AllianceBernstein Annual Report 2016

Plain-text annual report

2016 ANNUAL REPORT Global Reach Keeps Clients Ahead 2016 FINANCIAL HIGHLIGHTS AB HOLDING (The Publicly Traded Partnership) Adjusted1,2 Net Income (USD Thousands) Adjusted1,2 Diluted Net Income per Unit Distributions per Unit AB (The Operating Partnership) Assets Under Management (USD Millions) Adjusted1 Revenues (USD Thousands) Adjusted1 Operating Income (USD Thousands) Employees Years Ended December 31 2016 $184,218 $1.89 $1.92 2015 $185,100 $1.84 $1.86 2014 $179,967 $1.84 $1.86 Years Ended December 31 2016 $480,201 $2,469,314 $624,402 3,438 2015 $467,440 $2,523,918 $618,641 3,600 2014 $474,027 $2,505,520 $607,500 3,487 ASSETS UNDER MANAGEMENT (USD Billions) By Investment Service By Channel By Client Location Fixed Income Passive3 $11 Equity Passive3 $48 Other4 $51 Equity Active $112 Fixed Income Active Private Wealth 17% $81 $258 Retail 33% $160 $239 Non-US 35% $169 $311 Institutions 50% US 65% 1 The adjusted ﬁnancial measures are all non-GAAP ﬁnancial measures. See pages 34–35 and pages 43–46 of the enclosed Form 10-K for reconciliations of GAAP ﬁnancial results to adjusted ﬁnancial results and notes describing the adjustments. 2 2014 and 2015 adjusted diluted net income and adjusted diluted net income per Unit have been revised. 3 Includes index and enhanced index services 4 Includes multi-asset solutions and services, and certain alternative investments LETTER FROM THE CHAIRMAN In a year characterized by global uncertainty and change, I’m proud of all we accomplished in 2016. We delivered once again for our clients with the strength of our investment performance, the breadth and depth of our global platform, and the diversity and differentiation of our offerings; and for our unitholders with our competitive total return and improved financial position. Today, we are providing unique value in an environment where it’s more important than ever. Kicking off 2017—AB’s 50th anniversary year—I’m confident in our ability to keep clients AHEAD OF TOMORROW® for many years to come. MARKET ENVIRONMENT Volatility characterized the global markets in 2016. In the US, the rancorous presidential campaign sidelined uneasy investors for most of the year, though markets rallied on the surprising outcome. Meanwhile, the US Federal Reserve raised interest rates by 0.25% in December for the ﬁrst time since the global ﬁnancial crisis, and recently implemented the ﬁrst of three expected 2017 increases in March. Abroad, the surprising outcome of the Brexit vote, uncertainty over several European elections, diverging monetary policies and slowing emerging-market growth intensiﬁed both volatility and investor anxiety. ASSET FLOWS AND FINANCIALS AB proved resilient in these challenging conditions. Total 2016 gross sales were $73.0 billion. Net ﬂows were negative $9.8 billion—the result of two lumpy redemptions totaling $14.3 billion in the third quarter. Excluding these outﬂows, annual net ﬂows would have been positive $4.5 billion. Including the large redemptions, AB’s annual attrition rate was 2% in 2016. Excluding them, we would have had positive organic growth of 1% for the year and net inﬂows across all three of our distribution channels. Our Institutions channel experienced net outﬂows of $5.4 billion in 2016, compared to $6.9 billion of net inﬂows in 2015. Retail net outﬂows were $4.8 billion versus $3.5 billion of net outﬂows in 2015. Private Wealth Management had its best net ﬂow year since 2007, with net inﬂows of $400 million, up from $200 million of net outﬂows in 2015. By channel, the large redemptions mentioned above reduced Institutions net ﬂows by $7.6 billion, Retail net ﬂows by $6.3 billion and Private Wealth net ﬂows by $400 million. While adjusted net revenues of $2.5 billion were down 2% in 2016, adjusted operating income was up 1% and our adjusted operating margin of 25.3% was up 80 basis points—our ﬁfth consecutive annual margin expansion—due to strict expense discipline throughout the year. PROGRESS ON OUR STRATEGY Once again in 2016, we demonstrated meaningful progress in executing on all four pillars of our long-term growth strategy. + Deliver for our clients with our investment performance and drive ﬂows in the highest growth segments: We continued to deliver stellar ﬁxed-income investment performance in 2016, with at least 80% of assets in outperforming strategies for the 1-, 3- and 5-year periods. Volatile and unpredictable markets dragged down our equity investment performance for the 1-year period to 27% of active equity assets that outperformed. However, our 3-year and 5-year track records remained strong at 80% and 64%, respectively. Our progress is particularly evident in the Retail channel, where our investment in innovative new offerings is paying off as these products have had the opportunity to season. Our number of Morningstar 4- and 5-star-rated US and Luxembourg funds tripled between 2011 and 2016, to 56 today. And of the funds currently in the marketplace that we added between 2009 and 2013, 81% are 4- and 5-star rated today. + Build a broader and more balanced global business: Knowing that growth leadership changes constantly among asset classes, industry sectors and global economies, we’ve spent years broadening and diversifying our business to deliver for clients in any market environment. This year’s rapidly changing marketplace further validated our approach. In Institutions, we ﬁnished 2016 with our most diverse pipeline of new but unfunded business in years, by both asset class and region. Some of our biggest additions came from new and emerging growth areas for us, such as commercial real estate debt, strategic core equities, concentrated equities and target-date multi-manager. By region, Asia was a growth standout: new mandates from the region increased from 22% of our pipeline at year-end 2015 to 39% at year-end 2016. In Retail, we experienced sales strength in both our legacy funds such as Global High Yield and American Income Portfolio in the Asia ex-Japan region and Global Bond, US Large Cap Growth and Municipals in the US, and in newer products such as our Muni Tax Aware Separately Managed Account (SMA), which surpassed $5 billion in assets in 2016. In another stellar year for our ﬁxed income business, three of our US mutual funds and two of our Luxembourg- based funds ranked top 10 by net ﬂows in their respective Morningstar categories. In equities, where the industry experienced record active outﬂows, our US Large Cap Growth fund was ranked #10 by net ﬂows in its category. We were also named the #1 multi-asset Discretionary Investment Manager (DIM) in Taiwan. While total Bernstein Research Services revenues of $480 million declined by 3% as a result of the year’s mostly muted trading activity, our sell side still fared quite well on a relative basis, gaining share across all regions. Investing to extend our global research platform has allowed us to leverage expertise across regions, better serve clients and compete with ﬁrms much larger than us. Today, 61% of our publishing analysts and 63% of our stocks under coverage are located outside the US, compared to 49% and 51%, respectively, in 2012. Building differentiated electronic trading capabilities has also enabled us to grow in difﬁcult times. We take a cost-agnostic approach that utilizes 18 different dark pools to access more liquidity for our clients. That’s earned us the #1 ranking for Electronic Trading Quality and Electronic Trading Service by a leading independent industry survey for the past two years. + Continually innovate for clients with our product development and delivery: In today’s crowded and ﬁercely competitive marketplace, innovation is more important than ever. We’re continually focused on providing ingenious new client solutions that set AB apart from the crowd. In Fixed Income, we’ve built a formidable $7 billion illiquid credit platform that includes commercial and residential real estate lending and direct middle-market lending—areas that continued to gain momentum in 2016. Our second Commercial Real Estate Debt fundraise of $1.5 billion exceeded our goal by 50%, and the third raise we launched in the third quarter attracted $200 million in commitments by year-end. In Equities, all four of our internally developed Strategic Core Equity low-volatility services—Global, US, International and Emerging Markets—ranked top decile for the 3-year period through December 31, 2016. All but Emerging Markets (which celebrates ﬁve years in 2017) ranked top quartile for the 5-year period. In Multi-Asset, we were the ﬁrst to introduce a target-date multi-manager series in both US mutual fund and Collective Investment Trust (CIT) structures in late 2014. While 3-year track records are critical to raising assets, the traction we’ve seen in the ﬁrst two years has been encouraging. We’ve raised $500 million in the mutual funds so far and funded our ﬁrst CIT mandate of $340 million in the second half of 2016. And we innovated in Alternatives in 2016 by acquiring Ramius Alternative Solutions (now AB Custom Alternative Solutions), which added advanced customized factor- based investing capabilities and $2.5 billion in assets to our Institutional platform. In Private Wealth, our unique research-based Targeted Services, designed to attract more independent and self- directed investors, continue to reinvigorate the channel. In 2016, private clients committed $1.3 billion to Targeted Services. Our two 2016 launches—Energy Opportunities and Global Research Insights—together attracted $850 million in commitments. On the sell side, innovation and rigor have set our research apart from day one. Each year, we rank at or near the top in every regional independent research survey in the world for the quality of our unique company and sector insights. That kind of differentiation will serve Bernstein Research well as MiFID II (the Markets in Financial Instruments Directive II) in Europe and other regulatory and ﬁnancial pressures force clients to cull research providers. + Achieve greater operating leverage and better ﬁnancial results: Producing growth in adjusted operating income and adjusted margin in such a challenging revenue environment was no easy feat, and one we’re proud to have accomplished. I’m even prouder that we could exercise such strict expense disciple even as we continued to invest in new talent and initiatives. Going forward, I’m conﬁdent we can produce competitive operating margins, but it will take time, particularly amid slow industry growth and intensifying fee pressure. Our goal is to grow assets proﬁtably in the right areas while keeping costs down, so we can generate higher proﬁts and produce superior returns for our unitholders. OUR PEOPLE AND CULTURE A lot has changed during AB’s 50 years in business, but one thing has remained constant: the quality of our people. And we keep getting stronger. AB continually strives to be a culture of Relentless Ingenuity that employs tenacity, creative thinking, teamwork and accountability to keep our clients AHEAD OF TOMORROW.® It’s a proven fact that a diverse workforce creates better results, and each year we make new strides in fostering a dynamic, diverse and inclusive workplace where employees feel challenged, valued and excited about building a career at AB. In 2016, we appointed a dedicated Diversity Campus Recruiter to further advance our goal of diversity and inclusion. And through our 10 Employee Resource Groups (ERGs) around the world, our people are developing new ways to raise issues, share ideas and encourage diversity of thought. We’re also proud to have earned a perfect score for a second straight year on the Human Rights Campaign (HRC) Corporate Equality Index (CEI), ranking AB one of the best places to work in the US for lesbian, gay, bisexual and transgender (LGBT) equality. We are committed to serving the communities where we live and work as well. About 1,000 employees participated in AB’s global Day of Service initiative, which comprised 150 volunteer events in support of more than 100 global organizations. LOOKING FORWARD Our industry is at a critical point in its history—but disruption creates opportunities, and we’re doing everything we can to position AB optimally for the future. I’m incredibly proud of the Relentless Ingenuity our talented people apply each day to our efforts to keep clients AHEAD OF TOMORROW® with our products and services, and look forward to another year of progress for AB in 2017. Thank you for your continued trust. Peter S. Kraus Chairman and Chief Executive Ofﬁcer AB DIRECTORS AND EXECUTIVE OFFICERS BOARD OF DIRECTORS Peter S. Kraus2, 3, 4 Chairman of the Board and Chief Executive Officer Christopher M. Condron2, 3, 4 Independent Director Denis Duverne2, 3, 4 Chairman of the Board, AXA Steven G. Elliott1, 2, 4 Lead Independent Director Deborah S. Hechinger3 Independent Director Weston M. Hicks1 Independent Director Heidi S. Messer4 Independent Director Mark Pearson Director, President and Chief Executive Officer, AXA Financial, Inc. Scott A. Schoen1 Independent Director Lorie A. Slutsky2, 3, 4 Independent Director Joshua A. Weinreich1 Independent Director EXECUTIVE OFFICERS Peter S. Kraus Chairman of the Board and Chief Executive Officer James A. Gingrich Chief Operating Officer Kate C. Burke Head of Human Capital and Chief Talent Officer Laurence E. Cranch General Counsel Robert P. van Brugge Chairman and Chief Executive Officer of Bernstein Research Services John C. Weisenseel Chief Financial Officer 1 Member of the Audit Committee 2 Member of the Compensation Committee 3 Member of the Corporate Governance Committee 4 Member of the Executive Committee AllianceBernstein Holding L.P. Form 10-K 2016 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FORM 10-K For the Fiscal Year Ended December 31, 2016 OR ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-09818 ALLIANCEBERNSTEIN HOLDING L.P. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 1345 Avenue of the Americas, New York, N.Y. (Address of principal executive offices) 13-3434400 (I.R.S. Employer Identification No.) 10105 (Zip Code) Registrant’s telephone number, including area code: (212) 969-1000 Securities registered pursuant to Section 12(b) of the Act: Title of Class units representing assignments of beneficial ownership of limited partnership interests Name of each exchange on which registered New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes È No ‘ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ‘ No È Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes È No ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. È Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer È Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ‘ No È The aggregate market value of the units representing assignments of beneficial ownership of limited partnership interests held Smaller reporting company ‘ Non-accelerated filer ‘ Accelerated filer ‘ by non-affiliates computed by reference to the price at which such units were last sold on the New York Stock Exchange as of June 30, 2016 was approximately $2.1 billion. The number of units representing assignments of beneficial ownership of limited partnership interests outstanding as of December 31, 2016 was 96,652,190. (This figure includes 100,000 general partnership units having economic interests equivalent to the economic interests of the units representing assignments of beneficial ownership of limited partnership interests.) DOCUMENTS INCORPORATED BY REFERENCE This Form 10-K does not incorporate any document by reference. Table of Contents Glossary of Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii Part I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Part II Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Item 7. Item 6. Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 33 Executive Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 AB Holding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 AB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . . . . . . .119 Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 Item 9A. Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .121 Item 9. Item 8. Part III Item 10. Item 11. Item 12. Item 13. Item 14. Part IV Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .122 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .132 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . .150 Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . . .155 Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .158 Item 15. Exhibits, Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159 Form 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .162 Item 16. Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .163 Glossary of Certain Defined Terms “AB” – AllianceBernstein L.P. (Delaware limited partnership formerly known as Alliance Capital Management L.P., “Alliance Capital”), the operating partnership, and its subsidiaries and, where appropriate, its predecessors, AB Holding and ACMC, Inc. and their respective subsidiaries. “AB Holding” – AllianceBernstein Holding L.P. (Delaware limited partnership). “AB Holding Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB Holding, dated as of October 29, 1999 and as amended February 24, 2006. “AB Holding Units” – units representing assignments of beneficial ownership of limited partnership interests in AB Holding. “AB Partnership Agreement” – the Amended and Restated Agreement of Limited Partnership of AB, dated as of October 29, 1999 and as amended February 24, 2006. “AB Units” – units of limited partnership interest in AB. “AUM” – AB’s assets under management. “AXA” – AXA (société anonyme organized under the laws of France) is the holding company for the AXA Group, a worldwide leader in financial protection. AXA operates primarily in Europe, North America, the Asia/Pacific regions and, to a lesser extent, in other regions, including the Middle East, Africa and Latin America. AXA has five operating business segments: Life and Savings, Property and Casualty, International Insurance, Asset Management and Banking. “AXA Equitable” – AXA Equitable Life Insurance Company (New York stock life insurance company), a subsidiary of AXA Financial, and its subsidiaries other than AB and its subsidiaries. “AXA Financial” – AXA Financial, Inc. (Delaware corporation), a subsidiary of AXA. “Bernstein Transaction” – AB’s acquisition of the business and assets of SCB Inc., formerly known as Sanford C. Bernstein Inc., and the related assumption of the liabilities of that business, completed on October 2, 2000. “Exchange Act” – the Securities Exchange Act of 1934, as amended. “ERISA” – the Employee Retirement Income Security Act of 1974, as amended. “General Partner” – AllianceBernstein Corporation (Delaware corporation), the general partner of AB and AB Holding and a sub- sidiary of AXA Equitable, and, where appropriate, ACMC, LLC, its predecessor. “Investment Advisers Act” – the Investment Advisers Act of 1940, as amended. “Investment Company Act” – the Investment Company Act of 1940, as amended. “NYSE” – the New York Stock Exchange, Inc. “Partnerships” – AB and AB Holding together. “SEC” – the United States Securities and Exchange Commission. “Securities Act” – the Securities Act of 1933, as amended. “WPS Acquisition” – AB’s acquisition of W.P. Stewart & Co., Ltd. (“WPS”), a concentrated growth equity investment manager, completed on December 12, 2013. ii PART I Item 1. Business The words “we” and “our” in this Form 10-K refer collectively to AB Holding and AB and its subsidiaries, or to their officers and employees. Similarly, the words “company” and “firm” refer to both AB Holding and AB. Where the context requires distinguishing between AB Holding and AB, we identify which company is being discussed. Cross-references are in italics. We use “global” in this Form 10-K to refer to all nations, including the United States; we use “international” or “non-U.S.” to refer to nations other than the United States. We use “emerging markets” in this Form 10-K to refer to countries included in the Morgan Stanley Capital International (“MSCI”) emerging markets index, which are, as of December 31, 2016, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. Clients We provide research, diversified investment management and related services globally to a broad range of clients through our three buy-side distribution channels: Institutions, Retail and Private Wealth Management, and our sell-side business, Bernstein Research Services. See “Distribution Channels” in this Item 1 for additional information. As of December 31, 2016, 2015 and 2014, our AUM were approximately $480 billion, $467 billion and $474 billion, respectively, and our net revenues as of each of December 31, 2016, 2015 and 2014 were approximately $3.0 billion. AXA, our parent com- pany, and its subsidiaries, whose AUM consist primarily of fixed income investments, together constitute our largest client. Our affiliates represented approximately 24%, 24% and 23% of our AUM as of December 31, 2016, 2015 and 2014, respectively, and we earned approximately 5% of our net revenues from services we provided to our affiliates in each of those years. See “Distribution Channels” below and “Assets Under Management” and “Net Revenues” in Item 7 for additional information regarding our AUM and net revenues. Generally, we are compensated for our investment services on the basis of investment advisory and services fees calculated as a per- centage of AUM. For additional information about our investment advisory and services fees, including performance-based fees, see “Risk Factors”in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7. Research Our high-quality, in-depth research is the foundation of our business. We believe that our global team of research professionals, whose disciplines include economic, fundamental equity, fixed income and quantitative research, gives us a competitive advantage in achieving investment success for our clients. We also have experts focused on multi-asset strategies, wealth management and alternative investments. Investment Services Our broad range of investment services includes: • Actively-managed equity strategies, with global and regional portfolios across capitalization ranges and investment strategies, including value, growth and core equities; • Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies; • Passive management, including index and enhanced index strategies; • Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct real estate investing and direct lending); and • Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds. Annual Report 2016 1 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. Our AUM by client domicile and investment service as of December 31, 2016, 2015 and 2014 were as follows: By Client Domicile ($ in billions): U.S. Non-U.S. $311 65% $169 35% $312 67% $155 33% $308 65% $166 35% December 31, 2016 December 31, 2015 December 31, 2014 By Investment Service ($ in billions): U.S. Non-U.S. $265 55% $215 45% $249 53% $218 47% $243 51% $231 49% December 31, 2016 December 31, 2015 December 31, 2014 Distribution Channels Institutions We offer to our institutional clients, which include private and public pension plans, foundations and endowments, insurance companies, central banks and governments worldwide, and various of our affiliates, separately-managed accounts, sub-advisory rela- tionships, structured products, collective investment trusts, mutual funds, hedge funds and other investment vehicles (“Institutional Services”). We manage the assets of our institutional clients pursuant to written investment management agreements or other arrange- ments, which generally are terminable at any time or upon relatively short notice by either party. In general, our written investment management agreements may not be assigned without the client’s consent. For information about our institutional investment advi- sory and services fees, including performance-based fees, see “Risk Factors”in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7. AXA and its subsidiaries together constitute our largest institutional client. AXA’s AUM accounted for approximately 35%, 33% and 32% of our institutional AUM as of December 31, 2016, 2015 and 2014, respectively, and approximately 28%, 26% and 22% of our institutional revenues for 2016, 2015 and 2014, respectively. No single institutional client other than AXA and its subsidiaries accounted for more than approximately 1% of our net revenues for the year ended December 31, 2016. 2 AB As of December 31, 2016, 2015 and 2014, Institutional Services represented approximately 50%, 51% and 50%, respectively, of our AUM, and the fees we earned from providing these services represented approximately 14% of our net revenues for each of those years. Our AUM and revenues are as follows: Institutional Services Assets Under Management (by Investment Service) Equity Actively Managed: U.S. Global & Non-US Total Equity Passively Managed(1): U.S. Global & Non-US Total Total Equity Fixed Income Taxable: U.S. Global & Non-US Total Fixed Income Tax-Exempt: U.S. Global & Non-US Total Fixed Income Passively Managed(1): U.S. Global & Non-US Total Total Fixed Income Other(2): U.S. Global & Non-US Total Total: U.S. Global & Non-US Total Affiliated Non-affiliated Total 2016 December 31, 2015 (in millions) 2014 2016-15 2015-14 % Change $ 8,792 $ 9,156 $ 9,631 (4.0)% (4.9)% 18,215 27,007 16,135 3,467 19,602 46,609 97,610 52,598 150,208 1,819 — 1,819 1,305 15 1,320 16,705 25,861 15,573 4,250 19,823 45,684 88,997 54,897 143,894 1,920 — 1,920 64 18 82 19,522 29,153 16,196 5,818 22,014 51,167 84,079 64,086 148,165 1,796 — 1,796 67 185 252 153,347 145,896 150,213 3,831 35,477 39,308 129,492 109,772 $239,264 $ 82,721 156,543 $239,264 2,939 41,683 44,622 118,649 117,553 $236,202 $ 78,048 158,154 $236,202 2,268 33,393 35,661 114,037 123,004 $237,041 $ 75,241 161,800 $237,041 9.0 4.4 3.6 (18.4) (1.1) 2.0 9.7 (4.2) 4.4 (5.3) — (5.3) 1,939.1 (16.7) 1,509.8 5.1 30.4 (14.9) (11.9) 9.1 (6.6) 1.3 6.0 (1.0) 1.3 (14.4) (11.3) (3.8) (27.0) (10.0) (10.7) 5.8 (14.3) (2.9) 6.9 — 6.9 (4.5) (90.3) (67.5) (2.9) 29.6 24.8 25.1 4.0 (4.4) (0.4) 3.7 (2.3) (0.4) (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services and certain alternative investments. Annual Report 2016 3 Revenues from Institutional Services (by Investment Service) Years Ended December 31, 2015 2016 2014 % Change 2016-15 2015-14 (in thousands) $ 49,370 75,814 125,184 $ 54,150 88,096 142,246 $ 54,176 88,777 142,953 (8.8)% (13.9) (12.0) 2,964 2,345 5,309 130,493 101,875 111,602 213,477 2,591 — 2,591 322 1 323 12,717 1,530 14,247 230,638 34,577 25,189 59,766 204,416 216,481 420,897 684 479 $422,060 $ 116,392 305,668 $422,060 2,824 4,295 7,119 149,365 94,272 125,888 220,160 2,361 — 2,361 68 81 149 13,510 1,715 15,225 237,895 23,130 24,070 47,200 190,315 244,145 434,460 248 497 $435,205 $ 113,187 322,018 $435,205 2,841 4,333 7,174 150,127 92,250 125,595 217,845 2,250 — 2,250 69 142 211 11,468 2,011 13,479 233,785 18,643 30,551 49,194 181,697 251,409 433,106 340 634 $434,080 $ 95,256 338,824 $434,080 5.0 (45.4) (25.4) (12.6) 8.1 (11.3) (3.0) 9.7 — 9.7 373.5 (98.8) 116.8 (5.9) (10.8) (6.4) (3.1) 49.5 4.6 26.6 7.4 (11.3) (3.1) 175.8 (3.6) (3.0) 2.8 (5.1) (3.0) —% (0.8) (0.5) (0.6) (0.9) (0.8) (0.5) 2.2 0.2 1.1 4.9 — 4.9 (1.4) (43.0) (29.4) 17.8 (14.7) 13.0 1.8 24.1 (21.2) (4.1) 4.7 (2.9) 0.3 (27.1) (21.6) 0.3 18.8 (5.0) 0.3 Equity Actively Managed: U.S. Global & Non-US Total Equity Passively Managed(1): U.S. Global & Non-US Total Total Equity Fixed Income Taxable: U.S. Global & Non-US Total Fixed Income Tax-Exempt: U.S. Global & Non-US Total Fixed Income Passively Managed(1): U.S. Global & Non-US Total Fixed Income Servicing(2): U.S. Global & Non-US Total Total Fixed Income Other(3): U.S. Global & Non-US Total Total Investment Advisory and Services Fees: U.S. Global & Non-US Distribution Revenues Shareholder Servicing Fees Total Affiliated Non-affiliated Total (1) Includes index and enhanced index services. (2) Fixed Income Servicing includes advisory-related services fees that are not based on AUM, including derivative transaction fees, capital purchase program-related advisory services and other fixed income advisory services. (3) Includes certain multi-asset solutions and services and certain alternative services. 4 AB Retail We provide investment management and related services to a wide variety of individual retail investors, both in the U.S. and inter- nationally, through retail mutual funds we sponsor, mutual fund sub-advisory relationships, separately-managed account programs (see below), and other investment vehicles (“Retail Products and Services”). We distribute our Retail Products and Services through financial intermediaries, including broker-dealers, insurance sales representa- tives, banks, registered investment advisers and financial planners. These products and services include open-end and closed-end funds that are either (i) registered as investment companies under the Investment Company Act (“U.S. Funds”), or (ii) not regis- tered under the Investment Company Act and generally not offered to United States persons (“Non-U.S. Funds” and, collectively with the U.S. Funds, “AB Funds”). They also include separately-managed account programs, which are sponsored by financial intermediaries and generally charge an all-inclusive fee covering investment management, trade execution, asset allocation, and custodial and administrative services. In addition, we provide distribution, shareholder servicing, transfer agency services and admin- istrative services for our Retail Products and Services. See “Net Revenues – Investment Advisory and Services Fees” in Item 7 for information about our retail investment advisory and services fees. See Note 2 to AB’s consolidated financial statements in Item 8 for a discussion of the commissions we pay to financial intermediaries in connection with the sale of open-end AB Funds. Fees paid by the U.S. Funds are reflected in the applicable investment management agreement, which generally must be approved annually by the boards of directors or trustees of those funds, including by a majority of the independent directors or trustees. Increases in these fees must be approved by fund shareholders; decreases need not be, including any decreases implemented by a fund’s directors or trustees. In general, each investment management agreement with the U.S. Funds provides for termination by either party at any time upon 60 days’ notice. Fees paid by Non-U.S. Funds are reflected in investment management agreements that continue until they are terminated. Increases in these fees generally must be approved by the relevant regulatory authority, depending on the domicile and structure of the fund, and Non-U.S. Fund shareholders must be given advance notice of any fee increases. The mutual funds we sub-advise for AXA and its subsidiaries together constitute our largest retail client. They accounted for approx- imately 21%, 22% and 21% of our retail AUM as of December 31, 2016, 2015 and 2014, respectively, and approximately 4%, 4% and 3% of our retail net revenues as of 2016, 2015 and 2014, respectively. Certain subsidiaries of AXA, including AXA Advisors, LLC (“AXA Advisors”), a subsidiary of AXA Financial, were responsible for approximately 2%, 4% and 3% of total sales of shares of open-end AB Funds in 2016, 2015 and 2014, respectively. HSBC was responsible for approximately 12% of our open-end AB Fund sales in 2016. UBS AG was responsible for approximately 8% and 11% of our open-end AB Fund sales in 2015 and 2014, respectively. Neither our affiliates, HSBC or UBS AG are under any obligation to sell a specific amount of AB Fund shares and each also sells shares of mutual funds that it sponsors and that are spon- sored by unaffiliated organizations. No other entity accounted for 10% or more of our open-end AB Fund sales. Most open-end U.S. Funds have adopted a plan under Rule 12b-1 of the Investment Company Act that allows the fund to pay, out of assets of the fund, distribution and service fees for the distribution and sale of its shares (“Rule 12b-1 Fees”). The open-end U.S. Funds have entered into such agreements with us, and we have entered into selling and distribution agreements pursuant to which we pay sales commissions to the financial intermediaries that distribute our open-end U.S. Funds. These agreements are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares. As of December 31, 2016, retail U.S. Fund AUM were approximately $41 billion, or 26% of retail AUM, as compared to $45 billion, or 29%, as of December 31, 2015, and $49 billion, or 30%, as of December 31, 2014. Non-U.S. Fund AUM, as of December 31, 2016, totaled $59 billion, or 37% of retail AUM, as compared to $52 billion, or 33%, as of December 31, 2015, and $57 billion, or 36%, as of December 31, 2014. Annual Report 2016 5 Our Retail Services represented approximately 33%, 33% and 34% of our AUM as of December 31, 2016, 2015 and 2014, respectively, and the fees we earned from providing these services represented approximately 42%, 45% and 46% of our net rev- enues for the years ended December 31, 2016, 2015 and 2014, respectively. Our AUM and revenues are as follows: Retail Services Assets Under Management (by Investment Service) 2016 December 31, 2015 (in millions) 2014 2016-15 2015-14 % Change Equity Actively Managed: U.S. Global & Non-US Total Equity Passively Managed(1): U.S. Global & Non-US Total Total Equity Fixed Income Taxable: U.S. Global & Non-US Total Fixed Income Tax-Exempt: U.S. Global & Non-US Total Fixed Income Passively Managed(1): U.S. Global & Non-US Total Total Fixed Income Other(2): U.S. Global & Non-US Total Total: U.S. Global & Non-US Total Affiliated Non-affiliated Total $ 31,717 $ 31,481 $ 29,449 12,514 44,231 20,997 7,025 28,022 72,253 6,175 54,328 60,503 13,579 10 13,589 5,216 4,041 9,257 83,349 3,229 1,339 4,568 14,810 46,291 19,483 6,664 26,147 72,438 5,905 47,891 53,796 11,601 12 11,613 5,010 4,492 9,502 74,911 5,116 1,903 7,019 15,920 45,369 21,268 6,600 27,868 73,237 5,934 55,059 60,993 10,432 14 10,446 4,917 4,483 9,400 80,839 5,349 2,072 7,421 80,913 79,257 $160,170 $ 33,774 126,396 $160,170 78,596 75,772 $154,368 $ 33,364 121,004 $154,368 77,349 84,148 $161,497 $ 34,693 126,804 $161,497 0.7% (15.5) (4.5) 6.9% (7.0) 2.0 7.8 5.4 7.2 (0.3) 4.6 13.4 12.5 17.1 (16.7) 17.0 4.1 (10.0) (2.6) 11.3 (36.9) (29.6) (34.9) 2.9 4.6 3.8 1.2 4.5 3.8 (8.4) 1.0 (6.2) (1.1) (0.5) (13.0) (11.8) 11.2 (14.3) 11.2 1.9 0.2 1.1 (7.3) (4.4) (8.2) (5.4) 1.6 (10.0) (4.4) (3.8) (4.6) (4.4) (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services and certain alternative investments. 