Part I

FINANCIAL INFORMATION

Item 1.    Financial Statements

Exhibit 99.1

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Financial Condition

(in thousands, except unit amounts)

(unaudited)

	June 30, 2019		December 31, 2018
ASSETS
Cash and cash equivalents	$	710,335	$	640,206
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	172,457		197,048
Brokerage clients	1,715,075		1,718,629
AB funds fees	191,216		217,470
Other fees	133,006		127,462
Investments:
Long-term incentive compensation-related	48,906		52,429
Other	175,797		661,915
Assets of consolidated company-sponsored investment funds:
Cash and cash equivalents	10,665		13,118
Investments	470,435		351,696
Other assets	28,619		22,840
Furniture, equipment and leasehold improvements, net	146,616		155,519
Goodwill	3,076,926		3,066,700
Intangible assets, net	72,848		79,424
Deferred sales commissions, net	20,714		17,148
Right-of-use assets	398,966		—
Other assets	311,836		297,940
Total assets	$	8,794,006	$	8,789,098
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND CAPITAL
Liabilities:
Payables:
Brokers and dealers	$	263,603	$	290,960
Securities sold not yet purchased	5,404		8,623
Brokerage clients	2,686,086		3,095,458
AB mutual funds	72,058		74,599
Accounts payable and accrued expenses	229,606		412,313
Lease liabilities	515,664		—
Liabilities of consolidated company-sponsored investment funds	35,583		22,610
Accrued compensation and benefits	453,802		273,250
Debt	442,425		546,267
Total liabilities	4,704,231		4,724,080

1

	June 30, 2019			December 31, 2018
Commitments and contingencies (See Note 12)
Redeemable non-controlling interest	215,634			148,809
Capital:
General Partner	40,016			40,240
Limited partners: 268,815,565 and 268,850,276 units issued and outstanding	4,053,360			4,075,306
Receivables from affiliates	(9,839		)	(11,430		)
AB Holding Units held for long-term incentive compensation plans	(100,453		)	(77,990		)
Accumulated other comprehensive loss	(109,963		)	(110,866		)
Partners’ capital attributable to AB Unitholders	3,873,121			3,915,260
Non-redeemable non-controlling interests in consolidated entities	1,020			949
Total capital	3,874,141			3,916,209
Total liabilities, redeemable non-controlling interest and capital	$	8,794,006		$	8,789,098

See Accompanying Notes to Condensed Consolidated Financial Statements.

2

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Income

(in thousands, except per unit amounts)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Revenues:
Investment advisory and services fees	$	596,364	$	598,108	$	1,152,958	$	1,172,224
Bernstein research services	105,991		106,211		196,226		220,611
Distribution revenues	108,347		105,118		208,856		213,122
Dividend and interest income	27,654		21,194		55,000		49,409
Investment gains (losses)	10,949		213		26,684		26,295
Other revenues	24,796		26,026		47,002		52,536
Total revenues	874,101		856,870		1,686,726		1,734,197
Less: Interest expense	16,302		12,132		33,465		21,672
Net revenues	857,799		844,738		1,653,261		1,712,525
Expenses:
Employee compensation and benefits	363,702		358,248		703,011		702,073
Promotion and servicing:
Distribution-related payments	116,254		106,301		222,247		216,455
Amortization of deferred sales commissions	3,241		6,113		6,743		12,711
Trade execution, marketing, T&E and other	57,550		59,259		107,198		113,302
General and administrative:
General and administrative	120,180		108,836		238,028		230,070
Real estate charges	548		6,909		548		6,645
Contingent payment arrangements	829		52		883		105
Interest on borrowings	3,990		2,629		7,973		5,241
Amortization of intangible assets	7,285		6,927		14,259		13,788
Total expenses	673,579		655,274		1,300,890		1,300,390
Operating income	184,220		189,464		352,371		412,135
Income taxes	10,211		7,538		19,132		23,363
Net income	174,009		181,926		333,239		388,772
Net income of consolidated entities attributable to non-controlling interests	7,757		261		17,873		22,911
Net income attributable to AB Unitholders	$	166,252	$	181,665	$	315,366	$	365,861
Net income per AB Unit:
Basic	$	0.61	$	0.66	$	1.17	$	1.34
Diluted	$	0.61	$	0.66	$	1.17	$	1.34

See Accompanying Notes to Condensed Consolidated Financial Statements.

3

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Income

(in thousands)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Net income	$	174,009		$	181,926		$	333,239		$	388,772
Other comprehensive income (loss):
Foreign currency translation adjustment, before reclassification and tax	(2,178		)	(20,656		)	452			(10,735		)
Less: reclassification adjustment for (losses) included in net income upon liquidation	—			(100		)	—			(100		)
Foreign currency translation adjustments, before tax	(2,178		)	(20,556		)	452			(10,635		)
Income tax expense	(73		)	—			(150		)	—
Foreign currency translation adjustments, net of tax	(2,251		)	(20,556		)	302			(10,635		)
Changes in employee benefit related items:
Amortization of prior service cost	6			5			12			11
Recognized actuarial gain	285			286			552			568
Changes in employee benefit related items	291			291			564			579
Income tax benefit (expense)	25			2			35			(116		)
Employee benefit related items, net of tax	316			293			599			463
Other	—			374			—			374
Other comprehensive (loss) income	(1,935		)	(19,889		)	901			(9,798		)
Less: Comprehensive income in consolidated entities attributable to non-controlling interests	7,774			220			17,870			22,887
Comprehensive income attributable to AB Unitholders	$	164,300		$	161,817		$	316,270		$	356,087

See Accompanying Notes to Condensed Consolidated Financial Statements.

4

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		)

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	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.

6

ALLIANCEBERNSTEIN L.P. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	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		)

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	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	(473,098		)	(1,093,974		)
Effect of exchange rate changes on cash and cash equivalents	(179		)	(6,039		)
Net increase (decrease) in cash and cash equivalents	67,676			(345,997		)
Cash and cash equivalents as of beginning of the period	653,324			998,448
Cash and cash equivalents as of end of the period	$	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.

8

ALLIANCEBERNSTEIN L.P.

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

June 30, 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, 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 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.

