billion during the third quarter~~(Retail net inflows of ~~2018, due to market appreciation of $2.5~~$13.1 billion and ~~transfers in~~Institutional net inflows of $0.3 billion, offset by net outflows of ~~$0.2 billion. Gross sales decreased sequentially from $3.9~~$0.8 billion for Private Wealth Management).

Institutional AUM increased $12.5 billion, or 4.9%, to $269.1 billion during the second quarter of ~~2018~~2019, due to ~~$3.7~~market appreciation of $8.3 billion and net inflows of $4.2 billion. Gross sales increased sequentially from $3.4 billion during the ~~third~~first quarter of ~~2018.~~2019 to $5.5 billion during the second quarter of 2019. Redemptions and terminations decreased sequentially from ~~$9.9~~$5.2 billion to ~~$1.5~~$1.3 billion. ~~The second quarter's redemptions included a $7.0 billion low-fee Customized Retirement Strategies redemption.~~

Retail AUM increased ~~$6.0~~$12.6 billion, or ~~3.2%~~6.2%, to ~~$196.3~~$214.5 billion during the ~~third~~second quarter of ~~2018,~~2019, due to market appreciation of ~~$4.8~~$6.7 billion and net inflows of ~~$1.2~~$5.9 billion. Gross sales increased sequentially from ~~$11.6~~$16.4 billion during the first quarter of 2019 to $18.8 billion during the second quarter of ~~2018 to $12.6 billion during the third quarter of 2018, while redemptions~~2019. Redemptions and terminations ~~decreased~~increased sequentially from ~~$10.6~~$10.1 billion to ~~$9.5~~$11.2 billion.

Private Wealth Management AUM increased ~~$2.0~~$1.0 billion, or ~~2.1%~~1.0%, to ~~$97.1~~$97.2 billion during the ~~third~~second quarter of ~~2018,~~2019, due to market appreciation of ~~$2.0 billion and net inflows of $0.3~~$2.5 billion, offset by ~~transfers out~~adjustments of ~~$0.3~~$0.9 billion, relating to the removal of non-investment management fee earning assets, and net outflows of $0.6 billion. Gross sales decreased sequentially from ~~$3.5~~$3.3 billion during the first quarter of 2019 to $3.0 billion during the second quarter of ~~2018 to $3.0 billion during the third quarter of 2018, and redemptions~~2019. Redemptions and terminations ~~decreased~~increased sequentially from ~~$2.8~~$2.9 billion to ~~$2.3~~$3.6 billion.

Bernstein Research Services revenue for the ~~third~~second quarter of ~~2018~~2019 was ~~$103.6~~$106.0 million, down ~~$4.8~~$0.2 million, or ~~4.4%~~0.2%, compared to the ~~third~~second quarter of ~~2017 due to lower revenues~~2018, as a decline in ~~both the U.S.~~trading commissions following a period of heightened volatility and ~~Asia, mainly due to a volume shift towards lower priced electronic trading. The revenue decrease in the U.S. and Asia~~client activity last year was ~~partially~~ offset by higher research revenues ~~in Europe, which resulted~~and the inclusion of revenues from ~~an increase in hard dollar payments for research, partially offset by a strengthening U.S. dollar. Global revenues continue to be negatively impacted by fee pressure due to unbundling~~our recent acquisition of ~~research payments. (See MiFID II discussion below~~).Autonomous.

Net revenues for the ~~third~~second quarter of ~~2018~~2019 increased ~~$38.0~~$13.1 million, or ~~4.7%~~1.5%, to ~~$850.2~~$857.8 million from ~~$812.2~~$844.7 million in the ~~third~~second quarter of ~~2017.~~2018. The most significant contributors to the increase were higher ~~performance-based fees of $36.6 million and higher~~ investment advisory base fees of ~~$30.4~~$22.3 million, higher investment gains of $10.7 million and higher distribution revenue of $3.2 million, offset by lower ~~investments gains~~performance-based fees of ~~$18.2 million and lower Bernstein Research Services revenue of $4.8~~$24.0 million. Operating expenses for the ~~third~~second quarter of ~~2018 decreased $13.8~~2019 increased $18.3 million, or ~~2.1%~~2.8%, to ~~$636.4~~$673.6 million from ~~$650.2~~$655.3 million in the ~~third~~second quarter of ~~2017.~~2018. The ~~decrease~~increase was primarily ~~was~~ due to ~~lower~~higher general and administrative expenses ~~(including real estate charges)~~ of ~~$40.0~~$11.3 million, ~~offset by~~ higher employee compensation and benefits expenses of ~~$27.7~~$5.5 million and higher promotion and servicing expenses of $5.4 million, offset by lower real estate charges of $6.4 million. Our operating income ~~increased $51.8~~decreased $5.2 million, or ~~32.0%~~2.8%, to ~~$213.8~~$184.2 million from ~~$162.0~~$189.4 million and our operating margin ~~increased~~declined to ~~25.1%~~20.6% in the ~~third~~second quarter of ~~2018~~2019 from ~~17.9%~~22.4% in the ~~third~~second quarter of ~~2017.~~2018.

Market Environment

~~Ongoing trade tension between~~Global equity and fixed income markets were higher in the ~~U.S.~~second quarter of 2019, despite intra-quarter volatility, and ~~China,~~added to year-to-date strength as the ~~slowing~~S&P 500 reached an all-time high. While returns have been strong in 2019, they have been driven primarily by rising valuations as investors remain cautious about the pace of global ~~growth, rising Treasury yields~~growth. The global economy continues to face headwinds, such as weak economic data, including disappointing manufacturing surveys in the U.S., China, Japan and Europe, global trade tensions that remain unresolved, political uncertainty in Europe and low inflation levels. Current market pricing reflects investors' expectations that Central Banks will introduce or continue stimulus efforts in 2019 in order to maintain economic expansion. In the U.S., the Federal Reserve took a more ~~aggressive central bank~~proactive stance and indicated that it would take appropriate action in order to sustain expansion, likely in the form of a rate cut as early as this year. In Europe, the European Central Bank indicated that monetary policy ~~preoccupied investors during~~would be loosened, unless the ~~third quarter, which created broad dispersion of equity market returns. Global equities finished broadly higher, as did U.S. equities, driven by strong economic data~~economy improves, with further quantitative easing and the positive earnings impact of tax reform. Meanwhile, European equity returns were muted and emerging markets remained in negative territory. Bond categories such as U.S. high yield and global corporates fared well during the third quarter, and emerging market debt improved from a very challenging first half of 2018. However, government bonds were lower. The U.S. Federal Reserve increased interest rates ~~in September~~reduced further into negative territory if necessary. In China, reserve requirements for ~~the third time in~~banks have been reduced multiple times since 2018 and ~~signaled another increase later this year. Quantitative easing in Europe is set to end in December, and with monetary policy tightening around~~large amounts of liquidity have been injected into the world, reduced liquidity could negatively affect less liquid assets like high yield bonds and emerging market securities. By contrast, China has been easing monetary policy as the country deals with slowing domestic growth and U.S. tariff headwinds. In this environment,rising volatility, more moderate returns, P/E contraction and greater dispersion are increasingly driving the importance of security selection. Investors’ growing beta concerns are manifesting in a steep decline in industrywide U.S. passive mutual fund flows: total year-to-date flows through September were down 38%. Within active, the trends are diverging between equity and fixed income. Year-to-date U.S. active equity mutual fund outflows of $112.8 billion were 14% lower than the prior year-to-date period. Conversely, active fixed income industryfinancial system.

Index

inflows of $96.6 billion declined 44% over the same period, due primarily to weakness in taxable bonds. Moving forward, investors are likely to be focused on the persistency of equity returns, quality of growth and balance sheet strength, all factors that offer active asset managers, such as AB, a real opportunity to differentiate themselves.

MiFID II

~~The second installment of the Markets in Financial Instruments Directive~~In Europe, MiFID II, ~~(“MiFID II”),~~ which became effective on January 3, 2018, ~~makes~~has made significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications are ~~recognized in the industry as having the potential~~believed to have significantly ~~decrease~~reduced the overall research spend by European buy-side ~~firms. Consequently,~~firms, which has decreased the revenues we derive from our ~~U.K.-based broker-dealer is considering new charging mechanisms for its~~European clients. Our European clients may continue to reduce their research in order to minimize this impact as part of its broader MiFID II implementation program. It is important to note, however, that our new fee structures and other strategic decisions to address the new environment created by MiFID II may not be successful,budgets, which could result in a significant decline in our sell-side revenues.

Also, ~~although~~while MiFID II ~~does permit~~is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side firms ~~to purchase research through the use~~operating outside of ~~client-funded research payment accounts, most buy-side firms that operate in the Eurozone, including our U.K. buy-side subsidiaries, have decided to use their own funds~~Europe to pay for research from their own resources instead of through bundled trading commissions. If that occurs, we would expect that research budgets from those clients will decrease further, which could result in ~~the Eurozone. This change~~an additional significant decline in ~~practice will~~our sell-side revenues. Additionally, these competitive and client pressures may result in our buy-side operation paying for research out of our own resources instead of through bundled trading commissions, which could increase our firm's expenses ~~in the Eurozone~~ and ~~if this practice becomes more pervasive globally, it may have a significant adverse effect on~~decrease our ~~net income in future periods.~~operating income.

The ultimate impact of MiFID II on payments for research globally currently is uncertain.

AXA Equitable Holdings IPO

During ~~2017,~~the second quarter of 2018, AXA ~~S.A. (“AXA”) announced its intention to pursue~~completed the sale of a minority stake in ~~AXA Equitable Holdings, Inc. ("EQH"), the holding company for a diversified financial services organization,~~EQH through an initial public offering ("IPO"). ~~During~~Since then, AXA has completed additional offerings, most recently during the second quarter of ~~2018, EQH completed the IPO and, as~~2019. As a result, AXA ~~owns approximately 72%~~owned 40.1% of the outstanding common stock of EQH as of ~~September~~June 30, ~~2018.~~2019. As part of the latest offering, the underwriters exercised their over-allotment option resulting in AXA owning 38.9% of EQH ~~and it subsidiaries have an approximate 65.1% economic interest in AB~~ as of ~~September 30, 2018.~~July 8, 2019. AXA has announced its intention to sell its entire remaining interest in EQH over time, subject to market conditions and other factors. AXA is under no obligation to do so and retains the sole discretion to determine the timing of any future sales of shares of EQH common stock.

While to date we have not experienced adverse effects from the IPO and we cannot at this time predict the eventual impact, if any, on AB of this transaction, itsuch impact could include a reduction in the support AXA has provided to AB in the past with respect to AB's investment management business, resulting in a decrease in our revenues and ability to initiate new investment services. Also, AB relies on AXA, including its subsidiary, AXA Business Services, for a number of significant services and ~~benefits~~AB has benefited from its affiliation with AXA in certain common vendor relationships. Some of these arrangements are expected to change with possible negative financial implications for AB.

By letter dated March 31, 2018, AXA advised us of their current intention to continue using AB for the foreseeable future as a preferred provider of asset management services and to continue making commercial and seed investments that suit AXA from an investment perspective, in each case (i) consistent with past practice, (ii) subject to investment ~~performance /~~ performance/returns and (iii) subject to applicable fiduciary duties.

Relocation Strategy

On May 2, 2018, we announced that we ~~will~~would establish our corporate headquarters in, and relocate approximately 1,050 jobs ~~currently~~ located in the New York metro area to, Nashville, TN. Our Nashville headquarters will house Finance, IT, Operations, Legal, Compliance, Internal Audit, Human Capital, and Sales and Marketing. We have begun relocating jobs and expect this transition to take several years. We will continue to maintain a principal location in New York City, which will house our Portfolio Management, Sell-Side Research and Trading, and New York-based Private Wealth Management businesses.

We believe relocating our corporate headquarters to Nashville will afford us the opportunity to provide an improved quality of life alternative for our employees and enable us to attract and recruit new talented employees to a highly desirable location while improving the long-term cost structure of the firm.

During the transition period, which ~~has begun~~began in 2018 and is expected to continue through 2024, we currently estimate that we will incur transition costs of approximately ~~$125~~$155 million to ~~$135~~$165 million. These costs include employee relocation, severance, recruitment, and overlapping compensation and occupancy costs. Over this same period, we expect to realize total expense savings of approximately ~~$150~~$190 million to ~~$160~~$200 million, an amount greater than the total transition costs. However, we will incur some transition costs before we begin to realize expense savings. We incurred approximately $10 million of transition costs in 2018 and approximately $16 million in the six months ended June 30, 2019. This compares to estimated expense savings of approximately $7 million for the first six months of 2019. We currently anticipate that the largest reduction in ~~EPU~~net income per unit ("EPU") during the transition period will be approximately ~~$0.04~~$0.08 in ~~2018.~~2019. We expect to achieve ~~break-even or possibly~~ a slight ~~increase~~accretion in EPU in 2021 and then achieve EPU accretion in each year thereafter. Beginning in 2025, once the transition period has been completed,

~~Index~~

we estimate ongoing annual expense savings of approximately $70 to $75 million, which will result from a combination of occupancy and compensation-related savings. Our estimates for both the transition costs and the corresponding expense savings are based upon our current

Index

assumptions of employee relocation costs, severance and overlapping compensation and occupancy costs. In addition, our estimates for both the timing of when we incur transition costs and realize the related expense savings isare based on our current relocation implementation plan and the timing for execution of each phase. The actual total charges we eventually record, the related expense savings we realize and timing of EPU impact are expected to differ from our current estimates as we implement each phase of our headquarters relocation.

Although we have presented our transition costs and annual expense savings with numerical specificity, and we believe these targets to be reasonable as of the date of this report, the uncertainties surrounding the assumptions we discuss above create a significant risk that these targets may not be achieved. Accordingly, the expenses we actually incur and the savings we actually realize may differ from our targets, particularly if actual events adversely differ from one or more of our key assumptions. The transition costs and expense savings, together with their underlying assumptions, are Forward-Looking Statements and can be affected by any of the factors discussed in “Risk Factors” ~~in our 2017 10-K~~ and “Cautions Regarding Forward-Looking Statements” in this ~~10-Q.~~10-Q and our 2018 10-K. We strongly caution investors not to place undue reliance on any of these assumptions or our cost and ~~expenses~~expense targets. Except as may be required by applicable securities laws, we are not under any obligation, and we expressly disclaim any obligation, to update or alter any assumptions, estimates, financial goals, targets, projections or other related statements that we may make.