6 AB Revenues from Retail Services (by Investment Service) Years Ended December 31, 2015 2016 (in thousands) 2014 2016-15 2015-14 % Change $ 186,442 $ 182,802 $ 181,756 93,019 279,461 7,670 5,268 12,938 107,870 290,672 8,188 5,268 13,456 93,018 274,774 10,154 7,118 17,272 292,399 304,128 292,046 16,731 374,036 390,767 52,847 63 52,910 6,105 7,817 13,922 457,599 52,024 6,932 58,956 321,819 487,135 808,954 379,881 73,072 15,842 397,767 413,609 44,916 73 44,989 5,663 8,201 13,864 472,462 71,129 8,334 79,463 328,540 527,513 856,053 423,410 83,078 20,593 429,947 450,540 38,317 78 38,395 3,336 8,675 12,011 500,946 64,435 9,550 73,985 318,591 548,386 866,977 440,961 89,198 $1,261,907 $ 46,060 1,215,847 $1,362,541 $ 47,668 1,314,873 $1,397,136 $ 47,910 1,349,226 $1,261,907 $1,362,541 $1,397,136 2.0% (13.8) (3.9) 0.6% 16.0 5.8 (6.3) — (3.8) (3.9) 5.6 (6.0) (5.5) 17.7 (13.7) 17.6 7.8 (4.7) 0.4 (3.1) (26.9) (16.8) (25.8) (2.0) (7.7) (5.5) (10.3) (12.0) (7.4) (3.4) (7.5) (7.4) (19.4) (26.0) (22.1) 4.1 (23.1) (7.5) (8.2) 17.2 (6.4) 17.2 69.8 (5.5) 15.4 (5.7) 10.4 (12.7) 7.4 3.1 (3.8) (1.3) (4.0) (6.9) (2.5) (0.5) (2.5) (2.5) Equity Actively Managed: U.S. Global & Non-US Total Equity Passively Managed(1): U.S. Global & Non-US Total Total Equity Fixed Income Taxable: U.S. Global & Non-US Total Fixed Income Tax-Exempt: U.S. Global & Non-US Total Fixed Income Passively Managed(1): U.S. Global & Non-US Total Total Fixed Income Other(2): U.S. Global & Non-US Total Total Investment Advisory and Services Fees: U.S. Global & Non-US Distribution Revenues Shareholder Servicing Fees Total Affiliated Non-affiliated Total (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services and certain alternative investments. Annual Report 2016 7 Private Wealth Management We offer to our private wealth clients, which include high-net-worth individuals and families, trusts and estates, charitable founda- tions, partnerships, private and family corporations, and other entities, separately-managed accounts, hedge funds, mutual funds and other investment vehicles (“Private Wealth Services”). We manage these accounts pursuant to written investment advisory agreements, which generally are terminable at any time or upon relatively short notice by any party and may not be assigned without the client’s consent. For information about our investment advisory and services fees, including performance-based fees, see “Risk Factors”in Item 1A and “Net Revenues – Investment Advisory and Services Fees” in Item 7. Our Private Wealth Services represented approximately 17%, 16% and 16% of our AUM as of December 31, 2016, 2015 and 2014, and the fees we earned from providing these services represented approximately 23%, 23% and 22% of our net revenues for 2016, 2015 and 2014, respectively. Our AUM and revenues are as follows: Private Wealth Services Assets Under Management (by Investment Service) Equity Actively Managed: U.S. Global & Non-US Total Equity Passively Managed(1): U.S. Global & Non-US Total Total Equity Fixed Income Taxable: U.S. Global & Non-US Total Fixed Income Tax-Exempt: U.S. Global & Non-US Total Fixed Income Passively Managed(1): U.S. Global & Non-US Total Total Fixed Income Other(2): U.S. Global & Non-US Total Total: U.S. Global & Non-US Total Includes index and enhanced index services. Includes certain multi-asset solutions and services and certain alternative investments. (1) (2) 8 December 31, 2015 (in millions) 2014 2016-15 2015-14 % Change $ 22,873 15,595 38,468 $ 22,842 15,125 37,967 4.3% 8.1 5.8 0.1% 3.1 1.3 2016 $ 23,857 16,851 40,708 193 208 401 41,109 6,674 3,528 10,202 21,501 3 21,504 18 468 486 32,192 2,650 4,816 7,466 177 210 387 38,855 6,742 3,053 9,795 19,973 3 19,976 4 372 376 30,147 2,439 5,429 7,868 172 402 574 38,541 7,396 2,871 10,267 19,401 3 19,404 5 402 407 30,078 1,902 4,968 6,870 54,893 25,874 $80,767 52,208 24,662 $76,870 51,718 23,771 $75,489 9.0 (1.0) 3.6 5.8 (1.0) 15.6 4.2 7.7 — 7.6 350.0 25.8 29.3 6.8 8.7 (11.3) (5.1) 5.1 4.9 5.1 2.9 (47.8) (32.6) 0.8 (8.8) 6.3 (4.6) 2.9 — 2.9 (20.0) (7.5) (7.6) 0.2 28.2 9.3 14.5 0.9 3.7 1.8 AB Revenues From Private Wealth Services (by Investment Service) Years Ended December 31, 2015 2016 2014 % Change 2016-15 2015-14 (in thousands) $ 255,902 $ 260,706 $ 250,415 (1.8)% 176,170 432,072 171,101 431,807 169,228 419,643 422 1,053 1,475 1,229 834 2,063 695 1,839 2,534 433,547 433,870 422,177 35,756 23,385 59,141 111,304 31 111,335 38 3,336 3,374 36,689 20,488 57,177 106,161 35 106,196 11 4,299 4,310 39,811 15,875 55,686 102,509 27 102,536 9 3,468 3,477 173,850 167,683 161,699 41,594 54,629 96,223 445,016 258,604 703,620 3,840 4,139 22,177 59,594 81,771 426,973 256,351 683,324 3,498 3,031 16,566 57,725 74,291 410,005 248,162 658,167 3,669 2,488 $711,599 $689,853 $664,324 3.0 0.1 (65.7) 26.3 (28.5) (0.1) (2.5) 14.1 3.4 4.8 (11.4) 4.8 245.5 (22.4) (21.7) 3.7 87.6 (8.3) 17.7 4.2 0.9 3.0 9.8 36.6 3.2 4.1% 1.1 2.9 76.8 (54.6) (18.6) 2.8 (7.8) 29.1 2.7 3.6 29.6 3.6 22.2 24.0 24.0 3.7 33.9 3.2 10.1 4.1 3.3 3.8 (4.7) 21.8 3.8 Equity Actively Managed: U.S. Global & Non-US Total Equity Passively Managed(1): U.S. Global & Non-US Total Total Equity Fixed Income Taxable: U.S. Global & Non-US Total Fixed Income Tax-Exempt: U.S. Global & Non-US Total Fixed Income Passively Managed(1): U.S. Global & Non-US Total Total Fixed Income Other(2): U.S. Global & Non-US Total Total Investment Advisory and Services Fees: U.S. Global & Non-US Total Distribution Revenues Shareholder Servicing Fees Total (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services and certain alternative investments. Annual Report 2016 9 Bernstein Research Services We offer high-quality fundamental research, quantitative services and brokerage-related services in equities and listed options to institutional investors, such as pension fund, hedge fund and mutual fund managers, and other institutional investors (“Bernstein Research Services”). We serve our clients, which are based in the United States and in other major markets around the world, through our trading professionals, who primarily are based in New York, London and Hong Kong, and our sell-side analysts, who provide fundamental company and industry research along with quantitative research into securities valuation and factors affecting stock-price movements. 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. These services accounted for approximately 16% of our net revenues as of each December 31, 2016, 2015 and 2014. For information regarding trends in fee rates charged for brokerage transactions, see “Risk Factors” in Item 1A. Our Bernstein Research Services revenues are as follows: Revenues From Bernstein Research Services Years Ended December 31, 2015 2016 % Change 2014 2016-15 2015-14 (in thousands) Bernstein Research Services $479,875 $493,463 $482,538 (2.8)% 2.3% Custody Our U.S.-based broker-dealer subsidiary acts as custodian for the majority of our Private Wealth Management AUM and some of our Institutions AUM. Other custodial arrangements are maintained by client-designated banks, trust companies, brokerage firms or custodians. Employees As of December 31, 2016, our firm had 3,438 full-time employees, representing a 4.5% decrease compared to the end of 2015. We consider our employee relations to be good. Service Marks We have registered a number of service marks with the U.S. Patent and Trademark Office and various foreign trademark offices, including the mark “AllianceBernstein”. The logo set forth below and “Ahead of Tomorrow” are service marks of AB: In January 2015, we established two new brand identities. Although the legal names of our corporate entities did not change, our company, and our Institutions and Retail businesses, now are referred to as “AB”. Private Wealth Management and Bernstein Research Services now are referred to as “AB Bernstein”. Also, we adopted the logo and “Ahead of Tomorrow” service marks described above. 10 AB In connection with the Bernstein Transaction, we acquired all of the rights in, and title to, the Bernstein service marks, including the mark “Bernstein”. In connection with the WPS Acquisition, we acquired all of the rights in, and title to, the WPS service marks, including the logo “WPSTEWART”. See “W.P. Stewart” in this Item 1 for information regarding the WPS Acquisition. Regulation Virtually all aspects of our business are subject to various federal and state laws and regulations, rules of various securities regulators and exchanges, and laws in the foreign countries in which our subsidiaries conduct business. These laws and regulations primarily are intended to protect clients and fund shareholders and generally grant supervisory agencies broad administrative powers, includ- ing the power to limit or restrict the carrying on of business for failure to comply with such laws and regulations. Possible sanctions that may be imposed on us include the suspension of individual employees, limitations on engaging in business for specific periods, the revocation of the registration as an investment adviser or broker-dealer, censures and fines. AB, AB Holding, the General Partner and five of our subsidiaries (Sanford C. Bernstein & Co., LLC (“SCB LLC”), AllianceBernstein Global Derivatives Corporation, AB Private Credit Investors LLC, WPS and W.P. Stewart Asset Management LLC) are registered with the SEC as investment advisers under the Investment Advisers Act. Additionally, AB Holding is an NYSE- listed company and, accordingly, is subject to applicable regulations promulgated by the NYSE. Also, AB, SCB LLC and AB Cus- tom Alternative Solutions LLC (another of our subsidiaries) are registered with the Commodity Futures Trading Commission (“CFTC”) as commodity pool operators and commodity trading advisers; SCB LLC also is registered with the CFTC as a commodities introducing broker. Each U.S. Fund is registered with the SEC under the Investment Company Act and each Non-U.S. Fund is subject to the laws in the jurisdiction in which the fund is registered. For example, our platform of Luxembourg-based funds operates pursuant to Lux- embourg laws and regulations, including Undertakings for the Collective Investment in Transferable Securities Directives, and is authorized and supervised by the Commission de Surveillance du Secteur Financier (“CSSF”), the primary regulator in Lux- embourg. AllianceBernstein Investor Services, Inc., one of our subsidiaries, is registered with the SEC as a transfer and servicing agent. SCB LLC and another of our subsidiaries, AllianceBernstein Investments, Inc., are registered with the SEC as broker-dealers, and both are members of the Financial Industry Regulatory Authority. In addition, SCB LLC is a member of the NYSE and other principal U.S. exchanges. Many of our subsidiaries are subject to the oversight of regulatory authorities in the jurisdictions outside the United States in which they operate, including the European Securities and Markets Authority, the Financial Conduct Authority in the U.K., the CSSF in Luxembourg, the Financial Services Agency in Japan, the Securities & Futures Commission in Hong Kong, the Monetary Authority of Singapore, the Financial Services Commission in South Korea and the Financial Supervisory Commission in Taiwan. While these regulatory requirements often may be comparable to the requirements of the SEC and other U.S. regulators, they are some- times more restrictive and may cause us to incur substantial expenditures of time and money related to our compliance efforts. For additional information relating to the regulations that impact our business, please refer to “Risk Factors” in Item 1A. Iran Threat Reduction and Syria Human Rights Act AB, AB Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act (“Iran Act”), nor were they involved in the AXA Group matters described immediately below. The non-U.S. based subsidiaries of AXA operate in compliance with applicable laws and regulations of the various jurisdictions in which they operate, including applicable international (United Nations and European Union) laws and regulations. While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, Annual Report 2016 11 AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see “Principal Security Holders” in Item 12. AXA has informed us that AXA Konzern AG, an AXA insurance subsidiary organized under the laws of Germany, provides car insurance to diplomats based at the Iranian embassy in Berlin, Germany. The total annual premium of these policies is approx- imately $13,000 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $1,950. These policies were underwritten by a broker who specializes in providing insurance coverage for diplomats. Provision of motor vehicle insurance is mandatory in Germany and cannot be cancelled until the policies expire. In addition, AXA has informed us that AXA Insurance Ireland, an AXA insurance subsidiary, provides statutorily required car insurance under four separate policies to the Iranian embassy in Dublin, Ireland. AXA has informed us that compliance with the Declined Cases Agreement of the Irish Government prohibits the cancellation of these policies unless another insurer is willing to assume the coverage. The total annual premium for these policies is approximately $6,094 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $914. Also, AXA has informed us that AXA Sigorta, a subsidiary of AXA organized under the laws of Turkey, provides car insurance coverage for vehicle pools of the Iranian General Consulate and the Iranian embassy in Istanbul, Turkey. Motor liability insurance coverage is mandatory in Turkey and cannot be cancelled unilaterally. The total annual premium in respect of these policies is approximately $3,150 and the annual net profit, which is difficult to calculate with precision, is estimated to be $473. Additionally, AXA has informed us that AXA Ukraine, an AXA insurance subsidiary, provides car insurance for the Attaché of the Embassy of Iran in Ukraine. Motor liability insurance coverage cannot be cancelled under Ukrainian law. The total annual pre- mium in respect of this policy is approximately $1,000 and the annual net profit, which is difficult to calculate with precision, is estimated to be $150. AXA also has informed us that AXA Ubezpieczenia, an AXA insurance subsidiary organized under the laws of Poland, provides car insurance to two diplomats based at the Iranian embassy in Warsaw, Poland. Provision of motor vehicle insurance is mandatory in Poland. The total annual premium of these policies is approximately $535 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $80. In addition, AXA has informed us that AXA Winterthur, an AXA insurance subsidiary organized under the laws of Switzerland, provides Naftiran Intertrade, a wholly-owned subsidiary of the Iranian state-owned National Iranian Oil Company, with life, dis- ability and accident coverage for its employees. The provision of these forms of coverage is mandatory for employees in Switzer- land. The total annual premium of these policies is approximately $373,668 and the annual net profit arising from these policies, which is difficult to calculate with precision, is estimated to be $56,000. Lastly, AXA has informed us that AXA France, an AXA insurance subsidiary, has identified a property insurance contract for Bank Sepah in Paris, France. This business commenced in July 2016 for a total annual premium of approximately $1,400 and the annual net profit arising from this policy, which is difficult to calculate with precision, is estimated to be $210. This business was cancelled in September 2016. The aggregate annual premium for the above-referenced insurance policies is approximately $398,847, representing approximately 0.0004% of AXA’s 2016 consolidated revenues, which are likely to approximate $100 billion. The related net profit, which is diffi- cult to calculate with precision, is estimated to be $59,777, representing approximately 0.0009% of AXA’s 2016 aggregate net profit. History and Structure We have been in the investment research and management business for 50 years. Bernstein was founded in 1967; Alliance Capital was founded in 1971 when the investment management department of Donaldson, Lufkin & Jenrette, Inc. (since November 2000, a part of Credit Suisse Group) merged with the investment advisory business of Moody’s Investors Service, Inc. 12 AB In April 1988, AB Holding “went public” as a master limited partnership. AB Holding Units, which trade under the ticker symbol “AB”, have been listed on the NYSE since that time. In October 1999, AB Holding reorganized by transferring its business and assets to AB, a newly-formed operating partnership, in exchange for all of the AB Units (“Reorganization”). Since the date of the Reorganization, AB has conducted the business for- merly conducted by AB Holding and AB Holding’s activities have consisted of owning AB Units and engaging in related activities. Unlike AB Holding Units, AB Units do not trade publicly and are subject to significant restrictions on transfer. The General Partner is the general partner of both AB and AB Holding. In October 2000, our two legacy firms, Alliance Capital and Bernstein, combined, bringing together Alliance Capital’s expertise in growth equity and corporate fixed income investing and its family of retail mutual funds, with Bernstein’s expertise in value equity investing, tax-exempt fixed income management, and its Private Wealth Management and Bernstein Research Services businesses. For additional details about this business combination, see Note 2 to AB’s consolidated financial statements in Item 8. As of December 31, 2016, the condensed ownership structure of AB is as follows (for a more complete description of our owner- ship structure, see “Principal Security Holders” in Item 12): Public Directors, Officers, Employees AXA 62.7% 35.7% 1.5% 100% 98.4% AB Holding 0.1% 62.2% General Partner Unaffiliated Holders 35.6% 1.0% 1.2% AB The General Partner owns 100,000 general partnership units in AB Holding and a 1% general partnership interest in AB. Including these general partnership interests, AXA, through certain of its subsidiaries (see “Principal Security Holders” in Item 12), had an approx- imate 63.7% economic interest in AB as of December 31, 2016. Competition We compete in all aspects of our business with numerous investment management firms, mutual fund sponsors, brokerage and investment banking firms, insurance companies, banks, savings and loan associations, and other financial institutions that often pro- vide investment products that have similar features and objectives as those we offer. Our competitors offer a wide range of financial services to the same customers that we seek to serve. Some of our competitors are larger, have a broader range of product choices and investment capabilities, conduct business in more markets, and have substantially greater resources than we do. These factors may place us at a competitive disadvantage, and we can give no assurance that our strategies and efforts to maintain and enhance our current client relationships, and create new ones, will be successful. In addition, AXA and its subsidiaries provide financial services, some of which compete with those we offer. The AB Partnership Agreement specifically allows AXA and its subsidiaries (other than the General Partner) to compete with AB and to pursue Annual Report 2016 13 opportunities that may be available to us. AXA, AXA Financial, AXA Equitable and certain of their respective subsidiaries have substantially greater financial resources than we do and are not obligated to provide resources to us. To grow our business, we believe we must be able to compete effectively for AUM. Key competitive factors include: • our investment performance for clients; • our commitment to place the interests of our clients first; • the quality of our research; • our ability to attract, motivate and retain highly skilled, and often highly specialized, personnel; • • the array of investment products we offer; the fees we charge; • Morningstar/Lipper rankings for the AB Funds; • our ability to sell our actively-managed investment services despite the fact that many investors favor passive services; • our operational effectiveness; • our ability to further develop and market our brand; and • our global presence. Competition is an important risk that our business faces and should be considered along with the other risk factors we discuss in “Risk Factors” in Item 1A. Available Information AB and AB Holding file or furnish annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, amendments to such reports, and other reports (and amendments thereto) required to comply with federal securities laws, including Section 16 beneficial ownership reports on Forms 3, 4 and 5, registration statements and proxy statements. We maintain an Internet site (http://www.abglobal.com) where the public can view these reports, free of charge, as soon as reasonably practicable after each report is filed with, or furnished to, the SEC. In addition, the SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. W.P. Stewart On December 12, 2013, we acquired WPS, an equity investment manager that managed, as of December 12, 2013, approximately $2.1 billion in U.S., Global and Europe, Australasia (Australia and New Zealand) and Far East (“EAFE”) concentrated growth equity strategies for its clients, primarily in the U.S. and Europe. On the date of the WPS Acquisition, each of approximately 4.9 million outstanding shares of WPS common stock (other than certain specified shares, as previously disclosed in Amendment No. 2 to Form S-4 filed by AB on November 8, 2013) was converted into the right to receive $12.00 per share and one transferable con- tingent value right (“CVRs”) entitling the holders to an additional $4.00 per share cash payment if the Assets Under Management (as such term is defined in the Contingent Value Rights Agreement (“CVR Agreement”) dated as of December 12, 2013, a copy of which we filed as Exhibit 4.01 (“Exhibit 4.01”) to our Form 10-K for the year ended December 31, 2013) in the acquired WPS investment services had exceeded $5 billion on or before December 12, 2016, subject to measurement procedures and limitations set forth in the CVR Agreement. See the definition of AUM Milestone in the CVR Agreement filed as Exhibit 4.01. The foregoing descrip- tion of the CVR Agreement does not purport to be complete and is qualified in its entirety by the full text of the CVR Agreement. Based on AB’s periodic calculations pursuant to the CVR Agreement during the term of the CVR Agreement, AB has determined that the AUM Milestone was not achieved at any point during the term of the CVR Agreement. Accordingly, the CVR Agree- ment has terminated in accordance with its terms and the additional $4.00 per share cash payment will not be made. 14 AB Item 1A. Risk Factors Please consider this section along with the description of our business in Item 1, the competition section immediately above and AB’s financial information contained in Items 6, 7 and 8. The majority of the risk factors discussed below directly affect AB. These risk factors also affect AB Holding because AB Holding’s principal source of income and cash flow is attributable to its investment in AB. See also “Cautions Regarding Forward-Looking Statements” in Item 7. Business-related Risks Our revenues and results of operations depend on the market value and composition of our AUM, which can fluctuate significantly based on various factors, including many factors outside of our control. We derive most of our revenues from investment advisory and services fees, which typically 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. The value and composition of our AUM can be adversely affected by several factors, including: • Market Factors. Uncertainties were prevalent during 2016, as global markets reacted to issues including Great Britain’s vote to exit the European Union, increased regulatory scrutiny in the U.S. and abroad, a mixed outlook for global economic growth, foreign exchange rates and interest rates, negative fixed income performance, and the contentious U.S. election. Although U.S. markets rallied following the U.S. election and an interest rate increase, together with related commentary from the Federal Reserve, provided some clarity as to the direction of interest rates, many concerning issues remain for global investors. These factors may adversely affect our AUM and revenues. Additionally, increases in interest rates, particularly if rapid, likely will decrease the total return of many bond investments due to lower market valuations of existing bonds. These factors could have a significant adverse effect on our revenues and results of operations as AUM in our fixed income investments comprise a major component of our total AUM. • Client Preferences. Generally, our clients may withdraw their assets at any time and on short notice. Also, changing market dynamics and investment trends, particularly with respect to sponsors of defined benefit plans choosing to invest in less risky investments and the ongoing shift to lower-fee passive services described below, may continue to reduce interest in some of the investment products we offer, and/or clients and prospects may continue to seek investment products that we may not cur- rently offer. Loss of, or decreases in, AUM reduces our investment advisory and services fees and revenues. • Our Investment Performance. Our ability to achieve investment returns for clients that meet or exceed investment returns for comparable asset classes and competing investment services is a key consideration when clients decide to keep their assets with us or invest additional assets, and when a prospective client is deciding whether to invest with us. Poor investment performance, both in absolute terms and/or relative to peers and stated benchmarks, may result in clients withdrawing assets and in pro- spective clients choosing to invest with competitors. • Investing Trends. Our fee rates vary significantly among the various investment products and services we offer to our clients. For example, we generally earn higher fees from assets invested in our actively-managed equity services than in our actively- managed fixed income services or passive services. Also, we often earn higher fees from global and international services than we do from U.S. services (see “Net Revenues” in Item 7 for additional information regarding our fee rates). If our clients continue to invest in actively-managed fixed income services and/or passive services, which generally have lower fees, instead of actively- managed equity services, which generally have higher fees, our investment advisory and services fees and revenues will decline. • Service Changes. We may be required to reduce our fee levels, restructure the fees we charge and/or adjust the services we offer to our clients because of, among other things, regulatory initiatives (whether industry-wide or specifically targeted), changing technology in the asset management business (including algorithmic strategies and emerging financial technology), court decisions and competitive considerations. A reduction in fees would reduce our revenues. A decrease in the value of our AUM, or a decrease in the amount of AUM we manage, or an adverse mix shift in our AUM, would adversely affect our investment advisory and services fees and revenues. A reduction in revenues, without a commensurate reduc- tion in expenses, adversely affects our results of operations. Annual Report 2016 15 The industry-wide shift from actively-managed investment services to passive services has adversely affected our invest- ment advisory and services fees, revenues and results of operations, and this trend may continue. Our competitive environment has become increasingly difficult over the past decade, as active managers have, on average, con- sistently underperformed passive services, which invest based on market indices rather than individual security selection. This collec- tive experience on the part of investors has obscured the strong performance of individual active managers and resulted in significant outflows from actively-managed services and corresponding significant inflows into passive services. In respect of U.S. mutual funds, for example, passive inflows continued to accelerate throughout 2016 and totaled an all-time high of $473 billion for the year – the 5th consecutive record year for inflows to passive products. During that same period, U.S. actively-managed long-term funds experi- enced net outflows of $252 billion, a second consecutive record outflow year. In this environment, organic growth through positive net inflows is difficult to achieve for active managers, such as AB, and requires taking market share from other active managers. The significant shift from active services to passive services adversely affects Bernstein Research Services revenues as well. Global market volumes have declined in recent years, and we expect this to continue, fueled by the steady rise in active equity outflows and passive equity inflows. Global and U.S. active equities have experienced net outflows for nine of the past 10 calendar years, and outflows have accelerated in the past three years, primarily due to the increase in passive investing. As a result, portfolio turnover has decreased and investors hold fewer shares that are actively traded by managers. Our reputation could suffer if we are unable to deliver consistent, competitive investment performance. Our business is based on the trust and confidence of our clients. Damage to our reputation, resulting from poor or inconsistent investment performance, among other factors, can reduce substantially our AUM and impair our ability to maintain or grow our business. Maintaining adequate liquidity for our general business needs depends on certain factors, including operating cash flows and our access to credit on reasonable terms. 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 AUM and other factors beyond our control. Our ability to issue public or private debt on reason- able terms may be limited by adverse market conditions, our profitability, our creditworthiness as perceived by lenders and changes in government regulations, including tax rates and interest rates. Furthermore, our access to credit on reasonable terms is partially dependent on our firm’s credit ratings. Moody’s Investors Service, Inc. (“Moody’s”) affirmed AB’s long-term and short-term credit ratings in 2016, while Standard & Poor’s Rating Service (“S&P”) downgraded AB’s long-term rating from A+ to A. After the downgrade, S&P’s rating (A/A1) aligns with Moody’s rating (A2/P1) of AB. Both S&P and Moody’s indicated a stable outlook in 2016. Future changes in our credit rat- ings are possible and any downgrade to our ratings is likely to increase our borrowing costs and limit our access to the capital mar- kets. If this occurs, we may be forced to incur unanticipated costs or revise our strategic plans, which could have a material adverse effect on our financial condition, results of operations and business prospects. Our business is dependent on investment advisory agreements with clients, and selling and distribution agreements with various financial intermediaries and consultants, which generally are subject to termination or non-renewal on short notice. We derive most of our revenues pursuant to written investment management agreements (or other arrangements) with institutional investors, mutual funds and private wealth clients, and selling and distribution agreements with financial intermediaries that distrib- ute AB Funds. Generally, the investment management agreements (and other arrangements), including our agreements with AXA and its subsidiaries (our largest client), are terminable at any time or upon relatively short notice by either party. The investment management agreements pursuant to which we manage the U.S. Funds must be renewed and approved by the Funds’ boards of directors annually. A significant majority of the directors are independent. Consequently, there can be no assurance that the board of directors of each fund will approve the fund’s investment management agreement each year, or will not condition its approval on revised terms that may be adverse to us. In addition, investors in AB Funds can redeem their investments without notice. Any termination of, or failure to renew, a significant number of these agreements, or a significant increase in redemption rates, could have a material adverse effect on our results of operations and business prospects. 