9

Organization

During the second quarter of 2018, AXA completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings, most recently during the second quarter of 2019. As a result, AXA owned 40.1% of the outstanding common stock of EQH as of June 30, 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 June 30, 2019, EQH owned approximately 4.2% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding 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 June 30, 2019, the ownership structure of AB, including limited partnership units outstanding as well as the general partner's 1% interest, was as follows:

EQH and its subsidiaries	63.7	%
AB Holding	35.6
Unaffiliated holders	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 65.2% economic interest in AB as of June 30, 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, 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 2019, prior period amounts for revenues related to our middle market lending business have been reclassified from other 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

10

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 February 2016, the Financial Accounting Standards Board ("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 a lessee to record most leases on 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 previous lease accounting guidance. We adopted this new standard on January 1, 2019 using the 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 this standard. These included continuing to 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 in the transition period (using our most up-to-date information).

Adoption of this standard resulted in the recording of operating right-of-use assets and lease liabilities 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 net of deferred rent of $50.0 million and liabilities associated with previously recognized impairments of $85.8 million. See Note 13, Leases, for 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 financial statements issued for fiscal years beginning after December 15, 2019, with early adoption permitted. Management currently is evaluating the impact 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.

11

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 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.

Leases

We determine if an arrangement is a lease at inception. Both operating and finance leases are included in the right-of-use (“ROU”) assets and lease liabilities in our condensed consolidated statement of financial condition.

ROU assets represent our right to use an underlying asset for the 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 the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available as of the 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 that an option will be exercised.

When calculating the measurement of ROU assets and lease liabilities, we utilize the fixed payments associated with the lease and do not include other variable contractual obligations, such as operating expenses, real estate taxes and employee parking. These costs are accounted for as period costs and expensed as incurred.

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 Other.

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3. Revenue Recognition

Revenues for the three and six months ended June 30, 2019 and 2018 consisted of the following:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
Subject to contracts with customers:
Investment advisory and services fees
Base fees	$	585,077	$	562,810	$	1,137,307	$	1,130,666
Performance-based fees	11,287		35,298		15,651		41,558
Bernstein research services	105,991		106,211		196,226		220,611
Distribution revenues
All-in-management fees	68,494		64,329		130,267		131,077
12b-1 fees	20,182		22,075		39,768		44,609
Other	19,671		18,714		38,821		37,436
Other revenues
Shareholder servicing fees	19,563		18,985		37,393		38,515
Other	4,496		5,781		8,514		11,534
	834,761		834,203		1,603,947		1,656,006
Not subject to contracts with customers:
Dividend and interest income, net of interest     expense	11,352		9,062		21,535		27,737
Investment gains (losses)	10,949		213		26,684		26,295
Other revenues	737		1,260		1,095		2,487
	23,038		10,535		49,314		56,519
Total net revenues	$	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 six months ended June 30, 2019, we purchased 2.0 million AB Holding Units for $58.6 million (on a trade date basis). As there were no open-market purchases during the second quarter of 2019, these amounts reflect open-market purchases of 1.9 million AB Holding Units for $55.2 million 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 delivery of long-term incentive compensation awards. During the three and six months ended June 30, 2018, AB purchased approximately 1.2 million and 1.2 million AB Holding Units for $32.9 million and $35.2 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 1.2 million AB Holding Units for $32.9 million 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

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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. There was no plan adopted during the first or second quarter of 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 six months of 2019 and 2018, we granted to employees and Eligible Directors 1.7 million and 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 six months of 2019 and 2018, AB Holding issued 0.4 million and 0.5 million AB Holding Units, respectively, upon exercise of options to buy AB Holding Units. AB Holding used the proceeds of $9.0 million and $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. 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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands, except per unit amounts)
Net income attributable to AB Unitholders	$	166,252	$	181,665	$	315,366	$	365,861
Weighted average limited partnership units outstanding – basic	268,475		270,564		267,909		269,870
Dilutive effect of compensatory options to buy AB Holding Units	48		272		60		303
Weighted average limited partnership units outstanding – diluted	268,523		270,836		267,969		270,173
Basic net income per AB Unit	$	0.61	$	0.66	$	1.17	$	1.34
Diluted net income per AB Unit	$	0.61	$	0.66	$	1.17	$	1.34

For both the three and six months ended June 30, 2019, we excluded 29,056 options from the diluted net income computation due to their anti-dilutive effect. For the three and six months ended June 30, 2018 , we excluded 850,155 options and 1,211,906 options, respectively, from the diluted net income computation due to their anti-dilutive effect.

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

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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 July 25, 2019, the General Partner declared a distribution of $0.63 per AB Unit, representing a distribution of Available Cash Flow for the three months ended June 30, 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 August 22, 2019 to holders of record on August 5, 2019.

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

As of June 30, 2019 and December 31, 2018, $1.1 billion and $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.

8. Investments

Investments consist of:
	June 30, 2019		December 31, 2018
	(in thousands)
U.S. Treasury Bills	$	—	$	392,424
Equity securities:
Long-term incentive compensation-related	34,956		38,883
Seed capital	84,947		105,951
Other	14,917		73,409
Exchange-traded options	2,291		2,568
Investments in limited partnership hedge funds:
Long-term incentive compensation-related	13,950		13,546
Seed capital	52,881		67,153
Time deposits	8,487		8,783
Other	12,274		11,627
Total investments	$	224,703	$	714,344

Total investments related to long-term incentive compensation obligations of $48.9 million and $52.4 million as of June 30, 2019 and December 31, 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.

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. 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. See Note 14, Consolidated Company-Sponsored Investment Funds, for a description of the seed capital investments that we consolidate. As of June 30, 2019 and December 31, 2018, our total seed capital investments were $398.9 million and $391.6 million, respectively. Seed capital investments in unconsolidated company-sponsored investment funds are valued using

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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.

The portion of unrealized gains (losses) related to equity securities, as defined by ASC 321-10, held as of June 30, 2019 and 2018 were as follows:

	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

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 ASC 815-10, Derivatives and Hedging.