Adjusted Operating Margin Target

We ~~have~~previously adopted a goal of increasing our adjusted operating margin ~~from 27.7% (which we achieved for 2017)~~ to a target of 30% by 2020 (the “2020 Margin Target”), subject to the assumptions, factors and contingencies ~~discussed below.~~

Actual results related to this target may vary depending on various factors, including capital market outcomes, the global regulatory environment in which we operate, the performance of our investment services, the net flows experienced by our investment services and the successful management of our costs. Also, the relocation of our corporate headquarters outsidedescribed as part of the ~~New York City metropolitan area, which is described~~ ~~immediately above~~, will likely involve substantial transitional costs, including employee relocation, severance, recruitment and duplicative compensation and occupancy costs. If the transitional costs we incur in 2018 through 2020 significantly exceed any cost savings we realize in those years from our relocation strategy, our actualinitial disclosure of this target. Our adjusted operating margin, ~~for 2020 will be adversely affected and, as a result, we may not reach~~which was 29.1% during 2018, declined to 24.7% during the ~~2020 Margin Target.~~first six months of 2019.

~~In setting our 2020 Margin Target, we have made significant assumptions with respect to, among other things:~~

~~the levels of positive net flows into~~Our AUM and, therefore, our investment ~~services;~~

advisory revenues, including performance-based fee revenues, are heavily dependent upon the level ~~of growth (in terms of additional AUM) in our alternative products business;~~

~~the rate of increase in our fixed costs due to inflation~~ and similar factors, the transitional costs related to our relocation strategy and the timing of such costs, the success we have in achieving planned new cost reductions (including those relating to our relocation strategy) and the timing of such cost reductions, and the investments we make in our business; and

~~general conditions~~volatility of the ~~markets in which~~financial markets. Based upon our ~~business operates, including modest appreciation in both equity~~current revenue and ~~fixed income total investment returns.~~

~~While our~~expense projections, we do not believe that achieving the 2020 Margin Target is ~~presented~~likely. However, we are taking additional actions to better align our expenses with ~~numerical specificity,~~our lower expected revenues. We remain committed to achieving an adjusted operating margin of 30% in years subsequent to 2020 and ~~we believe~~will take continued actions in this regard, subject to prevailing market conditions and the target to be reasonable as of the date of this report, the uncertainties surrounding the assumptions we discuss above create a significant risk that these assumptions may not be realized. Accordingly, our 2020 Margin Target may not be achieved, particularly if actual events adversely differ from one or moreevolution of our key assumptions. The 2020 Margin Target and its underlying assumptions are Forward-Looking Statements and can be affected by any of the factors discussed in “Risk Factors” in our 2017 10-K and “Cautions Regarding Forward-Looking Statements” in this 10-Q. We strongly caution investors not to place undue reliance on any of these assumptions or our 2020 Margin Target. Except as may be required by applicable securities laws, we are not under any obligation, and we expressly disclaim any obligation, to update or alter any assumptions, estimates, financial goals, targets, projections or other related statements that we may make.

business mix.

Index

Assets Under Management

Assets under management by distribution channel are as follows:


	As of September 30,									As of June 30,
	2018		2017		$ Change			% Change		2019		2018		$ Change		% Change
	(in billions)									(in billions)

Institutions	$	257.0	$	260.0	$	(3.0	)	(1.2	)%	$	269.1	$	254.4	$	14.7	5.8	%
Retail	196.3		185.7		10.6			5.7		214.5		190.3		24.2		12.7
Private Wealth Management	97.1		89.2		7.9			8.8		97.2		95.1		2.1		2.2
Total	$	550.4	$	534.9	$	15.5		2.9		$	580.8	$	539.8	$	41.0	7.6

Assets under management by investment service are as follows:


	As of September 30,									As of June 30,
	2018		2017		$ Change			% Change		2019		2018		$ Change			% Change
	(in billions)									(in billions)
Equity
Actively Managed	$	155.9	$	131.7	$	24.2		18.4	%	$	161.8	$	147.2	$	14.6		9.9	%
Passively Managed⁽¹⁾	56.0		52.3		3.7			7.0		57.4		53.8		3.6			6.6
Total Equity	211.9		184.0		27.9			15.1		219.2		201.0		18.2			9.0

Fixed Income
Actively Managed
Taxable	224.8		243.0		(18.2		)	(7.5	)	240.8		225.9		14.9			6.6
Tax–exempt	42.0		39.4		2.6			6.4		44.3		41.6		2.7			6.6
	266.8		282.4		(15.6		)	(5.5	)	285.1		267.5		17.6			6.6

Passively Managed⁽¹⁾	9.9		9.9		—			—		9.5		10.1		(0.6		)	(5.9	)
Total Fixed Income	276.7		292.3		(15.6		)	(5.3	)	294.6		277.6		17.0			6.2

Other⁽²⁾
Actively Managed	61.0		58.0		3.0			5.0		65.8		60.4		5.4			8.8
Passively Managed⁽¹⁾	0.8		0.6		0.2			52.6		1.2		0.8		0.4			61.3
Total Other	61.8		58.6		3.2			5.5		67.0		61.2		5.8			9.4
Total	$	550.4	$	534.9	$	15.5		2.9		$	580.8	$	539.8	$	41.0		7.6

(1)Includes index and enhanced index services.

(2)Includes certain multi-asset solutions and services and certain alternative investments.

Index

Changes in assets under management for the three-month, ~~nine-month~~six-month and twelve-month periods ended ~~September~~June 30, ~~2018~~2019 are as follows:

Distribution Channel
Institutions Retail
Private
Wealth Management
Total
(in billions)
Balance as of June 30, 2018 $ 254.4
$ 190.3
$ 95.1
$ 539.8
Long-term flows:

Sales/new accounts 3.7
12.6
3.0
19.3
Redemptions/terminations (1.5 ) (9.5 ) (2.3 ) (13.3 )
Cash flow/unreinvested dividends (2.4 ) (1.9 ) (0.4 ) (4.7 )
Net long-term (outflows) inflows (0.2 ) 1.2
0.3
1.3
Transfers 0.3
—
(0.3 ) —
Market appreciation 2.5
4.8
2.0
9.3
Net change 2.6
6.0
2.0
10.6
Balance as of September 30, 2018 $ 257.0
$ 196.3
$ 97.1
$ 550.4

Balance as of December 31, 2017 $ 269.3
$ 192.9
$ 92.3
$ 554.5
Long-term flows:

Sales/new accounts 22.5
39.1
11.0
72.6
Redemptions/terminations (26.0 ) (34.2 ) (7.7 ) (67.9 )
Cash flow/unreinvested dividends (7.5 ) (5.6 ) (0.4 ) (13.5 )
Net long-term (outflows) inflows (11.0 ) (0.7 ) 2.9
(8.8 )
Transfers 0.3
—
(0.3 ) —
Market (depreciation) appreciation (1.6 ) 4.1
2.2
4.7
Net change (12.3 ) 3.4
4.8
(4.1 )
Balance as of September 30, 2018 $ 257.0
$ 196.3
$ 97.1
$ 550.4

Balance as of September 30, 2017 $ 260.0
$ 185.7
$ 89.2
$ 534.9
Long-term flows:

Sales/new accounts 26.0
52.0
13.8
91.8
Redemptions/terminations (27.0 ) (44.4 ) (10.4 ) (81.8 )
Cash flow/unreinvested dividends (7.0 ) (7.3 ) (0.4 ) (14.7 )
Net long-term (outflows) inflows (8.0 ) 0.3
3.0
(4.7 )
Transfers 0.3
—
(0.3 ) —
Market appreciation 4.7
10.3
5.2
20.2
Net change (3.0 ) 10.6
7.9
15.5
Balance as of September 30, 2018 $ 257.0
$ 196.3
$ 97.1
$ 550.4

~~Index~~



	Distribution Channel
	Institutions			Retail			Private Wealth Management			Total
	(in billions)
Balance as of March 31, 2019	$	256.6		$	201.9		$	96.2		$	554.7
Long-term flows:
Sales/new accounts	5.5			18.8			3.0			27.3
Redemptions/terminations	(1.3		)	(11.2		)	(3.6		)	(16.1		)
Cash flow/unreinvested dividends	—			(1.7		)	—			(1.7		)
Net long-term inflows (outflows)	4.2			5.9			(0.6		)	9.5
Adjustments⁽³⁾	—			—			(0.9		)	(0.9		)
Market appreciation	8.3			6.7			2.5			17.5
Net change	12.5			12.6			1.0			26.1
Balance as of June 30, 2019	$	269.1		$	214.5		$	97.2		$	580.8

Balance as of December 31, 2018	$	246.3		$	180.8		$	89.3		$	516.4
Long-term flows:
Sales/new accounts	8.8			35.2			6.3			50.3
Redemptions/terminations	(6.5		)	(21.2		)	(6.5		)	(34.2		)
Cash flow/unreinvested dividends	(2.8		)	(2.8		)	0.1			(5.5		)
Net long-term (outflows) inflows	(0.5		)	11.2			(0.1		)	10.6
Adjustments⁽³⁾	—			—			(0.9		)	(0.9		)
Transfers	0.1			—			(0.1		)	—
Market appreciation	23.2			22.5			9.0			54.7
Net change	22.8			33.7			7.9			64.4
Balance as of June 30, 2019	$	269.1		$	214.5		$	97.2		$	580.8

Balance as of June 30, 2018	$	254.4		$	190.3		$	95.1		$	539.8
Long-term flows:
Sales/new accounts	16.2			62.9			11.8			90.9
Redemptions/terminations	(12.2		)	(43.0		)	(12.2		)	(67.4		)
Cash flow/unreinvested dividends	(3.7		)	(6.8		)	(0.4		)	(10.9		)
Net long-term inflows (outflows)	0.3			13.1			(0.8		)	12.6
Adjustments⁽³⁾	—			—			(0.9		)	(0.9		)
Transfers	0.2			0.2			(0.4		)	—
Market appreciation	14.2			10.9			4.2			29.3
Net change	14.7			24.2			2.1			41.0
Balance as of June 30, 2019	$	269.1		$	214.5		$	97.2		$	580.8

Investment Service

Equity
Actively
Managed

Equity
Passively
Managed⁽¹⁾

Fixed
Income
Actively
Managed -
Taxable

Fixed
Income
Actively
Managed -
Tax-
Exempt

Fixed
Income
Passively
Managed⁽¹⁾

Other⁽²⁾
Total
(in billions)
Balance as of June 30, 2018 $ 147.2
$ 53.8
$ 225.9
$ 41.6
$ 10.1
$ 61.2
$ 539.8
Long-term flows:

Sales/new accounts 8.7
(0.1 ) 7.3
2.0
—
1.4
19.3
Redemptions/terminations (4.7 ) —
(6.3 ) (1.4 ) (0.1 ) (0.8 ) (13.3 )
Cash flow/unreinvested dividends (1.1 ) (1.1 ) (1.5 ) (0.2 ) —
(0.8 ) (4.7 )
Net long-term inflows (outflows) 2.9
(1.2 ) (0.5 ) 0.4
(0.1 ) (0.2 ) 1.3
Market appreciation (depreciation) 5.8
3.4
(0.6 ) —
(0.1 ) 0.8
9.3
Net change 8.7
2.2
(1.1 ) 0.4
(0.2 ) 0.6
10.6
Balance as of September 30, 2018 $ 155.9
$ 56.0
$ 224.8
$ 42.0
$ 9.9
$ 61.8
$ 550.4

Balance as of December 31, 2017 $ 139.4
$ 54.3
$ 247.9
$ 40.4
$ 9.9
$ 62.6
$ 554.5
Long-term flows:

Sales/new accounts 28.2
1.0
21.0
6.2
0.1
16.1
72.6
Redemptions/terminations (16.4 ) (0.5 ) (30.4 ) (4.4 ) (0.3 ) (15.9 ) (67.9 )
Cash flow/unreinvested dividends (2.6 ) (3.0 ) (6.7 ) (0.2 ) 0.4
(1.4 ) (13.5 )
Net long-term inflows (outflows) 9.2
(2.5 ) (16.1 ) 1.6
0.2
(1.2 ) (8.8 )
Market appreciation (depreciation) 7.3
4.2
(7.0 ) —
(0.2 ) 0.4
4.7
Net change 16.5
1.7
(23.1 ) 1.6
—
(0.8 ) (4.1 )
Balance as of September 30, 2018 $ 155.9
$ 56.0
$ 224.8
$ 42.0
$ 9.9
$ 61.8
$ 550.4

Index


	Investment Service																					Investment Service
	Equity Actively Managed			Equity Passively Managed⁽¹⁾			Fixed Income Actively Managed - Taxable			Fixed Income Actively Managed - Tax- Exempt			Fixed Income Passively Managed⁽¹⁾			Other⁽²⁾			Total			Equity Actively Managed			Equity Passively Managed⁽¹⁾			Fixed Income Actively Managed - Taxable			Fixed Income Actively Managed - Tax- Exempt			Fixed Income Passively Managed⁽¹⁾			Other⁽²⁾			Total
	(in billions)																					(in billions)

Balance as of September 30, 2017	$	131.7		$	52.3		$	243.0		$	39.4		$	9.9		$	58.6		$	534.9
Balance as of March 31, 2019																						$	155.1		$	55.8		$	227.2		$	43.8		$	9.3		$	63.5		$	554.7
Long-term flows:
Sales/new accounts	34.2			1.0			30.0			8.4			0.1			18.1			91.8			8.8			—			13.1			2.6			—			2.8			27.3
Redemptions/terminations	(21.6		)	(0.5		)	(37.4		)	(5.6		)	(0.4		)	(16.3		)	(81.8		)	(6.7		)	—			(6.5		)	(2.4		)	(0.1		)	(0.4		)	(16.1		)
Cash flow/unreinvested dividends	(3.4		)	(4.4		)	(5.7		)	(0.2		)	0.4			(1.4		)	(14.7		)	(1.1		)	(0.6		)	0.3			(0.1		)	(0.1		)	(0.1		)	(1.7		)
Net long-term inflows (outflows)	9.2			(3.9		)	(13.1		)	2.6			0.1			0.4			(4.7		)	1.0			(0.6		)	6.9			0.1			(0.2		)	2.3			9.5
Market appreciation (depreciation)	15.0			7.6			(5.1		)	—			(0.1		)	2.8			20.2
Adjustments⁽³⁾																						—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation																						5.7			2.2			7.1			0.9			0.4			1.2			17.5
Net change	24.2			3.7			(18.2		)	2.6			—			3.2			15.5			6.7			1.6			13.6			0.5			0.2			3.5			26.1
Balance as of September 30, 2018	$	155.9		$	56.0		$	224.8		$	42.0		$	9.9		$	61.8		$	550.4
Balance as of June 30, 2019																						$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8