16 AB Similarly, the selling and distribution agreements with securities firms, brokers, banks and other financial intermediaries (including our agreement with HSBC, with respect to which HSBC was responsible for approximately 12% of our open-end AB Fund sales in 2016) are terminable by either party upon notice (generally 30 days) and do not obligate the financial intermediary to sell any specific amount of fund shares. These intermediaries generally offer their clients investment products that compete with our prod- ucts. In addition, certain institutional investors rely on consultants to advise them about choosing an investment adviser and some of our services may not be considered among the best choices by these consultants. As a result, investment consultants may advise their clients to move their assets invested with us to other investment advisers, which could result in significant net outflows. Lastly, our Private Wealth Services rely on referrals from financial planners, registered investment advisers and other professionals. We cannot be certain that we will continue to have access to, or receive referrals from, these third parties. Loss of such access or referrals could have a material adverse effect on our results of operations and business prospects. We may be unable to continue to attract, motivate and retain key personnel, and the cost to retain key personnel could put pressure on our adjusted operating margin. Our business depends on our ability to attract, motivate and retain highly skilled, and often highly specialized, technical, investment, managerial and executive personnel and there is no assurance that we will be able to do so. The market for these professionals is extremely competitive and is characterized by their frequent movement among different firms. Also, they often maintain strong, personal relationships with investors in our products and other members of the business commun- ity so their departure may cause us to lose client accounts or result in fewer opportunities to win new business, either of which fac- tors could have a material adverse effect on our results of operations and business prospects. Additionally, a decline in revenues may limit our ability to pay our employees at competitive levels, and maintaining (or increasing) compensation without a revenue increase, in order to retain key personnel, may adversely affect our adjusted operating margin. As a result, we remain vigilant about aligning our cost structure (including headcount) with our revenue base. For additional information regarding our compensation practices, see “Compensation Discussion and Analysis” in Item 11. Performance-based fee arrangements with our clients cause greater fluctuations in our net revenues. We sometimes charge our clients performance-based fees, whereby we charge a base advisory fee and are eligible to earn an addi- tional performance-based fee or incentive allocation that is calculated as either a percentage of absolute investment results or a per- centage 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 in absolute terms 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 the 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 7.0%, 4.2% and 0.9% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 4.5% of our AUM). If the percentage of our AUM subject to performance- based fees grows, seasonality and volatility of revenue and earnings are likely to become more significant. Our performance-based fees in 2016, 2015 and 2014 were $32.8 million, $23.7 million and $53.2 million, respectively. An impairment of goodwill may occur. Determining whether an impairment of the goodwill asset exists requires management to exercise a substantial amount of judgment. In addition, to the extent that securities valuations are depressed for prolonged periods of time and/or market conditions deterio- rate, or if we experience significant net redemptions, our AUM, revenues, profitability and unit price will continue to be adversely affected. Although the price of an AB Holding Unit is just one factor in the calculation of fair value, if AB Holding Unit price lev- els decline significantly, reaching the conclusion that fair value exceeds carrying value will, over time, become more difficult. In addition, control premiums, industry earnings multiples and discount rates are impacted by economic conditions. As a result, sub- sequent impairment tests may occur more frequently and be based on more negative assumptions and future cash flow projections, and may result in an impairment of goodwill. An impairment may result in a material charge to our earnings. For additional information about our impairment testing, see Item 7. Annual Report 2016 17 We may engage in strategic transactions that could pose risks. As part of our business strategy, we consider potential strategic transactions, including acquisitions, dispositions, mergers, con- solidations, joint ventures and similar transactions, some of which may be material. These transactions, if undertaken, may involve a number of risks and present financial, managerial and operational challenges, including: • adverse effects on our earnings if acquired intangible assets or goodwill become impaired; • existence of unknown liabilities or contingencies that arise after closing; and • potential disputes with counterparties. Acquisitions also pose the risk that any business we acquire may lose customers or employees or could underperform relative to expectations. Additionally, the loss of investment personnel poses the risk that we may lose the AUM we expected to manage, which could adversely affect our results of operations. Furthermore, strategic transactions may require us to increase our leverage or, if we issue AB Units or AB Holding Units to fund an acquisition, would dilute the holdings of our existing Unitholders. Fluctuations in the exchange rates between the U.S. dollar and various other currencies can adversely affect our AUM, revenues and results of operations. Although significant portions of our net revenues and expenses, as well as our AUM, presently are denominated in U.S. dollars, we have subsidiaries and clients outside of the United States with functional currencies other than the U.S. dollar. Weakening of these currencies relative to the U.S. dollar adversely affects the value in U.S. dollar terms of our revenues and our AUM denominated in these other currencies. Accordingly, fluctuations in U.S. dollar exchange rates affect our AUM, revenues and reported financial results from one period to the next. We may not be successful in our efforts to hedge our exposure to such fluctuations, which could negatively impact our revenues and reported financial results. Our seed capital investments are subject to market risk. While we enter into various futures, forwards, swap and option contracts to economically hedge many of these investments, we also may be exposed to market risk and credit-related losses in the event of non-performance by counterparties to these derivative instruments. We have a seed investment program for the purpose of building track records and assisting with the marketing initiatives pertaining to our firm’s new products. These seed capital investments are subject to market risk. Our risk management team oversees a seed hedging program that attempts to minimize this risk, subject to practical and cost considerations. Also, not all seed investments are deemed appropriate to hedge, and in those cases we are exposed to market risk. In addition, we may be subject to basis risk in that we cannot always hedge with precision our market exposure and, as a result, we may be subject to relative spreads between market sectors. As a result, volatility in the capital markets may cause significant changes in our period-to-period financial and operating results. We use various derivative instruments, including futures, forwards, swap and option contracts, in conjunction with our seed hedg- ing program. While in most cases broad market risks are hedged, our hedges are imperfect and some market risk remains. In addi- tion, our use of derivatives results in counterparty risk (i.e., the risk that we may be exposed to credit-related losses in the event of non-performance by counterparties to these derivative instruments), regulatory risk (e.g., short selling restrictions) and cash/synthetic basis risk (i.e., the risk that the underlying positions do not move identically to the related derivative instruments). The revenues generated by Bernstein Research Services may be adversely affected by circumstances beyond our control, including declines in brokerage transaction rates, declines in global market volumes and failure to settle our trades by sig- nificant counterparties. Electronic, or “low-touch”, trading approaches represent a significant percentage of buy-side trading activity and typically produce transaction fees for execution-only services that are approximately one-third the price of traditional full service fee rates. As a result, blended pricing throughout our industry is lower now than it was historically, and price declines may continue. In addition, fee 18 AB rates we charge and charged by other brokers for traditional brokerage services have historically experienced price pressure, and we expect these trends to continue. Also, while increases in transaction volume and market share often can offset decreases in rates, this may not continue. In addition, the failure or inability of any of our broker-dealer’s significant counterparties to perform could expose us to substantial expenditures and adversely affect our revenues. For example, SCB LLC, as a member of clearing and settlement exchanges, would be required to settle open trades of any non-performing counterparty. This exposes us to the mark-to-market adjustment on the trades between trade date and settlement date, which could be significant, especially during periods of severe market volatility. Lastly, our ability to access liquidity in such situations may be limited by what our funding relationships are able to offer us at such times. The individuals, third-party vendors or issuers on whom we rely to perform services for us or our clients may be unable or unwilling to honor their contractual obligations to us. We rely on various counterparties and other third-party vendors to augment our existing investment, operational, financial and technological capabilities, but the use of a third-party vendor does not diminish AB’s responsibility to ensure that client and regu- latory obligations are met. Default rates, credit downgrades and disputes with counterparties as to the valuation of collateral increase significantly in times of market stress. Disruptions in the financial markets and other economic challenges may cause our counter- parties and other third-party vendors to experience significant cash flow problems or even render them insolvent, which may expose us to significant costs and impair our ability to conduct business. Weaknesses or failures within a third-party vendor’s internal processes or systems, or inadequate business continuity plans, can mate- rially disrupt our business operations. Also, third-party vendors may lack the necessary infrastructure or resources to effectively safe- guard our confidential data. If we are unable to effectively manage the risks associated with such third-party relationships, we may suffer fines, disciplinary action and reputational damage. We may not accurately value the securities we hold on behalf of our clients or our company investments. In accordance with applicable regulatory requirements, contractual obligations or client direction, we employ procedures for the pricing and valuation of securities and other positions held in client accounts or for company investments. We have established a Valuation Committee, composed of senior officers and employees, which oversees pricing controls and valuation processes. If mar- ket quotations for a security are not readily available, the Valuation Committee determines a fair value for the security. Extraordinary volatility in financial markets, significant liquidity constraints or our failure to adequately consider one or more factors when determining the fair value of a security based on information with limited market observability could result in our failing to properly value securities we hold for our clients or investments accounted for on our balance sheet. Improper valuation likely would result in our basing fee calculations on inaccurate AUM figures, our striking incorrect net asset values for company- sponsored mutual funds or hedge funds or, in the case of company investments, our inaccurately calculating and reporting our financial condition and operating results. Although the overall percentage of our AUM that we fair value based on information with limited market observability is not significant, inaccurate fair value determinations can harm our clients, create regulatory issues and damage our reputation. We may not have sufficient information to confirm or review the accuracy of valuations provided to us by underlying external managers for the funds in which certain of our alternative investment products invest. Certain of our alternative investment services invest in funds managed by external managers (“External Managers”) rather than investing directly in securities and other instruments. As a result, our abilities will be limited with regard to (i) monitoring such investments, (ii) regularly obtaining complete, accurate and current information with respect to such investments and (iii) exercising control over such investments. Accordingly, we may not have sufficient information to confirm or review the accuracy of valuations provided to us by External Managers. In addition, we will be required to rely on External Managers’ compliance with any appli- cable investment guidelines and restrictions. Any failure of an External Manager to operate within such guidelines or to provide accurate information with respect to the investment could subject our alternative investment products to losses and cause damage to our reputation. Annual Report 2016 19 The quantitative models we use in certain of our investment services may contain errors, resulting in imprecise risk assess- ments and unintended output. We use quantitative models in a variety of our investment services, generally in combination with fundamental research. These models are developed by senior quantitative professionals and typically are implemented by IT professionals. Our Model Risk Oversight Committee oversees the model governance framework and associated model review activities, which are then executed by our Model Risk Team. However, due to the complexity and large data dependency of such models, it is possible that errors in the models could exist and our controls could fail to detect such errors. Failure to detect errors could result in client losses and repu- tational damage. We may not always successfully manage actual and potential conflicts of interest that arise in our business. Increasingly, we must manage actual and potential conflicts of interest, including situations where our services to a particular client conflict, or are perceived to conflict, with the interests of another client. Failure to adequately address potential conflicts of interest could adversely affect our reputation, results of operations and business prospects. We have procedures and controls that are designed to identify and mitigate conflicts of interest, including those designed to prevent the improper sharing of information. However, appropriately managing conflicts of interest is complex. Our reputation could be damaged and the willingness of clients to enter into transactions in which such a conflict might arise may be affected if we fail, or appear to fail, to deal appropriately with actual or perceived conflicts of interest. In addition, potential or perceived conflicts could give rise to litigation or regulatory enforcement actions. Unpredictable events, including natural disaster, dangerous weather conditions, technology failure, terrorist attack and political unrest, may adversely affect our ability to conduct business. War, terrorist attack, political unrest, power failure, climate change, natural disaster and rapid spread of infectious diseases could interrupt our operations by: • causing disruptions in global economic conditions, thereby decreasing investor confidence and making investment products generally less attractive; inflicting loss of life; triggering large-scale technology failures or delays; and requiring substantial capital expenditures and operating expenses to remediate damage and restore operations. • • • Despite the contingency plans and facilities we have in place, including system security measures, information back-up and disaster recovery processes, our ability to conduct business may be adversely affected by a disruption in the infrastructure that supports our operations and the communities in which they are located. This may include a disruption involving electrical, communications, transportation or other services we may use or third parties with which we conduct business. If a disruption occurs in one location and our employees in that location are unable to occupy our offices or communicate with or travel to other locations, our ability to conduct business with and on behalf of our clients may suffer, and we may not be able to successfully implement contingency plans that depend on communication or travel. Furthermore, unauthorized access to our systems as a result of a security breach, the failure of our systems, or the loss of data could give rise to legal proceedings or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and damage our reputation. Our operations require experienced, professional staff. Loss of a substantial number of such persons or an inability to provide prop- erly equipped places for them to work may, by disrupting our operations, adversely affect our financial condition, results of oper- ations and business prospects. In addition, our property and business interruption insurance may not be adequate to compensate us for all losses, failures or breaches that may occur. Technology failures and disruptions, including failures to properly safeguard confidential information, can significantly constrain our operations and result in significant time and expense to remediate, which could result in a material adverse effect on our results of operations and business prospects. We are highly dependent on software and related technologies throughout our business, including both proprietary systems and those provided by third-party vendors. We use our technology to, among other things, obtain securities pricing information, 20 AB process client transactions, store and maintain data, and provide reports and other services to our clients. Despite our protective measures, including measures designed to effectively secure information through system security technology and established and tested business continuity plans, we may still experience system delays and interruptions as a result of natural disasters, hardware fail- ures, software defects, power outages, acts of war and third-party failures. We cannot predict with certainty all of the adverse effects that could result from our failure, or the failure of a third party, to efficiently address and resolve these delays and interruptions. These adverse effects could include the inability to perform critical business functions or failure to comply with financial reporting and other regulatory requirements, which could lead to loss of client confidence, reputational damage, exposure to disciplinary action and liability to our clients. Many of the software applications that we use in our business are licensed from, and supported, upgraded and maintained by, third- party vendors. A suspension or termination of certain of these licenses or the related support, upgrades and maintenance could cause temporary system delays or interruption. Additionally, technology rapidly evolves and we cannot guarantee that our competitors may not implement more advanced technology platforms for their products and services, which may place us at a competitive dis- advantage and adversely affect our results of operations and business prospects. Also, we could be subject to losses if we fail to properly safeguard sensitive and confidential information. As part of our normal operations, we maintain and transmit confidential information about our clients as well as proprietary information relating to our business operations. Although we take protective measures, our systems still could be vulnerable to cyber attack or other forms of unauthorized access (including computer viruses) that have a security impact, such as an authorized employee or vendor inadvertently or intentionally causing us to release confidential or proprietary information. Such disclosure could, among other things, allow competitors access to our proprietary business information and require significant time and expense to investigate and remediate the breach. Moreover, loss of confidential client information could harm our reputation and subject us to liability under laws that protect confidential personal data, resulting in increased costs or loss of revenues. Any significant security breach of our information and cyber security infrastructure may significantly harm our operations and reputation. It is critical that we ensure the continuity and effectiveness of our information and cyber security infrastructure, policies, procedures and capabilities to protect our computer and telecommunications systems and the data that reside on or are transmitted through them and contracted third-party systems. Although we take protective measures, including measures to effectively secure information through system security technology, our technology systems may still be vulnerable to unauthorized access, computer viruses or other events that have a security impact, such as an external attack by one or more cyber criminals (including phishing attacks attempting to obtain confidential information and ransomware attacks attempting to block access to a computer system until a sum of money is paid), which could materially harm our operations and reputation. Additionally, while we take precautions to password protect and encrypt our laptops and sensitive information on our other mobile electronic devices, if such devices are sto- len, misplaced or left unattended, they may become vulnerable to hacking or other unauthorized use, creating a possible security risk and resulting in potentially costly actions by us. Our own operational failures or those of third parties on which we rely, including failures arising out of human error, could disrupt our business, damage our reputation and reduce our revenues. Weaknesses or failures in our internal processes or systems could lead to disruption of our operations, liability to clients, exposure to disciplinary action or harm to our reputation. Our business is highly dependent on our ability to process, on a daily basis, large numbers of transactions, many of which are highly complex, across numerous and diverse markets. These transactions generally must comply with client investment guidelines, as well as stringent legal and regulatory standards. Our obligations to clients require us to exercise skill, care and prudence in performing our services. Despite our employees being highly trained and skilled, the large number of transactions we process makes it highly likely that errors will occasionally occur. If we make a mistake in performing our services that causes financial harm to a client, we have a duty to act promptly to put the client in the position the client would have been in had we not made the error. The occurrence of mistakes, particularly significant ones, can have a material adverse effect on our reputation, results of operations and business prospects. Annual Report 2016 21 Our insurance policies may be insufficient to protect us against large losses. We can make no assurance that a claim or claims will be covered by our insurance policies or, if covered, will not exceed the limits of available insurance coverage, or that our insurers will remain solvent and meet their obligations. Our business is subject to pervasive, complex and continuously evolving global regulation, compliance with which involves substantial expenditures of time and money, and violation of which may result in material adverse consequences. Virtually all aspects of our business are subject to federal and state laws and regulations, rules of securities regulators and exchanges, and laws and regulations in the foreign jurisdictions in which our subsidiaries conduct business. If we violate these laws or regu- lations, we could be subject to civil liability, criminal liability or sanction, including restriction or revocation of our and our sub- sidiaries’ professional licenses or registrations, revocation of the licenses of our employees, censures, fines, or temporary suspension or permanent bar from conducting business. Any such liability or sanction could have a material adverse effect on our financial condition, results of operations and business prospects. A regulatory proceeding, even if it does not result in a finding of wrong- doing or sanction, could require substantial expenditures of time and money and could potentially damage our reputation. In recent years, global regulators have substantially increased their oversight of financial services. Some of the newly-adopted and proposed regulations are focused on investment management services. Others, while more broadly focused, nonetheless impact our business. Moreover, the adoption of new laws, regulations or standards and changes in the interpretation or enforcement of existing laws, regulations or standards have directly affected, and will continue to affect, our business, including making our efforts to com- ply more expensive and time-consuming. For example, the Financial Supervisory Commission in Taiwan (“FSC”) implemented, as of January 1, 2015, new limits on the degree to which local investors can own an offshore investment product. While certain exemptions have been available to us, should we not continue to qualify, the FSC’s rules could force some of our local resident investors to redeem their investments in our funds sold in Taiwan (and/or prevent further sales of those funds in Taiwan), some of which funds have local ownership levels substantially above the FSC limits. This could lead to significant declines in our investment advisory and services fees and revenues earned from these funds. In addition, currently pending regulations in the U.S. and Europe could pose significant challenges to AB, including a regulation issued by the U.S. Department of Labor (“DOL”), which currently is scheduled to apply to our business in April 2017. If the DOL’s fiduciary rule goes into effect, it will impose a heightened fiduciary standard on financial advisors who provide investment advice pertaining to retirement assets, including roll-overs of 401(k) balances and investments in individual retirement accounts. Implementation of the DOL’s rule may impact how we compensate our financial advisors and the financial intermediaries that sell our investment funds, as well as increase the cost and complexity of our compliance efforts. In Europe, the second installment of the Markets in Financial Instruments Directive II (“MiFID II”), enactment of which has been delayed until January 1, 2018, makes significant modifications to the manner in which European broker-dealers can be compensated for research. These modifications are recognized in the industry as having the potential to significantly decrease the overall research spend by European buy-side firms. Consequently, our U.K.-based broker-dealer is considering new charging mechanisms for its research in order to minimize this impact as part of its broader MiFID II implementation program. Also, MiFID II will permit buy-side firms to purchase research through the use of client-funded research payment accounts and the language of the Delegated Act under MiFID II appears to permit the funding of these accounts in a manner that would permit the continued use of traditional commission sharing agreements, which would significantly reduce the financial impact on buy-side and sell-side firms of the MiFID II prohibition on inducements. However, significant operational changes will be required to implement the rule. The ultimate impact of MiFID II on payments for research currently is uncertain. Lastly, it also is uncertain how regulatory trends will evolve under the current U.S. President’s administration and after national elections are held in certain nations abroad during 2017, including France and Germany. In June 2016, a narrow majority of voters in a U.K. referendum voted to exit the European Union (“Brexit”), but it remains unclear exactly how the U.K.’s status in relation to the European Union (“EU”) will change when it ultimately leaves. Ongoing changes in the EU’s regulatory framework appli- cable to our business, including Brexit and any other changes in the composition of the EU’s member states, may add further com- plexity to our global risks and operations. 22 AB We are involved in various legal proceedings and regulatory matters and may be involved in such proceedings in the future, any one or combination of which could have a material adverse effect on our reputation, financial condition, results of operations and business prospects. We may be involved in various matters, including regulatory inquiries, administrative proceedings and litigation, some of which allege significant damages, and we may be involved in additional matters in the future. Litigation is subject to significant uncertainties, particularly when plaintiffs allege substantial or indeterminate damages, the litigation is in its early stages, or when the litigation is highly complex or broad in scope. The financial services industry is intensely competitive. We compete on the basis of a number of factors, including our investment performance for our clients, our array of investment services, innovation, reputation and price. By having a global presence, we often face competitors with more experience and more established relationships with clients, regulators and industry participants in the relevant market, which could adversely affect our ability to expand. Furthermore, if we are unable to maintain and/or continue to improve our investment performance, our client flows may be adversely affected, which may make it more difficult for us to compete effectively. Also, increased competition could reduce the demand for our products and services, which could have a material adverse effect on our financial condition, results of operations and business prospects. For additional information regarding competitive factors, see “Competition” in Item 1. Structure-related Risks The partnership structure of AB Holding and AB limits Unitholders’ abilities to influence the management and operation of AB’s business and is highly likely to prevent a change in control of AB Holding and AB. The General Partner, as general partner of both AB Holding and AB, generally has the exclusive right and full authority and respon- sibility to manage, conduct, control and operate their respective businesses, except as otherwise expressly stated in their respective Amended and Restated Agreements of Limited Partnership. AB Holding and AB Unitholders have more limited voting rights on matters affecting AB than do holders of common stock in a corporation. Both Amended and Restated Agreements of Limited Part- nership provide that Unitholders do not have any right to vote for directors of the General Partner and that Unitholders only can vote on certain extraordinary matters (including removal of the General Partner under certain extraordinary circumstances). Addi- tionally, the AB Partnership Agreement includes significant restrictions on the transfer of AB Units and provisions that have the practical effect of preventing the removal of the General Partner, which provisions are highly likely to prevent a change in control of AB’s management. AB Units are illiquid and subject to significant transfer restrictions. There is no public trading market for AB Units and we do not anticipate that a public trading market will develop. The AB Partner- ship Agreement restricts our ability to participate in a public trading market or anything substantially equivalent to one by providing that any transfer that may cause AB to be classified as a “publicly traded partnership” (“PTP”) as defined in Section 7704 of the Internal Revenue Code of 1986, as amended (“Code”), shall be deemed void and shall not be recognized by AB. In addition, AB Units are subject to significant restrictions on transfer, such as obtaining the written consent of AXA Equitable and the General Partner pursuant to the AB Partnership Agreement. Generally, neither AXA Equitable nor the General Partner will permit any transfer that it believes would create a risk that AB would be treated as a corporation for tax purposes. AXA Equitable and the General Partner have implemented a transfer program that requires a seller to locate a purchaser and imposes annual volume restrictions on transfers. You may request a copy of the transfer program from our Corporate Secretary (corporate_secretary@abglobal.com). Also, we have filed the transfer program as Exhibit 10.08 to this Form 10-K. Changes in the partnership structure of AB Holding and AB and/or changes in the tax law governing partnerships would have significant tax ramifications. AB Holding, having elected under Section 7704(g) of the Code to be subject to a 3.5% federal tax on partnership gross income from the active conduct of a trade or business, is a “grandfathered” PTP for federal income tax purposes. AB Holding is also subject Annual Report 2016 23 to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AB. In order to preserve AB Holding’s status as a “grandfathered” PTP for federal income tax purposes, management ensures that AB Holding does not directly or indirectly (through AB) enter into a substantial new line of business. A “new line of business” includes any business that is not closely related to AB’s historical business of providing research and diversified investment management and related services to its clients. A new line of business is “substantial” when a partnership derives more than 15% of its gross income from, or uses more than 15% of its total assets in, the new line of business. AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal and state corporate income taxes. However, AB is subject to the 4.0% UBT. Domestic corporate subsidiaries of AB, which are subject to federal, state and local income taxes, generally are included in the filing of a consolidated federal income tax return with separate state and local income tax returns being filed. Foreign corporate subsidiaries generally are subject to taxes in the foreign jurisdiction where they are located. If our business increasingly operates in countries other than the U.S., AB’s effective tax rate will increase over time because our inter- national subsidiaries are subject to corporate taxes in the jurisdictions where they are located. In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly traded. If such units were to be considered readily tradable, AB would be subject to federal and state corporate income tax on its net income. Furthermore, as noted above, should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership of AB, would lose its status as a grandfathered PTP and would become subject to corporate income tax as set forth above. For information about the significant restrictions on transfer of AB Units, see the risk factor immediately above. In addition, recent decisions by members of Congress and their staffs regarding the need for fundamental tax reform and possible tax law changes to raise additional revenue have included suggestions that all large partnerships (which would include both AB and AB Holding) should be taxed as corporations and that a process should be implemented to address repatriating the non-U.S. earnings of U.S. companies. We cannot predict whether, or in what form, tax legislation will be proposed in the future and are unable to determine what effect any new legislation might have on us. If our subsidiaries’ non-U.S. earnings are repatriated to the U.S. at unfavorable tax rates, our tax liability may increase substantially. Furthermore, if AB Holding and AB were to lose their federal tax status as partnerships, they would be subject to corporate income tax, which would reduce materially their net income and quarterly distributions to Unitholders. If, pursuant to the Bipartisan Budget Act of 2015 (“2015 Act”), any audit by the Internal Revenue Service (“IRS”) of our income tax returns for any fiscal year beginning after December 31, 2017 results in any adjustments, the IRS may collect any resulting taxes, including any applicable penalties and interest, directly from us, in which case our net income and the cash available for quarterly Unitholder distributions may be substantially reduced. Although the IRS, under current law, generally determines tax adjustments at the partnership level when it audits the income tax return of a partnership, the IRS is required to collect any additional taxes, interest and penalties from the partnership’s individual partners. The 2015 Act modifies this procedure for fiscal years beginning after December 31, 2017. Generally, we will have the ability to collect tax liability from our Unitholders in accordance with their percentage interests during the year under audit, but there can be no assurance that we will elect to do so or be able to do so under all circumstances. If we do not collect such tax liability from our Unitholders in accordance with their percentage interests in the tax year under audit, our net income and the available cash for quarterly distributions to current Unitholders may be substantially reduced. Accordingly, our current Unitholders may bear some or all of the tax liability resulting from such audit adjustment, even if such Unitholders did not own Units during the tax year under audit. Further guidance from the IRS is expected, which may significantly impact the application of these rules. 