The notional value and fair value as of June 30, 2019 and December 31, 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
	Notional Value		Asset Derivatives		Liability Derivatives
	(in thousands)
June 30, 2019:
Exchange-traded futures	$	185,680	$	220	$	3,075
Currency forwards	90,925		7,116		7,241
Interest rate swaps	95,146		1,885		2,537
Credit default swaps	150,244		2,211		5,832
Total return swaps	98,083		39		2,644
Total derivatives	$	620,078	$	11,471	$	21,329
December 31, 2018:
Exchange-traded futures	$	218,657	$	1,594	$	2,534
Currency forwards	87,019		7,647		7,582
Interest rate swaps	112,658		1,649		1,959
Credit default swaps	94,657		2,888		2,685
Total return swaps	99,038		3,301		62
Total derivatives	$	612,029	$	17,079	$	14,822

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As of June 30, 2019 and December 31, 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.

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)
Exchange-traded futures	$	(3,436	)	$	717		$	(8,551	)	$	1,542
Currency forwards	(75		)	257			(115		)	274
Interest rate swaps	(331		)	(7		)	(645		)	267
Credit default swaps	(1,465		)	(169		)	(3,805		)	(95		)
Total return swaps	(3,810		)	(1,217		)	(15,766		)	(40		)
Net (losses) gains on derivative instruments	$	(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 June 30, 2019 and December 31, 2018, we held $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 June 30, 2019 and December 31, 2018, we delivered $6.9 million and $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 June 30, 2019 and December 31, 2018, we held $2.3 million and $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 June 30, 2019 and December 31, 2018, we held $2.2 million and $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 six months ended June 30, 2019, we recognized $3.5 million and $11.1 million, respectively, of losses on equity option activity. For the three and six months ended June 30, 2018, we recognized $4.7 million and $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.

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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 June 30, 2019 and December 31, 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
	(in thousands)
June 30, 2019:
Securities borrowed	$	70,481	$	—	$	70,481	$	(69,582	)	$	—		$	899
Derivatives	$	11,471	$	—	$	11,471	$	—		$	(280	)	$	11,191
Long exchange-traded options	$	2,291	$	—	$	2,291	$	—		$	—		$	2,291
December 31, 2018:
Securities borrowed	$	64,856	$	—	$	64,856	$	(64,217	)	$	—		$	639
Derivatives	$	17,079	$	—	$	17,079	$	—		$	(4,831	)	$	12,248
Long exchange-traded options	$	2,568	$	—	$	2,568	$	—		$	—		$	2,568

Offsetting of liabilities as of June 30, 2019 and December 31, 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
	(in thousands)
June 30, 2019:
Securities loaned	$	—	$	—	$	—	$	—		$	—		$	—
Derivatives	$	21,329	$	—	$	21,329	$	—		$	(6,881	)	$	14,448
Short exchange-traded options	$	2,177	$	—	$	2,177	$	—		$	—		$	2,177
December 31, 2018:
Securities loaned	$	59,526	$	—	$	59,526	$	(59,526	)	$	—		$	—
Derivatives	$	14,822	$	—	$	14,822	$	—		$	(4,458	)	$	10,364
Short exchange-traded options	$	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.

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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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

	Level 1		Level 2		Level 3		NAV Expedient(1)		Other		Total
June 30, 2019:
Money markets	$	114,136	$	—	$	—	$	—	$	—	$	114,136
Securities segregated (U.S. Treasury Bills)	—		1,109,589		—		—		—		1,109,589
Derivatives	220		11,251		—		—		—		11,471
Investments
U.S. Treasury Bills	—		—		—		—		—		—
Equity securities	126,007		8,378		117		318		—		134,820
Long exchange-traded options	2,291		—		—		—		—		2,291
Limited partnership hedge funds(2)	—		—		—		—		66,831		66,831
Time deposits(3)	—		—		—		—		8,487		8,487
Other investments	5,374		—		—		—		6,900		12,274
Total investments	133,672		8,378		117		318		82,218		224,703
Total assets measured at fair value	$	248,028	$	1,129,218	$	117	$	318	$	82,218	$	1,459,899
Securities sold not yet purchased
Short equities – corporate	$	3,227	$	—	$	—	$	—	$	—	$	3,227
Short exchange-traded options	2,177		—		—		—		—		2,177
Derivatives	3,075		18,254		—		—		—		21,329
Contingent payment arrangements	—		—		25,603		—		—		25,603
Total liabilities measured at fair value	$	8,479	$	18,254	$	25,603	$	—	$	—	$	52,336

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	Level 1		Level 2		Level 3		NAV Expedient(1)		Other		Total
December 31, 2018:
Money markets	$	102,888	$	—	$	—	$	—	$	—	$	102,888
Securities segregated (U.S. Treasury Bills)	—		1,169,554		—		—		—		1,169,554
Derivatives	1,594		15,485		—		—		—		17,079
Investments
U.S. Treasury Bills	—		392,424		—		—		—		392,424
Equity securities	209,414		8,372		142		315		—		218,243
Long exchange-traded options	2,568		—		—		—		—		2,568
Limited partnership hedge funds(2)	—		—		—		—		80,699		80,699
Time deposits(3)	—		—		—		—		8,783		8,783
Other investments	4,269		—		—		—		7,358		11,627
Total investments	216,251		400,796		142		315		96,840		714,344
Total assets measured at fair value	$	320,733	$	1,585,835	$	142	$	315	$	96,840	$	2,003,865
Securities sold not yet purchased
Short equities – corporate	$	4,841	$	—	$	—	$	—	$	—	$	4,841
Short exchange-traded options	3,782		—		—		—		—		3,782
Derivatives	2,534		12,288		—		—		—		14,822
Contingent payment arrangements	—		—		7,336		—		—		7,336
Total liabilities measured at fair value	$	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.

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

• 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

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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.

• 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 six months ended June 30, 2019, we had a transfer of $3.2 million from Level 2 to Level 1; there were no transfers between Level 2 and Level 3 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 June 30,					Six Months Ended June 30,
	2019		2018			2019			2018
	(in thousands)
Balance as of beginning of period	$	115	$	1,071		$	142		$	1,071
Purchases	—		—			—			—
Sales	—		—			—			—
Realized gains (losses), net	—		—			—			—
Unrealized gains (losses), net	2		(954		)	(25		)	(954		)
Balance as of end of period	$	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.