Balance as of December 31, 2018																						$	136.2		$	50.2		$	219.7		$	41.7		$	9.4		$	59.2		$	516.4
Long-term flows:
Sales/new accounts																						16.7			(0.1		)	24.6			5.2			0.1			3.8			50.3
Redemptions/terminations																						(12.9		)	—			(15.7		)	(4.0		)	(0.2		)	(1.4		)	(34.2		)
Cash flow/unreinvested dividends																						(1.8		)	(1.3		)	(2.8		)	(0.2		)	(0.4		)	1.0			(5.5		)
Net long-term inflows (outflows)																						2.0			(1.4		)	6.1			1.0			(0.5		)	3.4			10.6
Adjustments⁽³⁾																						—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation																						23.6			8.6			15.4			2.1			0.6			4.4			54.7
Net change																						25.6			7.2			21.1			2.6			0.1			7.8			64.4
Balance as of June 30, 2019																						$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8

Balance as of June 30, 2018																						$	147.2		$	53.8		$	225.9		$	41.6		$	10.1		$	61.2		$	539.8
Long-term flows:
Sales/new accounts																						33.9			2.9			38.5			8.8			0.1			6.7			90.9
Redemptions/terminations																						(23.4		)	(0.3		)	(32.5		)	(7.6		)	(0.6		)	(3.0		)	(67.4		)
Cash flow/unreinvested dividends																						(3.9		)	(3.0		)	(3.8		)	(0.6		)	(0.6		)	1.0			(10.9		)
Net long-term inflows (outflows)																						6.6			(0.4		)	2.2			0.6			(1.1		)	4.7			12.6
Adjustments⁽³⁾																						—			—			(0.4		)	(0.5		)	—			—			(0.9		)
Market appreciation																						8.0			4.0			13.1			2.6			0.5			1.1			29.3
Net change																						14.6			3.6			14.9			2.7			(0.6		)	5.8			41.0
Balance as of June 30, 2019																						$	161.8		$	57.4		$	240.8		$	44.3		$	9.5		$	67.0		$	580.8

Index

(1)Includes index and enhanced index services.

(2)Includes certain multi-asset solutions and services and certain alternative investments.

(3)Approximately $900 million of non-investment management fee earning taxable and tax-exempt money market assets

were removed from assets under management during the second quarter of 2019.

Net long-term inflows (outflows) for actively managed investment services as compared to passively managed investment services for the three-month, six-month and twelve-month periods ended June 30, 2019 are as follows:



	Periods Ended June 30, 2019
	Three-months			Six-months			Twelve-months
	(in billions)
Actively Managed
Equity	$	1.0		$	2.0		$	6.6
Fixed Income	7.0			7.1			2.8
Other	2.2			3.2			4.3
	10.2			12.3			13.7
Passively Managed
Equity	(0.6		)	(1.4		)	(0.4		)
Fixed Income	(0.2		)	(0.5		)	(1.1		)
Other	0.1			0.2			0.4
	(0.7		)	(1.7		)	(1.1		)
Total net long-term inflows	$	9.5		$	10.6		$	12.6

Average assets under management by distribution channel and investment service are as follows:



	Three Months Ended June 30,									Six Months Ended June 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in billions)									(in billions)
Distribution Channel:
Institutions	$	262.1	$	256.7	$	5.4		2.1	%	$	257.2	$	262.7	$	(5.5	)	(2.1	)%
Retail	207.3		191.0		16.3			8.6		200.1		192.7		7.4			3.9
Private Wealth Management	96.5		94.5		2.0			2.1		94.9		94.2		0.7			0.7
Total	$	565.9	$	542.2	$	23.7		4.4		$	552.2	$	549.6	$	2.6		0.5
Investment Service:
Equity Actively Managed	$	157.4	$	145.4	$	12.0		8.2	%	$	152.6	$	144.4	$	8.2		5.7	%
Equity Passively Managed⁽¹⁾	56.1		52.7		3.4			6.5		54.9		53.7		1.2			2.3
Fixed Income Actively Managed – Taxable	233.5		230.6		2.9			1.3		228.6		236.9		(8.3		)	(3.5	)
Fixed Income Actively Managed – Tax-exempt	44.1		41.1		3.0			7.3		43.3		40.8		2.5			6.0
Fixed Income Passively Managed⁽¹⁾	9.4		10.0		(0.6		)	(6.0	)	9.4		10.0		(0.6		)	(5.8	)
Other ⁽²⁾	65.4		62.4		3.0			4.6		63.4		63.8		(0.4		)	(0.7	)
Total	$	565.9	$	542.2	$	23.7		4.4		$	552.2	$	549.6	$	2.6		0.5

(1)Includes index and enhanced index services.

(2)Includes certain multi-asset solutions and services and certain alternative investments.

Net long-term inflows (outflows) for actively managed investment services as compared to passively managed investment services for the three-month, nine-month and twelve-month periods ended September 30, 2018 are as follows:

Periods Ended September 30, 2018
Three-months Nine-months Twelve-months
(in billions)
Actively Managed
Equity $ 2.9
$ 9.2
$ 9.2
Fixed Income (0.1 ) (14.5 ) (10.5 )
Other (0.3 ) (1.4 ) 0.2
2.5
(6.7 ) (1.1 )
Passively Managed

Equity (1.2 ) (2.5 ) (3.9 )
Fixed Income (0.1 ) 0.2
0.1
Other 0.1
0.2
0.2
(1.2 ) (2.1 ) (3.6 )
Total net long-term (outflows) $ 1.3
$ (8.8 ) $ (4.7 )

Index

~~Average assets under management by distribution channel and investment service are as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 $ Change % Change 2018 2017 $ Change % Change
(in billions) (in billions)
Distribution Channel:
Institutions $ 256.6
$ 257.1
$ (0.5 ) (0.2 )% $ 261.1
$ 250.1
$ 11.0
4.4 %
Retail 194.0
181.7
12.3
6.7
193.4
173.4
20.0
11.6
Private Wealth Management 96.3
87.8
8.5
9.7
95.0
85.3
9.7
11.4
Total $ 546.9
$ 526.6
$ 20.3
3.8
$ 549.5
$ 508.8
$ 40.7
8.0
Investment Service:

Equity Actively Managed $ 152.4
$ 128.0
$ 24.4
19.0 % $ 147.3
$ 121.9
$ 25.4
20.8 %
Equity Passively Managed⁽¹⁾
55.3
51.1
4.2
8.4
54.3
49.9
4.4
9.0
Fixed Income Actively Managed – Taxable 225.5
240.7
(15.2 ) (6.3 ) 233.4
233.4
—
—
Fixed Income Actively Managed – Tax-exempt 41.9
39.6
2.3
5.7
41.2
38.5
2.7
7.1
Fixed Income Passively Managed⁽¹⁾
10.0
9.9
0.1
0.5
10.0
10.4
(0.4 ) (4.1 )
Other ⁽²⁾
61.8
57.3
4.5
7.8
63.3
54.7
8.6
15.6
Total $ 546.9
$ 526.6
$ 20.3
3.8
$ 549.5
$ 508.8
$ 40.7
8.0

~~(1)Includes index and enhanced index services.~~

~~(2)Includes certain multi-asset solutions and services and certain alternative investments.~~

Our Institutional channel ~~third~~second quarter average AUM of ~~$256.6~~$262.1 billion ~~decreased $0.5~~increased $5.4 billion, or ~~0.2%~~2.1%, compared to the ~~third~~second quarter of ~~2017.~~2018. Our Institutional AUM ~~decreased $3.0~~increased $14.7 billion, or ~~1.2%~~5.8%, to ~~$257.0~~$269.1 billion over the last twelve months. The ~~$3.0 billion decrease in AUM primarily resulted from net outflows of $8.0 billion, offset by market appreciation of $4.7 billion.~~

Our Retail channel third quarter average AUM of $194.0 billion increased $12.3 billion, or 6.7%, compared to the third quarter of 2017, primarily due to our Retail AUM increasing $10.6 billion, or 5.7%, to $196.3 billion over the last twelve months. The $10.6 billion increase in AUM resulted from market appreciation of $10.3 billion and net inflows of $0.3 billion.

Our Private Wealth Management channel third quarter average AUM of $96.3 billion increased $8.5 billion, or 9.7%, compared to the third quarter of 2017, primarily due to our Private Wealth Management AUM increasing $7.9 billion, or 8.8%, to $97.1 billion over the last twelve months. The $7.9$14.7 billion increase in AUM primarily resulted from market appreciation of ~~$5.2~~$14.2 billion ~~and~~(with $8.3 million of the appreciation occurring in the second quarter of 2019).

Our Retail channel second quarter average AUM of $207.3 billion increased $16.3 billion, or 8.6%, compared to the second quarter of 2018. Our Retail AUM increased $24.2 billion, or 12.7%, to $214.5 billion over the last twelve months. The $24.2 billion increase resulted from net inflows of ~~$3.0 billion.~~$13.1 billion and market appreciation of $10.9 billion (with $6.7 billion of the appreciation occurring in the second quarter of 2019).

Our Private Wealth Management channel second quarter average AUM of $96.5 billion increased $2.0 billion, or 2.1%, compared to the second quarter of 2018. Our Private Wealth Management AUM increased $2.1 billion, or 2.2%, to $97.2 billion over the last twelve months. The $2.1 billion increase resulted from market appreciation of $4.2 billion, partially offset by net outflows of $0.8 million.

Index

Absolute investment composite returns, gross of fees, and relative performance as of ~~September~~June 30, ~~2018~~2019 compared to benchmarks for certain representative Institutional equity and fixed income services are as follows:


	1-Year		3-Year		5-Year		1-Year		3-Year		5-Year
Global High Income - Hedged (fixed income)
Absolute return	1.0	%	7.9	%	5.7	%	6.8	%	7.1	%	4.7	%
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged)	(0.1	)	—		(0.1	)	(2.0	)	(0.1	)	(0.4	)
U.S. High Yield (fixed income)
Absolute return	3.4		7.8		5.6		7.0		7.1		4.6
Relative return (vs. Bloomberg Barclays U.S. Corp. High Yield Index)	0.4		(0.4	)	0.1		(0.4	)	(0.4	)	(0.1	)
Global Plus - Hedged (fixed income)
Absolute return	0.4		3.1		3.8		8.0		3.6		4.2
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged)	(0.4	)	0.8		0.6		0.3		0.6		0.4
Intermediate Municipal Bonds (fixed income)
Absolute return	0.1		1.7		2.3		5.7		2.2		2.8
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg)	—		0.4		0.6		1.4		0.6		0.9
U.S. Strategic Core Plus (fixed income)
Absolute return	(0.6	)	2.5		3.2		7.9		3.2		3.7
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index)	0.7		1.2		1.1		0.1		0.9		0.8
Emerging Market Debt (fixed income)
Absolute return	(4.9	)	6.9		4.6		11.6		5.5		4.4
Relative return (vs. JPM EMBI Global/JPM EMBI)	(2.0	)	1.2		—		0.2		0.9		—
Emerging Markets Value
Absolute return	(4.1	)	10.8		3.3		3.0		9.7		1.8
Relative return (vs. MSCI EM Index)	(3.3	)	(1.6	)	(0.3	)	1.8		(1.0	)	(0.7	)
Global Strategic Value
Absolute return	2.3		10.6		8.4		(6.0	)	6.9		3.0
Relative return (vs. MSCI ACWI Index)	(7.4	)	(2.8	)	(0.3	)	(11.7	)	(4.7	)	(3.2	)
U.S. Small & Mid Cap Value
Absolute return	11.2		15.3		11.5		(4.7	)	10.1		6.3
Relative return (vs. Russell 2500 Value Index)	1.0		0.8		1.5		(2.8	)	1.1		0.8
U.S. Strategic Value
Absolute return	7.5		10.0		8.7		(1.6	)	7.0		3.8
Relative return (vs. Russell 1000 Value Index)	(1.9	)	(3.6	)	(2.0	)	10.0		(3.1	)	(3.7	)
U.S. Small Cap Growth
Absolute return	38.8		25.8		15.4		11.6		25.6		13.3
Relative return (vs. Russell 2000 Growth Index)	17.7		7.8		3.2		12.1		10.9		4.7
U.S. Large Cap Growth
Absolute return	24.9		20.1		18.3		14.6		20.4		16.1
Relative return (vs. Russell 1000 Growth Index)	(1.4	)	(0.4	)	1.7		3.1		2.3		2.7
U.S. Small & Mid Cap Growth
Absolute return	35.6		22.2		14.2		8.1		21.7		12.2
Relative return (vs. Russell 2500 Growth Index)	12.5		4.3		1.3		2.0		5.5		2.2
Concentrated U.S. Growth
Absolute return	21.5		17.3		15.2		23.8		21.9		14.3
Relative return (vs. S&P 500 Index)	3.6		—		1.3		13.4		7.7		3.5
Select U.S. Equity
Absolute return	19.8		17.1		14.1		10.0		14.6		11.0
Relative return (vs. S&P 500 Index)	1.9		(0.3	)	0.2		(0.4	)	0.4		0.3
Strategic Equities
Absolute return	17.4		15.4		13.3		10.5		13.8		10.7
Relative return (vs. Russell 3000 Index)	(0.2	)	(1.7	)	(0.1	)	1.5		(0.2	)	0.6
Global Core Equity
Absolute return	13.3		15.4		9.7		11.1		15.2		8.5
Relative return (vs. MSCI ACWI Index)	3.6		2.0		1.0		5.3		3.6		2.4