24 AB Item 1B. Unresolved Staff Comments Neither AB nor AB Holding has unresolved comments from the staff of the SEC to report. Annual Report 2016 25 Item 2. Properties Our principal executive offices located at 1345 Avenue of the Americas, New York, New York are occupied pursuant to a lease expiring in 2024. At this location, we currently lease 992,043 square feet of space, within which we currently occupy approximately 600,060 square feet of space and have sub-let approximately 391,983 square feet of space. We also lease space at two other locations in New York City; we acquired one of these leases in connection with the WPS Acquisition. In addition, we lease approximately 263,083 square feet of space at One North Lexington, White Plains, New York under a lease expiring in 2021 with options to extend to 2031. At this location, we currently occupy approximately 69,013 square feet of space and have sub-let (or are seeking to sub-let) approximately 194,070 square feet of space. We also lease 92,067 square feet of space in San Antonio, Texas under a lease expiring in 2019 with options to extend to 2029. At this location, we currently occupy approximately 59,004 square feet of space and have sub-let approximately 33,063 square feet of space. In addition, we lease space in 19 other cities in the United States. Our subsidiaries lease space in 27 cities outside the United States, the most significant of which are in London, England, under a lease expiring in 2022, and in Tokyo, Japan, under a lease expiring in 2018. In London, we currently lease 65,488 square feet of space, within which we currently occupy approximately 54,746 square feet of space and have sub-let approximately 10,742 square feet of space. In Tokyo, we currently lease and occupy approximately 34,615 square feet of space. 26 AB Item 3. 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. During the first quarter of 2012, we received a legal letter of claim (“Letter of Claim”) sent on behalf of Philips Pension Trustees Limited and Philips Electronics U.K. Limited (“Philips”), a former pension fund client, alleging that AllianceBernstein Limited (one of our subsidiaries organized in the U.K.) was negligent and failed to meet certain applicable standards of care with respect to the initial investment in, and management of, a £500 million portfolio of U.S. mortgage-backed securities. Philips alleged damages ranging between $177 million and $234 million, plus compound interest on an alleged $125 million of realized losses in the portfo- lio. On January 2, 2014, Philips filed a claim form in the High Court of Justice in London, England, which formally commenced litigation with respect to the allegations in the Letter of Claim. By agreement dated November 28, 2016, the terms of which are confidential, this matter was settled. Our contribution to the settlement amount was paid by our relevant insurance carriers. In addition to the matter discussed immediately above, we may be involved in various other matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. In management’s opinion, an adequate accrual has been made as of December 31, 2016 to provide for any probable losses regarding any litigation matters for which we can reasonably estimate an amount of loss. It is reasonably possible that we could incur addi- tional losses pertaining to these matters, but currently we cannot estimate any such additional 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. Annual Report 2016 27 Item 4. Mine Safety Disclosures Not applicable. 28 AB PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for AB Holding Units and AB Units; Cash Distributions AB Holding Units are listed on the NYSE and trade publicly under the ticker symbol “AB”. There is no established public trading market for AB Units, which are subject to significant restrictions on transfer. For information about these transfer restrictions, see “Structure-related Risks” in Item 1A. AB Holding’s principal source of income and cash flow is attributable to its limited partnership interests in AB. Each of AB Holding and AB distributes on a quarterly basis all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement and the AB Partnership Agreement, respectively, to its Unitholders and the General Partner. For additional information concerning distribution of Available Cash Flow by AB Holding, see Note 2 to AB Holding’s financial statements in Item 8. For addi- tional information concerning distribution of Available Cash Flow by AB, see Note 2 to AB’s consolidated financial statements in Item 8. The distributions of Available Cash Flow made by AB and AB Holding during 2016 and 2015 and the high and low sale prices of AB Holding Units reflected on the NYSE composite transaction tape during 2016 and 2015 are as follows: Cash distributions per AB Unit(1) Cash distributions per AB Holding Unit(1) AB Holding Unit prices: High Low Cash distributions per AB Unit(1) Cash distributions per AB Holding Unit(1) AB Holding Unit prices: High Low (1) Declared and paid during the following quarter. December 31 September 30 June 30 March 31 Total Quarters Ended 2016 $ 0.73 $ 0.67 $24.10 $20.75 $ 0.51 $ 0.45 $24.69 $21.29 $ 0.46 $ 0.40 $24.65 $21.49 $ 0.45 $ 0.40 $23.98 $16.11 $2.15 $1.92 December 31 September 30 June 30 March 31 Total Quarters Ended 2015 $ 0.56 $ 0.50 $27.70 $21.23 $ 0.50 $ 0.43 $30.07 $22.00 $ 0.54 $ 0.48 $32.74 $28.79 $ 0.51 $ 0.45 $31.00 $24.04 $2.11 $1.86 On December 31, 2016, the closing price of an AB Holding Unit on the NYSE was $23.45 per Unit and there were 911 AB Hold- ing Unitholders of record for approximately 76,000 beneficial owners. On December 31, 2016, there were 394 AB Unitholders of record, and we do not believe there are substantial additional beneficial owners. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities We did not engage in any unregistered sales of our securities during the years ended December 31, 2016, 2015 and 2014. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Each quarter since the third quarter of 2011, AB has implemented plans to repurchase AB Holding Units pursuant to Rule 10b5-1 under the Exchange Act. The plan adopted during the fourth quarter of 2016 expired at the close of business on February 10, 2017. AB may adopt additional Rule 10b5-1 plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under the firm’s incentive compensation award program and for other corporate purposes. For addi- tional information about Rule 10b5-1 plans, see “Units Outstanding” in Item 7. Annual Report 2016 29 AB Holding Units bought by us or one of our affiliates during the fourth quarter of 2016 are as follows: Issuer Purchases of Equity Securities Total Number of AB Holding Units Purchased Average Price Paid Per AB Holding Unit, net of Commissions Total Number of AB Holding Units Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of AB Holding Units that May Yet Be Purchased Under the Plans or Programs 520,702 737,700 3,451,884 4,710,286 $ 22.14 22.49 22.95 $22.79 — — — — — — — — Period 10/1/16-10/31/16(1)(2) 11/1/16-11/30/16(2) 12/1/16-12/31/16(1)(2) Total (1) During the fourth quarter of 2016, we purchased 2,548,730 AB Holding Units from employees to allow them to fulfill statutory withholding tax requirements at the time of distribution of long-term incentive compensation awards. (2) During the fourth quarter of 2016, we purchased 2,161,556 AB Holding Units on the open market pursuant to a Rule 10b5-1 plan to help fund anticipated obli- gations under our incentive compensation award program. AB Units bought by us or one of our affiliates during the fourth quarter of 2016 are as follows: Issuer Purchases of Equity Securities Total Number of AB Units Purchased Average Price Paid Per AB Unit, net of Commissions Total Number of AB Units Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of AB Units that May Yet Be Purchased Under the Plans or Programs — — 660 660 $ — — 23.15 $23.15 — — — — — — — — Period 10/1/16-10/31/16 11/1/16-11/30/16 12/1/16-12/31/16(1) Total (1) During December 2016, we purchased 660 AB Units in private transactions. 30 AB Item 6. Selected Financial Data AllianceBernstein Holding L.P. 2016 2015(1) Years Ended December 31, 2014(1) 2013(1) 2012(1) (in thousands, except per unit amounts) Income Statement Data: Equity in net income (loss) attributable to AB Unitholders $ 239,389 $ 210,084 $ 200,931 $ 184,778 Income taxes Net income (loss) Basic net income (loss) per unit Diluted net income (loss) per unit Cash Distributions Per Unit(2) Balance Sheet Data At Period End: Total assets Partners’ capital 22,803 24,320 22,463 20,410 $ 216,586 $ 185,764 $ 178,468 $ 164,368 $ $ $ 2.24 2.23 1.92 $1,540,508 $1,539,889 $ $ $ 1.87 1.86 1.86 $1,576,120 $1,575,846 $ $ $ 1.84 1.84 1.86 $1,616,461 $1,616,079 $ $ $ 1.70 1.70 1.79 $1,524,569 $1,523,793 $ $ $ $ $ 67,565 19,722 47,843 0.47 0.47 1.23 $1,558,542 $1,552,131 (1) Certain prior-year amounts have been revised; see Note 2 to AB Holding’s financial statements in Item 8 for a discussion of the revision. (2) AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders; 2016, 2015, 2014 and 2013 distributions reflect the impact of AB’s non-GAAP adjustments. As of the third quarter of 2012, available cash flow is the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. Annual Report 2016 31 AllianceBernstein L.P. Selected Consolidated Financial Data 2016 Years Ended December 31, 2014(1) 2013(1) 2015(1) 2012(1) Income Statement Data: Revenues: Investment advisory and services fees Bernstein research services Distribution revenues Dividend and interest income Investment gains (losses) Other revenues Total revenues Less: interest expense Net revenues Expenses: Employee compensation and benefits: Employee compensation and benefits Promotion and servicing: Distribution-related payments Amortization of deferred sales commissions Trade execution, marketing, T&E and other General and administrative: General and administrative Real estate charges Contingent payment arrangements Interest on borrowings Amortization of intangible assets Total expenses Operating income Income taxes Net income Net income (loss) of consolidated entities attributable to non-controlling interests Net income attributable to AB Unitholders Basic net income per AB Unit Diluted net income per AB Unit Operating margin(2) Cash Distributions Per AB Unit(3) Balance Sheet Data at Period End: Total assets Debt Total capital Assets Under Management at Period End (in millions) (in thousands, except per unit amounts and unless otherwise indicated) $1,993,471 479,875 384,405 36,702 93,353 110,096 3,037,902 9,123 3,028,779 $1,973,837 493,463 427,156 24,872 3,551 101,169 3,024,048 3,321 3,020,727 $1,958,250 482,538 444,970 22,322 (9,076) 108,788 3,007,792 2,426 3,005,366 $1,849,105 445,083 465,424 19,962 33,339 105,058 2,917,971 2,924 2,915,047 $1,764,475 413,707 409,488 21,286 29,202 101,801 2,739,959 3,222 2,736,737 1,229,721 1,267,926 1,265,664 1,212,011 1,168,645 371,607 41,066 208,538 393,033 49,145 223,415 413,054 41,508 224,576 426,824 41,279 204,568 370,865 40,262 198,416 426,147 17,704 (20,245) 4,765 26,311 2,305,614 723,165 28,319 694,846 21,488 $ 673,358 431,635 998 (5,441) 3,119 25,798 2,389,628 631,099 44,797 586,302 6,375 $ 579,927 426,960 52 (2,782) 2,797 24,916 2,396,745 608,621 44,304 564,317 456 $ 563,861 423,043 28,424 (10,174) 2,962 21,859 2,350,796 564,251 40,113 524,138 9,746 $ 514,392 507,682 223,038 682 3,429 21,353 2,534,372 202,365 22,407 179,958 (315) $ 180,273 $ $ $ 2.48 2.47 23.2% 2.15 $ $ $ 2.11 2.10 20.7% 2.11 $ $ $ 2.07 2.07 20.2% 2.08 $ $ $ 1.88 1.87 19.0% 1.97 $ $ $ 0.64 0.64 7.4% 1.36 $8,740,448 $ 512,970 $4,068,189 $ 480,201 $7,433,721 $ 581,700 $4,017,221 $ 467,440 $7,375,621 $ 486,156 $4,084,840 $ 474,027 $7,383,899 $ 266,445 $4,045,227 $ 450,411 $8,112,458 $ 320,571 $3,782,054 $ 430,017 (1) Certain prior-year amounts have been revised; see Note 2 to AB’s financial statements in Item 8 for a discussion of the revision. (2) Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues. (3) AB is required to distribute all of its Available Cash Flow, as defined in the AB Partnership Agreement, to its Unitholders and the General Partner. As of the third quarter of 2012, available cash flow is the adjusted diluted net income per unit for the quarter multiplied by the number of units outstanding at the end of the quarter. 32 AB Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Percentage change figures are calculated using assets under management rounded to the nearest million and financial statement amounts rounded to the nearest thousand. Executive Overview Our total assets under management (“AUM”) as of December 31, 2016 were $480.2 billion, up $12.8 billion, or 2.7%, during 2016. The increase was driven by market appreciation of $23.1 billion, offset by net outflows of $9.8 billion (Institutional outflows of $5.4 billion and Retail outflows of $4.8 billion, offset by Private Wealth Management inflows of $0.4 billion). Institutional AUM increased $3.1 billion, or 1.3%, to $239.3 billion during 2016, primarily due to market appreciation of $9.0 billion, offset by net outflows of $5.4 billion. Gross sales decreased $9.1 billion, or 29.8%, from $30.7 billion in 2015 to $21.6 billion in 2016. Redemptions and terminations decreased $0.7 billion, or 4.1%, from $16.4 billion in 2015 to $15.7 billion in 2016. Retail AUM increased $5.8 billion, or 3.8%, to $160.2 billion during 2016, primarily due to market appreciation of $10.5 billion, offset by net outflows of $4.8 billion. Gross sales increased $5.4 billion, or 15.1%, from $35.8 billion in 2015 to $41.2 billion in 2016. Redemptions and terminations increased $4.8 billion, or 13.3%, from $36.0 billion in 2015 to $40.8 billion in 2016. Private Wealth Management AUM increased $3.9 billion, or 5.1%, to $80.7 billion during 2016, primarily due to market apprecia- tion of $3.6 billion and net inflows of $0.4 billion. Gross sales increased $1.3 billion, or 14.0%, from $8.9 billion in 2015 to $10.2 billion in 2016. Redemptions and terminations increased $0.3 billion, or 3.9%, from $9.0 billion in 2015 to $9.3 billion in 2016. Bernstein Research Services revenue decreased $13.6 million, or 2.8%, in 2016. The decrease primarily was the result of lower market values and volumes in Europe and Asia and the discontinuation of our Equity Capital Market services. Our 2016 revenues of $3.0 billion were flat compared to the prior year as a result of an $89.8 million increase in investment gains, an $8.9 million increase in other revenues, a $9.0 million increase in performance-based fees and a $6.0 million increase in net divi- dend and interest income, offset by a $49.4 million decrease in base advisory fees, a $42.8 million decrease in distribution revenues and a $13.6 million decrease in Bernstein Research Services revenue. Our operating expenses of $2.3 billion decreased $84.0 million, or 3.5%, compared to the prior year primarily due to a $44.4 million decrease in promotion and servicing expenses, a $38.2 decrease in employee compensation and benefits expenses, a $14.8 million increase in change in estimates for contingent payment arrangements and a $5.5 million decrease in other general and administrative expenses, partially offset by higher real estate charges of $16.7 million. Our operating income increased $92.1 million, or 14.6%, to $723.2 million from $631.1 million in 2015 and our operating margin increased from 20.7% in 2015 to 23.2% in 2016. Market Environment Uncertainties were prevalent during 2016, as global markets reacted to issues that included Great Britain’s vote to exit the European Union, increased regulatory scrutiny in the U.S. and abroad, a mixed outlook for global economic growth, foreign exchange rates and interest rates, negative fixed income performance, and the contentious U.S. Presidential election process. Although U.S. mar- kets rallied following the outcome of the U.S. election and a fourth-quarter U.S. interest rate increase, and related commentary from the Federal Reserve, provided some clarity as to the direction of rates, many issues remain a concern for global investors. Also, active managers continue to struggle to outperform relative to passive, where asset growth and popularity remain undeterred. AB Holding AB Holding’s principal source of income and cash flow is attributable to its investment in AB Units. The AB Holding financial statements and notes and management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with those of AB. Annual Report 2016 33 Results of Operations Net income attributable to AB Unitholders Weighted average equity ownership interest Equity in net income attributable to AB Unitholders Income taxes Net income of AB Holding Diluted net income per AB Holding Unit Distributions per AB Holding Unit(1) Years Ended December 31, 2015(1) 2016 2014(1) % Change 2016-15 2015-14 (in thousands, except per unit amounts) $673,358 $579,927 $563,861 16.1% 2.8% 35.6% 36.2% 35.6% $239,389 22,803 $216,586 $ $ 2.23 1.92 $210,084 24,320 $185,764 $ $ 1.86 1.86 $200,931 22,463 $178,468 $ $ 1.84 1.86 13.9 (6.2) 16.6 19.9 3.2 4.6 8.3 4.1 1.1 — (1) Certain prior-year amounts have been revised; see Note 2 to AB Holding’s financial statements in Item 8 for a discussion of the revision. (2) Distributions reflect the impact of AB’s non-GAAP adjustments. During the third quarter of 2016, AB identified an error that had been impacting the calculation of its tax provision since 2010. As a result of this error, which impacted our equity in net income attributable to AB Unitholders, management revised previously issued AB and AB Holding financial statements. See Note 2 to AB Holding’s financial statements in Item 8 for further discussion. AB Holding had net income of $216.6 million in 2016 as compared to $185.8 million in 2015. The increase reflects higher net income attributable to AB Unitholders, offset by a lower weighted average equity ownership percentage. AB Holding had net income of $185.8 million in 2015 as compared to $178.5 million in 2014. The increase reflected higher net income attributable to AB Unitholders and a higher weighted average equity ownership interest. AB Holding’s partnership gross income is derived from its interest in AB. AB Holding’s income taxes, which reflect a 3.5% federal tax on its partnership gross income from the active conduct of a trade or business, are computed by multiplying certain AB qualify- ing revenues (primarily U.S. investment advisory fees and brokerage commissions) by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. AB Holding’s effective tax rate was 9.5% in 2016, 11.6% in 2015 and 11.2% in 2014. See Note 6 to AB Holding’s financial statements in Item 8 for a further description. As supplemental information, AB provides the performance measures “adjusted net revenues”, “adjusted operating income” and “adjusted operating margin”, which are the principal metrics management uses in evaluating and comparing the period-to-period operating performance of AB. Management principally uses these metrics in evaluating performance because they present a clearer picture of AB’s 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, management believes that these management operating metrics help investors better understand the underlying trends in AB’s results and, accordingly, provide a valuable perspective for investors. Such measures are not based on generally accepted accounting principles (“non-GAAP measures”). These non-GAAP measures are provided in addition to, and not as sub- stitutes for, net revenues, operating income and operating margin, and they may not be comparable to non-GAAP measures pre- sented by other companies. Management uses both the GAAP and non-GAAP measures in evaluating the company’s financial performance. The non-GAAP measures alone may pose limitations because they do not include all of AB’s revenues and expenses. Further, adjusted diluted net income per AB Holding Unit is not a liquidity measure and should not be used in place of cash flow measures. See “Management Operating Metrics” in this Item 7. 34 AB The impact of these adjustments on AB Holding’s net income and diluted net income per AB Holding Unit are as follows: AB non-GAAP adjustments, before taxes Income tax benefit on non-GAAP adjustments Income tax credit on AB’s income tax provision AB non-GAAP adjustments, after taxes AB Holding’s weighted average equity ownership interest in AB Impact on AB Holding’s net income of AB non-GAAP adjustments Net income—diluted, GAAP basis Impact on AB Holding’s net income of AB non-GAAP adjustments Adjusted net income—diluted Diluted net income per AB Holding Unit, GAAP basis Impact of AB non-GAAP adjustments Adjusted diluted net income per AB Holding Unit Years Ended December 31, 2015 2016 2014 (in thousands, except per unit amounts) $ (77,275) $ (6,083) $ (665) 5,332 (21,572) (93,515) 35.6% 432 — (5,651) 36.2% 610 — (55) 35.6% $(33,246) $ (2,047) $ (19) $217,464 (33,246) $184,218 $ $ 2.23 (0.34) 1.89 $187,147 $179,986 (2,047) (19) $185,100 $179,967 $ $ 1.86 (0.02) 1.84 $ $ 1.84 — 1.84 The degree to which AB’s non-GAAP adjustments impact AB Holding’s net income fluctuates based on AB Holding’s ownership percentage in AB. The income tax credit on AB’s income tax provision reflects a fourth quarter 2016 change in estimate made by AB to its income tax liability relating to the third quarter 2016 revision to income taxes ($13.3 million) and a reversal of a deferred tax liability relating to foreign translation adjustments ($8.2 million). Proposed Tax Legislation For a discussion of proposed tax legislation, see “Risk Factors—Structure-related Risks” in Item 1A. Capital Resources and Liquidity During the year ended December 31, 2016, net cash provided by operating activities was $169.5 million, compared to $192.8 million during the corresponding 2015 period. The decrease primarily resulted from lower cash distributions received from AB of $25.1 million. During the year ended December 31, 2015, net cash provided by operating activities was $192.8 million, compared to $180.9 million during the corresponding 2014 period. The increase primarily resulted from higher cash distributions received from AB of $13.1 million. During the years ended December 31, 2016, 2015 and 2014, net cash used in investing activities was $6.1 million, $9.2 million and $19.0 million, respectively, reflecting investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units. During the year ended December 31, 2016, net cash used in financing activities was $163.4 million, compared to $183.6 million during the corresponding 2015 period. The decrease was due to lower cash distributions to Unitholders of $22.6 million, offset by lower proceeds from exercises of compensatory options to buy AB Holding Units of $3.1 million. During the year ended December 31, 2015, net cash used in financing activities was $183.6 million, compared to $162.0 million during the corresponding 2014 period. The increase was due to lower proceeds from exercises of compensatory options to buy AB Holding Units of $9.7 million and higher cash distributions to Unitholders of $9.6 million. Management believes that AB Holding will have the resources it needs to meet its financial obligations as a result of the cash flow AB Holding realizes from its investment in AB. Annual Report 2016 35 Cash Distributions AB Holding is required to distribute all of its Available Cash Flow, as defined in the AB Holding Partnership Agreement, to its Unitholders (including the General Partner). Available Cash Flow typically is the adjusted diluted net income per unit for the quar- ter multiplied by the number of units outstanding at the end of the quarter. 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 of the non-GAAP adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 2 to AB Holding’s financial statements in Item 8 for a description of Available Cash Flow. Commitments and Contingencies For a discussion of commitments and contingencies, see Note 7 to AB Holding’s financial statements in Item 8. AB Assets Under Management Assets under management by distribution channel are as follows: Institutions Retail Private Wealth Management Total Assets under management by investment service are as follows: Equity Actively Managed Passively Managed(1) Total Equity Fixed Income Actively Managed Taxable Tax-exempt Passively Managed(1) Total Fixed Income Other(2) Total As of December 31, 2015 2016 (in billions) 2014 2016-15 2015-14 % Change $ 239.3 $ 236.2 $ 237.0 1.3% (0.4)% 160.2 80.7 154.4 76.8 161.5 75.5 $480.2 $467.4 $474.0 3.8 5.1 2.7 (4.4) 1.8 (1.4) As of December 31, 2015 2016 (in billions) 2014 2016-15 2015-14 % Change $ 111.9 48.1 160.0 $ 110.6 46.4 157.0 $ 112.5 50.4 162.9 1.2% 3.6 1.9 (1.7)% (8.1) (3.7) 220.9 36.9 257.8 11.1 268.9 51.3 207.4 33.5 240.9 10.0 250.9 59.5 219.4 31.6 251.0 10.1 261.1 50.0 $480.2 $467.4 $474.0 6.5 10.2 7.0 11.1 7.2 (13.7) 2.7 (5.4) 5.9 (4.0) (1.0) (3.9) 19.1 (1.4) Includes index and enhanced index services. Includes certain multi-asset solutions and services and certain alternative investments. (1) (2) 36 AB Changes in assets under management during 2016 and 2015 are as follows: Balance as of December 31, 2015 Long-term flows: Sales/new accounts Redemptions/terminations Cash flow/unreinvested dividends Net long-term (outflows) inflows Transfers Acquisition AUM adjustment(3) Market appreciation Net change Balance as of December 31, 2016 Balance as of December 31, 2014 Long-term flows: Sales/new accounts Redemptions/terminations Cash flow/unreinvested dividends Net long-term inflows (outflows) Transfers AUM adjustment(4) Market (depreciation) appreciation Net change Balance as of December 31, 2015 Distribution Channel Institutions Retail Private Wealth Management Total (in billions) $ 236.2 $ 154.4 $ 76.8 $ 467.4 21.6 (15.7) (11.3) (5.4) — 2.5 (3.0) 9.0 3.1 41.2 (40.8) (5.2) (4.8) 0.1 — — 10.5 5.8 10.2 (9.3) (0.5) 0.4 (0.1) — — 3.6 3.9 73.0 (65.8) (17.0) (9.8) — 2.5 (3.0) 23.1 12.8 $239.3 $160.2 $80.7 $480.2 $ 237.0 $ 161.5 $ 75.5 $ 474.0 30.7 (16.4) (7.4) 6.9 (0.3) 0.1 (7.5) (0.8) 35.8 (36.0) (3.3) (3.5) (0.1) (0.3) (3.2) (7.1) 8.9 (9.0) (0.1) (0.2) 0.4 0.2 0.9 1.3 75.4 (61.4) (10.8) 3.2 — — (9.8) (6.6) $236.2 $154.4 $76.8 $467.4 Annual Report 2016 37 Equity Actively Managed Equity Passively Managed(1) Investment Service Fixed Income Actively Managed - Taxable Fixed Income Actively Managed - Tax- Exempt (in billions) Fixed Income Passively Managed(1) Other(2) Total Balance as of December 31, 2015 $ 110.6 $ 46.4 $ 207.4 $ 33.5 $ 10.0 $ 59.5 $ 467.4 Long-term flows: Sales/new accounts Redemptions/terminations Cash flow/unreinvested dividends Net long-term (outflows) inflows Acquisition AUM adjustment(3) Market appreciation Net change 14.4 (19.3) (2.7) (7.6) — — 8.9 1.3 0.5 (1.0) (2.0) (2.5) — — 4.2 1.7 Balance as of December 31, 2016 $111.9 $48.1 45.8 (31.0) (9.1) 5.7 — — 7.8 13.5 $220.9 8.5 (5.0) (0.2) 3.3 — — 0.1 3.4 0.2 (0.6) 1.1 0.7 — — 0.4 1.1 3.6 (8.9) (4.1) (9.4) 2.5 (3.0) 1.7 (8.2) 73.0 (65.8) (17.0) (9.8) 2.5 (3.0) 23.1 12.8 $36.9 $11.1 $51.3 $480.2 Balance as of December 31, 2014 $ 112.5 $ 50.4 $ 219.4 $ 31.6 $ 10.1 $ 50.0 $ 474.0 Long-term flows: Sales/new accounts Redemptions/terminations Cash flow/unreinvested dividends Net long-term (outflows) inflows AUM adjustment(4) Market appreciation (depreciation) Net change 18.6 (17.2) (3.7) (2.3) 0.1 0.3 (1.9) 0.9 (1.5) (2.5) (3.1) — (0.9) (4.0) Balance as of December 31, 2015 $110.6 $46.4 (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services and certain alternative investments. 36.2 (34.6) (4.6) (3.0) — (9.0) (12.0) $207.4 5.6 (4.4) (0.1) 1.1 (0.1) 0.9 1.9 0.6 (0.5) (0.1) — — (0.1) (0.1) 13.5 (3.2) 0.2 10.5 — (1.0) 9.5 75.4 (61.4) (10.8) 3.2 — (9.8) (6.6) $33.5 $10.0 $59.5 $467.4 (3) During the second quarter of 2016, we removed $3.0 billion of Customized Retirement Solutions assets from AUM as our asset management services transi- tioned to consulting services. In addition, we previously made minor adjustments to reported AUM for reporting methodology changes that do not represent inflows or outflows. (4) Represents adjustments to reported AUM for reporting methodology changes that do not represent inflows or outflows. 38 AB Average assets under management by distribution channel and investment service are as follows: Years Ended December 31, 2015 2016 2014 DistributionChannel: Institutions Retail Private Wealth Management Total InvestmentService: 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) $ 243.4 $ 242.9 $ 234.3 157.7 78.9 160.6 77.2 159.6 73.6 $480.0 $480.7 $467.5 $ 109.4 46.5 221.5 36.3 11.0 55.3 $ 113.2 49.3 217.7 32.6 10.1 57.8 $ 111.2 49.6 219.5 30.4 9.7 47.1 $480.0 $480.7 $467.5 % Change 2016-15 2015-14 0.2% (1.8) 2.2 (0.1) (3.3) (5.7) 1.8 11.1 8.4 (4.3) (0.1) 3.6% 0.6 4.9 2.8 1.7 (0.6) (0.8) 7.2 4.1 22.7 2.8 (1) Includes index and enhanced index services. (2) Includes certain multi-asset solutions and services and certain alternative investments. During 2016, our Institutional channel average AUM of $243.4 billion increased $0.5 billion, or 0.2%, compared to 2015, primarily due to our Institutional AUM increasing $3.1 billion, or 1.3%, to $239.3 billion over the last twelve months. The $3.1 billion increase in AUM primarily resulted from market appreciation of $9.0 billion, offset by net outflows of $5.4 billion. During 2015, our Institutional channel average AUM of $242.9 billion increased $8.6 billion, or 3.6%, compared to 2014; however, our Institu- tional AUM decreased $0.8 billion, or 0.4%, to $236.2 billion for the year ended December 31, 2015. The $0.8 billion decrease in AUM for 2015 primarily resulted from market depreciation of $7.5 billion, which was concentrated in the third quarter of 2015, offset by net inflows of $6.9 billion, consisting of inflows of $9.7 billion in other and $1.7 billion in fixed income, offset by outflows of $4.5 billion in equity services. During 2016, our Retail channel average AUM of $157.7 billion decreased $2.9 billion, or 1.8%, compared to 2015; however, our Retail channel AUM increased $5.8 billion, or 3.8%, to $160.2 billion over the last twelve months. The $5.8 billion increase in AUM for 2016 primarily resulted from market appreciation of $10.5 billion, offset by net outflows of $4.8 billion. During 2015, our Retail channel average AUM of $160.6 billion increased $1.0 billion, or 0.6%, compared to 2014; however, our Retail channel AUM decreased $7.1 billion, or 4.4%, to $154.4 billion for the year ended December 31, 2015. The $7.1 billion decrease in AUM for 2015 primarily resulted from net outflows of $3.5 billion (primarily in fixed income) and market depreciation of $3.2 billion (market depreciation during the third quarter of 2015 was $8.6 billion). During 2016, our Private Wealth Management channel average AUM of $78.9 billion increased $1.7 billion, or 2.2%, compared to 2015, primarily due to our Private Wealth Management AUM increasing $3.9 billion, or 5.1%, to $80.7 billion over the last twelve months. The $3.9 billion increase in AUM for 2016 primarily resulted from market appreciation of $3.6 billion and net inflows of $0.4 billion. During 2015, our Private Wealth Management channel average AUM of $77.2 billion increased $3.6 billion, or 4.9%, compared to 2014, primarily as a result of our Private Wealth Management AUM increasing $1.3 billion, or 1.8%, to $76.8 billion for the year ended December 31, 2015. The $1.3 billion increase in AUM for 2015 primarily resulted from $0.9 billion in market appreciation (although $3.2 billion of market depreciation occurred in the third quarter of 2015), offset by net outflows of $0.2 billion. Annual Report 2016 39 Absolute investment composite returns, gross of fees, and relative performance as of December 31, 2016 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 Relative return (vs. Bloomberg Barclays Global High Yield Index—Hedged) Global Fixed Income—Hedged (fixed income) Absolute return Relative return (vs. JPM GLBL BD) Global Plus—Hedged (fixed income) Absolute return Relative return (vs. Bloomberg Barclays Global Aggregate Index) Intermediate Municipal Bonds (fixed income) Absolute return Relative return (vs. Lipper Short/Int. Blended Muni Fund Avg) U.S. Strategic Core Plus (fixed income) Absolute return Relative return (vs. Bloomberg Barclays U.S. Aggregate Index) Emerging Market Debt (fixed income) Absolute return Relative return (vs. JPM EMBI Global/JPM EMBI) Emerging Markets Value Absolute return Relative return (vs. MSCI EM Index) Global Strategic Value Absolute return Relative return (vs. MSCI ACWI Index) U.S. Small & Mid Cap Value Absolute return Relative return (vs. Russell 2500 Value Index) U.S. Strategic Value Absolute return Relative return (vs. Russell 1000 Value Index) U.S. Small Cap Growth Absolute return Relative return (vs. Russell 2000 Growth Index) U.S. Large Cap Growth Absolute return Relative return (vs. Russell 1000 Growth Index) U.S. Small & Mid Cap Growth Absolute return Relative return (vs. Russell 2500 Growth Index) Concentrated U.S. Growth Absolute return Relative return (vs. S&P 500 Index) Select U.S. Equity Absolute return Relative return (vs. S&P 500 Index) 16.2% 0.6 3.1 (0.6) 5.1% (0.5) 4.4 (0.1) 5.9 2.0 0.3 0.4 4.7 2.0 13.9 3.7 15.5 4.3 9.4 1.5 26.0 0.8 12.2 (5.2) 7.7 (3.6) 3.7 (3.4) 5.6 (4.1) 7.0 (5.0) 10.2 (1.7) 4.9 0.8 2.5 0.8 4.2 1.2 5.5 — (0.6) 2.0 4.3 1.1 9.7 1.5 5.7 (2.9) 2.3 (2.7) 10.1 1.5 3.2 (2.3) 7.6 (1.3) 8.7 (0.1) 8.1% (0.2) 3.6 0.2 4.4 0.8 2.1 0.6 3.4 1.1 5.9 0.5 1.3 — 11.7 2.4 17.1 2.1 13.8 (1.0) 12.8 (1.0) 16.7 2.2 12.2 (1.7) 15.5 0.9 14.8 0.1 40 AB Strategic Equities (inception June 30, 2012) Absolute return Relative return (vs. Russell 3000 Index) Global Core Equity (inception June 30, 2011) Absolute return Relative return (vs. MSCI ACWI Index) Consolidated Results of Operations 1-Year 3-Year 5-Year 10.0 (2.7) 8.9 1.0 8.9 0.5 3.0 (0.2) N/A N/A 12.4 3.0 Net revenues Expenses Operating income Income taxes Net income Net income of consolidated entities attributable to non-controlling interests Net income attributable to AB Unitholders Diluted net income per AB Unit Distributions per AB Unit Operating margin(1) Years Ended December 31, 2015 2016 2014 2016-15 2015-14 % Change (in thousands, except per unit amounts) $3,028,779 2,305,614 $3,020,727 2,389,628 $3,005,366 2,396,745 723,165 28,319 694,846 21,488 631,099 44,797 586,302 6,375 608,621 44,304 564,317 456 $ 673,358 $ 579,927 $ 563,861 $ $ 2.47 2.15 23.2% $ $ 2.10 2.11 20.7% $ $ 2.07 2.08 20.2% 0.3% (3.5) 14.6 (36.8) 18.5 237.1 16.1 17.6 1.9 0.5% (0.3) 3.7 1.1 3.9 1,298.0 2.8 1.4 1.4 (1) Operating income excluding net income (loss) attributable to non-controlling interests as a percentage of net revenues. Net income attributable to AB Unitholders for the year ended December 31, 2016 increased $93.4 million from the year ended December 31, 2015. The increase is primarily due to (in millions): Higher investment gains Lower employee compensation and benefits Lower income taxes Lower other promotion and servicing expenses Lower estimates for contingent payment arrangements Higher performance-based fees Lower other general and administrative expenses Lower base advisory fees Higher real estate charges Higher net income of consolidated entities attributable to non-controlling interests Lower Bernstein Research Services revenue Other $ 89.8 38.2 16.5 14.9 14.8 9.0 5.5 (49.4) (16.7) (15.1) (13.6) (0.5) $ 93.4 Annual Report 2016 41 Net income attributable to AB Unitholders for the year ended December 31, 2015 increased $16.1 million from the year ended December 31, 2014. The increase was primarily due to (in millions): Higher base advisory fees 2015 investment gains compared to 2014 investment losses Higher Bernstein Research Services revenues Lower performance-based fees Lower other revenues Higher net income of consolidated entities attributable to non-controlling interests Higher general and administrative expenses Other $ 45.1 12.6 10.9 (29.5) (7.6) (5.9) (5.6) (3.9) $ 16.1 Revision During the third quarter of 2016, management determined that the frequency with which we settled our U.S. inter-company pay- able balances with foreign subsidiaries over the past several years created deemed dividends under Section 956 of the U.S. Internal Revenue Code of 1986, as amended (“Section 956”). In the past, we funded our foreign subsidiaries as they required cash for their operations rather than pre-fund them each quarter, thereby reducing the inter-company balance to zero on a quarterly basis, as required by Section 956. As a result, we have been understating our income tax provision and income tax liability since 2010. In regard to our revision of previously issued financial statements, we recorded a cumulative adjustment to our January 1, 2012 part- ners’ capital account and revised our consolidated statements of financial condition and consolidated statements of income from 2012 through the second quarter of 2016. See Note 2 to our consolidated financial statements contained in Item 8 for further discussion. Real Estate Charges During 2010, we performed a comprehensive review of our real estate requirements in New York in connection with our work- force reductions, which commenced in 2008. As a result, during 2010 we decided to sub-lease over 380,000 square feet in New York (all of this space has been sublet) and consolidate our New York-based employees into two office locations from three. Dur- ing the third quarter of 2012, in an effort to further reduce our global real estate footprint, we completed a comprehensive review of our worldwide office locations and began implementing a global space consolidation plan. As a result, we decided to sub-lease approximately 510,000 square feet of office space (all of this space has been sublet), more than 70% of which is New York office space (in addition to the 380,000 square feet space reduction in 2010), with the remainder consisting of office space in England, Australia and various U.S. locations. During 2014, we recorded pre-tax real estate charges of $0.1 million, comprising $5.5 million for the write-off of leasehold improvements, furniture and equipment, offset by $4.7 million from a change in estimates related to previously recorded real estate charges and $0.7 million in credits related to other items. During 2015, we recorded pre-tax real estate charges of $1.0 million, resulting from a change in estimates related to previously recorded real estate charges. During 2016, we recorded pre-tax real estate charges of $17.7 million, resulting from new charges of $22.8 million relating to the further consolidation of office space at our New York offices, offset by changes in estimates related to previously recorded real estate charges of $5.1 million, which reflects the shortening of the lease term of our corporate headquarters from 2029 to 2024. Units Outstanding Each quarter, we consider whether to implement a plan to repurchase AB Holding Units pursuant to Rule 10b5-1 under the Secu- rities Exchange Act of 1934, as amended (“Exchange Act”). A Rule 10b5-1 plan allows a company to repurchase its shares at times 42 AB 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 pro- mulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the fourth quarter of 2016 expired at the close of business on February 10, 2017. We may adopt additional Rule 10b5-1 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 Avail- able Cash Flow will continue to be based on adjusted diluted net income per unit, unless management determines, with con- currence of the Board of Directors, that one or more non-GAAP adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. See Note 2 to our consolidated financial statements contained in Item 8 for a description of Available Cash Flow. 