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, 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 June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
	(in thousands)
Balance as of beginning of period	$	7,390	$	10,908	$	7,336	$	10,855
Addition	17,384		—		17,384		—
Accretion	829		52		883		105
Payments	—		—		—		—
Balance as of end of period	$	25,603	$	10,960	$	25,603	$	10,960

During 2018, we amended the contingent payment relating to our 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 contingent consideration in the fourth quarter of 2018. As of June 30, 2019 and December 31, 2018, acquisition-related contingent liabilities with a fair value of $25.6 million and $7.3 million, respectively, remain relating to our 2019 and 2016

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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 was valued using a revenue growth rate of 26% and a discount rate ranging from 3.2% to 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 six months ended June 30, 2019 or during the year ended December 31, 2018.

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.

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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. 

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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	—

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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:

	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.

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

	Level 1		Level 2		Level 3		NAV Expedient		Total
June 30, 2019:
Investments - VIEs	$	27,049	$	266,235	$	10,783	$	—	$	304,067
Investments - VOEs	95,439		69,878		1,051		—		166,368
Derivatives - VIEs	1,454		2,575		—		—		4,029
Derivatives - VOEs	145		972		—		—		1,117
Total assets measured at fair value	$	124,087	$	339,660	$	11,834	$	—	$	475,581
Derivatives - VIEs	317		3,686		—		—		4,003
Derivatives - VOEs	345		922		—		—		1,267
Total liabilities measured at fair value	$	662	$	4,608	$	—	$	—	$	5,270
December 31, 2018:
Investments - VIEs	$	22,149	$	187,626	$	8,065	$	—	$	217,840
Investments - VOEs	68,063		65,485		308		—		133,856
Derivatives - VIEs	1,486		1,924		—		—		3,410
Derivatives - VOEs	124		3,692		—		—		3,816
Total assets measured at fair value	$	91,822	$	258,727	$	8,373	$	—	$	358,922
Derivatives - VIEs	$	72	$	3,819	$	—	$	—	$	3,891
Derivatives - VOEs	197		3,633		—		—		3,830
Total liabilities measured at fair value	$	269	$	7,452	$	—	$	—	$	7,721

See Note 11 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.

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 June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)
Balance as of beginning of period	$	10,261		$	5,901		$	8,373		$	2,264
Transfers (out) in	(89		)	337			(186		)	324
Purchases	5,680			2,100			7,791			6,134
Sales	(4,065		)	(2,290		)	(4,349		)	(2,623		)
Realized gains (losses), net	21			(104		)	23			(99		)
Unrealized gains (losses), net	20			(75		)	169			(133		)
Accrued discounts	6			2			13			4
Balance as of end of period	$	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.

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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.

Derivative Instruments

As of June 30, 2019 and December 31, 2018, the VIEs held $0.1 million and $0.5 million (net), respectively, of futures, forwards and swaps within their portfolios. For the three and six months ended June 30, 2019, we recognized $1.6 million and $2.7 million of gains, respectively, on these derivatives. For the three and six months ended June 30, 2018 we recognized $15.8 million and $0.9 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 VIEs held $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 June 30, 2019 and December 31, 2018, the VOEs delivered $0.8 million and $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.

Offsetting Assets and Liabilities

Offsetting of derivative assets of consolidated company-sponsored investment funds as of June 30, 2019 and December 31, 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
	(in thousands)
June 30, 2019:
Derivatives - VIEs	$	4,029	$	—	$	4,029	$	—	$	(1,351	)	$	2,678
Derivatives - VOEs	$	1,117	$	—	$	1,117	$	—	$	(422	)	$	695
December 31, 2018:
Derivatives - VIEs	$	3,410	$	—	$	3,410	$	—	$	(856	)	$	2,554
Derivatives - VOEs	$	3,816	$	—	$	3,816	$	—	$	(225	)	$	3,591

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Offsetting of derivative liabilities of consolidated company-sponsored investment funds as of June 30, 2019 and December 31, 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
	(in thousands)
June 30, 2019:
Derivatives - VIEs	$	4,003	$	—	$	4,003	$	—	$	(2,690	)	$	1,313
Derivatives - VOEs	$	1,267	$	—	$	1,267	$	—	$	(824	)	$	443
December 31, 2018:
Derivatives - VIEs	$	3,891	$	—	$	3,891	$	—	$	(829	)	$	3,062
Derivatives - VOEs	$	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 June 30, 2019, the net assets of company-sponsored investment products that are non-consolidated VIEs are approximately $100.9 billion, and our maximum risk of loss is our investment of $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 six-month period ended June 30, 2019 were as follows:

Outstanding as of December 31, 2018	268,850,276
Options exercised	406,235
Units issued	2,068,514
Units retired (1)	(2,509,460	)
Balance as of June 30, 2019	268,815,565

⁽¹⁾ Includes 882 AB Units purchased in private transactions and retired during the first six months of 2019.

16. Debt

As of June 30, 2019 and December 31, 2018, AB had $444.1 million and $523.2 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 2.7% for both periods. Debt included in the statement of financial condition is presented net of issuance costs of $1.7 million and $1.9 million as of June 30, 2019 and December 31, 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 six months of 2019 and the full year 2018 were $516.7 million and $350.3 million, respectively, with weighted average interest rates of approximately 2.7% and 2.0%, respectively.