Index

Consolidated Results of Operations


	Three Months Ended September 30,											Nine Months Ended September 30,											Three Months Ended June 30,											Six Months Ended June 30,
	2018			2017			$ Change			% Change		2018			2017			$ Change			% Change		2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
	(in thousands, except per unit amounts)																						(in thousands, except per unit amounts)
Net revenues	$	850,176		$	812,150		$	38,026		4.7	%	$	2,562,701		$	2,379,380		$	183,321		7.7	%	$	857,799		$	844,738		$	13,061		1.5	%	$	1,653,261		$	1,712,525		$	(59,264	)	(3.5	)%
Expenses	636,357			650,123			(13,766		)	(2.1	)	1,936,747			1,888,504			48,243			2.6		673,579			655,274			18,305			2.8		1,300,890			1,300,390			500			—
Operating income	213,819			162,027			51,792			32.0		625,954			490,876			135,078			27.5		184,220			189,464			(5,244		)	(2.8	)	352,371			412,135			(59,764		)	(14.5	)
Income taxes	9,419			4,547			4,872			107.1		32,782			24,869			7,913			31.8		10,211			7,538			2,673			35.5		19,132			23,363			(4,231		)	(18.1	)
Net income	204,400			157,480			46,920			29.8		593,172			466,007			127,165			27.3		174,009			181,926			(7,917		)	(4.4	)	333,239			388,772			(55,533		)	(14.3	)
Net income of consolidated entities attributable to non-controlling interests	726			16,526			(15,800		)	(95.6	)	23,637			50,013			(26,376		)	(52.7	)	7,757			261			7,496			n/m		17,873			22,911			(5,038		)	(22.0	)
Net income attributable to AB Unitholders	$	203,674		$	140,954		$	62,720		44.5		$	569,535		$	415,994		$	153,541		36.9		$	166,252		$	181,665		$	(15,413	)	(8.5	)	$	315,366		$	365,861		$	(50,495	)	(13.8	)

Diluted net income per AB Unit	$	0.75		$	0.52		$	0.23		44.2		$	2.09		$	1.54		$	0.55		35.7		$	0.61		$	0.66		$	(0.05	)	(7.6	)	$	1.17		$	1.34		$	(0.17	)	(12.7	)

Distributions per AB Unit	$	0.76		$	0.58		$	0.18		31.0		$	2.25		$	1.66		$	0.59		35.5		$	0.63		$	0.69		$	(0.06	)	(8.7	)	$	1.19		$	1.49		$	(0.30	)	(20.1	)

Operating margin ⁽¹⁾	25.1		%	17.9		%						23.5		%	18.5		%						20.6		%	22.4		%						20.2		%	22.7		%

(1)Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues.

Index

Net income attributable to AB Unitholders for the three months ended ~~September~~June 30, ~~2018 increased $62.7~~2019 decreased $15.4 million, or ~~44.5%~~8.5%, from the three months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease primarily is due to (in millions):

Lower general and administrative expenses (including real estate charges) $ 40.0
Higher performance-based fees 36.6
Higher base advisory fees 30.4
Lower net income of consolidated entities attributable to non-controlling interests 15.8
Higher employee compensation and benefits (27.7 )
Lower investment gains (18.2 )
Lower Bernstein Research Services revenue (4.8 )
Higher income tax expense (4.9 )
Lower dividend and interest income, net of interest expense (3.4 )
Other (1.1 )
$ 62.7

~~Index~~



Lower performance-based fees	$	(24.0	)
Higher general and administrative expenses	(11.3		)
Higher net income of consolidated entities attributable to non-controlling interest	(7.5		)
Higher employee compensation and benefits expense	(5.5		)
Higher promotion and servicing expense	(5.4		)
Higher income tax expense	(2.7		)
Higher base advisory fees	22.3
Higher investment gains	10.7
Lower real estate charges	6.4
Other	1.6
	$	(15.4	)

Net income attributable to AB Unitholders for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased $153.5~~2019 decreased $50.5 million, or ~~36.9%~~13.8%, from the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease primarily is due to (in millions):

Higher base advisory fees $ 152.4
Higher performance-based fees 57.4
Lower general and administrative expenses (including real estate charges) 55.7
Lower net income of consolidated entities attributable to non-controlling interests 26.4
Higher other revenues 5.0
Higher employee compensation and benefits (80.1 )
Lower investment gains (41.3 )
Higher trade execution, marketing, T&E and other expenses (8.1 )
Higher income tax expense (7.9 )
Lower Bernstein Research Services revenues (6.4 )
Other 0.4
$ 153.5

~~Revenue Recognition~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Codification (“ASC”) 606,~~ ~~Revenue from Contracts with Customers~~, which outlines a single comprehensive revenue recognition model for all contracts with customers and supersedes most of the existing revenue recognition requirements. We adopted this new standard on January 1, 2018 on a modified retrospective basis for contracts that were not completed as of the date of adoption. This adoption method required an adjustment to the 2018 opening balance of partners’ capital for the cumulative effect of initially applying the new standard.

The new standard did not change the timing of revenue recognition for our base fees, distribution revenues, shareholder servicing fees and broker-dealer revenues. However, performance-based fees, which, prior to the adoption of ASC 606, were recognized at the end of the applicable measurement period when no risk of reversal remained, and carried-interest distributions received (considered performance-based fees), recorded as deferred revenues until no risk of reversal remained, are recognized earlier under the new standard, if it is probable that significant reversal of performance-based fees recognized will not occur.

On January 1, 2018, we recorded a cumulative effect adjustment, net of tax, of $35.0 million to partners’ capital in the condensed consolidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously received, net of revenue sharing payments to investment team members of $42.7 million, with respect to which it is probable that significant reversal will not occur. These amounts were included in adjusted net revenues and adjusted operating income in the first quarter of 2018. As such, we recognized $49.3 million of performance-based fees from two funds in liquidation that is not probable of significant reversal, that under the previous revenue accounting standard would not be recognized until final liquidation

~~Real Estate Charges~~

~~Since 2010, we have sub-leased over one million square feet of office space.~~

During the first nine months of 2018, we recorded pre-tax real estate charges of $6.5 million, resulting from changes in estimates pertaining to previously recorded real estate charges. During the first nine months of 2017, we recorded pre-tax real estate charges of $39.4 million, resulting from new charges of $40.2 million primarily relating to the further consolidation of office space at our New York offices, offset by changes in estimates related to previously recorded real estate charges of $0.8 million.



Lower performance-based fees	$	(25.9	)
Lower Bernstein Research Services revenue	(24.4		)
Higher general and administrative expenses	(8.0		)
Lower dividend and interest income, net of interest expense	(6.2		)
Lower distribution revenues	(4.3		)
Higher base advisory fees	6.6
Lower promotion and servicing expense	6.3
Lower real estate charges	6.1
Other	(0.7		)
	$	(50.5	)

Units Outstanding

~~Index~~

broker we select has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on our behalf in accordance with the terms of the plan. Repurchases are subject to regulations promulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. ~~The~~There was no plan adopted during either the ~~third~~first or second quarter ~~of 2018 expired at the close of business on October 22, 2018.~~2019. We may adopt additional plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program and for other corporate purposes.

Cash Distributions

We are required to distribute all of our Available Cash Flow, as defined in the AB Partnership Agreement, to our Unitholders and the General Partner. Available Cash Flow typically is the adjusted diluted net income per unit for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with concurrence of the Board of Directors, that one or more adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 76 to the condensed consolidated financial statements contained in Item 1 for a description of Available Cash Flow.

Index

Management Operating Metrics

We are providing the non-GAAP measures “adjusted net ~~revenues”,~~revenues,” “adjusted operating income” and “adjusted operating margin” because they are the principal operating metrics management uses in evaluating and comparing period-to-period operating performance. Management principally uses these metrics in evaluating performance because they present a clearer picture of our operating performance and allow management to see long-term trends without the distortion primarily caused by long-term incentive compensation-related mark-to-market adjustments, real estate consolidation charges and other adjustment items. Similarly, we believe that these management operating metrics help investors better understand the underlying trends in our results and, accordingly, provide a valuable perspective for investors.

These non-GAAP measures are provided in addition to, and not as substitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures presented by other companies. Management uses both accounting principles generally accepted in the United States of America (“US GAAP”) and non-GAAP measures in evaluating our financial performance. The non-GAAP measures alone may pose limitations because they do not include all of our revenues and expenses.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands, except per unit amounts)
Net revenues, US GAAP basis	$	857,799		$	844,738		$	1,653,261		$	1,712,525
Adjustments:
Impact of adoption of revenue recognition standard ASC 606	—			—			—			77,844
Distribution-related payments	(116,254		)	(106,301		)	(222,247		)	(216,455		)
Amortization of deferred sales commissions	(3,241		)	(6,113		)	(6,743		)	(12,711		)
Pass-through fees and expenses	(13,516		)	(10,487		)	(25,997		)	(21,096		)
Impact of consolidated company-sponsored funds	(8,697		)	(1,494		)	(19,657		)	(37,530		)
Long-term incentive compensation-related investment gains and dividend and interest	(1,525		)	(698		)	(6,168		)	(582		)
Other	—			47			—			47
Adjusted net revenues	$	714,566		$	719,692		$	1,372,449		$	1,502,042

Index

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
(in thousands, except per unit amounts)
Net revenues, US GAAP basis $ 850,176
$ 812,150
$ 2,562,701
$ 2,379,380
Adjustments:

Impact of adoption of revenue recognition standard ASC 606 —
—
77,844
—
Distribution-related payments (106,372 ) (106,106 ) (322,827 ) (300,951 )
Amortization of deferred sales commissions (4,651 ) (7,629 ) (17,362 ) (25,015 )
Pass-through fees and expenses (10,084 ) (9,759 ) (31,180 ) (29,868 )
Impact of consolidated company-sponsored funds (1,543 ) (23,368 ) (39,073 ) (71,222 )
Loss (gain) on sale of software technology investment 1,000
(361 ) 1,000
(4,593 )
Long-term incentive compensation-related investment gains and dividend and interest (1,383 ) (2,185 ) (1,965 ) (7,398 )
Other —
—
47
—
Adjusted net revenues⁽¹⁾
$ 727,143
$ 662,742
$ 2,229,185
$ 1,940,333

Operating income, US GAAP basis $ 213,819
$ 162,027
$ 625,954
$ 490,876
Adjustments:

Impact of adoption of revenue recognition standard ASC 606 —
—
35,156
—
Real estate (credits) charges (155 ) 18,655
6,490
39,400
Acquisition-related expenses —
1,462
—
2,012
Loss (gain) on software technology investment 1,000
(361 ) 1,000
(4,593 )
Long-term incentive compensation-related items 1,820
329
2,822
813
Other —
(193 ) 47
(193 )
Sub-total of non-GAAP adjustments 2,665
19,892
45,515
37,439
Less: Net income of consolidated entities attributable to non-controlling interests 726
16,526
23,637
50,013
Adjusted operating income 215,758
165,393
647,832
478,302
Adjusted income taxes 9,515
10,188
33,946
29,511
Adjusted net income 206,243
155,205
613,886
448,791

Diluted net income per AB Unit, GAAP basis $ 0.75
$ 0.52
$ 2.09
$ 1.54
Impact of non-GAAP adjustments 0.01
0.06
0.16
0.12
Adjusted diluted net income per AB Unit $ 0.76
$ 0.58
$ 2.25
$ 1.66

Adjusted operating margin⁽¹⁾
29.7 % 25.0 % 29.1 % 24.7 %

⁽¹⁾ Prior period adjusted net revenues and operating margin have been revised due to a GAAP reclassification of certain promotion and servicing expenses that impacted adjusted revenues previously presented.



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Operating income, US GAAP basis	$	184,220		$	189,464		$	352,371		$	412,135
Adjustments:
Impact of adoption of revenue recognition standard ASC 606	—			—			—			35,156
Real estate charges	—			6,909			—			6,645
Acquisition-related expenses	2,718			—			2,718			—
Long-term incentive compensation-related items	277			585			635			1,002
CEO's EQH award compensation	227			—			691			—
Other	—			47			—			47
Sub-total of non-GAAP adjustments	3,222			7,541			4,044			42,850
Less: Net income of consolidated entities attributable to non-controlling interests	7,757			261			17,873			22,911
Adjusted operating income	179,685			196,744			338,542			432,074
Adjusted income taxes	9,954			7,830			18,383			24,498
Adjusted net income	169,731			188,914			320,159			407,576

Diluted net income per AB Unit, GAAP basis	$	0.61		$	0.66		$	1.17		$	1.34
Impact of non-GAAP adjustments	0.02			0.03			0.01			0.15
Adjusted diluted net income per AB Unit	$	0.63		$	0.69		$	1.18		$	1.49

Adjusted operating margin	25.1		%	27.3		%	24.7		%	28.8		%

Adjusted operating income for the three months ended ~~September~~June 30, ~~2018 increased $50.4~~2019 decreased $17.1 million, or ~~30.5%~~8.7%, from the three months ended ~~September~~June 30, ~~2017,~~2018, primarily due to ~~higher~~lower performance-based fees of ~~$36.6~~$24.0 million, higher ~~investment advisory base fees of $30.3 million and lower~~ general and administrative expenses of ~~$13.8~~$6.8 million, ~~offset by~~ higher employee compensation and benefits expense (excluding the impact of long-term incentive compensation-related items) of ~~$27.0~~$4.1 million and higher net distribution expenses of $3.9 million, offset by higher investment advisory base fees of $19.1 million.

Adjusted operating income for the six months ended June 30, 2019 decreased $93.5 million, or 21.6%, from the six months ended June 30, 2018, primarily due to lower performance-based fees of $104.4 million, lower Bernstein Research Services revenue of $4.8 million. Adjusted operating income for the nine months ended September 30, 2018 increased $169.5 million, or 35.4%, from the nine months ended September 30, 2017, primarily due to higher investment advisory base fees of $154.7 million, higher performance-based fees of $135.2$24.4 million and ~~lower~~higher general and administrative expenses of ~~$14.4~~$12.4 million, offset by ~~higher~~lower employee compensation ~~and benefits~~ expense (excluding the impact of long-term incentive compensation-related

~~Index~~

items) of ~~$126.8~~$48.2 million ~~lower Bernstein Research Services revenue of $6.4 million and higher promotion and servicing expense of $5.7 million.~~(see discussion below).