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. Annual Report 2016 43 Net revenues, US GAAP basis Exclude: Long-term incentive compensation-related investment losses (gains) Long-term incentive compensation-related dividends and interest 90% of consolidated venture capital fund investment (gains) Distribution-related payments Amortization of deferred sales commissions Pass-through fees and expenses Gain on sale of investment carried at cost Impact of consolidated VIEs Adjusted net revenues Operating income, US GAAP basis Exclude: Long-term incentive compensation-related items Gain on sale of investment carried at cost Real estate charges Acquisition-related expenses Contingent payment arrangements Sub-total of non-GAAP adjustments Less: Net income of consolidated entities attributable to non-controlling interests Adjusted operating income Adjusted operating margin Years Ended December 31, 2015 2016 2014 (in thousands) $3,028,779 $3,020,727 $3,005,366 (1,175) (1,647) (11,575) (371,607) (41,066) (43,808) (75,273) (13,314) 1,903 (1,938) (7,117) (393,033) (49,145) (47,479) — — (2,184) (3,083) (1,165) (413,054) (41,508) (38,852) — — $2,469,314 $2,523,918 $2,505,520 $ 723,165 $ 631,099 $ 608,621 720 (75,273) 17,704 1,057 (21,483) (77,275) 21,488 131 — 998 — (7,212) (6,083) 6,375 210 — 52 3,448 (4,375) (665) 456 $ 624,402 $ 618,641 $ 607,500 25.3% 24.5% 24.2% Adjusted operating income for the year ended December 31, 2016 increased $5.8 million, or 0.9%, from the year ended December 31, 2015, primarily due to lower employee compensation expense (excluding the impact of long-term incentive compensation-related items) of $42.1 million, lower promotion and servicing expenses of $14.1 million, higher performance-based fees of $9.1 million and lower general and administrative expenses of $6.9 million, offset by lower investment advisory base fees of $46.4 million, lower Bernstein Research Services revenue of $13.6 million and higher net distribution expenses of $13.1 million. Adjusted operating income for the year ended December 31, 2015 increased $11.1 million, or 1.8%, from the year ended December 31, 2014, primarily due to higher investment advisory base fees of $36.5 million, higher Bernstein Research Services revenue of $10.9 million and lower investment losses of $10.8 million, offset by lower performance-based fees of $29.5 million, higher employee compensation expense (excluding the impact of long-term incentive compensation-related items) of $10.3 million and lower other revenues of $7.6 million. Adjusted Net Revenues Adjusted net revenues exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments. In addition, adjusted net revenues offset distribution-related payments to third parties as well as amortization of deferred sales commissions against distribution revenues. We believe offsetting net revenues by distribution-related payments is useful for our investors and other users of our financial statements because such presentation appropriately reflects the nature of these costs as pass-through payments to third parties who 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. 44 AB In addition, in 2015 we excluded 90% of the investment gains and losses of our consolidated venture capital fund attributable to non-controlling interests. Effective January 1, 2016, as a result of adopting a new accounting standard (see Note 2 to the consolidated financial statements contained in Item 8), we account for our consolidated venture capital fund in the same manner as our other con- solidated VIEs. We adjust for the revenue impact of consolidating VIEs by eliminating the consolidated VIEs’ revenues and includ- ing AB’s fees from such VIEs and AB’s investment gains and losses on its investments in such VIEs that were eliminated in consolidation. Lastly, in the first quarter of 2016 we excluded a realized gain of $75.3 million resulting from the liquidation of an investment in Jasper Wireless Technologies, Inc. (“Jasper”), which was acquired by Cisco Systems, Inc., because it was not part of our core operating results. Adjusted Operating Income Adjusted operating income represents operating income on a US GAAP basis excluding (1) the impact on net revenues and compen- sation expense of the investment gains and losses (as well as the dividends and interest) associated with employee long-term incentive compensation-related investments, (2) the gain on the sale of our investment in Jasper, (3) real estate charges, (4) acquisition-related expenses, (5) the net income or loss of consolidated entities attributable to non-controlling interests, (6) adjustments to contingent payment arrangements, and (7) the impact of consolidated VIEs in 2016. Prior to 2009, a significant portion of employee compensation was in the form of employee 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. A realized gain on the liquidation of our Jasper investment has been excluded due to its non-recurring nature and because it is not part of our core operating results. Real estate charges 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 compar- ing financial results from period to period and to industry peers. The recording of changes in estimates of the contingent consideration payable with respect to contingent payment arrangements associated with our acquisitions are not considered part of our core operating results and, accordingly, have been excluded. In regard to 2015 adjusted operating income, most of the net income or loss of consolidated entities attributable to non-controlling interests relates to the 90% limited partner interests held by third parties in our consolidated venture capital fund. We own a 10% limited partner interest in the fund. US GAAP requires us to consolidate the financial results of the fund because we are the general partner and are deemed to have a controlling interest. However, recognizing 100% of the gains or losses in operating income while only retaining 10% is not reflective of our underlying financial results at the operating income level. As a result, we exclude the 90% limited partner interests we do not own from our adjusted operating income. Effective January 1, 2016, our consolidated venture capital fund is included with other consolidated VIEs. Similarly, net income of joint ventures attributable to non-controlling inter- ests, although not significant, is excluded because it does not reflect the economic interest attributable to AB. Relating to 2016 adjusted operating income, we adjusted for the operating income impact of consolidating certain VIEs (as a result of the adoption of a new accounting standard; see Note 2 to our consolidated financial statements contained in Item 8) by eliminating the consolidated VIEs’ 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. Annual Report 2016 45 Adjusted Operating Margin Adjusted operating margin allows us to monitor our financial performance and efficiency from period to period without the vola- tility 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. Net Revenues The components of net revenues are as follows: Investment advisory and services fees: Institutions: Base fees Performance-based fees Retail: Base fees Performance-based fees Private Wealth Management: Base fees Performance-based fees Total: Base fees Performance-based fees Bernstein Research Services Distribution revenues Dividend and interest income Investment gains (losses) Other revenues Total revenues Less: Interest expense Net revenues Years Ended December 31, 2015 2016 2014 2016-15 2015-14 % Change (in thousands) $ 403,503 $ 421,964 $ 410,139 17,394 420,897 805,621 3,333 808,954 691,595 12,025 703,620 1,900,719 32,752 1,933,471 479,875 384,405 36,702 93,353 110,096 3,037,902 9,123 12,496 434,460 847,246 8,807 856,053 680,881 2,443 683,324 1,950,091 23,746 1,973,837 493,463 427,156 24,872 3,551 101,169 3,024,048 3,321 22,967 433,106 846,418 20,559 866,977 648,457 9,710 658,167 1,905,014 53,236 1,958,250 482,538 444,970 22,322 (9,076) 108,788 3,007,792 2,426 $3,028,779 $3,020,727 $3,005,366 (4.4)% 39.2 (3.1) 2.9% (45.6) 0.3 (4.9) (62.2) (5.5) 1.6 392.2 3.0 (2.5) 37.9 (2.0) (2.8) (10.0) 47.6 n/m 8.8 0.5 174.7 0.3 0.1 (57.2) (1.3) 5.0 (74.8) 3.8 2.4 (55.4) 0.8 2.3 (4.0) 11.4 n/m (7.0) 0.5 36.9 0.5 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 account and the total amount of assets we manage for a particular client. Accordingly, fee income generally increases or decreases as AUM increase or decrease 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 div- ided by average AUM) generally approximate 50 to 110 basis points for actively-managed equity services, 15 to 60 basis points for actively-managed fixed income services and 5 to 20 basis points for passively-managed services. Average basis points realized for 46 AB other services 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. The ranges discussed in this paragraph 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 is composed of senior officers and employees, is responsible for overseeing the pricing and valu- ation 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 7.0%, 4.2% and 0.9% of the assets we manage for institutional clients, private wealth clients and retail clients, respectively (in total, 4.5% of our AUM). During 2016, as general partner of AllianceBernstein U.S. Real Estate L.P. (“Real Estate Fund”), we received a carried interest distribution of $48.7 million. In accordance with our revenue recognition policies, we did not recognize this carried interest dis- tribution as performance fee revenues, instead recording a deferred revenue liability, because the distribution is subject to claw-back provisions. We will recognize the distribution as revenues when the potential claw-back obligation is mathematically remote, which may not occur until at or near termination of the Real Estate Fund. In addition, we have revenue-sharing arrangements whereby certain employees are entitled to a share of carried interest proceeds distributed by certain funds, including the Real Estate Fund. As such, we distributed $24.0 million of these carried interest proceeds to certain Real Estate Fund employees. We have recorded this payment, which, like our carried interest distribution, is subject to claw-back provisions, as an advance to employees and will recognize it as compensation expense in the period in which the applicable revenue is recognized. Our investment advisory and services fees decreased by $40.4 million, or 2.0%, in 2016, primarily due to a $49.4 million, or 2.5%, decrease in base fees, which primarily resulted from the impact of a shift in product mix from active equity products into active fixed income products that generally have lower fees. However, our performance-based fees increased $9.0 million from the prior year. Our investment advisory and services fees increased $15.6 million, or 0.8%, in 2015, primarily due to a $45.1 million, or 2.4%, increase in base fees, which primarily resulted from a 2.8% increase in average AUM. The increase in base fees was partially offset by a $29.5 million, or 55.4%, decrease in performance-based fees. The decrease in performance-based fees primarily resulted from major equity market declines during 2015. Institutional investment advisory and services fees decreased $13.6 million, or 3.1%, in 2016, primarily due to an $18.5 million, or 4.4%, decrease in base fees. The decrease in base fees resulted from a shift in product mix from active equities into active fixed income products that generally have lower fees. However, performance-based fees increased $4.9 million from the prior year. Institutional investment advisory and services fees increased $1.4 million, or 0.3%, in 2015, primarily due to an $11.8 million, or 2.9%, increase in base fees, which primarily resulted from a 3.6% increase in average AUM. The increase in base fees was partially offset by a $10.4 million, or 45.6%, decrease in performance-based fees. Annual Report 2016 47 Retail investment advisory and services fees decreased $47.1 million, or 5.5%, in 2016, primarily due to a $41.6 million, or 4.9%, decrease in base fees. The decrease in base fees was due to a decrease in average AUM of 1.8% and the impact of a shift in product mix from non-U.S. global fixed income mutual funds, non-U.S. global equity mutual funds and other products to U.S. tax-exempt mutual funds, which generally have lower fees. Additionally, performance-based fees decreased $5.5 million from the prior year. Retail investment advisory and services fees decreased $10.9 million, or 1.3%, in 2015, primarily due to an $11.7 million, or 57.2%, decrease in performance based fees, offset by a $0.8 million, or 0.1%, increase in base fees. Retail average AUM increased 0.6% in 2015. Private Wealth Management investment advisory and services fees increased $20.3 million, or 3.0%, in 2016, due to an increase in base fees of $10.7 million, or 1.6%, resulting from a 2.2% increase in average AUM and a $9.6 million increase in performance- based fees. Private Wealth Management investment advisory and services fees increased $25.2 million, or 3.8%, in 2015, primarily due to a $32.4 million, or 5.0%, increase in base fees, which primarily resulted from an increase in average billable AUM of 4.7%. The increase in base fees was partially offset by a $7.2 million decrease in performance-based fees. Bernstein Research Services Bernstein Research Services revenue consists principally of equity commissions received for providing equity research and brokerage-related services to institutional investors. Revenues from Bernstein Research Services decreased $13.6 million, or 2.8%, in 2016, as a result of lower market values and volumes in Europe and Asia and the discontinuation of our Equity Capital Market services. Revenue from Bernstein Research Services increased $10.9 million, or 2.3%, in 2015. The increase was the result of growth in the U.S. and Asia, partially offset by a combination of pricing pressure in Europe and weakness in European currencies compared to the U.S. dollar. Distribution Revenues Two of our subsidiaries act as distributors and/or placement agents of company-sponsored mutual funds and receive distribution services fees from certain of those funds as partial reimbursement of the distribution expenses they incur. Period-over-period fluctuations of distribution revenues typically are in line with fluctuations of the corresponding average AUM of these mutual funds. Distribution revenues decreased $42.8 million, or 10.0%, in 2016, while the corresponding average AUM of these mutual funds decreased 8.0%. Distribution revenues decreased $17.8 million, or 4.0%, in 2015, while the corresponding average AUM of these mutual funds decreased 2.8%. 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. Interest expense principally reflects interest accrued on cash balances in customers’ brokerage accounts. Dividend and interest income, net of interest expense, increased $6.0 million and $1.7 million, respectively, in 2016 and 2015. The increase in 2016 was primarily due to higher mutual fund dividends of $3.4 million and higher broker-dealer interest income (net of interest expense) of $2.1 million. 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) investments owned by our consolidated venture capital fund, (iii) U.S. Treasury Bills, (iv) market-making in exchange-traded options and equities, (v) seed capital investments, (vi) derivatives and (vii) investments in our consolidated VIEs. Effective January 1, 2016, upon adoption of a new accounting standard (see Note 2 to the consolidated financial statements contained in Item 8), our consolidated private equity fund investments are included with investments in consolidated VIEs. Investment gains (losses) also include realized gains or losses on the sale of seed capital investments classified as available-for-sale securities and equity in earnings of proprietary investments in limited partnership hedge funds that we sponsor and manage. 48 AB Investment gains (losses) are as follows: Long-term incentive compensation-related investments Realized gains (losses) Unrealized gains (losses) Consolidated private equity fund investments Realized gains (losses) Non-public investments Public securities Unrealized gains (losses) Non-public investments Public securities Investments held by consolidated VIEs Realized gains (losses) Unrealized gains (losses) Seed capital investments Realized gains (losses) Seed capital Derivatives Unrealized gains (losses) Seed capital Derivatives Brokerage-related investments Realized gains (losses) Unrealized gains (losses) Years Ended December 31, 2015 2016 2014 (in thousands) $ 1,463 $ 3,687 $ 3,089 (288) (5,589) (905) — — — — (8,482) 31,040 67,778 (15,207) 22,373 (311) (5,057) 44 1,983 (5,500) 1,396 10,028 — — 23,007 11,448 (34,830) 3,724 (5,653) (150) — 7,052 5,065 (10,822) — — 22,336 (18,662) (7,421) (615) (9,728) 1,535 $93,353 $ 3,551 $ (9,076) During the first quarter of 2016, we sold our investment in Jasper, a company in which we owned a 7.6% equity interest. We expect to receive a total of $85.5 million in cash, subject to final transaction costs and working capital adjustments. During March 2016, the transaction closed and we received $74.8 million in cash, recorded a $10.7 million receivable for the balance retained in escrow for 18 months and recorded an investment gain of $75.3 million. Other Revenues Other revenues consist of fees earned for transfer agency services provided to company-sponsored mutual funds, fees earned for admin- istration and recordkeeping services provided to company-sponsored mutual funds and the general accounts of AXA and its sub- sidiaries, and other miscellaneous revenues. Other revenues increased $8.9 million, or 8.8%, in 2016, primarily due to the recording of other revenues related to our consolidated VIEs in the current year, offset by lower shareholder servicing fees. Other revenues decreased $7.6 million, or 7.0%, in 2015 primarily due to lower shareholder servicing fees and mutual fund reimbursements. Annual Report 2016 49 Expenses The components of expenses are as follows: Employee compensation and benefits Promotion and servicing: Distribution-related payments Amortization of deferred sales commissions Trade execution, marketing, T&E and other General and administrative: General and administrative Real estate charges Contingent payment arrangements Interest Amortization of intangible assets Total Years Ended December 31, 2015 2016 (in thousands) 2014 2016-15 2015-14 % Change $ 1,229,721 $ 1,267,926 $ 1,265,664 (3.0)% 0.2% 371,607 41,066 208,538 621,211 426,147 17,704 443,851 (20,245) 4,765 26,311 393,033 49,145 223,415 665,593 431,635 998 432,633 (5,441) 3,119 25,798 413,054 41,508 224,576 679,138 426,960 52 427,012 (2,782) 2,797 24,916 $2,305,614 $2,389,628 $2,396,745 (5.5) (16.4) (6.7) (6.7) (1.3) n/m 2.6 272.1 52.8 2.0 (3.5) (4.8) 18.4 (0.5) (2.0) 1.1 n/m 1.3 95.6 11.5 3.5 (0.3) 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 40.6%, 42.0% and 42.1% for the years ended December 31, 2016, 2015 and 2014, 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 appro- val of the Compensation 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 Item 7). Adjusted employee compensation and benefits expense is total employee compensation and benefits expense minus other employ- ment costs such as recruitment, training, temporary help and meals (which were 1.1%, 1.3% and 1.2% of adjusted net revenues for 2016, 2015 and 2014, respectively), 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. Senior management, with the approval of the Compensation Committee, has established as an objective that adjusted employee compensation and benefits expense gen- erally should not exceed 50% of our adjusted net revenues, except in unexpected or unusual circumstances. Our ratios of adjusted compensation expense as a percentage of adjusted net revenues were 48.5%, 48.9% and 49.1%, respectively, for the years ended December 31, 2016, 2015 and 2014. In 2016, employee compensation and benefits expense decreased $38.2 million, or 3.0%, primarily due to lower incentive compensation of $33.6 million, lower fringes/other of $8.0 million and lower commissions of $6.4 million, partially offset by higher base compensation of $9.8 million reflecting higher severance costs. In 2015, employee compensation and benefits expense increased $2.3 million, or 0.2%, primarily due to higher base compensation of $16.3 million and fringes/other of $6.0 million, offset by lower commissions of $14.0 million and incentive compensation of $6.0 million. 50 AB Promotion and Servicing Promotion and servicing expenses include distribution-related payments to financial intermediaries for distribution of AB mutual funds and amortization of deferred sales commissions paid to financial intermediaries for the sale of back-end load shares of AB mutual funds. Also included in this expense category are costs related to travel and entertainment, advertising and promotional materials. Promotion and servicing expenses decreased $44.4 million, or 6.7%, in 2016. The decrease primarily was due to lower distribution- related payments of $21.4 million, lower amortization of deferred sales commissions of $8.1 million, lower travel and entertainment expenses of $6.3 million, lower marketing expenses of $5.1 million and lower transfer fees of $4.8 million. Promotion and servicing expenses decreased $13.5 million, or 2.0%, in 2015. The decrease primarily was the result of lower distribution-related payments of $20.0 million, lower marketing expenses of $3.2 million and lower travel and entertainment expenses of $1.6 million, offset by higher amortization of deferred sales commissions of $7.6 million and higher trade execution and clearing costs of $3.7 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 14.7% (14.1% excluding real estate charges), 14.3% and 14.2% for the years ended December 31, 2016, 2015 and 2014, respectively. General and administrative expenses increased $11.2 million, or 2.6%, in 2016, primarily due higher real estate charges of $16.7 million, offset by lower professional fees of $6.3 million. General and administrative expenses increased $5.6 million, or 1.3%, in 2015, primarily due to higher portfolio services expenses of $8.5 million and higher technology expenses of $3.6 million, offset by lower office-related expenses of $3.1 million and lower impact of foreign exchange rates of $2.7 million (the result of cur- rent year gains compared to prior year losses). Contingent Payment Arrangements Contingent payment arrangements reflect changes in estimates of contingent payment liabilities associated with acquisitions in pre- vious periods, as well as accretion expense relating to these liabilities. The credit to operating expenses of $20.2 million in 2016 reflects changes in estimates of contingent consideration payable of $21.5 million relating to our 2013 and 2010 acquisitions, offset by the accretion expense of $1.3 million. The credit to operating expenses of $5.4 million in 2015 reflects changes in estimate of the contingent consideration payable relating to our 2014 and 2010 acquisitions of $7.2 million recorded in the fourth quarter of 2015, offset by the accretion expense of $1.8 million. The credit to operating expenses of $2.8 million in 2014 reflects the change in esti- mate of the contingent consideration payable relating to a 2010 acquisition of $4.4 million recorded in the fourth quarter of 2014, offset by the accretion expense of $1.6 million. Income Taxes AB, a private limited partnership, is not subject to federal or state corporate income taxes, but is subject to a 4.0% New York City unincorporated business tax (“UBT”). Our domestic corporate subsidiaries are subject to federal, state and local income taxes and generally are included in the filing of a consolidated federal income tax return. Separate state and local income tax returns also are filed. Foreign corporate subsidiaries generally are subject to taxes in the jurisdictions where they are located. Income tax expense decreased $16.5 million, or 36.8%, in 2016 compared to 2015 primarily due to a lower effective tax rate in the current year of 3.9% compared to 7.1% in 2015, offset by higher pre-tax income. The significant decrease in our effective tax rate was driven by a fourth quarter 2016 change in estimate made to our income tax liability relating to the third quarter 2016 revision to income taxes ($13.3 million) and a reversal of a deferred tax liability relating to foreign translation adjustments ($8.2 million). Income tax expense increased $0.5 million, or 1.1%, in 2015 compared to 2014 primarily due to higher pre-tax income, partially offset by a lower effective tax rate in 2015 of 7.1% compared to 7.3% in 2014. The tax rate declined primarily because we generated a greater portion of our income in jurisdictions with lower tax rates. Annual Report 2016 51 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 VIEs. In 2016, we had $21.5 million of net income of consolidated entities attribut- able to non-controlling interests, primarily due to $20.0 million of gains on investments held by our consolidated VIEs. In 2015, we had $6.4 million of net income of consolidated entities attributable to non-controlling interests, primarily due to a $7.9 million net investment gain attributable to our consolidated venture capital fund (of which 90% belongs to non-controlling interests) and man- agement fees of $1.2 million. Capital Resources and Liquidity During 2016, net cash provided by operating activities was $1.5 billion, compared to $667.2 million during 2015. The change primarily was due to a significant increase in broker-dealer related payables, net of receivables and segregated U.S. Treasury Bills activity of $403.9 million, the impact of the consolidation of VIEs of $270.3 million and higher seed capital net redemptions, offset by higher net broker-dealer purchases of $104.6 million. During 2015, net cash provided by operating activities was $667.2 million, compared to $630.1 million during 2014. The change primarily was due to lower deferred sales commissions paid of $59.3 million, lower seed capital purchases, offset by lower net broker-dealer redemptions of $54.5 million, a decrease in fees receivable of $40.7 million and higher cash provided by net income of $37.7 million, partially offset by a larger increase in broker-dealer related receiv- ables (net of payables and segregated U.S. Treasury Bills activity) of $160.9 million. During 2016, net cash used in investing activities was $59.4 million, compared to $26.1 million during 2015. The increase primarily resulted from $20.5 million used to purchase a business and higher purchases of furniture, equipment and leasehold improvements of $6.5 million. During 2015, net cash used in investing activities was $26.1 million, compared to $86.2 million during 2014. The decrease primarily resulted from $60.6 million used to purchase a business during 2014. During 2016, net cash used in financing activities was $1.1 billion, compared to $644.7 million during 2015. The change reflects the repayments of commercial paper in 2016 as compared to issuances of commercial paper in 2015 (impact of $165.9 million), decrease in overdrafts payable of $164.1 million, redemptions of non-controlling interests in consolidated VIEs of $137.4 million and higher repurchases of AB Holding Units of $22.4 million, offset by lower distributions to the General Partner and Unitholders of $60.3 million as a result of lower earnings (distributions on earnings are paid one quarter in arrears). During 2015, net cash used in financing activities was $644.7 million, compared to $478.2 million during 2014. The change reflects lower net issuances of commercial paper of $126.0 million, higher repurchases of AB Holding Units of $123.3 million, higher distributions to the General Partner and Unitholders of $25.5 million as a result of higher earnings (distributions on earnings are paid one quarter in arrears) and lower proceeds from the exercise of options to buy AB Holding Units of $9.7 million, offset by an increase in overdrafts payable of $118.5 million. As of December 31, 2016, AB had $657.0 million of cash and cash equivalents (excluding cash and cash equivalents of consolidated VIEs), all of which is available for liquidity, but consist primarily of cash on deposit for our broker-dealers to comply with various customer clearing activities and cash held by foreign subsidiaries for which a permanent investment election for U.S. tax purposes is taken. If the cash held at our foreign subsidiaries of $399.6 million, which includes cash on deposit for our foreign broker-dealers, is repatriated to the U.S., we would be required to accrue and pay U.S. income taxes on these funds, based on the unremitted amount. Thru December 31, 2016, we intended to permanently reinvest our historical and 2016 earnings outside the U.S. Effective January 1, 2017, however, we intend to repatriate future earnings outside the U.S., as a result of which we expect our effective tax rate to increase. Debt and Credit Facilities As of December 31, 2016 and 2015, AB had $513.0 million and $581.7 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 0.9% and 0.5%, 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 2016 and 2015 were $422.9 million and $387.9 million, respectively, with weighted average interest rates of approximately 0.6% and 0.3%, respectively. 52 AB AB has a $1.0 billion committed, unsecured senior revolving credit facility (the “Credit Facility”) with a group of commercial banks and other lenders, which matures on October 22, 2019. The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $250.0 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 $1.0 billion 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 December 31, 2016, 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. 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 cus- tomary 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 December 31, 2016 and 2015, we had no amounts outstanding under the Credit Facility. During 2016 and 2015, we did not draw upon the Credit Facility. On December 1, 2016, AB entered into a $200.0 million, unsecured 364-day senior revolving credit facility (the “Revolver”) with a leading international bank and the other lending institutions that may be party thereto. 