AB has a $200.0 million committed, unsecured senior revolving credit facility (the "Revolver") with a leading international bank, which matures on November 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 which are identical to those of AB's $800.0 million committed, unsecured senior revolving credit facility. As of

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

17. Non-controlling Interests

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

	Three Months Ended June 30,					Six Months Ended June 30,
	2019		2018			2019		2018
	(in thousands)
Non-redeemable non-controlling interests:
Consolidated company-sponsored investment funds	$	—	$	(11	)	$	—	$	(53	)
Other	58		73			74		171
Total non-redeemable non-controlling interests	58		62			74		118
Redeemable non-controlling interests:
Consolidated company-sponsored investment funds	7,699		199			17,799		22,793
Total non-controlling interest in net income	$	7,757	$	261		$	17,873	$	22,911

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

	June 30, 2019		December 31, 2018
	(in thousands)
Consolidated company-sponsored investment funds	$	—	$	—
CPH	1,020		949
Total non-redeemable non-controlling interest	$	1,020	$	949

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

	June 30, 2019		December 31, 2018
	(in thousands)
Consolidated company-sponsored investment funds	$	212,746	$	145,921
CPH	2,888		2,888
Total redeemable non-controlling interest	$	215,634	$	148,809

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

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

Executive Overview

Our total assets under management (“AUM”) as of June 30, 2019 were $580.8 billion, up $26.1 billion, or 4.7%, compared to March 31, 2019, and up $41.0 billion, or 7.6%, compared to June 30, 2018. During the second quarter of 2019, AUM increased as a result of market appreciation of $17.5 billion and net inflows of $9.5 billion (Retail net inflows of $5.9 billion and Institutional net inflows of $4.2 billion, offset by net outflows of $0.6 billion for Private Wealth Management). During the twelve months ended June 30, 2019, AUM increased as a result of market appreciation of $29.3 billion and net inflows of $12.6 billion (Retail net inflows of $13.1 billion and Institutional net inflows of $0.3 billion, offset by net outflows of $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 2019, due to market appreciation of $8.3 billion and net inflows of $4.2 billion. Gross sales increased sequentially from $3.4 billion during the first quarter of 2019 to $5.5 billion during the second quarter of 2019. Redemptions and terminations decreased sequentially from $5.2 billion to $1.3 billion.

Retail AUM increased $12.6 billion, or 6.2%, to $214.5 billion during the second quarter of 2019, due to market appreciation of $6.7 billion and net inflows of $5.9 billion. Gross sales increased sequentially from $16.4 billion during the first quarter of 2019 to $18.8 billion during the second quarter of 2019. Redemptions and terminations increased sequentially from $10.1 billion to $11.2 billion.

Private Wealth Management AUM increased $1.0 billion, or 1.0%, to $97.2 billion during the second quarter of 2019, due to market appreciation of $2.5 billion, offset by adjustments of $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 $3.3 billion during the first quarter of 2019 to $3.0 billion during the second quarter of 2019. Redemptions and terminations increased sequentially from $2.9 billion to $3.6 billion.

Bernstein Research Services revenue for the second quarter of 2019 was $106.0 million, down $0.2 million, or 0.2%, compared to the second quarter of 2018, as a decline in trading commissions following a period of heightened volatility and client activity last year was offset by higher research revenues and the inclusion of revenues from our recent acquisition of Autonomous.

Net revenues for the second quarter of 2019 increased $13.1 million, or 1.5%, to $857.8 million from $844.7 million in the second quarter of 2018. The most significant contributors to the increase were higher investment advisory base fees of $22.3 million, higher investment gains of $10.7 million and higher distribution revenue of $3.2 million, offset by lower performance-based fees of $24.0 million. Operating expenses for the second quarter of 2019 increased $18.3 million, or 2.8%, to $673.6 million from $655.3 million in the second quarter of 2018. The increase was primarily due to higher general and administrative expenses of $11.3 million, higher employee compensation and benefits expenses of $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 decreased $5.2 million, or 2.8%, to $184.2 million from $189.4 million and our operating margin declined to 20.6% in the second quarter of 2019 from 22.4% in the second quarter of 2018.

Market Environment

Global equity and fixed income markets were higher in the second quarter of 2019, despite intra-quarter volatility, and added to year-to-date strength as the 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. 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 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 would be loosened, unless the economy improves, with further quantitative easing and interest rates reduced further into negative territory if necessary. In China, reserve requirements for banks have been reduced multiple times since 2018 and large amounts of liquidity have been injected into the financial system.

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MiFID II

In Europe, MiFID II, which became effective on January 3, 2018, has made significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications are believed to have significantly reduced the overall research spend by European buy-side firms, which has decreased the revenues we derive from our European clients. Our European clients may continue to reduce their research budgets, which could result in a significant decline in our sell-side revenues.

Also, while MiFID II is not applicable to firms operating outside of Europe, competitive and client pressures may force buy-side firms operating outside of 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 an additional significant decline in 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 and decrease our operating income.

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

AXA Equitable Holdings IPO

During the second quarter of 2018, AXA completed the sale of a minority stake in EQH through an initial public offering ("IPO"). Since then, AXA has completed additional offerings, most recently during the second quarter of 2019. As a result, AXA owned 40.1% of the outstanding common stock of EQH as of June 30, 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.

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, such 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 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/returns and (iii) subject to applicable fiduciary duties.

Relocation Strategy

On May 2, 2018, we announced that we would establish our corporate headquarters in, and relocate approximately 1,050 jobs 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 began in 2018 and is expected to continue through 2024, we currently estimate that we will incur transition costs of approximately $155 million to $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 $190 million to $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 net income per unit ("EPU") during the transition period will be approximately $0.08 in 2019. We expect to achieve a slight accretion in EPU in 2021 and then achieve EPU accretion in each year thereafter. Beginning in 2025, once the transition period has been completed, 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

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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 are 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.

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.

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” and “Cautions Regarding Forward-Looking Statements” in this 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 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 previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020 (the “2020 Margin Target”), subject to the assumptions, factors and contingencies described as part of the initial disclosure of this target. Our adjusted operating margin, which was 29.1% during 2018, declined to 24.7% during the first six months of 2019.

Our AUM and, therefore, our investment advisory revenues, including performance-based fee revenues, are heavily dependent upon the 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 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 30% in years subsequent to 2020 and will take continued actions in this regard, subject to prevailing market conditions and the evolution of our business mix.