On January 1, 2018, as a result of our adoption of ASC 606, we recorded a cumulative effect adjustment, net of tax, of $35.0 million to partners’ capital in the condensed consolidated statement of financial condition. This amount represents carried interest distributions of $77.9 million previously received, net of revenue sharing payments to investment team members of $42.7 million, with respect to which it is probable that significant reversal will not occur. These amounts were included in adjusted net revenues and adjusted operating income in the first quarter of 2018.

Adjusted Net Revenues

Adjusted net revenues offset distribution-related payments to third parties as well as amortization of deferred sales commissions against distribution revenues. We believe offsetting net revenues by distribution-related payments is useful for our investors and other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through payments to third parties ~~who~~that perform functions on behalf of our sponsored mutual funds and/or shareholders of these funds. We offset amortization of deferred sales commissions against net revenues because such costs, over time, essentially offset our distribution revenues. We also exclude additional pass-through expenses we incur (primarily through our transfer agency) that are reimbursed and recorded as fees in revenues. These fees do not affect operating income, but they do affect our operating margin. As such, we exclude these fees from adjusted net revenues.

We adjust for the revenue impact of consolidating company-sponsored investment funds by eliminating the consolidated company-sponsored investment funds' revenues and including AB's fees from such consolidated company-sponsored investment funds and

Index

AB's investment gains and losses on its investments in such consolidated company-sponsored investment funds that were eliminated in consolidation.

Adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments.

Adjusted net revenues include the impact of adoption of revenue recognition standard ASC 606 during the first quarter of 2018, discussed above.

During 2017, we excluded a realized gain of $4.6 million on the exchange of software technology for an ownership stake in a third party provider of financial market data and trading tools. During the third quarter of 2018, we wrote this investment down $1.0 million.

Adjusted Operating Income

Adjusted operating income represents operating income on a US GAAP basis excluding (1) real estate charges (credits), (2) acquisition-related expenses, (3) the impact on net revenues and compensation expense of the investment gains and losses (as well as the dividends and interest) associated with employee long-term incentive compensation-related investments, (4) our CEO's EQH award compensation, as discussed below, and (5) the impact of consolidated company-sponsored investment ~~funds, (5) loss (gain) on software technology investment, and (6) adjustments to contingent payment arrangements;~~funds; provided, however, that adjusted operating income includes the revenues and expenses associated with the implementation of ASC 606 during the first quarter of 2018 discussed above.

Real estate charges (credits) incurred outside of our headquarters relocation strategy have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers.

Acquisition-related expenses have been excluded because they are not considered part of our core operating results when comparing financial results from period to period and to industry peers.

Prior to 2009, a significant portion of employee compensation was in the form of long-term incentive compensation awards that were notionally invested in AB investment services and generally vested over a period of four years. AB economically hedged the exposure to market movements by purchasing and holding these investments on its balance sheet. All such investments had vested as of year-end 2012 and the investments have been delivered to the participants, except for those investments with respect to which the participant elected a long-term deferral. Fluctuation in the value of these investments is recorded within investment gains and losses on the income statement and also impacts compensation expense. Management believes it is useful to reflect the offset achieved from economically hedging the market exposure of these investments in the calculation of adjusted operating income and adjusted operating margin. The non-GAAP measures exclude gains and losses and dividends and interest on employee long-term incentive compensation-related investments included in revenues and compensation expense.

~~Index~~

The board of directors of EQH granted to Seth P. Bernstein (“CEO”) equity awards in connection with EQH's IPO and Mr. Bernstein's membership on the EQH Management Committee. Mr. Bernstein may receive additional equity or cash compensation from EQH in the future related to his service on the Management Committee. Any awards granted to Mr. Bernstein by EQH are recorded as compensation expense in AB’s condensed consolidated statement of income. The compensation expense associated with these awards has been excluded from our non-GAAP measures because they are non-cash and are based upon EQH's, and not AB's, financial performance.

We adjusted for the operating income impact of consolidating certain company-sponsored investment funds by eliminating the consolidated company-sponsored funds' revenues and expenses and including AB's revenues and expenses that were eliminated in consolidation. We also excluded the limited partner interests we do not own.

~~Gains and losses on the software technology investment has been excluded due to its non-recurring nature and because it is not part of our core operating results.~~

The recording of changes in estimates of contingent consideration payable with respect to contingent payment arrangements associated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded.

Adjusted Net Income and Adjusted Diluted Net Income per AB Unit

As previously discussed, our quarterly distribution is typically our adjusted diluted net income per unit (which is derived from adjusted net income) for the quarter multiplied by the number of general and limited partnership interests at the end of the quarter. Adjusted income taxes, used in calculating adjusted net income, are calculated using the GAAP effective tax rate adjusted for non-GAAP income tax adjustments.

Adjusted Operating Margin

Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the volatility noted above in our discussion of adjusted operating income and to compare our performance to industry peers on a basis that better reflects our performance in our core business. Adjusted operating margin is derived by dividing adjusted operating income by adjusted net revenues.

Index

Net Revenues

The adoption of ASC 606 had no significant impact on revenue recognition during the first nine months of 2018, except for the recognition of $49.3 million of performance fees from two funds in liquidation that is not probable of significant reversal, that under the previous revenue accounting standard would not be recognized until final liquidation. The components of net revenues are as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 $ Change % Change 2018 2017 $ Change % Change
(in thousands) (in thousands)
Investment advisory and services fees:
Institutions:
Base fees $ 110,501
$ 108,849
$ 1,652
1.5 % $ 338,372
$ 318,347
$ 20,025
6.3 %
Performance-based fees 9,973
1,140
8,833
774.8
14,737
7,818
6,919
88.5
120,474
109,989
10,485
9.5
353,109
326,165
26,944
8.3
Retail:

Base fees 252,884
240,006
12,878
5.4
750,860
673,286
77,574
11.5
Performance-based fees 1,371
229
1,142
498.7
16,406
13,652
2,754
20.2
254,255
240,235
14,020
5.8
767,266
686,938
80,328
11.7
Private Wealth Management:

Base fees 205,533
189,697
15,836
8.3
610,352
555,580
54,772
9.9
Performance-based fees 29,801
3,186
26,615
835.4
51,560
3,877
47,683
1,229.9
235,334
192,883
42,451
22.0
661,912
559,457
102,455
18.3
Total:

Base fees 568,918
538,552
30,366
5.6
1,699,584
1,547,213
152,371
9.8
Performance-based fees 41,145
4,555
36,590
803.3
82,703
25,347
57,356
226.3
610,063
543,107
66,956
12.3
1,782,287
1,572,560
209,727
13.3

Bernstein Research Services 103,581
108,385
(4,804 ) (4.4 ) 324,192
330,596
(6,404 ) (1.9 )
Distribution revenues 104,488
106,042
(1,554 ) (1.5 ) 317,610
302,745
14,865
4.9
Dividend and interest income 21,942
17,619
4,323
24.5
71,351
51,023
20,328
39.8
Investment gains (losses) 565
18,808
(18,243 ) (97.0 ) 26,860
68,122
(41,262 ) (60.6 )
Other revenues 24,012
24,902
(890 ) (3.6 ) 76,548
71,532
5,016
7.0
Total revenues 864,651
818,863
45,788
5.6
2,598,848
2,396,578
202,270
8.4
Less: Interest expense 14,475
6,713
7,762
115.6
36,147
17,198
18,949
110.2
Net revenues $ 850,176
$ 812,150
$ 38,026
4.7
$ 2,562,701
$ 2,379,380
$ 183,321
7.7

~~Index~~



	Three Months Ended June 30,									Six Months Ended June 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in thousands)									(in thousands)
Investment advisory and services fees:
Institutions:
Base fees	$	110,767	$	112,263	$	(1,496	)	(1.3	)%	$	220,847	$	227,871	$	(7,024	)	(3.1	)%
Performance-based fees	2,351		3,575		(1,224		)	(34.2	)	3,549		4,763		(1,214		)	(25.5	)
	113,118		115,838		(2,720		)	(2.3	)	224,396		232,634		(8,238		)	(3.5	)
Retail:
Base fees	260,923		247,370		13,553			5.5		502,908		497,976		4,932			1.0
Performance-based fees	4,404		13,524		(9,120		)	(67.4	)	4,558		15,035		(10,477		)	(69.7	)
	265,327		260,894		4,433			1.7		507,466		513,011		(5,545		)	(1.1	)
Private Wealth Management:
Base fees	213,387		203,177		10,210			5.0		413,552		404,819		8,733			2.2
Performance-based fees	4,532		18,199		(13,667		)	(75.1	)	7,544		21,760		(14,216		)	(65.3	)
	217,919		221,376		(3,457		)	(1.6	)	421,096		426,579		(5,483		)	(1.3	)
Total:
Base fees	585,077		562,810		22,267			4.0		1,137,307		1,130,666		6,641			0.6
Performance-based fees	11,287		35,298		(24,011		)	(68.0	)	15,651		41,558		(25,907		)	(62.3	)
	596,364		598,108		(1,744		)	(0.3	)	1,152,958		1,172,224		(19,266		)	(1.6	)

Bernstein Research Services	105,991		106,211		(220		)	(0.2	)	196,226		220,611		(24,385		)	(11.1	)
Distribution revenues	108,347		105,118		3,229			3.1		208,856		213,122		(4,266		)	(2.0	)
Dividend and interest income	27,654		21,194		6,460			30.5		55,000		49,409		5,591			11.3
Investment gains (losses)	10,949		213		10,736			n/m		26,684		26,295		389			1.5
Other revenues	24,796		26,026		(1,230		)	(4.7	)	47,002		52,536		(5,534		)	(10.5	)
Total revenues	874,101		856,870		17,231			2.0		1,686,726		1,734,197		(47,471		)	(2.7	)
Less: Interest expense	16,302		12,132		4,170			34.4		33,465		21,672		11,793			54.4
Net revenues	$	857,799	$	844,738	$	13,061		1.5		$	1,653,261	$	1,712,525	$	(59,264	)	(3.5	)

Investment Advisory and Services Fees

Investment advisory and services fees are the largest component of our revenues. These fees generally are calculated as a percentage of the value of AUM as of a specified date, or as a percentage of the value of average AUM for the applicable billing period, and vary with the type of investment service, the size of the account and the total amount of assets we manage for a particular client.

Index

Accordingly, fee income generally increases or decreases as AUM increases or decreases and is affected by market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, purchases and redemptions of mutual fund shares, shifts of assets between accounts or products with different fee structures, and acquisitions. Our average basis points realized (investment advisory and services fees divided by average AUM) generally approximate 4030 to 110 basis points for actively-managed equity services, 10 to 75 basis points for actively-managed fixed income services and 2 to 20 basis points for passively-managed services. Average basis points realized for other services could range from 5 basis points for certain Institutional asset allocation services to over 100 basis points for certain Retail and Private Wealth Management alternative services. These ranges include all-inclusive fee arrangements (covering investment management, trade execution and other services) for our Private Wealth Management clients.

We calculate AUM using established market-based valuation methods and fair valuation (non-observable market) methods. Market-based valuation methods include: last sale/settle prices from an exchange for actively-traded listed equities, options and futures; evaluated bid prices from recognized pricing vendors for fixed income, asset-backed or mortgage-backed issues; mid prices from recognized pricing vendors and brokers for credit default swaps; and quoted bids or spreads from pricing vendors and brokers for other derivative products. Fair valuation methods include: discounted cash flow models, evaluation of assets versus liabilities or any other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for more information regarding our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market-based valuation methods, such as in the case of private equity or illiquid securities.

We sometimes charge our clients performance-based fees. In these situations, we charge a base advisory fee and are eligible to earn an additional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. Some performance-based fees include a high-watermark provision, which generally provides that if a client account underperforms relative to its performance target (whether absolute or relative to a specified benchmark), it must gain back such underperformance before we can collect future performance-based fees. Therefore, if we fail to achieve our performance target for a particular period, we will not earn a performance-based fee for that period and, for accounts with a high-watermark provision, our ability to earn future performance-based fees will be impaired. We are eligible to earn performance-based fees on ~~7.2%~~7.8%, ~~7.3%~~9.4% and ~~1.0%~~0.8% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, ~~5.0%~~5.5% of our AUM).

For the three months ended ~~September~~June 30, ~~2018,~~2019, our investment advisory and services fees ~~increased~~decreased by ~~$67.0~~$1.7 million, or ~~12.3%~~0.3%, from the three months ended ~~September~~June 30, ~~2017,~~2018, primarily due to a ~~$30.4~~$24.0 million decrease in performance-based fees, offset by a $22.3 million, or 5.6%, increase in base fees, which primarily resulted from a 3.8% increase in average AUM. Additionally, performance-based fees increased $36.6 million. For the nine months ended September 30, 2018, our investment advisory and services fees increased by $209.7 million, or 13.3%, from the nine months ended September 30, 2017, primarily due to a $152.4 million, or 9.8%, increase in base fees, which primarily resulted from an 8.0% increase in average AUM. Additionally, performance-based fees increased $57.4 million. Performance-based fees of $34.5 million and $49.3 million for the three and nine months ended September 30, 2018, respectively, related to two funds in liquidation.

Institutional investment advisory and services fees for the three months ended September 30, 2018 increased by $10.5 million, or 9.5%, from the three months ended September 30, 2017, primarily due to an $8.8 million increase in performance-based fees. Additionally, base fees increased $1.7 million, or 1.5%. Institutional investment advisory and services fees for the nine months ended September 30, 2018 increased by $26.9 million, or 8.3%, from the nine months ended September 30, 2017, primarily due to a $20.0 million, or 6.3%4.0%, increase in base fees, which primarily resulted from a 4.4% increase in average AUM. For the six months ended June 30, 2019, our investment advisory and services fees decreased by $19.3 million, or 1.6%, from the six months ended June 30, 2018, primarily due to a $25.9 million decrease in performance-based fees, offset by a $6.6 million, or 0.6%, increase in base fees, which primarily resulted from a 0.5% increase in average AUM.

Institutional investment advisory and services fees for the three months ended June 30, 2019 decreased by $2.7 million, or 2.3%, from the three months ended June 30, 2018, due to a $1.5 million, or 1.3%, decrease in base fees and a $1.2 million decrease in performance-based fees. Institutional investment advisory and services fees for the six months ended June 30, 2019 decreased by $8.2 million, or 3.5%, from the six months ended June 30, 2018, primarily due to a $7.0 million, or 3.1%, decrease in base fees, which primarily resulted from a 2.1% decrease in average AUM. Additionally, performance-based fees ~~increased by $6.9~~decreased $1.2 million.