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 December 31, 2016, we had no amounts outstanding under the Revolver and the average daily borrowings for 2016 were $7.3 million, with a weighted average interest rate of 1.6%. In addition, SCB LLC has four uncommitted lines of credit with four financial institutions. Three of these lines of credit permit us to borrow up to an aggregate of approximately $225.0 million, with AB named as an additional borrower, while one line has no stated limit. As of December 31, 2016 and 2015, SCB LLC had no bank loans outstanding. Average daily borrowings of bank loans during 2016 and 2015 were $4.4 million and $3.9 million, respectively, with weighted average interest rates of approximately 1.1% and 1.2%, 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 pro- vide us with the resources we need to meet our financial obligations. See “Risk Factors” in Item 1A and “Cautions Regarding Forward- Looking Statements” in this Item 7 for a discussion of credit markets and our ability to renew our credit facilities at expiration. Off-Balance Sheet Arrangements and Aggregate Contractual Obligations Guarantees Under various circumstances, AB guarantees the obligations of its consolidated subsidiaries. Annual Report 2016 53 AB maintains guarantees in connection with the Credit Facility and Revolver. If SCB LLC is unable to meet its obligations, AB will pay the obligations when due or on demand. In addition, AB maintains guarantees totaling $425 million for SCB LLC’s four uncommitted lines of credit. AB maintains a guarantee with a commercial bank, under which we guarantee the obligations in the ordinary course of business of each of SCB LLC, our U.K.-based broker-dealer and our Cayman subsidiary. We also maintain three additional guarantees with other commercial banks under which we guarantee approximately $366 million of obligations for our U.K.-based broker-dealer. In the event that any of these three entities is unable to meet its obligations, AB will pay the obligations when due or on demand. We also have two smaller guarantees with a commercial bank totaling approximately $2.0 million, under which we guarantee cer- tain obligations in the ordinary course of business of one of our foreign subsidiaries. We have not been required to perform under any of the above agreements and currently have no liability in connection with these agreements. Aggregate Contractual Obligations Our contractual obligations as of December 31, 2016 are as follows: Commercial paper Operating leases, net of sublease commitments Funding commitments Accrued compensation and benefits Unrecognized tax benefits Total Total Less than 1 Year Payments Due by Period 1-3 Years 3-5 Years (in millions) $ 513.0 $ 513.0 641.5 32.0 225.6 12.6 95.0 11.4 136.7 5.2 $ — 170.4 13.8 49.3 4.6 $ — 151.9 2.4 13.4 — More than 5 Years $ — 224.2 4.4 26.2 2.8 $1,424.7 $761.3 $238.1 $167.7 $257.6 During 2009, we entered into a subscription agreement, under which we committed to invest up to $35.0 million, as amended in 2011, in a venture capital fund over a six-year period. As of December 31, 2016, we had funded $33.5 million of this commitment. 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 December 31, 2016, we had funded $20.5 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 the Real Estate Fund II. As of December 31, 2016, we had funded $3.8 million of this commitment. During 2012, we entered into an investment agreement under which we committed to invest up to $8.0 million in an oil and gas fund over a three-year period. As of December 31, 2016, we had funded $6.2 million of this commitment. Accrued compensation and benefits amounts in the table above exclude our accrued pension obligation. Offsetting our accrued com- pensation obligations are long-term incentive compensation-related investments and money market investments we funded totaling $74.4 million, which are included in our consolidated statement of financial condition. Any amounts reflected on the consolidated statement of financial condition as payables (to broker-dealers, brokerage clients and company-sponsored mutual funds) and accounts payable and accrued expenses are excluded from the table above. We expect to make contributions to our qualified profit sharing plan of approximately $14 million in each of the next four years. We currently estimate that we will contribute $4.0 million to the Retirement Plan during 2017. Contingencies See Note 13 to our consolidated financial statements in Item 8 for a discussion of our commitments and contingencies. 54 AB Critical Accounting Estimates The preparation of the consolidated financial statements and notes to consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management believes that the critical accounting policies and estimates discussed below involve significant management judgment due to the sensitivity of the methods and assumptions used. Goodwill As of December 31, 2016, we had goodwill of $3.1 billion on the consolidated statement of financial condition. We have determined that AB has only one reporting segment and reporting unit. We test our goodwill annually, as of September 30, for impairment. As of September 30, 2016, the impairment test indicated that goodwill was not impaired. The carrying value of good- will is also reviewed if facts and circumstances occur that suggest possible impairment, such as significant declines in AUM, rev- enues, earnings or the price of an AB Holding Unit. On an annual basis, or when circumstances warrant, we perform step one of our two-step goodwill impairment test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of AB, the reporting unit, with its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying value, goodwill is not considered to be impaired and the second step of the impairment test is not performed. However, if the carrying value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step compares the implied fair value of the reporting unit to the aggregated fair values of its individual assets and liabilities to determine the amount of impairment, if any. AB estimates its fair value under both the market approach and income approach. Under the market approach, the fair value of the reporting unit is based on its unadjusted market valuation (AB Units outstanding multiplied by the price of an AB Holding Unit) and adjusted market valuations assuming a control premium and earnings multiples. The price of a publicly-traded AB Holding Unit serves as a reasonable starting point for valuing an AB Unit because each represents the same fractional interest in our under- lying business. Our market approach analysis also includes control premiums, which are based on an analysis of control premiums for relevant recent acquisitions, and comparable industry earnings multiples applied to our earnings forecast. Under the income approach, the fair value of the reporting unit is based on the present value of estimated future cash flows. Determining estimated fair value using a discounted cash flow valuation technique consists of applying business growth rate assumptions over the estimated life of the goodwill asset and then discounting the resulting expected cash flows using an estimated weighted average cost of capital of market participants to arrive at a present value amount that approximates fair value. Real Estate Charges During 2010 and 2012, we performed comprehensive reviews of our office real estate requirements and determined to consolidate office space and sublease the excess office space. As a result, we recorded real estate charges that reflect the net present value of the difference between the amount of our on-going contractual lease obligations for the vacated floors and our estimate of current market rental rates for such floors. The charges we recorded were based on current assumptions at the time of the charges regarding sublease marketing periods, costs to prepare the properties to market, market rental rates, broker commissions and subtenant allow- ances/incentives, all of which are factors largely beyond our control. If our assumptions prove to be incorrect, we may need to record additional charges or reduce previously recorded charges. We review the assumptions and estimates we used in recording these charges on a quarterly basis. Loss Contingencies Management continuously reviews with legal counsel the status of regulatory matters and pending or threatened litigation. We evaluate the likelihood that a loss contingency exists and record a loss contingency if it is both probable and reasonably estimable as of the date of the financial statements. See Note 13 to our consolidated financial statements in Item 8. Accounting Pronouncements See Note 2 to our consolidated financial statements in Item 8. Annual Report 2016 55 Cautions Regarding Forward-Looking Statements Certain statements provided by management in this report 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 per- formance 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 regu- lations 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 state- ments. For further information regarding these forward-looking statements and the factors that could cause actual results to differ, see “Risk Factors” in Item 1A. Any or all of the forward-looking statements that we make in this Form 10-K, 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 con- dition, 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 certain pending legal proceedings to have a material adverse effect on our results of operations, financial condition or liquidity, any settlement or judgment with respect to a pending or future legal proceeding could be significant, and could have such an effect. • The possibility that we will engage in open market purchases of AB Holding Units to help fund anticipated obligations under our incentive compensation award program: The number of AB Holding Units AB may decide to buy in future periods, if any, to help fund incentive compensation awards depends on various factors, some of which are beyond our control, including the fluctuation in the price of an AB Holding Unit (NYSE: AB) and the availability of cash to make these purchases. • Our determination that adjusted employee compensation expense generally 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 exceed- ing 50% of our adjusted net revenues. • Our expectation that, as a result of repatriating future non-U.S. earnings, effective January 1, 2017, our effective tax rate will increase: Our effective tax rate fluctuates based on the mix of our earnings across our tax filing group, which includes our U.S. partnership, our U.S. corporate subsidiaries and our corporate subsidiaries operating in various non-U.S. jurisdictions, and the difference between the tax rates in the U.S. and the other jurisdictions where we conduct business. 56 AB Item 7A. Quantitative and Qualitative Disclosures about Market Risk AB Holding Market Risk, Risk Management and Derivative Financial Instruments AB Holding’s sole investment is AB Units. AB Holding did not own, nor was it a party to, any derivative financial instruments during the years ended December 31, 2016, 2015 and 2014. AB Market Risk, Risk Management and Derivative Financial Instruments Our investments consist of trading, available-for-sale investments and other investments. Trading and available-for-sale investments include U.S. Treasury Bills, mutual funds, exchange-traded options and various separately-managed portfolios consisting of equity and fixed income securities. Trading investments are purchased for short-term investment, principally to fund liabilities related to long-term incentive compensation plans and to seed new investment services. Although available-for-sale investments are purchased for long-term investment, the portfolio strategy considers them available-for-sale from time to time due to changes in market inter- est rates, equity prices and other relevant factors. Other investments include investments in hedge funds we sponsor, our con- solidated venture capital fund and other private equity investment vehicles. We enter into various futures, forwards, swaps and options primarily to economically hedge our seed capital investments. We do not hold any derivatives designated in a formal hedge relationship under ASC 815-10, Derivatives and Hedging. See Note 7 to our con- solidated financial statements in Item 8. Trading and Non-Trading Market Risk Sensitive Instruments Investments with Interest Rate Risk—Fair Value The table below provides our potential exposure with respect to our fixed income investments, measured in terms of fair value, to an immediate 100 basis point increase in interest rates at all maturities from the levels prevailing as of December 31, 2016 and 2015. Such a fluctuation in interest rates is a hypothetical rate scenario used to calibrate potential risk and does not represent our view of future market movements. While these fair value measurements provide a representation of interest rate sensitivity of our invest- ments in fixed income mutual funds and fixed income hedge funds, they are based on our exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing changes in investments in response to our assessment of changing market conditions and available investment opportunities: Fixed Income Investments: Trading Available-for-sale As of December 31, 2016 Effect of +100 Basis Point Change 2015 Effect of +100 Basis Point Change Fair Value Fair Value (in thousands) $120,529 22 $(7,846) (1) $207,730 183 $(11,446) (10) Annual Report 2016 57 Investments with Equity Price Risk—Fair Value Our investments also include investments in equity securities, mutual funds and hedge funds. The following table provides our potential exposure with respect to our equity investments, measured in terms of fair value, to an immediate 10% drop in equity prices from those prevailing as of December 31, 2016 and 2015. A 10% decrease in equity prices is a hypothetical scenario used to calibrate potential risk and does not represent our view of future market movements. While these fair value measurements provide a representation of equity price sensitivity of our investments in equity securities, mutual funds and hedge funds, they are based on our exposures at a particular point in time and may not be representative of future market results. These exposures will change as a result of ongoing portfolio activities in response to our assessment of changing market conditions and available investment opportunities: Equity Investments: Trading Available-for-sale and other investments As of December 31, 2016 Effect of -10% Equity Price Change Fair Value 2015 Effect of -10% Equity Price Change Fair Value (in thousands) $180,330 163,450 $(18,033) (16,345) $332,178 129,709 $(33,218) (12,971) 58 AB Item 8. Financial Statements and Supplementary Data Report of Independent Registered Public Accounting Firm To the General Partner and Unitholders of AllianceBernstein Holding L.P.: In our opinion, the accompanying statements of financial condition and the related statements of income, comprehensive income, changes in partners’ capital and cash flows present fairly, in all material respects, the financial position of AllianceBernstein Holding L.P. (“AB Holding”) at December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, and on AB Holding’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the account- ing principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assess- ing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projec- tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP New York, New York February 14, 2017 Annual Report 2016 59 AllianceBernstein Holding L.P. Statements of Financial Condition ASSETS Investment in AB Other assets Total assets LIABILITIES AND PARTNERS’ CAPITAL Liabilities: Other liabilities Total liabilities Commitments and contingencies (SeeNote7) Partners’ capital: General Partner: 100,000 general partnership units issued and outstanding Limited partners: 96,552,190 and 99,944,485 limited partnership units issued and outstanding AB Holding Units held by AB to fund long-term incentive compensation plans Accumulated other comprehensive loss Total partners’ capital Total liabilities and partners’ capital December 31, 2016 2015 (in thousands, except unit amounts) $ 1,540,508 $ 1,576,120 — — $1,540,508 $1,576,120 $ 619 619 $ 274 274 1,405 1,592,240 (11,731) (42,025) 1,539,889 $1,540,508 1,357 1,619,841 (10,669) (34,683) 1,575,846 $1,576,120 See Accompanying Notes to Financial Statements. 60 AB AllianceBernstein Holding L.P. Statements of Income Equity in net income attributable to AB Unitholders Income taxes Net income Net income per unit: Basic Diluted Years Ended December 31, 2015 2016 2014 (in thousands, except per unit amounts) $ 239,389 $ 210,084 $ 200,931 22,803 24,320 22,463 $216,586 $185,764 $178,468 $ $ 2.24 2.23 $ $ 1.87 1.86 $ $ 1.84 1.84 See Accompanying Notes to Financial Statements. Annual Report 2016 61 AllianceBernstein Holding L.P. Statements of Comprehensive Income Net income Other comprehensive income (loss): Foreign currency translation adjustments, before reclassification and tax Less: reclassification adjustment for (losses) gains included in net income upon liquidation Foreign currency translation adjustments, before tax Income tax benefit (expense) Foreign currency translation adjustments, net of tax Unrealized gains (losses) on investments: Unrealized gains (losses) arising during period Less: reclassification adjustments for (losses) gains included in net income Changes in unrealized gains (losses) on investments Income tax benefit (expense) Unrealized gains (losses) on investments, net of tax Changes in employee benefit related items: Amortization of prior service cost Recognized actuarial (loss) gain Changes in employee benefit related items Income tax (expense) benefit Employee benefit related items, net of tax Other comprehensive (loss) Comprehensive income Years Ended December 31, 2015 2016 2014 (in thousands) $ 216,586 $ 185,764 $ 178,468 (6,697) (2) (6,695) 56 (6,639) 4 (2) 6 — 6 40 (737) (697) (12) (709) (7,342) (5,508) 561 (6,069) 11 (6,058) (132) 457 (589) 256 (333) (326) 1,264 938 (61) 877 (5,514) (7,655) — (7,655) (78) (7,733) 602 7 595 (283) 312 (1,841) (7,486) (9,327) 113 (9,214) (16,635) $209,244 $180,250 $161,833 See Accompanying Notes to Financial Statements. 62 AB AllianceBernstein Holding L.P. Statements of Changes in Partners’ Capital General Partner’s Capital Balance, beginning of year Net income Cash distributions to Unitholders Balance, end of year Limited Partners’ Capital Balance, beginning of year Net income Cash distributions to Unitholders Retirement of AB Holding Units Issuance of AB Holding Units to fund long-term incentive compensation plan awards Exercise of compensatory options to buy AB Holding Units Balance, end of year AB Holding Units held by AB to fund long-term incentive compensation plans Balance, beginning of year AB Holding Units held by AB to fund long-term incentive compensation plans Balance, end of year Accumulated Other Comprehensive Income (Loss) Balance, beginning of year Unrealized gain (loss) on investments, net of tax Foreign currency translation adjustment, net of tax Changes in employee benefit related items, net of tax Balance, end of year Total Partners’ Capital Years Ended December 31, 2015 2016 2014 (in thousands) $ 1,357 $ 1,363 $ 1,369 223 (175) 1,405 187 (193) 1,357 183 (189) 1,363 1,619,841 1,657,165 1,549,003 216,363 (169,556) (184,336) 103,820 6,108 185,577 (192,106) (155,073) 115,045 9,233 178,285 (182,535) (14,577) 108,034 18,955 1,592,240 1,619,841 1,657,165 (10,669) (1,062) (11,731) (13,280) 2,611 (10,669) (14,045) 765 (13,280) (34,683) (29,169) (12,534) 6 (6,639) (709) (333) (6,058) 877 312 (7,733) (9,214) (42,025) (34,683) (29,169) $1,539,889 $1,575,846 $1,616,079 See Accompanying Notes to Financial Statements. Annual Report 2016 63 AllianceBernstein Holding L.P. Statements of Cash Flows Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Equity in net income attributable to AB Unitholders Cash distributions received from AB Changes in assets and liabilities: Decrease (increase) in other assets Increase (decrease) in other liabilities Net cash provided by operating activities Cash flows from investing activities: Investments in AB with proceeds from exercises of compensatory options to buy AB Holding Units Net cash used in investing activities Cash flows from financing activities: Cash distributions to Unitholders Capital contributions from (to) AB Proceeds from exercise of compensatory options to buy AB Holding Units Net cash used in financing activities Change in cash and cash equivalents Cash and cash equivalents as of beginning of the year Cash and cash equivalents as of end of the year Cash paid: Income taxes Non-cash investing activities: Years Ended December 31, 2015 2016 2014 (in thousands) $ 216,586 $ 185,764 $ 178,468 (239,389) 191,989 (210,084) 217,065 (200,931) 203,919 — 345 152 (108) (152) (394) 169,531 192,789 180,910 (6,108) (6,108) (9,233) (9,233) (18,955) (18,955) (169,731) (192,299) (182,724) 200 6,108 (490) 9,233 1,814 18,955 (163,423) (183,556) (161,955) — — — $ — — — $ — — — $ $ 22,456 $ 24,276 $ 23,009 Issuance of AB Holding Units to fund long-term incentive compensation plan awards Retirement of AB Holding Units 103,820 (184,336) 115,045 (155,073) 108,034 (14,577) See Accompanying Notes to Financial Statements. 64 AB AllianceBernstein Holding L.P. Notes to Financial Statements The words “we” and “our” refer collectively to AllianceBernstein Holding L.P. (“AB Holding”) and AllianceBernstein L.P. and its subsidiaries (“AB”), or to their officers and employees. Similarly, the word “company” refers to both AB Holding and AB. Where the context requires dis- tinguishing between AB Holding and AB, we identify which of them is being discussed. Cross-references are in italics. 1. Business Description and Organization AB Holding’s principal source of income and cash flow is attributable to its investment in AB limited partnership interests. AB provides research, diversified investment management and related services globally to a broad range of clients. Its principal serv- ices include: • Institutional Services—servicing its institutional clients, including private and public pension plans, foundations and endow- ments, insurance companies, central banks and governments worldwide, and affiliates such as AXA and its 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 its 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 its 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. AB also provides distribution, shareholder servicing, transfer agency services and administrative services to the mutual funds it sponsors. AB’s high-quality, in-depth research is the foundation of its business. AB’s research disciplines include economic, fundamental equity, fixed income and quantitative research. In addition, AB has experts focused on multi-asset strategies, wealth management and alternative investments. AB provides a broad range of investment services with expertise in: • Actively-managed equity strategies, with global and regional portfolios across capitalization ranges and investment strategies, including value, growth and core equities; • Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies; • Passive management, including index and enhanced index strategies; • Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct real estate investing and direct lending); and • Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds. AB’s 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. As of December 31, 2016, AXA, a société anonyme organized under the laws of France and the holding company for the AXA Group, a worldwide leader in financial protection, through certain of its subsidiaries (“AXA and its subsidiaries”) owns approx- imately 1.5% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AB Holding (“AB Holding Units”). Annual Report 2016 65 AllianceBernstein Holding L.P. Notes to Financial Statements (continued) As of December 31, 2016, the ownership structure of AB, expressed as a percentage of general and limited partnership interests, is as follows: AXA and its subsidiaries AB Holding Unaffiliated holders 63.2% 35.6 1.2 100.0% AllianceBernstein Corporation (an indirect wholly-owned subsidiary of AXA, “General Partner”) is the general partner of both AB Holding and AB. AllianceBernstein Corporation owns 100,000 general partnership units in AB Holding and a 1% general partner- ship interest in AB. Including both the general partnership and limited partnership interests in AB Holding and AB, AXA and its subsidiaries have an approximate 63.7% economic interest in AB as of December 31, 2016. 2. Summary of Significant Accounting Policies Basis of Presentation The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the 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 financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. AB Holding’s financial statements and notes should be read in conjunction with the consolidated financial statements and notes of AB, which are included in this Form 10-K. Investment in AB AB Holding records its investment in AB using the equity method of accounting. AB Holding’s investment is increased to reflect its proportionate share of income of AB and decreased to reflect its proportionate share of losses of AB and cash distributions made by AB to its Unitholders. In addition, AB Holding’s investment is adjusted to reflect its proportionate share of certain capital trans- actions of AB. Revision During the third quarter of 2016, AB identified an error that has been impacting the calculation of its tax provision since 2010. As a result of this error, which impacted our equity in net income attributable to AB Unitholders, management revised previously issued AB and AB Holding financial statements. In regard to the revision of Holding’s previously issued financial statements, we recorded a cumulative debit adjustment of $4.7 million to our January 1, 2012 partners’ capital account and revised our statements of financial condition and statements of income from 2012 through the second quarter of 2016. As of December 31, 2015, 2014 and 2013, the cumulative impact of the revision on partners’ capital in the statement of financial condition was $13.8 million, $11.4 million and $9.0 million, respectively. We revised our equity in net income attributable to AB Unitholders, net income, and basic and diluted net income per unit reported in prior periods in the statements of income. The tables below reflect the revisions to these line items for the years ended December 31, 2015 and 2014 pre- sented in this Form 10-K: Year Ended December 31, 2015 Adjustment As Reported As Revised Equity in net income attributable to AB Unitholders Net income Basic net income per Unit Diluted net income per Unit (in thousands, except per unit amounts) 212,498 188,178 1.89 1.89 (2,414) (2,414) (0.02) (0.03) 210,084 185,764 1.87 1.86 66 AB AllianceBernstein Holding L.P. Notes to Financial Statements (continued) Equity in net income attributable to AB Unitholders Net income Basic net income per Unit Diluted net income per Unit Cash Distributions Year Ended December 31, 2014 Adjustment As Reported As Revised (in thousands, except per unit amounts) 203,277 180,814 1.87 1.86 (2,346) (2,346) (0.03) (0.02) 200,931 178,468 1.84 1.84 AB Holding is required to distribute all of its Available Cash Flow, as defined in the Amended and Restated Agreement of Limited Partnership of AB Holding (“AB Holding Partnership Agreement”), to its Unitholders pro rata in accordance with their percent- age interests in AB Holding. Available Cash Flow is defined as the cash distributions AB Holding receives from AB minus such amounts as the General Partner determines, in its sole discretion, should be retained by AB Holding 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. On February 14, 2017, the General Partner declared a distribution of $0.67 per unit, representing a distribution of Available Cash Flow for the three months ended December 31, 2016. Each general partnership unit in AB Holding is entitled to receive dis- tributions equal to those received by each AB Holding Unit. The distribution is payable on March 9, 2017 to holders of record at the close of business on February 24, 2017. Total cash distributions per Unit paid to Unitholders during 2016, 2015 and 2014 were $1.75, $1.93 and $1.89, respectively. Long-term Incentive Compensation Plans AB maintains several unfunded, non-qualified long-term incentive compensation plans, under which the company grants awards of restricted AB Holding Units and options to buy AB Holding Units to its employees and members of the Board of Directors, who are not employed by AB or by any of AB’s affiliates (“Eligible Directors”). AB funds its 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 AB Holding 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 con- solidated rabbi trust are corporate assets in the name of the trust and are available to the general creditors of AB. During 2016 and 2015, AB purchased 10.5 million and 8.5 million AB Holding Units for $236.6 million and $218.3 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 7.9 million and 5.8 million AB Holding Units for $176.1 million and $151.1 million, respectively, 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. Each quarter, AB considers whether to implement a plan to repurchase AB Holding Units pursuant to Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (“Exchange Act”). A Rule 10b5-1 plan 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 selected by AB has the authority under the terms and limitations specified in the plan to repurchase AB Holding Units on AB’s behalf in accordance with the terms of the plan. Repurchases are subject to regulations promulgated by the U.S. Securities and Exchange Commission (“SEC”) as well as certain price, market volume and timing con- straints specified in the plan. The plan adopted during the fourth quarter of 2016 expired at the close of business on February 10, 2017. AB may adopt additional Rule 10b5-1 plans in the future to engage in open-market purchases of AB Holding Units to help fund anticipated obligations under its incentive compensation award program and for other corporate purposes. Annual Report 2016 67 AllianceBernstein Holding L.P. Notes to Financial Statements (continued) During 2016, AB granted to employees and Eligible Directors 7.0 million restricted AB Holding Unit awards (including 6.1 million granted in December for 2016 year-end awards). During 2015, AB granted to employees and Eligible Directors 7.4 million restricted AB Holding Unit awards (including 7.0 million granted in December for 2015 year-end awards). During 2016 and 2015, 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 $6.1 million and $9.2 million, respectively, received from employees as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units. 3. Net Income Per Unit Basic net income per unit is derived by dividing net income by the basic weighted average number of units outstanding for each year. Diluted net income per unit is derived by adjusting net income for the assumed dilutive effect of compensatory options (“Net income—diluted”) and dividing by the diluted weighted average number of units outstanding for each year. Years Ended December 31, 2015 2016 2014 Net income—basic Additional allocation of equity in net income attributable to AB resulting from assumed dilutive effect of compensatory options Net income—diluted Weighted average units outstanding—basic Dilutive effect of compensatory options Weighted average units outstanding—diluted Basic net income per unit Diluted net income per unit (in thousands, except per unit amounts) $216,586 $185,764 $178,468 878 1,383 1,518 $217,464 $187,147 $179,986 96,834 554 97,388 $ $ 2.24 2.23 99,475 1,037 100,512 $ $ 1.87 1.86 96,802 1,148 97,950 $ $ 1.84 1.84 For the years ended December 31, 2016, 2015 and 2014, we excluded 2,873,106, 2,409,499 and 2,806,033 options, respectively, from the diluted net income per unit computation due to their anti-dilutive effect. 4. Investment in AB Changes in AB Holding’s investment in AB for the years ended December 31, 2016 and 2015 are as follows: Investment in AB as of January 1, Equity in net income attributable to AB Unitholders Changes in accumulated other comprehensive loss Cash distributions received from AB Additional investments with proceeds from exercises of compensatory options to buy AB Holding Units, net Capital contributions to (from) AB AB Holding Units retired AB Holding Units issued to fund long-term incentive compensation plans Change in AB Holding Units held by AB for long-term incentive compensation plans Investment in AB as of December 31, 2016 2015 (in thousands) $ 1,576,120 $ 1,616,309 239,389 (7,342) (191,989) 6,108 (200) (184,336) 103,820 (1,062) 210,084 (5,514) (217,065) 9,233 490 (155,073) 115,045 2,611 $1,540,508 $1,576,120 68 AB AllianceBernstein Holding L.P. Notes to Financial Statements (continued) 5. Units Outstanding Changes in AB Holding Units outstanding for the years ended December 31, 2016 and 2015 are as follows: Outstanding as of January 1, Options exercised Units issued Units retired Outstanding as of December 31, 6. Income Taxes 2016 2015 100,044,485 100,756,999 358,262 4,455,944 (8,206,501) 541,073 4,600,583 (5,854,170) 96,652,190 100,044,485 AB Holding is a “grandfathered” publicly-traded partnership (“PTP”) for federal tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, AB Holding is subject to the 4.0% New York City unincorporated business tax (“UBT”), net of credits for UBT paid by AB, and to a 3.5% federal tax on partnership gross income from the active conduct of a trade or business. AB Holding’s partnership gross income is derived from its interest in AB. The principal reasons for the difference between AB Holding’s effective tax rates and the UBT statutory tax rate of 4.0% are as follows: UBT statutory rate Federal tax on partnership gross business income State income taxes Credit for UBT paid by AB Income tax expense and effective tax rate 2016 Years Ended December 31, 2015 (in thousands) 2014 $ 9,576 22,342 461 (9,576) $22,803 4.0% $ 8,403 4.0% $ 8,037 4.0% 9.3 0.2 (4.0) 9.5 23,845 475 (8,403) $24,320 11.4 0.2 (4.0) 11.6 22,131 332 (8,037) $22,463 11.0 0.2 (4.0) 11.2 AB Holding’s income tax is computed by multiplying certain AB qualifying revenues (primarily U.S. investment advisory fees and brokerage commissions) by AB Holding’s ownership interest in AB, multiplied by the 3.5% tax rate. AB Holding Units in AB’s consolidated rabbi trust are not treated as outstanding for purposes of calculating AB Holding’s ownership interest in AB. Years Ended December 31, % Change 2016 2015 2014 2016-15 2015-14 (in thousands) Net income attributable to AB Unitholders $ 673,358 $ 579,927 $ 563,861 16.1% 2.8% Multiplied by: weighted average equity ownership interest Equity in net income attributable to AB Unitholders AB qualifying revenues Multiplied by: weighted average equity ownership interest for calculating tax Multiplied by: federal tax Federal income taxes State income taxes Total income taxes 35.6% 36.2% 35.6% $ 239,389 $2,143,858 $ 210,084 $2,214,077 $ 200,931 $2,153,317 13.9 (3.2) 4.6 2.8 29.8% 3.5% 22,342 461 30.8% 3.5% 23,845 475 29.4% 3.5% 22,131 332 $ 22,803 $ 24,320 $ 22,463 (6.2) 8.3 Annual Report 2016 69 AllianceBernstein Holding L.P. Notes to Financial Statements (continued) In order to preserve AB Holding’s status as a “grandfathered” PTP for federal income tax purposes, management seeks to ensure that AB Holding does not directly or indirectly (through AB) enter into a substantial new line of business. If AB Holding were to lose its status as a “grandfathered” PTP, it would be subject to corporate income tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders. The effect of a tax position is recognized in the financial statements only if, as of the reporting date, it is “more likely than not” to be sustained based solely on its technical merits. In making this assessment, a company must assume that the taxing authority will examine the tax position and have full knowledge of all relevant information. We have no liability for unrecognized tax benefits as of December 31, 2016 and 2015. A liability for unrecognized tax benefits, if required, would be recorded in income tax expense and affect the company’s effective tax rate. We are no longer subject to federal, state and local income tax examinations by tax authorities for any year prior to 2013. Currently, there are no examinations in progress and to date we have not been notified of any future examinations by applicable taxing authorities. 