33

Assets Under Management

Assets under management by distribution channel are as follows:

	As of June 30,
	2019		2018		$ Change		% Change
	(in billions)
Institutions	$	269.1	$	254.4	$	14.7	5.8	%
Retail	214.5		190.3		24.2		12.7
Private Wealth Management	97.2		95.1		2.1		2.2
Total	$	580.8	$	539.8	$	41.0	7.6

Assets under management by investment service are as follows:

	As of June 30,
	2019		2018		$ Change			% Change
	(in billions)
Equity
Actively Managed	$	161.8	$	147.2	$	14.6		9.9	%
Passively Managed(1)	57.4		53.8		3.6			6.6
Total Equity	219.2		201.0		18.2			9.0
Fixed Income
Actively Managed
Taxable	240.8		225.9		14.9			6.6
Tax–exempt	44.3		41.6		2.7			6.6
	285.1		267.5		17.6			6.6
Passively Managed(1)	9.5		10.1		(0.6		)	(5.9	)
Total Fixed Income	294.6		277.6		17.0			6.2
Other(2)
Actively Managed	65.8		60.4		5.4			8.8
Passively Managed(1)	1.2		0.8		0.4			61.3
Total Other	67.0		61.2		5.8			9.4
Total	$	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.

34

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

	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

35

	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 March 31, 2019	$	155.1		$	55.8		$	227.2		$	43.8		$	9.3		$	63.5		$	554.7
Long-term flows:
Sales/new accounts	8.8			—			13.1			2.6			—			2.8			27.3
Redemptions/terminations	(6.7		)	—			(6.5		)	(2.4		)	(0.1		)	(0.4		)	(16.1		)
Cash flow/unreinvested dividends	(1.1		)	(0.6		)	0.3			(0.1		)	(0.1		)	(0.1		)	(1.7		)
Net long-term inflows (outflows)	1.0			(0.6		)	6.9			0.1			(0.2		)	2.3			9.5
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	6.7			1.6			13.6			0.5			0.2			3.5			26.1
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

36

(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.

37

Our Institutional channel second quarter average AUM of $262.1 billion increased $5.4 billion, or 2.1%, compared to the second quarter of 2018. Our Institutional AUM increased $14.7 billion, or 5.8%, to $269.1 billion over the last twelve months. The $14.7 billion increase in AUM primarily resulted from market appreciation of $14.2 billion (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 $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.

38

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

	1-Year		3-Year		5-Year
Global High Income - Hedged (fixed income)
Absolute return	6.8	%	7.1	%	4.7	%
Relative return (vs. Bloomberg Barclays Global High Yield Index - Hedged)	(2.0	)	(0.1	)	(0.4	)
U.S. High Yield (fixed income)
Absolute return	7.0		7.1		4.6
Relative return (vs. Bloomberg Barclays U.S. Corp. High Yield Index)	(0.4	)	(0.4	)	(0.1	)
Global Plus - Hedged (fixed income)
Absolute return	8.0		3.6		4.2
Relative return (vs. Bloomberg Barclays Global Aggregate Index - Hedged)	0.3		0.6		0.4
Intermediate Municipal Bonds (fixed income)
Absolute return	5.7		2.2		2.8
Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg)	1.4		0.6		0.9
U.S. Strategic Core Plus (fixed income)
Absolute return	7.9		3.2		3.7
Relative return (vs. Bloomberg Barclays U.S. Aggregate Index)	0.1		0.9		0.8
Emerging Market Debt (fixed income)
Absolute return	11.6		5.5		4.4
Relative return (vs. JPM EMBI Global/JPM EMBI)	0.2		0.9		—
Emerging Markets Value
Absolute return	3.0		9.7		1.8
Relative return (vs. MSCI EM Index)	1.8		(1.0	)	(0.7	)
Global Strategic Value
Absolute return	(6.0	)	6.9		3.0
Relative return (vs. MSCI ACWI Index)	(11.7	)	(4.7	)	(3.2	)
U.S. Small & Mid Cap Value
Absolute return	(4.7	)	10.1		6.3
Relative return (vs. Russell 2500 Value Index)	(2.8	)	1.1		0.8
U.S. Strategic Value
Absolute return	(1.6	)	7.0		3.8
Relative return (vs. Russell 1000 Value Index)	10.0		(3.1	)	(3.7	)
U.S. Small Cap Growth
Absolute return	11.6		25.6		13.3
Relative return (vs. Russell 2000 Growth Index)	12.1		10.9		4.7
U.S. Large Cap Growth
Absolute return	14.6		20.4		16.1
Relative return (vs. Russell 1000 Growth Index)	3.1		2.3		2.7
U.S. Small & Mid Cap Growth
Absolute return	8.1		21.7		12.2
Relative return (vs. Russell 2500 Growth Index)	2.0		5.5		2.2
Concentrated U.S. Growth
Absolute return	23.8		21.9		14.3
Relative return (vs. S&P 500 Index)	13.4		7.7		3.5
Select U.S. Equity
Absolute return	10.0		14.6		11.0
Relative return (vs. S&P 500 Index)	(0.4	)	0.4		0.3
Strategic Equities
Absolute return	10.5		13.8		10.7
Relative return (vs. Russell 3000 Index)	1.5		(0.2	)	0.6
Global Core Equity
Absolute return	11.1		15.2		8.5
Relative return (vs. MSCI ACWI Index)	5.3		3.6		2.4

39

Consolidated Results of Operations

	Three Months Ended June 30,											Six Months Ended June 30,
	2019			2018			$ Change			% Change		2019			2018			$ Change			% Change
	(in thousands, except per unit amounts)
Net revenues	$	857,799		$	844,738		$	13,061		1.5	%	$	1,653,261		$	1,712,525		$	(59,264	)	(3.5	)%
Expenses	673,579			655,274			18,305			2.8		1,300,890			1,300,390			500			—
Operating income	184,220			189,464			(5,244		)	(2.8	)	352,371			412,135			(59,764		)	(14.5	)
Income taxes	10,211			7,538			2,673			35.5		19,132			23,363			(4,231		)	(18.1	)
Net income	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	7,757			261			7,496			n/m		17,873			22,911			(5,038		)	(22.0	)
Net income attributable to AB Unitholders	$	166,252		$	181,665		$	(15,413	)	(8.5	)	$	315,366		$	365,861		$	(50,495	)	(13.8	)
Diluted net income per AB Unit	$	0.61		$	0.66		$	(0.05	)	(7.6	)	$	1.17		$	1.34		$	(0.17	)	(12.7	)
Distributions per AB Unit	$	0.63		$	0.69		$	(0.06	)	(8.7	)	$	1.19		$	1.49		$	(0.30	)	(20.1	)
Operating margin (1)	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.