Retail investment advisory and services fees for the three months ended ~~September~~June 30, ~~2018~~2019 increased by ~~$14.0~~$4.4 million, or ~~5.8%~~1.7%, from the three months ended ~~September~~June 30, ~~2017,~~2018, due to ana increase in base fees of ~~$12.9~~$13.5 million, or ~~5.4%~~5.5%, primarily resulting

~~Index~~

from a ~~6.7%~~8.6% increase in average AUM. The increase was partially offset by a decrease in performance-based fees of $9.1 million. Retail investment advisory and services fees for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased~~2019 decreased by ~~$80.3~~$5.5 million, or ~~11.7%~~1.1%, from the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, due to a decrease in performance-based fees of $10.4 million. The decrease was partially offset by an increase in base fees of ~~$77.6~~$4.9 million, or ~~11.5%~~1.0%, primarily resulting from ~~an 11.6%~~a 3.9% increase in average AUM.

Private Wealth Management investment advisory and services fees for the three months ended ~~September~~June 30, ~~2018 increased~~2019 decreased by ~~$42.5~~$3.5 million, or ~~22.0%~~1.6%, from the three months ended ~~September~~June 30, ~~2017,~~2018, due to ~~an increase~~a decrease in performance-based fees of ~~$26.6~~$13.7 million. ~~Additionally,~~The decrease was partially offset by an increase in base fees ~~increased $15.8~~of $10.2 million, or ~~8.3%~~5.0%, primarily resulting from a ~~9.7%~~2.1% increase in average AUM. Private Wealth Management investment advisory and services fees for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased~~2019 decreased by ~~$102.5~~$5.5 million, or ~~18.3%~~1.3%, from the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, due to a decrease in performance-based fees of $14.2 million.

Index

The decrease was partially offset by an increase in base fees of ~~$54.8~~$8.7 million, or ~~9.9%~~2.2%, primarily resulting from ~~an 11.4%~~a 0.7% increase in average AUM. ~~In addition, performance-based fees increased by $47.7 million.~~

Bernstein Research Services

We earn revenues for providing investment research to, and executing brokerage transactions for, institutional clients. These clients compensate us principally by directing us to execute brokerage transactions on their behalf, for which we earn commissions, and to a lesser extent by paying us directly for research through commission sharing agreements or cash payments.

Revenues from Bernstein Research Services for the three months ended ~~September~~June 30, ~~2018~~2019 decreased ~~$4.8~~$0.2 million, or ~~4.4%~~0.2%, compared to the corresponding period in ~~2017, due to lower revenues~~2018, as a decline in ~~both the U.S.~~trading commissions following a period of heightened volatility and ~~Asia, mainly due to a volume shift towards lower priced electronic trading. The revenue decrease in the U.S. and Asia~~client activity last year was ~~partially~~ offset by higher research revenues ~~in Europe, which resulted~~and the inclusion of revenues from ~~an increase in hard dollar payments for research, partially offset by a strengthening U.S. dollar.~~our recent acquisition of Autonomous (which closed on April 1, 2019). For the six months ended June 30, 2019, Bernstein Research Services ~~revenues for the nine months ended September 30, 2018~~revenue decreased ~~$6.4~~$24.4 million, or ~~1.9%~~11.1%, compared to the corresponding period in ~~2017, due to lower revenues in the U.S., mainly~~2018 due to a ~~volume shift towards lower priced electronic trading. The revenue decrease~~decline in ~~the U.S. was offset by higher revenues in Asia, which resulted from higher volume~~trading commissions following a period of heightened volatility and an increase in hard dollar payments for research. Further, partially offsetting the decrease in U.S. revenue were higher revenues in Europe, which resulted from an increase in hard dollar payments for research,client activity last year, partially offset by ~~a strengthening U.S. dollar.~~

~~Global revenues continue to be negatively impacted by fee pressure due to unbundling~~the inclusion of ~~research payments.~~results from our recent acquisition of Autonomous.

Distribution Revenues

Two of our subsidiaries act as distributors and/or placing agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds.

Distribution revenues for the three months ended ~~September~~June 30, ~~2018 decreased $1.6~~2019 increased $3.2 million, or ~~1.5%~~3.1%, ascompared to the corresponding period in 2018, primarily due to the corresponding average AUM of these mutual funds ~~increased 2.0%~~increasing 5.1%, offset by the impact of a shift in product ~~mix. Average AUM of B-share and C-share~~mix from mutual funds ~~(which~~which have higher distribution rates ~~than A-share~~to mutual funds ~~as well as other funds not domiciled in~~with lower distribution rates. For the ~~U.S. or Luxembourg) decreased 20.2%, while average AUM of Japan and Taiwan domiciled funds increased 33.0%. Distribution revenues for the nine~~six months ended ~~September~~June 30, ~~2018 increased $14.9~~2019 distribution revenues decreased $4.3 million, or ~~4.9%,~~2.0% compared to the corresponding period in 2018, primarily due to ~~the increase in the corresponding average AUM of these mutual funds increasing 8.9%, offset by the impact of~~ a shift in product ~~mix. Average AUM of B-share and C-share~~mix from mutual funds ~~(which~~which have higher distribution ~~fee~~ rates ~~than A-share~~to mutual funds ~~as well as other funds not domiciled in the U.S. or Luxembourg) decreased 21.4%, while average AUM for A-share mutual funds increased 8.0% and Japan and Taiwan domiciled funds increased 39.7%.~~with lower distribution rates.

Dividend and Interest Income and Interest Expense

Dividend and interest income consists primarily of investment income and interest earned on customer margin balances and U.S. Treasury Bills as well as dividend and interest income in our consolidated company-sponsored investment funds. Interest expense principally reflects interest accrued on cash balances in customers’ brokerage accounts. Dividend and interest income, net of interest expense, for the three months ended ~~September~~June 30, ~~2018 decreased $3.4~~2019 increased $2.3 million, or ~~31.5%~~25.3%, compared to the corresponding period in ~~2017,~~2018, primarily due to higher dividend and interest income from our consolidated company-sponsored investment funds and higher broker dealer dividends and interest. For the six months ended June 30, 2019, dividend and interest income, net of interest expense, decreased $6.2 million, or 22.4%, compared to the corresponding period in 2018, primarily due to lower dividend and interest income in our consolidated company-sponsored investment funds, ~~due to a lower number of consolidated company-sponsored investment funds. For the nine months ended September 30, 2018 dividend~~offset by higher broker dealer dividends and ~~interest income, net of interest expense, increased $1.4 million, or 4.1%, compared to the corresponding periods in 2017.~~

~~Index~~

interest.

Investment Gains (Losses)

Investment gains (losses) consist primarily of realized and unrealized investment gains or losses on: (i) employee long-term incentive compensation-related investments, (ii) U.S. Treasury Bills, (iii) market-making in exchange-traded options and equities, (iv) seed capital investments, (v) derivatives and (vi) investments in our consolidated company-sponsored investment funds. Investments gains (losses) also include equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage.

Index

Investment gains (losses) are as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017			2019			2018			2019			2018
	(in thousands)												(in thousands)
Long-term incentive compensation-related investments
Realized gains (losses)	$	50		$	105		$	2,222		$	1,878		$	834		$	290		$	1,630		$	2,172
Unrealized gains (losses)	1,202			1,950			(637		)	5,082			554			253			4,255			(1,839		)

Investments held by consolidated company-sponsored funds
Realized gains (losses)	(1,458		)	9,788			1,375			38,169			2,039			1,150			1,935			2,833
Unrealized gains (losses)	3,292			14,512			23,755			33,062			10,243			(2,930		)	32,173			20,463

Seed capital investments
Realized gains (losses)
Seed capital	3,608			976			(885		)	21,871
Seed capital and other													806			(4,902		)	3,436			(4,494		)
Derivatives	(3,541		)	(4,797		)	(4,244		)	(20,251		)	(4,322		)	90			(18,116		)	(703		)
Unrealized gains (losses)
Seed capital	225			(3,245		)	5,597			(9,205		)
Seed capital and other													5,345			6,755			12,387			5,373
Derivatives	(2,200		)	(83		)	479			488			(4,761		)	(498		)	(10,714		)	2,679

Brokerage-related investments
Realized gains (losses)	(1,236		)	(447		)	(957		)	(2,895		)	(459		)	(183		)	(1,106		)	279
Unrealized gains (losses)	623			49			155			(77		)	670			188			804			(468		)
	$	565		$	18,808		$	26,860		$	68,122		$	10,949		$	213		$	26,684		$	26,295

Other Revenues

Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for administration and recordkeeping services provided to company-sponsored mutual funds and the general accounts of AXA, EQH and their respective subsidiaries, and other miscellaneous revenues. Other revenues for the three months ended ~~September~~June 30, ~~2018~~2019 decreased ~~$0.9~~$1.2 million, or ~~3.6%~~4.7%, compared to the corresponding period in ~~2017,~~2018, primarily due to lower ~~mutual fund reimbursements of $0.6 million.~~brokerage income. Other revenues for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased $5.0~~2019 decreased $5.5 million, or ~~7.0%~~10.5%, compared to the corresponding period in ~~2017,~~2018, primarily due to ~~higher~~lower brokerage income ~~of $2.0 million~~ and ~~higher~~lower shareholder servicing ~~fees of $1.9 million.~~fees.

Index

Expenses

The components of expenses are as follows:


	Three Months Ended September 30,											Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
	2018			2017			$ Change			% Change		2018		2017		$ Change			% Change		2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in thousands)											(in thousands)									(in thousands)									(in thousands)
Employee compensation and benefits	$	357,442		$	329,777		$	27,665		8.4	%	$	1,059,515	$	979,387	$	80,128		8.2	%	$	363,702	$	358,248	$	5,454		1.5	%	$	703,011	$	702,073	$	938		0.1	%
Promotion and servicing:																														��
Distribution-related payments	106,372			106,106			266			0.3		322,827		300,951		21,876			7.3		116,254		106,301		9,953			9.4		222,247		216,455		5,792			2.7
Amortization of deferred sales commissions	4,651			7,629			(2,978		)	(39.0	)	17,362		25,015		(7,653		)	(30.6	)	3,241		6,113		(2,872		)	(47.0	)	6,743		12,711		(5,968		)	(47.0	)
Trade execution, marketing, T&E and other	50,793			50,266			527			1.0		164,095		155,993		8,102			5.2		57,550		59,259		(1,709		)	(2.9	)	107,198		113,302		(6,104		)	(5.4	)
	161,816			164,001			(2,185		)	(1.3	)	504,284		481,959		22,325			4.6		177,045		171,673		5,372			3.1		336,188		342,468		(6,280		)	(1.8	)
General and administrative:
General and administrative	107,526			128,712			(21,186		)	(16.5	)	337,596		360,395		(22,799		)	(6.3	)	120,180		108,836		11,344			10.4		238,028		230,070		7,958			3.5
Real estate (credit) charges	(155		)	18,655			(18,810		)	(100.8	)	6,490		39,400		(32,910		)	(83.5	)
Real estate charges																					548		6,909		(6,361		)	(92.1	)	548		6,645		(6,097		)	(91.8	)
	107,371			147,367			(39,996		)	(27.1	)	344,086		399,795		(55,709		)	(13.9	)	120,728		115,745		4,983			4.3		238,576		236,715		1,861			0.8
Contingent payment arrangements	52			(140		)	192			(137.1	)	157		215		(58		)	(27.0	)	829		52		777			n/m		883		105		778			n/m
Interest	2,711			2,105			606			28.8		7,952		6,227		1,725			27.7		3,990		2,629		1,361			51.8		7,973		5,241		2,732			52.1
Amortization of intangible assets	6,965			7,013			(48		)	(0.7	)	20,753		20,921		(168		)	(0.8	)	7,285		6,927		358			5.2		14,259		13,788		471			3.4
Total	$	636,357		$	650,123		$	(13,766	)	(2.1	)	$	1,936,747	$	1,888,504	$	48,243		2.6		$	673,579	$	655,274	$	18,305		2.8		$	1,300,890	$	1,300,390	$	500		—

Employee Compensation and Benefits

Employee compensation and benefits consist of base compensation (including salaries and severance), annual short-term incentive compensation awards (cash bonuses), annual long-term incentive compensation awards, commissions, fringe benefits and other employment costs (including recruitment, training, temporary help and meals).

Compensation expense as a percentage of net revenues was ~~42.0% and 40.6%~~42.4% for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017, respectively.~~2018. Compensation expense as a percentage of net revenues was ~~41.3%~~42.5% and ~~41.2%~~41.0% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. Compensation expense generally is determined on a discretionary basis and is primarily a function of our firm’s current-year financial performance. The amounts of incentive compensation we award are designed to motivate, reward and retain top talent while aligning our executives' interests with the interests of our Unitholders. Senior management, with the approval of the Compensation and Workplace Practices Committee of the Board of Directors of AllianceBernstein Corporation (“Compensation Committee”), periodically confirms that the appropriate metric to consider in determining the amount of incentive compensation is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues. Adjusted net revenues used in the adjusted compensation ratio are the same as the adjusted net revenues presented as a non-GAAP measure (discussed earlier in this MD&A). Adjusted employee compensation and benefits expense is total employee compensation and benefits expense minus other employment costs such as recruitment, training, temporary help and meals (which were ~~1.2%~~1.1% and ~~1.1%~~1.2%,

~~Index~~

respectively, of adjusted net revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019 and ~~1.0%~~1.1% and ~~1.1%~~1.0%, respectively, of adjusted net revenues for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively)~~2018), and excludes the impact of mark-to-market vesting expense, as well as dividends and interest expense, associated with employee long-term incentive compensation-related ~~investments.~~investments and the amortization expense associated with the CEO's EQH awards. Senior management, with the approval of the Compensation Committee, has established

Index

as an objective that adjusted employee compensation and benefits expense generally should not exceed 50% of our adjusted net revenues, except in unexpected or unusual circumstances. Our ratio of adjusted compensation expense as a percentage of adjusted net revenues was ~~47.5% and 48.2%~~49.5% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019 and 48.5% ~~and 49.2%, respectively,~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

For the three months ended ~~September~~June 30, ~~2018,~~2019, employee compensation and benefits expense increased ~~$27.7~~$5.5 million, or ~~8.4%~~1.5%, compared to the three months ended ~~September~~June 30, ~~2017,~~2018, primarily due to higher ~~incentive compensation of $9.7 million, higher~~ base compensation of ~~$8.1 million, higher commissions of $6.6~~$12.0 million and higher fringes of ~~$1.2~~$6.3 million, offset by lower incentive compensation of $11.5 million and lower commissions of $1.4 million. For the ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2019, employee compensation and benefits expense increased ~~$80.1~~$0.9 million, or ~~8.2%~~0.1%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, primarily due to higher base compensation of $18.2 million and higher fringes of $9.0 million, offset by lower incentive compensation of ~~$51.8 million, higher commissions of $17.8 million, higher fringes of $4.6 million and higher base compensation of $3.0~~$26.0 million.