40

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

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 six months ended June 30, 2019 decreased $50.5 million, or 13.8%, from the six months ended June 30, 2018. The decrease primarily is due to (in millions):

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

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. There was no plan adopted during either the first or second quarter 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 6 to the condensed consolidated financial statements contained in Item 1 for a description of Available Cash Flow.

41

Management Operating Metrics

We are providing the non-GAAP measures “adjusted net 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.

42

	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
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 June 30, 2019 decreased $17.1 million, or 8.7%, from the three months ended June 30, 2018, primarily due to lower performance-based fees of $24.0 million, higher general and administrative expenses of $6.8 million, higher employee compensation and benefits expense (excluding the impact of long-term incentive compensation-related items) of $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 $24.4 million and higher general and administrative expenses of $12.4 million, offset by lower employee compensation expense (excluding the impact of long-term incentive compensation-related items) of $48.2 million (see discussion below).

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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 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 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.

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; 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.

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.

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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.

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.

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Net Revenues

The components of net revenues are as follows:

	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.

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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 30 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.

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 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 7.8%, 9.4% and 0.8% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 5.5% of our AUM).

For the three months ended June 30, 2019, our investment advisory and services fees decreased by $1.7 million, or 0.3%, from the three months ended June 30, 2018, primarily due to a $24.0 million decrease in performance-based fees, offset by a $22.3 million, or 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 decreased $1.2 million.

Retail investment advisory and services fees for the three months ended June 30, 2019 increased by $4.4 million, or 1.7%, from the three months ended June 30, 2018, due to a increase in base fees of $13.5 million, or 5.5%, primarily resulting from a 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 six months ended June 30, 2019 decreased by $5.5 million, or 1.1%, from the six months ended June 30, 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 $4.9 million, or 1.0%, primarily resulting from a 3.9% increase in average AUM.

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

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The decrease was partially offset by an increase in base fees of $8.7 million, or 2.2%, primarily resulting from a 0.7% increase in average AUM.

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 June 30, 2019 decreased $0.2 million, or 0.2%, compared to the corresponding period in 2018, as a decline in trading commissions following a period of heightened volatility and client activity last year was offset by higher research revenues and the inclusion of revenues from our recent acquisition of Autonomous (which closed on April 1, 2019). For the six months ended June 30, 2019, Bernstein Research Services revenue decreased $24.4 million, or 11.1%, compared to the corresponding period in 2018 due to a decline in trading commissions following a period of heightened volatility and client activity last year, partially offset by the inclusion of 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 June 30, 2019 increased $3.2 million, or 3.1%, compared to the corresponding period in 2018, primarily due to the corresponding average AUM of these mutual funds increasing 5.1%, offset by the impact of a shift in product mix from mutual funds which have higher distribution rates to mutual funds with lower distribution rates. For the six months ended June 30, 2019 distribution revenues decreased $4.3 million, or 2.0% compared to the corresponding period in 2018, primarily due to a shift in product mix from mutual funds which have higher distribution rates to mutual funds 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 June 30, 2019 increased $2.3 million, or 25.3%, compared to the corresponding period in 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, offset by higher broker dealer dividends and 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.

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Investment gains (losses) are as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
	(in thousands)
Long-term incentive compensation-related investments
Realized gains (losses)	$	834		$	290		$	1,630		$	2,172
Unrealized gains (losses)	554			253			4,255			(1,839		)
Investments held by consolidated company-sponsored funds
Realized gains (losses)	2,039			1,150			1,935			2,833
Unrealized gains (losses)	10,243			(2,930		)	32,173			20,463
Seed capital investments
Realized gains (losses)
Seed capital and other	806			(4,902		)	3,436			(4,494		)
Derivatives	(4,322		)	90			(18,116		)	(703		)
Unrealized gains (losses)
Seed capital and other	5,345			6,755			12,387			5,373
Derivatives	(4,761		)	(498		)	(10,714		)	2,679
Brokerage-related investments
Realized gains (losses)	(459		)	(183		)	(1,106		)	279
Unrealized gains (losses)	670			188			804			(468		)
	$	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 June 30, 2019 decreased $1.2 million, or 4.7%, compared to the corresponding period in 2018, primarily due to lower brokerage income. Other revenues for the six months ended June 30, 2019 decreased $5.5 million, or 10.5%, compared to the corresponding period in 2018, primarily due to lower brokerage income and lower shareholder servicing fees.

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Expenses

The components of expenses are as follows:

	Three Months Ended June 30,									Six Months Ended June 30,
	2019		2018		$ Change			% Change		2019		2018		$ Change			% Change
	(in thousands)									(in thousands)
Employee compensation and benefits	$	363,702	$	358,248	$	5,454		1.5	%	$	703,011	$	702,073	$	938		0.1	%
Promotion and servicing:
Distribution-related payments	116,254		106,301		9,953			9.4		222,247		216,455		5,792			2.7
Amortization of deferred sales commissions	3,241		6,113		(2,872		)	(47.0	)	6,743		12,711		(5,968		)	(47.0	)
Trade execution, marketing, T&E and other	57,550		59,259		(1,709		)	(2.9	)	107,198		113,302		(6,104		)	(5.4	)
	177,045		171,673		5,372			3.1		336,188		342,468		(6,280		)	(1.8	)
General and administrative:
General and administrative	120,180		108,836		11,344			10.4		238,028		230,070		7,958			3.5
Real estate charges	548		6,909		(6,361		)	(92.1	)	548		6,645		(6,097		)	(91.8	)
	120,728		115,745		4,983			4.3		238,576		236,715		1,861			0.8
Contingent payment arrangements	829		52		777			n/m		883		105		778			n/m
Interest	3,990		2,629		1,361			51.8		7,973		5,241		2,732			52.1
Amortization of intangible assets	7,285		6,927		358			5.2		14,259		13,788		471			3.4
Total	$	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 42.4% for the three months ended June 30, 2019 and 2018. Compensation expense as a percentage of net revenues was 42.5% and 41.0% for the six months ended June 30, 2019 and 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 1.1% and 1.2%, respectively, of adjusted net revenues for the three and six months ended June 30, 2019 and 1.1% and 1.0%, respectively, of adjusted net revenues for the three and six months ended June 30, 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 and the amortization expense associated with the CEO's EQH awards. Senior management, with the approval of the Compensation Committee, has established

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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 49.5% for the three and six months ended June 30, 2019 and 48.5% for the three and six months ended June 30, 2018.