Promotion and Servicing

Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB mutual funds. Also included in this expense category are costs related to travel and entertainment, advertising and promotional materials.

Promotion and servicing expenses ~~decreased $2.2~~increased $5.4 million, or ~~1.3%~~3.1%, during the three months ended ~~September~~June 30, ~~2018~~2019 compared to the three months ended ~~September~~June 30, ~~2017.~~2018. The increase primarily was due to higher distribution-related payments of $10.0 million, offset by lower deferred sales commissions of $2.9 million and lower marketing and communication expenses of $1.4 million. Promotion and servicing expenses decreased $6.3 million, or 1.8%, during the six months ended June 30, 2019 compared to the six months ended June 30, 2018. The decrease primarily was due to lower amortization of deferred sales commissions of ~~$3.0~~$6.0 million, ~~and~~ lower ~~travel and entertainment expenses of $0.6 million, offset by higher~~ trade execution and clearing costs of ~~$0.5~~$4.8 million and ~~higher marketing expenses~~lower transfer fees of ~~$0.4 million. Promotion and servicing expenses increased $22.3~~$1.3 million, ~~or 4.6%, during the nine months ended September 30, 2018 compared to the nine months ended September 30, 2017. The increase primarily was due to~~offset by higher distribution-related payments of ~~$21.9 million, higher trade execution and clearing costs of $5.7 million and higher transfer fees of $2.4 million, offset by lower amortization of deferred sales commissions of $7.7~~$5.8 million.

General and Administrative

General and administrative expenses include portfolio services expenses, technology expenses, professional fees and office-related expenses (occupancy, communications and similar expenses). General and administrative expenses as a percentage of net revenues were ~~12.6%~~14.1% and ~~18.1% (15.8% excluding real estate charges)~~13.7% for the three months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. General and administrative expenses ~~decreased $40.0~~increased $5.0 million, or ~~27.1%~~4.3%, during the three months ended ~~September~~June 30, ~~2018~~2019 compared to the corresponding period in ~~2017,~~2018, primarily due to ~~a vendor termination accrual~~higher technology fees of ~~$19.7~~$3.8 million, ~~recorded in third quarter~~higher professional fees of ~~2017~~$2.2 million, higher occupancy costs of $1.8 million, higher portfolio service fees of $1.6 million and lower exchange rate gains of $0.8 million, offset by lower real estate charges of ~~$18.8~~$6.4 million. General and administrative expenses as a percentage of net revenues were ~~13.4% (13.2% excluding real estate charges)~~14.4% and ~~16.8% (15.1% excluding real estate charges)~~13.8% for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2019 and ~~2017,~~2018, respectively. General and administrative expenses ~~decreased $55.7~~increased $1.9 million, or ~~13.9%~~0.8%, during the first ~~nine~~six months of ~~2018~~2019 compared to the same period in ~~2017,~~2018, primarily due to higher professional fees of $8.9 million, offset by lower real estate charges of ~~$32.9 million and a vendor termination accrual of $19.7 million recorded in third quarter of 2017.~~$6.1 million.

Contingent Payment Arrangements

Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in previous periods, as well as accretion expense of these liabilities. There were no changes in the estimates during the first ~~nine~~six months of 2019 or 2018. The expense for the nine months ended September 30, 2017 reflects accretion expenses of $0.4 million, offset by a change in estimate of the contingent consideration payable relating to our 2010 acquisition of $0.2 million.

Income Taxes

AB, a private limited partnership, is not subject to federal or state corporate income taxes, but is subject to a 4.0% New York City unincorporated business tax (“UBT”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes, and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the foreign jurisdictions where they are located.

~~Index~~

Income tax expense for the three months ended ~~September~~June 30, ~~2018~~2019 increased ~~$4.9~~$2.7 million, or 35.5%, compared to the three months ended ~~September~~June 30, ~~2017.~~2018. The increase is due to ~~higher pre-tax income as well as~~ a higher effective tax rate in the current quarter of ~~4.4%~~5.5% compared to ~~2.8%~~4.0% in the ~~third~~second quarter of ~~2017,~~2018, driven by ~~an unfavorable increase in the~~a less favorable mix of earnings across the AB tax filing ~~group. The third quarter~~groups, as a result of ~~2018 effective tax rate includes a $5.3 million benefit from the reversal of a FIN 48 reserve which is no longer required.~~higher taxed foreign earnings versus lower taxed domestic earnings. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2018 increased $7.9~~2019 decreased $4.2 million, or ~~31.8%~~18.1%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. The ~~increase~~decrease is ~~due to higher pre-tax income as well~~driven by a more favorable mix of

Index

earnings, as a result of lower taxed domestic earnings versus higher ~~year-to-date effective~~taxed foreign earnings. There were no material changes to uncertain tax ~~rate of 5.2% compared to 5.1% in the first nine months of 2017, driven by an unfavorable increase in the mix of earnings across the AB~~positions (FIN 48 reserves) or valuation allowances against deferred tax ~~filing groups. No changes were made~~assets during the ~~first nine months of 2018 to the provisional amounts recorded as of December 31, 2017 relating to the 2017 Tax Cuts and Jobs Act.~~current year.

Net Income (Loss) of Consolidated Entities Attributable to Non-Controlling Interests

Net income (loss) of consolidated entities attributable to non-controlling interests primarily consists of limited partner interests owned by other investors in our consolidated company-sponsored investment funds. During the first ~~nine~~six months of ~~2018,~~2019, we had ~~$23.6~~$17.9 million of net gains of consolidated entities attributable to non-controlling interests compared to net gains of ~~$50.0~~$22.9 million during the first ~~nine~~six months of ~~2017.~~2018. Fluctuations period-to-period ~~are driven by~~result primarily from the number of consolidated company-sponsored investment funds and their respective market performance.

CAPITAL RESOURCES AND LIQUIDITY

During the first ~~nine~~six months of ~~2018 and 2017,~~2019, net cash provided by operating activities was ~~$1.1 billion in each~~$547.0 million, compared to $765.5 million during the corresponding 2018 period. The ~~decrease in~~change reflects net activity of our consolidated ~~investment~~ funds of ~~$157.2 million, higher cash provided by net income of $99.4~~$380.6 million and ~~an increase in net investments of $46.7 million driven by higher net purchases of seed capital offset by lower net redemptions of broker dealer investments, was offset by an increase~~a decrease in broker-dealer related ~~receivables~~payables (net of ~~payables~~receivables and segregated U.S. Treasury bills activity) of ~~$169.2~~$336.0 million, ~~and an increase in other assets~~offset by lower net purchases of ~~$101.3~~broker-dealer investments of $565.3 million.

During the first ~~nine~~six months of ~~2018,~~2019, net cash used in investing activities was ~~$27.0~~$6.0 million, compared to ~~$24.9~~$11.5 million during the corresponding ~~2017~~2018 period. The change is due to ~~higher purchases~~the acquisition of ~~furniture, equipment and leasehold improvements.~~Autonomous, net of cash acquired, of $5.3 million.

During the first ~~nine~~six months of ~~2018,~~2019, net cash used inby financing activities was ~~$1.5 billion,~~$473.1 million, compared to ~~$820.5 million~~$1.1 billion during the corresponding ~~2017~~2018 period. The change reflects ~~higher~~ net ~~redemptions~~subscriptions in consolidated company-sponsored investments funds compared to net redemptions in the corresponding 2018 period (impact of ~~$510.2 million, higher~~$564.9 million) and lower distributions to the General Partner and Unitholders of ~~$163.9~~$123.1 million as a result of ~~higher~~lower earnings (distributions on earnings are paid one quarter in arrears), ~~a decrease in overdrafts payable of $105.2 million, and repayment of bank loans in 2018 of $75.0 million. These changes were~~ partially offset by ~~lower~~the net repayments of commercial paper in 2019 compared to net issuances in 2018 (impact of ~~$123.1 million and lower repurchases of AB Holding Units of $51.5 million.~~$105.9 million).

As of ~~September~~June 30, ~~2018,~~2019, AB had ~~$607.1~~$710.3 million of cash and cash equivalents (excluding cash and cash equivalents of consolidated company-sponsored investment funds), all of which are available for liquidity, but consist primarily of cash on deposit for our broker-dealers related to ~~comply with~~ various customer clearing activities, and cash held by foreign subsidiaries of ~~$414.8~~$459.0 million.

Debt and Credit Facilities

~~On September 27, 2018,~~ AB ~~amended and restated the existing $1.0 billion~~has a $800.0 million committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, ~~reducing the principal amount to $800.0 million and extending the maturity to~~which matures on September 27, 2023. The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $200.0 million; any such increase is subject to the consent of the affected lenders. The Credit Facility is available for AB and Sanford C. Bernstein & Co., LLC ("SCB LLC") business purposes, including the support of AB’s commercial paper program. Both AB and SCB LLC can draw directly under the Credit Facility and management may draw on the Credit Facility from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Credit Facility.

~~Index~~

The Credit Facility contains affirmative, negative and financial covenants, which are customary for facilities of this type, including restrictions on dispositions of assets, restrictions on liens, a minimum interest coverage ratio and a maximum leverage ratio. As of ~~September~~June 30, ~~2018,~~2019, we were in compliance with these covenants. The Credit Facility also includes customary events of default (with customary grace periods, as applicable), including provisions under which, upon the occurrence of an event of default, all outstanding loans may be accelerated and/or ~~lender��s~~lender’s commitments may be terminated. Also, under such provisions, upon the occurrence of certain insolvency- or bankruptcy-related events of default, all amounts payable under the Credit Facility would automatically become immediately due and payable, and the lender’s commitments would automatically terminate.

Index

Amounts under the Credit Facility may be borrowed, repaid and re-borrowed by us from time to time until the maturity of the facility. Voluntary prepayments and commitment reductions requested by us are permitted at any time without fee (other than customary breakage costs relating to the prepayment of any drawn loans) upon proper notice and subject to a minimum dollar requirement. Borrowings under the Credit Facility bear interest at a rate per annum, which will be, at our option, a rate equal to an applicable margin, which is subject to adjustment based on the credit ratings of AB, plus one of the following indexes: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate.

As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we had no amounts outstanding under the Credit Facility. During the first ~~nine~~six months of ~~2018~~2019 and the full year ~~2017,~~2018, we did not draw upon the Credit Facility.

AB has a $200.0 million committed, unsecured ~~364-day~~ senior revolving credit facility (the "Revolver") with a leading international bank, ~~and the other lending institutions that may be party thereto,~~ which matures on November ~~28, 2018.~~16, 2021. The Revolver is available for AB's and SCB LLC's business purposes, including the provision of additional liquidity to meet funding requirements primarily related to SCB LLC's operations. Both AB and SCB LLC can draw directly under the Revolver and management expects to draw on the Revolver from time to time. AB has agreed to guarantee the obligations of SCB LLC under the Revolver. The Revolver contains affirmative, negative and financial covenants ~~that~~which are identical to those of the Credit Facility. As of ~~September~~June 30, ~~2018,~~2019, we had no amounts outstanding under the Revolver. As of December 31, ~~2017,~~2018, we had ~~$75.0~~$25.0 million outstanding under the Revolver with an interest rate of ~~2.4%~~3.4%. Average daily borrowing under the Revolver during the first ~~nine~~six months of ~~2018~~2019 and full year ~~2017~~2018 were ~~$16.7~~$33.0 million and ~~$21.4~~$19.4 million, respectively, with weighted average interest rates of approximately ~~2.7%~~3.4% and ~~2.0%~~2.8%, respectively.

In addition, SCB LLC currently has three uncommitted lines of credit with three financial institutions. Two of these lines of credit permit us to borrow up to an aggregate of approximately $175.0 million, with AB named as an additional borrower, while the other line has no stated limit. As of ~~September~~June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, SCB LLC had no bank loans outstanding. Average daily borrowings of bank loans during the first ~~nine~~six months of ~~2018~~2019 and full year ~~2017~~2018 were ~~$2.2~~$1.8 million and ~~$4.5~~$2.7 million, respectively, with weighted average interest rates of approximately ~~1.5%~~1.7% and ~~1.4%~~1.6%, respectively.

Our financial condition and access to public and private debt markets should provide adequate liquidity for our general business needs. Management believes that cash flow from operations and the issuance of debt and AB Units or AB Holding Units will provide us with the resources we need to meet our financial obligations. See “Cautions Regarding Forward-Looking Statements”.

COMMITMENTS AND CONTINGENCIES

AB’s capital commitments, which consist primarily of operating leases for office space, generally are funded from future operating cash flows.

During ~~October 2018,~~April 2019, we signed a lease, which commences in ~~mid-2020,~~2024, relating to ~~205,000~~approximately 190,000 square feet of space ~~at our new Nashville headquarters.~~in New York City. Our estimated total base rent obligation (excluding taxes, operating expenses and utilities) over the 1520 year ~~initial~~ lease term is approximately ~~$125~~$448 million.

AsDuring 2010, as general partner of AllianceBernstein U.S. Real Estate L.P. (“Real Estate Fund”), we committed to invest $25.0 million in the Real Estate Fund. As of ~~September~~June 30, ~~2018,~~2019, we had funded ~~$22.3~~$22.4 million of this commitment. AsDuring 2014, as general partner of AllianceBernstein U.S. Real Estate II L.P. (“Real Estate Fund II”), we committed to invest $28.0 million, as amended in 2015, in Real Estate Fund II. As of ~~September~~June 30, ~~2018,~~2019, we had funded ~~$13.4~~$18.8 million of this commitment.

See Note 1312 for discussion of contingencies.