For the three months ended June 30, 2019, employee compensation and benefits expense increased $5.5 million, or 1.5%, compared to the three months ended June 30, 2018, primarily due to higher base compensation of $12.0 million and higher fringes of $6.3 million, offset by lower incentive compensation of $11.5 million and lower commissions of $1.4 million. For the six months ended June 30, 2019, employee compensation and benefits expense increased $0.9 million, or 0.1%, compared to the six months ended June 30, 2018, primarily due to higher base compensation of $18.2 million and higher fringes of $9.0 million, offset by lower incentive compensation of $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 increased $5.4 million, or 3.1%, during the three months ended June 30, 2019 compared to the three months ended June 30, 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 $6.0 million, lower trade execution and clearing costs of $4.8 million and lower transfer fees of $1.3 million, offset by higher distribution-related payments of $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 14.1% and 13.7% for the three months ended June 30, 2019 and 2018, respectively. General and administrative expenses increased $5.0 million, or 4.3%, during the three months ended June 30, 2019 compared to the corresponding period in 2018, primarily due to higher technology fees of $3.8 million, higher professional fees of $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 $6.4 million. General and administrative expenses as a percentage of net revenues were 14.4% and 13.8% for the six months ended June 30, 2019 and 2018, respectively. General and administrative expenses increased $1.9 million, or 0.8%, during the first six months of 2019 compared to the same period in 2018, primarily due to higher professional fees of $8.9 million, offset by lower real estate charges of $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 six months of 2019 or 2018.

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.

Income tax expense for the three months ended June 30, 2019 increased $2.7 million, or 35.5%, compared to the three months ended June 30, 2018. The increase is due to a higher effective tax rate in the current quarter of 5.5% compared to 4.0% in the second quarter of 2018, driven by a less favorable mix of earnings across the AB tax filing groups, as a result of higher taxed foreign earnings versus lower taxed domestic earnings. Income tax expense for the six months ended June 30, 2019 decreased $4.2 million, or 18.1%, compared to the six months ended June 30, 2018. The decrease is driven by a more favorable mix of

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earnings, as a result of lower taxed domestic earnings versus higher taxed foreign earnings. There were no material changes to uncertain tax positions (FIN 48 reserves) or valuation allowances against deferred tax assets during the 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 six months of 2019, we had $17.9 million of net gains of consolidated entities attributable to non-controlling interests compared to net gains of $22.9 million during the first six months of 2018. Fluctuations period-to-period result primarily from the number of consolidated company-sponsored investment funds and their respective market performance.

CAPITAL RESOURCES AND LIQUIDITY

During the first six months of 2019, net cash provided by operating activities was $547.0 million, compared to $765.5 million during the corresponding 2018 period. The change reflects net activity of our consolidated funds of $380.6 million and a decrease in broker-dealer related payables (net of receivables and segregated U.S. Treasury bills activity) of $336.0 million, offset by lower net purchases of broker-dealer investments of $565.3 million.

During the first six months of 2019, net cash used in investing activities was $6.0 million, compared to $11.5 million during the corresponding 2018 period. The change is due to the acquisition of Autonomous, net of cash acquired, of $5.3 million.

During the first six months of 2019, net cash used by financing activities was $473.1 million, compared to $1.1 billion during the corresponding 2018 period. The change reflects net subscriptions in consolidated company-sponsored investments funds compared to net redemptions in the corresponding 2018 period (impact of $564.9 million) and lower distributions to the General Partner and Unitholders of $123.1 million as a result of lower earnings (distributions on earnings are paid one quarter in arrears), partially offset by the net repayments of commercial paper in 2019 compared to net issuances in 2018 (impact of $105.9 million).

As of June 30, 2019, AB had $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 various customer clearing activities, and cash held by foreign subsidiaries of $459.0 million.

Debt and Credit Facilities

As of June 30, 2019 and December 31, 2018, AB had $444.1 million and $523.2 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 2.7% for both periods. Debt included in the statement of financial condition is presented net of issuance costs of $1.7 million and $1.9 million as of June 30, 2019 and December 31, 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 six months of 2019 and the full year 2018 were $516.7 million and $350.3 million, respectively, with weighted average interest rates of approximately 2.7% and 2.0%, respectively.

AB has a $800.0 million committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, 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.

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 June 30, 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 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.

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

AB has a $200.0 million committed, unsecured senior revolving credit facility (the "Revolver") with a leading international bank, which matures on November 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 which are identical to those of the Credit Facility. As of June 30, 2019, we had no amounts outstanding under the Revolver. As of December 31, 2018, we had $25.0 million outstanding under the Revolver with an interest rate of 3.4%. Average daily borrowing under the Revolver during the first six months of 2019 and full year 2018 were $33.0 million and $19.4 million, respectively, with weighted average interest rates of approximately 3.4% and 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 June 30, 2019 and December 31, 2018, SCB LLC had no bank loans outstanding. Average daily borrowings of bank loans during the first six months of 2019 and full year 2018 were $1.8 million and $2.7 million, respectively, with weighted average interest rates of approximately 1.7% and 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 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.

During 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 June 30, 2019, we had funded $22.4 million of this commitment. During 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 June 30, 2019, we had funded $18.8 million of this commitment.

See Note 12 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, 2018.

ACCOUNTING PRONOUNCEMENTS

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

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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, 2018 and Part II, Item 1Ain 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 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

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

• Our 2020 Margin Target: We previously adopted a goal of increasing our adjusted operating margin to a target of 30% by 2020, subject to the assumptions, factors and contingencies described as part of the initial disclosure of this target. Our adjusted operating margin, which was 29.1% during 2018, declined to 24.7% during the first six months of 2019.

Our AUM and, therefore, our investment advisory revenues, including performance-based fee revenues, are heavily dependent upon the 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 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 30% in years subsequent to 2020 and will take continued actions in this regard, subject to prevailing market conditions and the evolution of our business mix.

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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, 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 second quarter of 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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