CRITICAL ACCOUNTING ESTIMATES

The preparation of the condensed consolidated financial statements and notes to condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.

There have been no updates to our critical accounting estimates from those disclosed in “Management’s Discussion and Analysis of Financial Condition” in our Form 10-K for the year ended December 31, ~~2017.~~2018.

ACCOUNTING PRONOUNCEMENTS

See Note 2 to AB’s condensed consolidated financial statements contained in Item 1.

~~Index~~

Index

CAUTIONS REGARDING FORWARD-LOOKING STATEMENTS

Certain statements provided by management in this report and in the portion of AB’s Form 10-Q attached hereto as Exhibit 99.1 are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. The most significant of these factors include, but are not limited to, the following: the performance of financial markets, the investment performance of sponsored investment products and separately-managed accounts, general economic conditions, industry trends, future acquisitions, integration of acquired companies, competitive conditions and government regulations, including changes in tax regulations and rates and the manner in which the earnings of publicly-traded partnerships are taxed. We caution readers to carefully consider such factors. Further, these forward-looking statements speak only as of the date on which such statements are made; we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see “Risk Factors” in Part I, Item 1A of our Form 10-K for the year ended December 31, ~~2017~~2018 and Part II, Item 1A in this Form 10-Q. Any or all of the forward-looking statements that we make in our Form 10-K, this Form 10-Q, other documents we file with or furnish to the SEC, and any other public statements we issue, may turn out to be wrong. It is important to remember that other factors besides those listed in “Risk Factors” and those listed below could also adversely impact our revenues, financial condition, results of operations and business prospects.

The forward-looking statements referred to in the preceding paragraph, most of which directly affect AB but also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB, include statements regarding:

Our belief that the cash flow AB Holding realizes from its investment in AB will provide AB Holding with the resources it needs to meet its financial obligations: AB Holding’s cash flow is dependent on the quarterly cash distributions it receives from AB. Accordingly, AB Holding’s ability to meet its financial obligations is dependent on AB’s cash flow from its operations, which is subject to the performance of the capital markets and other factors beyond our control.

Our financial condition and ability to access the public and private capital markets providing adequate liquidity for our general business needs: Our financial condition is dependent on our cash flow from operations, which is subject to the performance of the capital markets, our ability to maintain and grow client assets under management and other factors beyond our control. Our ability to access public and private capital markets on reasonable terms may be limited by adverse market conditions, our firm’s credit ratings, our profitability and changes in government regulations, including tax rates and interest rates.

The outcome of litigation: Litigation is inherently unpredictable, and excessive damage awards do occur. Though we have stated that we do not expect any pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a ~~pending or future~~ legal proceeding could be significant, and could have such an effect.

The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases.

Our determination that adjusted employee compensation expense should not exceed 50% of our adjusted net revenues: Aggregate employee compensation reflects employee performance and competitive compensation levels. Fluctuations in our revenues and/or changes in competitive compensation levels could result in adjusted employee compensation expense exceeding 50% of our adjusted net revenues.

Our Relocation Strategy: While the expenses, expense savings and EPU impact we expect will result from our Relocation Strategy are presented with numerical specificity, and we believe these figures to be reasonable as of the date of this report, the uncertainties surrounding the assumptions on which our estimates are based create a significant risk that our current estimates may not be realized. These assumptions include:

the amount and timing of employee relocation costs, severance and overlapping compensation and occupancy costs we experience; and

Index

the timing for execution of each phase of our relocation implementation plan.

Our 2020 Margin ~~Target:~~Target ~~While~~: We previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020, ~~Margin Target is presented with numerical specificity,~~subject to the assumptions, factors and ~~we believe the target to be reasonable~~contingencies described as part of the ~~date~~initial disclosure of this ~~report,~~target. Our adjusted operating margin, which was 29.1% during 2018, declined to 24.7% during the ~~uncertainties surrounding~~first six months of 2019.

Our AUM and, therefore, our investment advisory revenues, including performance-based fee revenues, are heavily dependent upon the ~~assumptions on which~~level and volatility of the financial markets. Based upon our current revenue and expense projections, we do not believe that achieving the 2020 Margin Target is ~~based create a significant risk that these assumptions may not be realized. These assumptions include:~~

~~the levels~~likely. However, we are taking additional actions to better align our expenses with our lower expected revenues. We remain committed to achieving an adjusted operating margin of ~~positive net flows into our investment services;~~

~~the level of growth (in terms of additional AUM)~~30% in ~~our alternatives product business;~~

~~the rate of increase~~years subsequent to 2020 and will take continued actions in ~~our fixed costs due~~this regard, subject to ~~inflation and similar factors, the transitional costs related to our relocation strategy~~prevailing market conditions and the ~~timing~~evolution of such costs, the success we have in achieving planned new cost reductions (including those relating to our relocation strategy) and the timing of such cost reductions, and the investments we make in our business; and

~~general conditions of the markets in which~~ our business ~~operates, including modest appreciation in both equity and fixed income total investment returns.~~mix.

Index


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in AB’s market risk from the information provided under “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A of AB's Form 10-K for the year ended December 31, ~~2017.~~2018.


Item 4.	Controls and Procedures

Disclosure Controls and Procedures

Each of AB Holding and AB maintains a system of disclosure controls and procedures that is designed to ensure that information required to be disclosed in our reports under the Exchange Act is (i) recorded, processed, summarized and reported in a timely manner, and (ii) accumulated and communicated to management, including the Chief Executive Officer ("CEO") and the Chief Financial Officer ("CFO"), to permit timely decisions regarding our disclosure.

As of the end of the period covered by this report, management carried out an evaluation, under the supervision and with the participation of the CEO and the CFO, of the effectiveness of the design and operation of the disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the ~~third~~second quarter of ~~2018~~2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Index

Part II

OTHER INFORMATION


Item 1.	Legal Proceedings

See Note 1312 to the condensed consolidated financial statements contained in Part I, Item 1.


Item 1A.	Risk Factors

In AB’s 10-K for the year ended December 31, 2017, we indicated that our revenues and results of operations depend on the market value and composition of our AUM, which can fluctuate significantly based on various factors. We then described these factors, one of which, market factors, has evolved significantly during October 2018.

Market volatility has accelerated significantly during October 2018 and has accelerated October, resulting from increasing concerns about global trade wars, the slowing pace of global growth, inflation and more aggressive monetary policy in the U.S. These factors may adversely impact the global economy and the capital markets, as a result of which our AUM and revenues would be expected to decline.

~~Otherwise, there~~There have been no material changes in our risk factors from those disclosed in AB’s Form 10-K for the year ended December 31, ~~2017.~~

2018.


Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

There were no AB Units sold by AB in the period covered by this report that were not registered under the Securities Act.

AB Units bought by us or one of our affiliates during the ~~third~~second quarter of ~~2018~~2019 are as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

Period
Total Number
of AB Holding Units
Purchased

Average Price
Paid Per
AB Holding Unit, net of
Commissions

Total Number of
AB Holding Units Purchased as
Part of Publicly
Announced Plans
or Programs

Maximum Number
(or Approximate
Dollar Value) of
AB Holding Units that May Yet
Be Purchased Under
the Plans or
Programs
7/1/18 - 7/31/18 —
$ —
—
—
8/1/18 - 8/31/18 —
—
—
—
9/1/18 - 9/30/18 796
30.21
—
—
Total 796
$ 30.21
—
—



Period	Total Number of AB Holding Units Purchased	Average Price Paid Per AB Holding Unit, net of Commissions		Total Number of AB Holding Units Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of AB Holding Units that May Yet Be Purchased Under the Plans or Programs
4/1/19 - 4/30/19	—	$	—	—	—
5/1/19 - 5/31/19	—	—		—	—
6/1/19 - 6/30/19⁽¹⁾	582	27.92		—	—
Total	582	$	27.92	—	—

⁽¹⁾ During June 2019, AB purchased 582 AB units in private transactions.


Item 3.	Defaults Upon Senior Securities

None.


Item 4.	Mine Safety Disclosures

None.

Index


Item 5.	Other Information

Iran Threat Reduction and Syria Human Rights Act

AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act, (“~~Iran Act”),~~ nor were they involved in the AXA Group matters described immediately ~~below.~~below.

The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see Note 1 to the condensed financial statements in Part 1, Item 1.1 of this Form 10-Q.

AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, providesaccident and health insurance to diplomats based at the Iranian ~~embassy~~Embassy in Berlin, Germany. The total annual premium of these policies is approximately ~~$139,700 before tax~~$109,150 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be ~~$24,272.~~

AXA has informed us that AXA Belgium, an AXA insurance subsidiary organized under the laws of Belgium, has two policies providing for car insurance for Global Trading NV, who were designated on 17th May 2018 under (E.O.) 13224, and subsequently changed its name to Energy Engineers Procurement & Construction on August 20, 2018. The total annual premium of these policies is approximately $6,559 before tax and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $983.$18,385.

In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian Embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $7,115 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $853.

Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of the Republic of Turkey, provides car insurance coverage for vehicle pools and compulsory earthquake coverage of the Iranian General Consulate and the Iranian Embassy in Istanbul, Turkey. Motor ~~third party~~ liability insurance coverage is compulsory in Turkey and cannot be canceled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473.

Additionally, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, disability and accident coverage for its employees. In addition, AXA Winterthur also provides car and property insurance coverage for the Iranian Embassy in Bern. The provision of these forms of coverage is mandatory in Switzerland. The total annual premium of these policies is approximately $396,597 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $59,489.

~~In addition,~~Also, AXA has informed us that AXA Egypt, an AXA insurance subsidiary organized under the laws of Egypt, provides the Iranian state-owned Iran Development Bank, two life insurance contracts, covering individuals who have loans with the bank. The total annual premium of these policies is approximately ~~$19,839~~$20,650 and annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $2,000.

~~Furthermore,~~Lastly, AXA has informed us that AXA XL, which AXA acquired during the third quarter of 2018, through various non-U.S. subsidiaries, provides insurance to marine policyholders located outside of the U.S. or reinsurance coverage to non-U.S. insurers of marine risks as well as mutual associations of ship owners that provide their members with protection and liability coverage. The provision of these coverages may involve entities or activities related to Iran, including transporting crude oil, petrochemicals and refined petroleum products. AXA XL’s non-U.S. subsidiaries insure or reinsure multiple voyages and fleets containing multiple ships, so they are unable to attribute gross revenues and net profits from such marine policies to activities with Iran. As the activities of these insureds and ~~reinsureds~~re-insureds are permitted under applicable laws and regulations, AXA XL intends for

~~Index~~

its non-U.S. subsidiaries to continue providing such coverage to its insureds and ~~reinsureds~~re-insureds to the extent permitted by applicable law.

Lastly, a non-U.S. subsidiary of AXA XL provided accident & health insurance coverage to the diplomatic personnel of the Embassy of Iran in Brussels, Belgium during the third quarter of 2018. AXA XL’s non-U.S. subsidiary received no payments for this insurance during the three months ended September 30, 2018 and the aggregate payments received by this non-U.S. subsidiary for this insurance from inception through the three months ended September 30, 2018 are approximately $73,451. Benefits of approximately $2,994 were paid to beneficiaries during the three months ended September 30, 2018. These activities are permitted pursuant to applicable law. The policy has been cancelled and is no longer in force.

The aggregate annual premium for the above-referenced insurance policies is approximately ~~$646,411,~~$536,662, representing approximately 0.0007% of AXA’s ~~2017~~2018 consolidated revenues, which exceed $100 billion. The related net profit, which is difficult to calculate with precision, is estimated to be ~~$88,070,~~$81,200, representing approximately 0.002% of AXA’s ~~2017~~2018 aggregate net profit.

Index


Item 6.	Exhibits



31.1		Certification of Mr. Bernstein furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Mr. Weisenseel furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Mr. Bernstein furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Mr. Weisenseel furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase.

101.LAB		XBRL Taxonomy Extension Label Linkbase.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase.

101.DEF		XBRL Taxonomy Extension Definition Linkbase.

Index

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Date:	~~October 24, 2018~~July 25, 2019	ALLIANCEBERNSTEIN L.P.

		By:	/s/ John C. Weisenseel
			John C. Weisenseel
			Chief Financial Officer

		By:	/s/ William R. Siemers
			William R. Siemers
			Chief Accounting Officer

6359



	Nine Months Ended September 30, 2018			Twelve Months Ended December 31, 2017
	(in thousands)
Balance as of beginning of period	$	113,635		$	112,932
Expense incurred	6,490			28,507
Deferred rent	—			7,083
Payments made	(32,868		)	(39,122		)
Interest accretion	3,284			4,235
Balance as of end of period	$	90,541		$	113,635



	Periods Ended September 30, 2018
	Three-months			Nine-months			Twelve-months
	(in billions)
Actively Managed
Equity	$	2.9		$	9.2		$	9.2
Fixed Income	(0.1		)	(14.5		)	(10.5		)
Other	(0.3		)	(1.4		)	0.2
	2.5			(6.7		)	(1.1		)
Passively Managed
Equity	(1.2		)	(2.5		)	(3.9		)
Fixed Income	(0.1		)	0.2			0.1
Other	0.1			0.2			0.2
	(1.2		)	(2.1		)	(3.6		)
Total net long-term (outflows)	$	1.3		$	(8.8	)	$	(4.7	)



Lower general and administrative expenses (including real estate charges)	$	40.0
Higher performance-based fees	36.6
Higher base advisory fees	30.4
Lower net income of consolidated entities attributable to non-controlling interests	15.8
Higher employee compensation and benefits	(27.7		)
Lower investment gains	(18.2		)
Lower Bernstein Research Services revenue	(4.8		)
Higher income tax expense	(4.9		)
Lower dividend and interest income, net of interest expense	(3.4		)
Other	(1.1		)
	$	62.7



Higher base advisory fees	$	152.4
Higher performance-based fees	57.4
Lower general and administrative expenses (including real estate charges)	55.7
Lower net income of consolidated entities attributable to non-controlling interests	26.4
Higher other revenues	5.0
Higher employee compensation and benefits	(80.1		)
Lower investment gains	(41.3		)
Higher trade execution, marketing, T&E and other expenses	(8.1		)
Higher income tax expense	(7.9		)
Lower Bernstein Research Services revenues	(6.4		)
Other	0.4
	$	153.5