7. Commitments and Contingencies Legal and regulatory matters described below pertain to AB and are included here due to their potential significance to AB Hol- ding’s investment in AB. 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. During the first quarter of 2012, AB received a legal letter of claim (the “Letter of Claim”) sent on behalf of Philips Pension Trust- ees Limited and Philips Electronic U.K. Limited (“Philips”), a former pension fund client, alleging that AllianceBernstein Limited (one of AB’s subsidiaries organized in the U.K.) was negligent and failed to meet certain applicable standards of care with respect to the initial investment in, and management of, a £500 million portfolio of U.S. mortgage-backed securities. Philips alleged damages ranging between $177 million and $234 million, plus compound interest on an alleged $125 million of realized losses in the portfo- lio. On January 2, 2014, Philips filed a claim form in the High Court of Justice in London, England, which formally commenced litigation with respect to the allegations in the Letter of Claim. By agreement dated November 28, 2016, the terms of which are confidential, this matter was settled. Our contribution to the settlement amount was paid by our relevant insurance carriers. In addition to the matter discussed immediately above, AB may be involved in various other matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. In the opinion of AB’s management, an adequate accrual has been made as of December 31, 2016 to provide for any probable losses regarding any litigation matters for which management can reasonably estimate an amount of loss. It is reasonably possible that AB could incur additional losses pertaining to these matters, but currently management cannot estimate any such additional 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 the 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 operations, financial condition or liquidity in any future reporting period. 70 AB AllianceBernstein Holding L.P. Notes to Financial Statements (continued) 8. Quarterly Financial Data (Unaudited) Equity in net income attributable to AB Unitholders Net income Basic net income per unit(1) Diluted net income per unit(1) Cash distributions per unit(2)(3) Equity in net income attributable to AB Unitholders Net income Basic net income per unit(1) Diluted net income per unit(1) Cash distributions per unit(2)(3) Quarters Ended 2016 December 31 September 30 June 30(4) March 31(4) (in thousands, except per unit amounts) $78,630 $72,664 $ $ $ 0.77 0.77 0.67 $55,925 $50,258 $ $ $ 0.52 0.52 0.45 $44,657 $39,072 $ $ $ 0.40 0.40 0.40 $60,177 $54,592 $ $ $ 0.55 0.55 0.40 Quarters Ended 2015 December 31(4) September 30(4) June 30(4) March 31(4) (in thousands, except per unit amounts) $56,890 $51,087 $ $ $ 0.53 0.52 0.50 $48,387 $42,086 $ $ $ 0.42 0.42 0.43 $53,799 $47,614 $ $ $ 0.47 0.47 0.48 $51,008 $44,977 $ $ $ 0.45 0.45 0.45 (1) Basic and diluted net income per unit are computed independently for each of the periods presented. Accordingly, the sum of the quarterly net income per unit amounts may not agree to the total for the year. (2) Declared and paid during the following quarter. (3) Cash distributions reflect the impact of AB’s non-GAAP adjustments. (4) Certain prior-period amounts have been revised, see Note 2 for a discussion of the revision. Annual Report 2016 71 Report of Independent Registered Public Accounting Firm To the General Partner and Unitholders of AllianceBernstein L.P.: In our opinion, the accompanying consolidated statements of financial condition and the related consolidated statements of income, comprehensive income, change in partners’ capital and cash flows present fairly, in all material respects, the financial position of AllianceBernstein L.P. and its subsidiaries (“AB”) at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under item 15(a) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, AB maintained, in all material respects, effective internal control over finan- cial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on AB’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the stan- dards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projec- tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLP New York, New York February 14, 2017 72 AB AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Financial Condition ASSETS Cash and cash equivalents Cash and securities segregated, at fair value (cost $946,093 and $565,264) Receivables, net: Brokers and dealers Brokerage clients Fees Investments: Long-term incentive compensation-related Other Assets of consolidated variable interest entities: Cash and cash equivalents Investments Other assets Furniture, equipment and leasehold improvements, net Goodwill Intangible assets, net Deferred sales commissions, net Other assets Total assets LIABILITIES AND CAPITAL Liabilities: Payables: Brokers and dealers Securities sold not yet purchased Brokerage clients AB mutual funds Accounts payable and accrued expenses Liabilities of consolidated variable interest entities Accrued compensation and benefits Debt Total liabilities Commitments and contingencies (SeeNote13) Redeemable non-controlling interest Capital: General Partner Limited partners: 268,893,534 and 272,301,827 units issued and outstanding Receivables from affiliates AB Holding Units held for long-term incentive compensation plans Accumulated other comprehensive loss Partners’ capital attributable to AB Unitholders Non-redeemable non-controlling interests in consolidated entities Total capital Total liabilities and capital See Accompanying Notes to Consolidated Financial Statements. December 31, 2016 2015 (in thousands, except unit amounts) $ 656,985 946,097 $ 541,483 565,274 335,686 1,513,656 270,373 67,761 396,570 337,525 550,850 44,570 159,564 3,066,700 134,606 63,890 195,615 $8,740,448 $ 239,578 40,944 2,360,481 150,939 430,569 292,800 251,019 512,970 4,279,300 411,174 1,328,406 257,091 78,154 591,646 — — — 160,360 3,044,807 145,710 99,070 210,546 $7,433,721 $ 191,990 16,097 1,715,096 137,886 507,449 — 253,079 581,700 3,403,297 392,959 13,203 41,100 4,154,810 (12,830) (32,967) (118,096) 4,032,017 36,172 4,068,189 $8,740,448 40,498 4,091,433 (14,498) (29,332) (95,353) 3,992,748 24,473 4,017,221 $7,433,721 Annual Report 2016 73 AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Income Revenues: Investment advisory and services fees Bernstein research services Distribution revenues Dividend and interest income Investment gains (losses) Other revenues Total revenues Less: Interest expense Net revenues Expenses: Employee compensation and benefits Promotion and servicing: Distribution-related payments Amortization of deferred sales commissions Trade execution, marketing, T&E and other General and administrative: General and administrative Real estate charges Contingent payment arrangements Interest on borrowings Amortization of intangible assets Total expenses Operating income Income tax Net income Net income of consolidated entities attributable to non-controlling interests Net income attributable to AB Unitholders Net income per AB Unit: Basic Diluted Years Ended December 31, 2015 2016 2014 (in thousands, except per unit amounts) $1,933,471 $1,973,837 $1,958,250 479,875 384,405 36,702 93,353 110,096 3,037,902 9,123 493,463 427,156 24,872 3,551 101,169 3,024,048 3,321 482,538 444,970 22,322 (9,076) 108,788 3,007,792 2,426 3,028,779 3,020,727 3,005,366 1,229,721 1,267,926 1,265,664 371,607 41,066 208,538 426,147 17,704 (20,245) 4,765 26,311 2,305,614 723,165 28,319 694,846 21,488 393,033 49,145 223,415 413,054 41,508 224,576 431,635 426,960 998 (5,441) 3,119 25,798 2,389,628 631,099 44,797 586,302 6,375 52 (2,782) 2,797 24,916 2,396,745 608,621 44,304 564,317 456 $ 673,358 $ 579,927 $ 563,861 $ $ 2.48 2.47 $ $ 2.11 2.10 $ $ 2.07 2.07 See Accompanying Notes to Consolidated Financial Statements. 74 AB AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Comprehensive Income Net income Other comprehensive (loss) income: Foreign currency translation adjustments, before reclassification and tax: Less: reclassification adjustment for (losses) gains included in net income upon liquidation Foreign currency translation adjustments, before tax Income tax benefit Foreign currency translation adjustments, net of tax Unrealized gains (losses) on investments: Unrealized gains (losses) arising during period Less: reclassification adjustment for (losses) gains included in net income Changes in unrealized gains (losses) on investments Income tax (expense) benefit Unrealized gains (losses on investments, net of tax Changes in employee benefit related items: Amortization of prior service cost Recognized actuarial (loss) gain Changes in employee benefit related items Income tax (expense) benefit Employee benefit related items, net of tax Other comprehensive (loss) Less: Comprehensive income in consolidated entities attributable to non-controlling interests Years Ended December 31, 2015 2016 2014 (in thousands) $ 694,846 $ 586,302 $ 564,317 (19,849) (6) (19,843) — (15,396) 1,542 (16,938) — (20,872) — (20,872) — (19,843) (16,938) (20,872) 10 (6) 16 (7) 9 93 (3,043) (2,950) (22) (2,972) (22,806) 21,426 (357) 1,256 (1,613) 701 (912) (895) 3,267 2,372 (165) 2,207 (15,643) 6,242 1,649 19 1,630 (766) 864 (5,197) (19,656) (24,853) 298 (24,555) (44,563) 355 Comprehensive income attributable to AB Unitholders $650,614 $564,417 $519,399 See Accompanying Notes to Consolidated Financial Statements. Annual Report 2016 75 AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Changes in Partners’ Capital General Partner’s Capital Balance, beginning of year Net income Cash distributions to General Partner Long-term incentive compensation plans activity (Retirement) issuance of AB Units, net Balance, end of year Limited Partners’ Capital Balance, beginning of year Net income Cash distributions to Unitholders Long-term incentive compensation plans activity (Retirement) issuance of AB Units, net Other Balance, end of year Receivables from Affiliates Balance, beginning of year Capital contributions from General Partner Compensation plan accrual Capital contributions from (to) AB Holding Balance, end of year AB Holding Units held for Long-term Incentive Compensation Plans Balance, beginning of year Purchases of AB Holding Units to fund long-term compensation plans, net Retirement (issuance) of AB Units, net Long-term incentive compensation awards expense Re-valuation of AB Holding Units held in rabbi trust Balance, end of year Accumulated Other Comprehensive Income (Loss) Balance, beginning of year Unrealized gain (loss) on investments, net of tax Foreign currency translation adjustment, net of tax Changes in employee benefit related items, net of tax Balance, end of year Total Partners’ Capital attributable to AB Unitholders Non-controlling Interests in Consolidated Entities Balance, beginning of year Net income Foreign currency translation adjustment Distributions from (to) non-controlling interests of our consolidated venture capital fund activities Balance, end of year Total Capital See Accompanying Notes to Consolidated Financial Statements. Years Ended December 31, 2015 2016 2014 (in thousands) $ 40,498 $ 41,071 $ 40,137 6,733 (5,384) 58 (805) 5,799 (5,986) 14 (400) 5,639 (5,732) 92 935 41,100 40,498 41,071 4,091,433 4,145,926 4,054,422 666,625 (532,180) 5,802 (80,084) 3,214 574,128 (591,886) 1,598 (40,433) 2,100 558,222 (566,616) 8,929 90,969 — 4,154,810 4,091,433 4,145,926 (14,498) (16,359) (16,542) 1,200 313 155 1,551 (187) 497 2,325 (323) (1,819) (12,830) (14,498) (16,359) (29,332) (235,893) 80,515 152,012 (269) (32,967) (95,353) 9 (19,780) (2,972) (118,096) (36,351) (216,970) 40,028 176,040 7,921 (29,332) (79,843) (912) (16,805) 2,207 (95,353) (39,649) (90,143) (93,457) 176,916 9,982 (36,351) (35,381) 864 (20,771) (24,555) (79,843) 4,032,017 3,992,748 4,054,444 24,473 11,398 (63) 364 36,172 30,396 6,375 (133) (12,165) 24,473 42,240 456 (101) (12,199) 30,396 $4,068,189 $4,017,221 $4,084,840 76 AB AllianceBernstein L.P. and Subsidiaries Consolidated Statements of Cash Flows Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Amortization of deferred sales commissions Non-cash long-term incentive compensation expense Depreciation and other amortization Unrealized (gains) losses on investments Unrealized (gains) on investments of consolidated variable interest entities Losses on real estate asset write-offs Other, net Changes in assets and liabilities: Consolidation of cash and cash equivalents of consolidated variable interest entities, net (Increase) decrease in segregated cash and securities (Increase) in receivables Decrease in investments (Increase) in investments of consolidated variable interest entities (Increase) in deferred sales commissions Decrease (increase) in other assets Increase in other assets and liabilities of consolidated variable interest entities Increase (decrease) in payables Increase (decrease) in accounts payable and accrued expenses (Decrease) in accrued compensation and benefits Net cash provided by operating activities Cash flows from investing activities: Purchases of investments Proceeds from sales of investments Purchases of furniture, equipment and leasehold improvements Proceeds from sales of furniture, equipment and leasehold improvements Purchase of intangible asset Purchase of businesses, net of cash acquired Net cash used in investing activities Cash flows from financing activities: (Repayment) issuance of commercial paper, net (Decrease) increase in overdrafts payable Distributions to General Partner and Unitholders Capital contributions from (to) non-controlling interests in consolidated entities Redemptions of non-controlling interests of consolidated VIEs, net Capital contributions from affiliates Payments of contingent payment arrangements/purchase of shares Additional investments by AB Holding with proceeds from exercise of compensatory options to buy AB Holding Units Purchases of AB Holding Units to fund long-term incentive compensation plan awards, net Purchases of AB Units Other Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents as of beginning of the period Cash and cash equivalents as of end of the period Cash paid: Interest paid Income taxes paid Non-cash investing activities: Fair value of assets acquired Fair value of liabilities assumed Fair value of redeemable non-controlling interest recorded Non-cash financing activities: Payables recorded under contingent payment arrangements See Accompanying Notes to Consolidated Financial Statements. Years Ended December 31, 2015 2016 2014 (in thousands) $ 694,846 $ 586,302 $ 564,317 41,066 152,162 59,026 (26,285) (31,040) 5,456 3,629 358,534 (380,823) (295,677) 162,607 (320,993) (5,886) 12,961 232,724 886,520 2,459 (3,238) 1,548,048 — 372 (36,728) 15 (2,500) (20,541) (59,382) (72,003) (84,512) (537,564) 364 (137,376) 1,000 (1,006) 6,108 (235,893) (374) (22) (1,061,278) (10,178) 417,210 577,300 994,510 $ $ 11,148 27,387 33,583 1,149 — 11,893 49,145 176,160 56,426 29,281 — — (2,888) — (88,997) (121,985) 58,053 — (29,925) (42,690) — 65,309 (32,372) (34,645) 667,174 (168) 4,240 (30,217) 2 — — (26,143) 93,867 79,540 (597,872) (12,165) — 2,041 (5,027) 9,233 (213,484) (805) (26) (644,698) (10,353) (14,020) 555,503 $ 541,483 41,508 176,636 62,515 13,343 — 429 (1,819) — 504,307 (444,536) 3,563 — (89,224) (6,375) — (85,226) (58,066) (51,283) 630,089 (492) 140 (25,433) 176 — (60,610) (86,219) 219,818 (38,967) (572,348) (12,199) — 511 (759) 18,955 (90,143) (1,553) (1,546) (478,231) (20,027) 45,612 509,891 $ 555,503 $ 3,984 25,999 $ 3,148 42,028 — — — — 87,821 1,342 16,504 9,365 Annual Report 2016 77 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements 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. Cross-references are in italics. 1. Business Description and Organization 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 endow- ments, insurance companies, central banks and governments worldwide, and affiliates such as AXA and its 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 com- pany, 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 and investment strategies, including value, growth and core equities; • Actively-managed traditional and unconstrained fixed income strategies, including taxable and tax-exempt strategies; • Passive management, including index and enhanced index strategies; • Alternative investments, including hedge funds, fund of funds and private equity (e.g., direct real estate investing and direct lending); and • Multi-asset solutions and services, including dynamic asset allocation, customized target-date funds and target-risk funds. Our services span various investment disciplines, including market capitalization (e.g., large-, mid- and small-cap equities), term (e.g., long-, intermediate- and short-duration debt securities), and geographic location (e.g., U.S., international, global, emerging markets, regional and local), in major markets around the world. As of December 31, 2016, AXA, a société anonyme organized under the laws of France and the holding company for the AXA Group, a worldwide leader in financial protection, through certain of its subsidiaries (“AXA and its subsidiaries”) owns approx- imately 1.5% of the issued and outstanding units representing assignments of beneficial ownership of limited partnership interests in AllianceBernstein Holding L.P. (“AB Holding Units”). 78 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) As of December 31, 2016, the ownership structure of AB, expressed as a percentage of general and limited partnership interests, is as follows: AXA and its subsidiaries AB Holding Unaffiliated holders 63.2% 35.6 1.2 100.0% AllianceBernstein Corporation (an indirect wholly-owned subsidiary of AXA, “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. Including both the general partnership and limited partnership interests in AB Holding and AB, AXA and its subsidiaries had an approximate 63.7% economic interest in AB as of December 31, 2016. 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The preparation of the 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 consolidated financial statements and the reported amounts of revenues and expenses during the report- ing periods. Actual results could differ from those estimates. Principles of Consolidation The consolidated financial statements include AB and its majority-owned and/or controlled subsidiaries, and the consolidated enti- ties that are considered to be variable interest entities (“VIEs”) and for which AB is considered the primary beneficiary. Non- controlling interests on the consolidated statements of financial condition includes 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. Revision During the third quarter of 2016, management determined that the frequency with which we settle our U.S. inter-company payable balances with foreign subsidiaries over the past several years created deemed dividends under Section 956 of the U.S. Internal Rev- enue Code of 1986, as amended (“Section 956”). In the past, we funded our foreign subsidiaries as they required cash for their operations rather than pre-fund them each quarter, thereby reducing the inter-company balance to zero on a quarterly basis, as required by Section 956. As a result, we have been understating our income tax provision and income tax liability since 2010. We evaluated the aggregate effects of this error in our income tax provision and income tax liability to our previously issued financial statements in accordance with SEC Staff Accounting Bulletins No. 99 and No. 108 and, based upon quantitative and qualitative fac- tors, have determined that the error was not material to our previously issued financial statements. However, the cumulative effect of this error would have been material to our third quarter 2016 financial results if recorded as an out-of-period adjustment in the third quarter of 2016. Accordingly, we revised our previously issued financial statements by recording a cumulative debit adjustment of $12.6 million to our January 1, 2012 partners’ capital account and revised our consolidated statements of financial condition and consolidated statements of income from 2012 through the second quarter of 2016. We established an income tax liability, including interest and potential penalties, of $34.2 million as of December 31, 2016. As of December 31, 2015, 2014 and 2013, the cumulative impact of the revision on partners’ capital in the statement of financial condition was $37.7 million, $31.0 million and $24.5 million, Annual Report 2016 79 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) respectively. We revised our income tax provision, net income attributable to AB Unitholders, and basic and diluted net income per AB Unit reported in prior periods in the statements of income. The tables below reflect the revisions to these line items for the years ended December 31, 2015 and 2014 presented in this Form 10-K: Income taxes Net income attributable to AB Unitholders Basic net income per AB Unit Diluted net income per AB Unit Income taxes Net income attributable to AB Unitholders Basic net income per AB Unit Diluted net income per AB Unit Year Ended December 31, 2015 Adjustment As Reported As Revised (in thousands, except per unit amounts) $ 38,122 586,602 2.14 2.13 $ 6,675 (6,675) (0.03) (0.03) $ 44,797 579,927 2.11 2.10 Year Ended December 31, 2014 Adjustment As Reported As Revised (in thousands, except per unit amounts) $ 37,782 570,383 2.10 2.09 $ 6,522 (6,522) (0.03) (0.02) $ 44,304 563,861 2.07 2.07 Recently Adopted Accounting Pronouncements In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern, which requires management to assess, on a quarterly basis, a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. We adopted this standard on December 31, 2016. The adoption of this standard had no impact on our financial condition or results of operations. In February 2015, the FASB issued ASU 2015-02, Consolidation – Amendments to the Consolidation Analysis (“ASU 2015-02”), which provides a new consolidation standard for evaluating: (i) limited partnerships and similar entities for consolidation, (ii) how decision maker or service provider fees affect the consolidation analysis, (iii) how interest held by related parties affects the con- solidation analysis and (iv) how the consolidation analysis applies to certain investment funds. We adopted ASU 2015-02 using the modified retrospective method with an effective adoption date of January 1, 2016, which did not require the restatement of prior- year periods. The adoption of ASU 2015-02 resulted in the consolidation of certain investment funds that were not previously consolidated. These funds became consolidated VIEs because we are considered the party with both (i) the power to direct the activities of the VIE that most significantly impact its economic performance and (ii) the obligation to absorb losses of the entity or the right to receive benefits from the entity that could potentially be significant to the VIE. See Consolidation of VIEs below. In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This standard requires debt issuance costs be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. We adopted this standard on January 1, 2016 on a retrospective basis, which required the restatement of prior periods. The adoption of this standard did not have a material impact on our financial condition or results of operations. In May 2015, the FASB issued ASU 2015-07, Fair Value Measurement: Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This standard removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (“NAV”) per share practical expedient. We adopted this stan- dard on January 1, 2016 on a retrospective basis, which required the restatement of prior-period disclosures. The adoption of this standard did not have a material impact on our financial condition or results of operations. 80 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Accounting Pronouncements Not Yet Adopted In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. The amendment is effective retrospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2017. Management currently is evaluat- ing the impact that the adoption of this standard will have on our consolidated financial statements. We have not yet completed this analysis, but based on the analysis completed to date management does not expect the standard to have a material impact on our financial condition or results of operations. In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. The amend- ment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments and is effective for fiscal years (and interim periods within those years) beginning after December 15, 2017. The amendment will result in a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption, except for one provision relating to equity securities without readily determinable fair values, which provision will be applied prospectively. The amendment is not expected to have a material impact on our financial condition or results of operations. In February 2016, the FASB issued ASU 2016-02, Leases. The amendment requires recognition of lease assets and lease liabilities on the statement of financial condition and disclosure of key information about leasing arrangements. Specifically, this guidance requires an operating lease lessee to recognize on the statement of financial condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for leases with a term of twelve months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. The amendment is effective for fiscal years (and interim periods within those years) beginning after December 15, 2018 and requires lessees to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach. Management currently is evaluating the impact that the adoption of this standard will have on our consolidated financial statements. In March 2016, the FASB issued ASU 2016-07, Investments – Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting. The amendment eliminates the current requirement for a retroactive adjustment and instead requires that the investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Additionally, the amendment requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendment is effective for fiscal years (and interim periods within those years) beginning after December 15, 2016 and should be applied prospectively as of the effective date of increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. The amend- ment is not expected to have a material impact on our financial condition or results of operations. In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. The amendment includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements, including income tax effects of share-based payments, minimum statutory tax withholding requirements and forfeitures. The amendment is effective for fiscal years (and interim periods within those years) beginning after December 15, 2016 and may be applied using various transition approaches (prospective, retrospective and modified retrospective). The amendment is not expected to have a material impact on our financial condition or results of operations. In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230). The amendment is intended to reduce diver- sity in practice in how certain transactions are classified in the statement of cash flows. The amendment is effective for fiscal years (and interim periods within those years) beginning after December 15, 2017 and should be applied using a retrospective transition method. The amendment is not expected to have a material impact on our financial condition or results or operations. Consolidation of VIEs As discussed above, we adopted ASU 2015-02 effective January 1, 2016. For legal entities (company-sponsored investment funds) evaluated for consolidation, we first determine whether the fees we receive and the interests we hold qualify as a variable interest in the entity, including an evaluation of fees paid to us as a decision maker or service provider to the entity being evaluated. Fees received by us are not variable interests if (i) the fees are compensation for services provided Annual Report 2016 81 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) and are commensurate with the level of effort required to provide those services, (ii) the service arrangement includes only terms, con- ditions or amounts that are customarily present in arrangements for similar services negotiated at arm’s length, and (iii) our other economic interests in the entity held directly and indirectly through our related parties, as well as economic interests held by related par- ties under common control, would not absorb more than an insignificant amount of the entity’s losses or receive more than an insignif- icant amount of the entity’s benefits. For those entities in which we have a variable interest, we perform an analysis to determine whether the entity is a VIE by consider- ing whether the entity’s equity investment at risk is insufficient, whether the investors lack decision making rights proportional to their ownership percentage of the entity, and whether the investors lack the obligation to absorb an entity’s expected losses or the right to receive an entity’s expected income. A VIE must be consolidated by its primary beneficiary, which generally is defined as the party that has a controlling financial interest in the VIE. We are deemed to have a controlling financial interest in a VIE if we have (i) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive income from the VIE that could potentially be significant to the VIE. For purposes of evaluating (ii) above, fees paid to us as a decision maker or service provider are excluded if the fees are compensation for services provided commensurate with the level of effort required to be performed and the arrangement includes only customary terms, conditions or amounts present in arrangements for similar services negotiated at arm’s length. The primary beneficiary evaluation generally is performed qualitatively based on all facts and circumstances, as well as quantitatively, as appropriate. If we have a variable interest in an entity that is determined not to be a VIE, the entity is then evaluated for consolidation under the voting interest entity (“VOE”) model. For limited partnerships and similar entities, we are deemed to have a controlling financial interest in a VOE, and would be required to consolidate the entity, if we own a majority of the entity’s kick-out rights through voting limited partnership interests and limited partners do not hold substantive participating rights (or other rights that would indicate that we do not control the entity). For entities other than limited partnerships, we are deemed to have a controlling finan- cial interest in a VOE if we own a majority voting interest in the entity. The analysis performed regarding the determination of variable interests held, whether entities are VIEs or VOEs, and whether we have a controlling financial interest in such entities requires the exercise of judgment. The analysis is updated continuously as cir- cumstances change or new entities are formed. As a result of the adoption of ASU 2015-02, effective January 1, 2016, we consolidated three investment funds that were classified as VIEs in which we have a controlling financial interest. Ownership interests not held by us relating to these consolidated VIEs are included in redeemable non-controlling interest on the condensed consolidated statement of financial condition. In addition, effec- tive January 1, 2016, we reclassified our consolidated private equity fund as a consolidated VIE, which had been consolidated as of December 31, 2015 under previous accounting guidance due to our controlling financial interest of a VOE. Ownership interests not held by us relating to this consolidated VIE, which is a closed-end fund, are included in non-controlling interest on the con- solidated statement of financial condition. During 2016, subsequent to the initial adoption of ASU 2015-02, we consolidated six additional investment funds that were classi- fied as VIEs in which we have a controlling interest and deconsolidated a VIE of which we were no longer the primary beneficiary. The table below illustrates the summary balance sheet amounts related to these VIEs at their consolidation dates: Cash and cash equivalents Investments Other assets Total assets Liabilities Redeemable non-controlling interest Partners’ capital Total liabilities, redeemable non-controlling interest and partners’ capital 82 January 1, 2016 ASU 2015-02 Adoption Year Ended December 31, 2016 VIEs De- consolidated VIEs Consolidated $ 35,817 215,175 13,871 $264,863 $ 14,012 250,851 — $264,863 $371,457 85,381 23,473 $480,311 $ 41,245 394,102 44,964 $480,311 $ (12,923) (125,636) (59,684) $(198,243) $ (60,332) (137,911) — $(198,243) AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) As of December 31, 2016, the net assets of company-sponsored investment products that are non-consolidated VIEs are approx- imately $43.7 billion, and our maximum risk of loss is our investment of $13.0 million in these VIEs and advisory fee receivables from these VIEs, which are not material. Cash and Cash Equivalents Cash and cash equivalents include cash on hand, demand deposits, money market accounts, 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. The majority of our consolidated VIEs’ cash and cash equivalents is pledged as collateral for short equities. Fees Receivable, Net Fees receivable are shown net of allowances. An allowance for doubtful accounts related to investment advisory and services fees is determined through an analysis of the aging of receivables, assessments of collectability based on historical trends and other qual- itative and quantitative factors, including our relationship with the client, the financial health (or ability to pay) of the client, current economic conditions and whether the account is active or closed. The allowance for doubtful accounts is not material to fees receivable. Brokerage Transactions Customers’ securities transactions are recorded on a settlement date basis, with related commission income and expenses reported on a trade date basis. Receivables from and payables to clients include amounts due on cash and margin transactions. Securities owned by customers are held as collateral for receivables; such collateral is not reflected in the consolidated financial statements. We have the ability by contract or custom to sell or re-pledge this collateral, and have done so at various times. As of December 31, 2016, there were no re-pledged securities. Principal securities transactions and related expenses are recorded on a trade date basis. Securities borrowed and securities loaned by our broker-dealer subsidiaries are recorded at the amount of cash collateral advanced or received in connection with the transaction and are included in receivables from and payables to brokers and dealers in the con- solidated statements of financial condition. Securities borrowed transactions require us to deposit cash collateral with the lender. With respect to securities loaned, we receive cash collateral from the borrower. See Note 8 for securities borrowed and loaned amounts recorded in our consolidated statements of financial condition as of December 31, 2016 and 2015. The initial collateral advanced or received approximates or is greater than the fair value of securities borrowed or loaned. We monitor the fair value of the securities borrowed and loaned on a daily basis and request additional collateral or return excess collateral, as appropriate. As of December 31, 2016 and 2015, there is no allowance provision required for the collateral advanced. Income or expense is recog- nized over the life of the transaction. As of December 31, 2016 and 2015, we had $41.7 million and $81.4 million, respectively, of cash on deposit with clearing orga- nizations for trade facilitation purposes. In addition, as of December 31, 2016 and 2015, we held U.S. Treasury Bills with values totaling $28.9 million and $24.9 million, respectively, in our investment account that are pledged as collateral with clearing orga- nizations. These clearing organizations have the ability by contract or custom to sell or re-pledge this collateral. Investments Investments include U.S. Treasury Bills, unconsolidated mutual funds and limited partnership hedge funds we sponsor and manage, various separately-managed portfolios consisting of equity and fixed income securities, exchange-traded options and investments owned by a consolidated venture capital fund in which we own a controlling interest as the general partner and a 10% limited part- nership interest. Annual Report 2016 83 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Investments in U.S. Treasury Bills, mutual funds, and equity and fixed income securities are classified as either trading or available- for-sale securities. Trading investments are stated at fair value with unrealized gains and losses reported in investment gains and losses on the consolidated statements of income. Available-for-sale investments are stated at fair value with unrealized gains and losses reported as a separate component of accumulated other comprehensive income in partners’ capital. Realized gains and losses on the sale of investments are reported in investment gains and losses on the consolidated statements of income. Average cost is used to determine realized gain or loss on investments sold. We use the equity method of accounting for investments in limited partnership hedge funds. The equity in earnings of our limited partnership hedge fund investments is reported in investment gains and losses on the consolidated statements of income. The investments owned by our consolidated venture capital fund generally are illiquid and initially are valued at cost. These invest- ments are adjusted to fair value to reflect the occurrence of “significant developments” (i.e., capital transactions or business, economic or market events). Adjustments to fair value are reported in investment gains and losses on the consolidated statements of income. There are two private equity investments that we own directly outside of our consolidated venture capital fund accounted for at fair value. See Note 9 for a description of how we measure the fair value of our investments. Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment and leasehold improvements are stated at cost, less accumulated depreciation and amortization. Depreciation is recognized on a straight-line basis over the estimated useful lives of eight years for furniture and three to six years for equipment and software. Leasehold improvements are amortized on a straight-line basis over the lesser of their estimated useful lives or the terms of the related leases. Goodwill In 2000, AB acquired SCB Inc., an investment research and management company formerly known as Sanford C. Bernstein Inc. (“Bernstein”). The Bernstein acquisition was accounted for under the purchase method and the cost of the acquisition was allocated on the basis of the estimated fair value of the assets acquired and the liabilities assumed. The excess of the purchase price over the fair value of identifiable assets acquired, net of liabilities assumed, resulted in the recognition of goodwill of approximately $3.0 billion. As of December 31, 2016, goodwill of $3.1 billion on the consolidated statement of financial condition included $2.8 billion as a result of the Bernstein acquisition and $266 million in regard to various smaller acquisitions. We have determined that AB has only one reporting segment and reporting unit. We test our goodwill annually, as of September 30, for impairment. As of September 30, 2016, the impairment test indicated that goodwill was not impaired. We also review the carrying value of goodwill if facts and circumstances occur that suggest possible impairment, such as significant declines in AUM, revenues, earnings or the price of an AB Holding Unit. There were no facts or circumstances occurring in the fourth quarter of 2016 suggesting possible impairment. Intangible Assets, Net Intangible assets consist primarily of costs assigned to acquired investment management contracts of Bernstein based on their esti- mated fair value at the time of acquisition, less accumulated amortization. Intangible assets are recognized at fair value and generally are amortized on a straight-line basis over their estimated useful life ranging from six years to 20 years. As of December 31, 2016, intangible assets, net of accumulated amortization, of $134.6 million on the consolidated statement of financial condition consisted of $121.1 million of definite-lived intangible assets subject to amortization, of which $77.6 million relates to the Bernstein acquisition, and $13.5 million of indefinite-lived intangible assets not subject to amortization in regard to other acquisitions. As of December 31, 2015, intangible assets, net of accumulated amortization, of $145.7 million on the con- solidated statement of financial condition consisted of $132.2 million of definite-lived intangible assets subject to amortization, of 84 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) which $98.3 million related to the Bernstein acquisition, and $13.5 million of indefinite-lived intangible assets not subject to amor- tization in regard to other acquisitions. The gross carrying amount of definite-lived intangible assets totaled $476.1 million as of December 31, 2016 and $460.8 million as of December 31, 2015, and accumulated amortization was $355.0 million as of December 31, 2016 and $328.6 million as of December 31, 2015. Amortization expense was $26.3 million for 2016, $25.8 million for 2015 and $24.9 million for 2014. Estimated annual amortization expense for each of the next three years is approximately $28 million, then approximately $20 million in year four and $5 million in year five. We periodically review intangible assets for impairment as events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value exceeds fair value, we perform additional impairment tests to measure the amount of the impairment loss, if any. Deferred Sales Commissions, Net We pay commissions to financial intermediaries in connection with the sale of shares of open-end company-sponsored mutual funds sold without a front-end sales charge (“back-end load shares”). These commissions are capitalized as deferred sales commissions and amortized over periods not exceeding five and one-half years for U.S. fund shares and four years for Non-U.S. Fund shares, the periods of time during which deferred sales commissions generally are recovered. We recover these commissions from distribution services fees received from those funds and from contingent deferred sales commissions (“CDSC”) received from shareholders of those funds upon the redemption of their shares. CDSC cash recoveries are recorded as reductions of unamortized deferred sales commissions when received. Since January 31, 2009, our U.S. mutual funds have not offered back-end load shares to new investors. As of December 31, 2016, our Non-U.S. Funds are no longer offering back-end load shares, except in isolated instances.We periodically review the deferred sales commission asset for impairment as events or changes in circumstances indicate that the carry- ing value may not be recoverable. If these factors indicate impairment in value, we compare the carrying value to the undiscounted cash flows expected to be generated by the asset over its remaining life. If we determine the deferred commission asset is not fully recoverable, the asset will be deemed impaired and a loss will be recorded in the amount by which the recorded amount of the asset exceeds its estimated fair value. There were no impairment charges recorded during 2016 or 2015. Loss Contingencies 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. Revenue Recognition We record as revenue investment advisory and services fees, which we generally calculate as a percentage of AUM, as we perform the related services. Certain investment advisory contracts, including those associated with hedge funds or other alternative invest- ments, provide for a performance-based fee, in addition to a base advisory fee, which is calculated as either a percentage of absolute investment results or a percentage of investment results in excess of a stated benchmark over a specified period of time. We record performance-based fees as a component of revenue at the end of each contract’s measurement period. 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 Annual Report 2016 85 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) other derivative products. Fair valuation methods include: discounted cash flow models, evaluation of assets versus liabilities or any other methodology that is validated and approved by our Valuation Committee (see paragraph immediately below for additional information about our Valuation Committee). Fair valuation methods are used only where AUM cannot be valued using market- based valuation methods, such as in the case of private equity or illiquid securities. The Valuation Committee, which consists of senior officers and employees, is responsible for overseeing the pricing and valuation of all investments held in client and AB portfolios. The Valuation Committee has adopted a Statement of Pricing Policies describing principles and policies that apply to pricing and valuing investments held in these portfolios. We also have a Pricing Group, which reports to the Valuation Committee, and is responsible for overseeing the pricing process for all investments. Bernstein Research Services revenues consist primarily of brokerage commissions for research and brokerage-related services pro- vided to institutional investors. Brokerage commissions earned and related expenses are recorded on a trade-date basis. Distribution revenues, shareholder servicing fees (included in other revenues), and dividend and interest income are accrued as earned. Contingent Payment Arrangements We periodically enter into contingent payment arrangements in connection with our business combinations. In these arrangements, we agree to pay additional consideration to the sellers to the extent that certain performance targets are achieved. We estimate the fair value of these potential future obligations at the time a business combination is consummated and record a liability on our con- solidated statements of financial condition. We then accrete the obligation to its expected payment amount over the measurement period. If our expected payment amount subsequently changes, the obligation is modified in the current period resulting in a gain or loss. Both gains and losses resulting from changes to expected payments and the accretion of these obligations to their expected payment amounts are reflected within contingent payment arrangements in our consolidated statements of income. Mutual Fund Underwriting Activities Purchases and sales of shares of company-sponsored mutual funds in connection with the underwriting activities of our subsidiaries, including related commission income, are recorded on trade date. Receivables from brokers and dealers for sale of shares of company-sponsored mutual funds generally are realized within three business days from trade date, in conjunction with the settle- ment of the related payables to company-sponsored mutual funds for share purchases. Distribution plan and other promotion and servicing payments are recognized as expense when incurred. 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. Awards granted in December 2016, 2015 and 2014 allowed participants to allocate their awards between restricted AB Holding Units and deferred cash. Participants (except certain members of senior management) generally could allocate up to 50% of their awards to deferred cash, not to exceed a total of $250,000 per award. Each of our employees based outside of the United States (other than expatriates), who received an award of $100,000 or less, could have allocated up to 100% of his or her award to deferred cash. Participants allocated their awards prior to the date on which the Compensation Committee granted awards in December 2016, 2015 and 2014. For these awards, the number of AB Holding Units awarded was based on the closing price of an AB Hold- ing Unit on the grant date. For awards granted in 2016, 2015 and 2014: • We engage in open-market purchases of AB Holding Units or purchase newly-issued AB Holding Units from AB Holding that are awarded to participants and keep them in a consolidated rabbi trust. 86 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) • Quarterly distributions on vested and unvested AB Holding Units are paid currently to participants, regardless of whether or not a long-term deferral election has been made. • Interest on deferred cash is accrued monthly based on our monthly weighted average cost of funds. We recognize compensation expense related to equity compensation grants in the financial statements using the fair value method. Fair value of restricted AB Holding Unit awards is the closing price of an AB Holding Unit on the grant date; fair value of options is determined using the Black-Scholes option valuation model. Under the fair value method, compensatory expense is measured at the grant date based on the estimated fair value of the award and is recognized over the required service period. For year-end long- term incentive compensation awards, employees who resign or are terminated without cause may retain their awards, subject to compliance with certain agreements and restrictive covenants set forth in the applicable award agreement, including restrictions on competition and employee and client solicitation, and a claw-back for failing to follow existing risk management policies. Because there is no service requirement, we fully expense these awards on grant date. Most equity replacement, sign-on or similar deferred compensation awards included in separate employment agreements or arrangements include a required service period. Regardless of whether or not the award agreement includes employee service requirements, AB Holding Units typically are delivered to employ- ees ratably over four years, unless the employee has made a long-term deferral election. Grants of restricted AB Holding Units and options to buy AB Holding Units typically are awarded during the second quarter 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”). Restricted AB Holding Units are delivered on the third anniversary of the grant date and the options become exercisable ratably over three years. These restricted AB Holding Units and options are not forfeitable (except if the Eligi- ble Director is terminated for “Cause”, as that term is defined in the applicable award agreement). We fully expense these awards on grant date, as there is no service requirement. 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 2016 and 2015, we purchased 10.5 million and 8.5 million AB Holding Units for $236.6 million and $218.3 million, respectively (on a trade date basis). These amounts reflect open-market purchases of 7.9 million and 5.8 million AB Holding Units for $176.1 million and $151.1 million, respectively, 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 Units reflected on the consolidated statements of cash flows are net of AB Holding Units purchased 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 Rule 10b5-1 under the Secu- rities Exchange Act of 1934, as amended (“Exchange Act”). A Rule 10b5-1 plan 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 pro- mulgated by the SEC as well as certain price, market volume and timing constraints specified in the plan. The plan adopted during the fourth quarter of 2016 expired at the close of business on February 10, 2017. We may adopt additional Rule 10b5-1 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 2016, we granted to employees and Eligible Directors 7.0 million restricted AB Holding Unit awards (including 6.1 million granted in December for 2016 year-end awards to employees). During 2015, we granted to employees and Eligible Directors 7.4 million restricted AB Holding Unit awards (including 7.0 million granted in December for 2015 year-end awards to employees). Annual Report 2016 87 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) During 2016 and 2015, 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 $6.1 million and $9.2 million, respectively, received from employees as payment in cash for the exercise price to purchase the equivalent number of newly-issued AB Units. Foreign Currency Translation and Transactions Assets and liabilities of foreign subsidiaries are translated from functional currencies into United States dollars (“US$”) at exchange rates in effect at the balance sheet dates, and related revenues and expenses are translated into US$ at average exchange rates in effect during each period. Net foreign currency gains and losses resulting from the translation of assets and liabilities of foreign operations into US$ are reported as a separate component of other comprehensive income in the consolidated statements of comprehensive income. Net foreign currency transaction gains (losses) were $1.1 million, $1.0 million, and $(1.6) million for 2016, 2015 and 2014, respectively, and are reported in general and administrative expenses on the consolidated statements of income. 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 gen- eral and limited partnership interests at the end of the quarter. In future periods, management anticipates that Available Cash Flow will be based on adjusted diluted net income per unit, unless management determines that one or more non-GAAP adjustments that are made for adjusted net income should not be made with respect to the Available Cash Flow calculation. On February 14, 2017, the General Partner declared a distribution of $0.73 per AB Unit, representing a distribution of Available Cash Flow for the three months ended December 31, 2016. 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 March 9, 2017 to holders of record on February 24, 2017. Total cash distributions per Unit paid to the General Partner and Unitholders during 2016, 2015 and 2014 were $1.98, $2.18 and $2.11, respectively. Comprehensive Income We report all changes in comprehensive income in the consolidated statements of comprehensive income. Comprehensive income includes net income, as well as unrealized gains and losses on investments classified as available-for-sale, foreign currency translation adjustments, and unrecognized actuarial net losses and transition assets. Deferred taxes are not recognized on foreign currency trans- lation adjustments for foreign subsidiaries whose earnings are considered permanently invested outside the United States. 3. Real Estate Charges During 2010, we performed a comprehensive review of our real estate requirements in New York in connection with our work- force reductions, which commenced in 2008. As a result, during 2010 we decided to sub-lease over 380,000 square feet in New York (all of this space has been sublet) and consolidate our New York-based employees into two office locations from three. During the third quarter of 2012, in an effort to further reduce our global real estate footprint, we completed a comprehensive review of our worldwide office locations and began implementing a global space consolidation plan. As a result, we decided to sub- lease approximately 510,000 square feet of office space (all of this space has been sublet), more than 70% of which is New York office space (in addition to the 380,000 square feet space reduction in 2010), with the remainder consisting of office space in England, Australia and various U.S. locations. 88 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) During 2014, we recorded pre-tax real estate charges of $0.1 million, comprising $5.5 million for the write-off of leasehold improvements, furniture and equipment ($5.0 million related to the 2012 plan and $0.5 million related to other real estate charges), offset by $4.7 million from a change in estimates related to previously recorded real estate charges (primarily relating to the 2010 and 2012 plans) and $0.7 million in credits related to other items. During 2015, we recorded pre-tax real estate charges of $1.0 million, resulting from a change in estimates related to previously recorded real estate charges. During 2016, we recorded pre-tax real estate charges of $17.7 million, resulting from new charges of $22.8 million relating to the further consolidation of office space at our New York offices, offset by changes in estimates related to previously recorded real estate charges of $5.1 million, which reflects the shortening of the lease term of our corporate headquarters from 2029 to 2024. The activity in the liability account relating to our 2010 and 2012 office space consolidation initiatives for 2016 and 2015 is as follows: Balance as of January 1, (Credit) expense incurred Payments made Interest accretion Balance as of end of period 4. Net Income Per Unit Year Ended December 31, 2016 2015 (in thousands) $116,064 $ 148,429 (2,874) (25,829) 4,293 2,258 (38,920) 4,297 $ 91,654 $116,064 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 units outstanding for each year. 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 units outstanding for each year. Net income attributable to AB Unitholders Weighted average units outstanding—basic Dilutive effect of compensatory options to buy AB Holding Units Weighted average units outstanding—diluted Basic net income per AB Unit Diluted net income per AB Unit Year Ended December 31, 2015 2014 2016 (in thousands, except per unit amounts) $673,358 269,084 554 269,638 $ $ 2.48 2.47 $579,927 $563,861 271,745 1,037 272,782 $ $ 2.11 2.10 269,118 1,148 270,266 $ $ 2.07 2.07 For the years ended December 31, 2016, 2015 and 2014, we excluded 2,873,106, 2,409,499 and 2,806,033 options, respectively, from the diluted net income per unit computation due to their anti-dilutive effect. 5. Cash and Securities Segregated Under Federal Regulations and Other Requirements As of December 31, 2016 and 2015, $0.9 billion and $0.5 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. Annual Report 2016 89 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) One of our subsidiaries, which serves as the distributor of our U.S. mutual funds, maintains several special bank accounts for the exclusive benefit of customers. As of December 31, 2016 and 2015, $52.9 million and $55.4 million, respectively, of cash was segregated in these bank accounts. 6. Investments Investments consist of: Available-for-sale Trading: Long-term incentive compensation-related U.S. Treasury Bills Seed capital Equities Exchange-traded options Investments in limited partnership hedge funds: Long-term incentive compensation-related Seed capital Consolidated private equity fund Private equity Investments held by consolidated VIEs Time deposits Other Total investments December 31, 2016 2015 (in thousands) $ 45 $ 364 50,935 28,937 211,279 6,602 3,106 16,826 23,704 — 45,278 550,850 70,097 7,522 59,150 24,942 406,322 43,584 5,910 19,004 20,082 23,897 48,761 — 9,906 7,878 $1,015,181 $669,800 Total investments related to long-term incentive compensation obligations of $67.8 million and $78.2 million as of December 31, 2016 and 2015, respectively, consist of company-sponsored mutual funds and hedge funds. For long-term incentive compensation awards granted before 2009, we typically made investments in our services 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 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 vari- ous swaps and forward contracts). These investments are valued at quoted market prices or, where quoted market prices are not available, are fair valued based on the pricing policies and procedures of the underlying funds. U.S. Treasury Bills, the majority of which are pledged as collateral with clearing organizations, are held in our investment account. These clearing organizations have the ability by contract or custom to sell or re-pledge this collateral. We allocate seed capital to our investment teams to help develop new products and services for our clients. The seed capital trading 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 capi- tal to investments in private equity funds, such as our consolidated venture capital fund, which holds technology, media, tele- communications, healthcare and clean-tech investments, and a third-party venture capital fund that invests in communications, consumer, digital media, healthcare and information technology markets. As of December 31, 2016 and 2015, our seed capital investments were $500.0 million and $478.0 million, respectively. 90 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) During the first quarter of 2016, we sold a private equity investment in which we owned a 7.6% equity interest. We expect to receive a total of $85.5 million in cash, subject to final transaction costs and working capital adjustments. During March 2016, the transaction closed and we received $74.8 million in cash, recorded a $10.7 million receivable for the balance retained in escrow for 18 months and recorded an investment gain of $75.3 million. Our consolidated venture capital fund, previously consolidated under the voting interest entity model, is considered a consolidated VIE effective January 1, 2016 upon the adoption of ASU 2015-02. Trading securities also include long positions in corporate equities, an exchange-traded fund and long exchange-traded options traded through our options desk. The cost and fair value of available-for-sale investments held as of December 31, 2016 and 2015 were as follows: December 31, 2016: Equity investments Fixed income investments December 31, 2015: Equity investments Fixed income investments Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (in thousands) $ — $ — 2 2 2 2 4 $ $ $ $ $ (2) (2) (9) (16) $ (25) $ 23 22 $ 45 $181 183 $364 $ 23 22 $ 45 $188 197 $385 Proceeds from sales of available-for-sale investments were approximately $0.4 million, $4.2 million and $0.1 million in 2016, 2015 and 2014, respectively. Realized gains from our sales of available-for-sale investments were zero in 2016, $1.3 million in 2015 and zero in 2014. Realized losses from our sales of available-for-sale investments were zero in each of 2016, 2015 and 2014. We assess valuation declines to determine the extent to which such declines are fundamental to the underlying investment or attributable to temporary market-related factors. Based on our assessment as of December 31, 2016, we do not believe the declines are other than temporary. The portion of trading gains (losses) related to trading securities held as of December 31, 2016 and 2015 were as follows: Net gains (losses) recognized during the period Less: net (losses) gains recognized during the period on trading securities sold during the period Unrealized gains (losses) recognized during the period on trading securities held December 31, 2016 2015 (in thousands) $ 7,030 (11,294) $18,324 $ (27,246) 5,812 $(33,058) 7. Derivative Instruments We enter into various futures, forwards, options and swaps to economically hedge certain seed capital investments. Also, we have currency forwards that economically hedge certain balance sheet exposures. In addition, our options desk trades long and short exchange-traded equity options. We do not hold any derivatives designated in a formal hedge relationship under Accounting Stan- dards Codification (“ASC”) 815-10, Derivatives and Hedging. Annual Report 2016 91 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) The notional value, fair value and gains and losses recognized in investment gains (losses) as of December 31, 2016 and 2015 for derivative instruments (excluding derivative instruments relating to our options desk trading activities and consolidated VIEs dis- cussed below) not designated as hedging instruments were as follows: Notional Value Derivative Assets Derivative Liabilities Gains (Losses) (in thousands) December 31, 2016 Exchange-traded futures Currency forwards Interest rate swaps Credit default swaps Option swaps Total return swaps Total derivatives December 31, 2015 Exchange-traded futures Currency forwards Interest rate swaps Credit default swaps Option swaps Total return swaps Total derivatives $ 103,108 180,820 40,664 45,108 — 90,043 $ 1,224 4,541 940 1,205 — 503 $459,743 $ 8,413 $ 1,092 4,711 897 905 — 1,044 $ 8,649 $ 160,755 262,873 65,484 29,421 24 146,001 $664,558 $ 1,539 $ 2,651 4,604 2,945 2,089 9 1,402 4,077 3,745 774 2 972 $ (2,754) (2,028) (572) (1,338) (70) (8,766) $(15,528) $ 8,572 7,445 (443) (253) 11 (160) $12,588 $12,221 $ 15,172 As of December 31, 2016 and 2015, the derivative assets and liabilities are included in both receivables and payables to brokers and dealers on our consolidated statements of financial condition. Gains and losses on derivative instruments are reported in investment gains and losses on the consolidated statements of income. 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 December 31, 2016 and 2015, we held $0.8 million and $1.5 million, respectively, of cash collateral payable to trade counterparties. This obligation to return cash is reported in payables to brokers and dealers in our con- solidated statements of financial condition. Although notional amount is the most commonly used measure of volume in the derivatives 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 counter- party’s credit rating, or in some agreements, our 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 collat- eralization, various levels of collateralization of net liability positions are applicable, depending on the credit rating of the counter- party. As of December 31, 2016 and 2015, we delivered $6.2 million and $12.8 million, respectively, of cash collateral into brokerage accounts. We report this cash collateral in cash and cash equivalents in our consolidated statements of financial condition. 92 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) As of December 31, 2016 and 2015, we held $3.1 million and $5.9 million, respectively, of long exchange-traded equity options, which are classified as trading investments and included in our other investments on our consolidated statements of financial con- dition. In addition, as of December 31, 2016 and 2015, we had $0.7 million and $0.8 million, respectively, of short exchange- traded equity options, which are included in securities sold not yet purchased on our 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 risk associated with this activity by taking offsetting positions in equities. For the years ended December 31, 2016 and 2015, respectively, we recognized $27.6 million and $65.0 million, respectively, of losses on equity options activity. These losses are recognized in investment gains (losses) in the consolidated statements of income. As of December 31, 2016, our consolidated VIEs held $2.9 million (net) of futures, forwards and swaps within their portfolios. For the year ended December 31, 2016, we recognized $0.8 million of gains on these derivative positions. These gains are recognized in the investment gains (losses) in the consolidated statements of income. As of December 31, 2016, the consolidated VIEs held $0.5 million of cash collateral payable to trade counterparties. This obligation to return cash is reported in the liabilities of consolidated VIEs in our consolidated statements of financial condition. As of December 31, 2016, the consolidated VIEs delivered $3.3 million of cash collateral into brokerage accounts. The consolidated VIEs report this cash collateral in the consolidated VIEs cash and cash equivalents in our consolidated statements of financial condition. 8. Offsetting Assets and Liabilities Offsetting of assets as of December 31, 2016 and 2015 was as follows: Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets Presented in the Statement of Financial Position (in thousands) Financial Instruments Collateral Received Net Amount $82,814 $ 8,413 $ 4,997 $ 3,106 $75,274 $12,588 $ 5,910 $ — $ — $ — $ — $ — $ — $ — $82,814 $ 8,413 $ 4,997 $ 3,106 $75,274 $12,588 $ 5,910 $ — $ — $ — $ — $ — $ — $ — $(82,814) $ $ (810) (461) $ — $(75,274) $ (1,518) $ — $ — $ 7,603 $ 4,536 $ 3,106 $ — $11,070 $ 5,910 December 31, 2016 Securities borrowed Derivatives Derivatives held by consolidated VIEs Long exchange-traded options December 31, 2015 Securities borrowed Derivatives Long exchange-traded options Annual Report 2016 93 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Offsetting of liabilities as of December 31, 2016 and 2015 was as follows: Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Statement of Financial Position Net Amounts of Liabilities Presented in the Statement of Financial Position (in thousands) Financial Instruments Collateral Pledged Net Amount $ — $ 8,649 $ 2,081 692 $ $ 9,518 $12,221 $ 843 $ — $ — $ — $ — $ — $ — $ — $ — $ 8,649 $ 2,081 692 $ $ 9,518 $12,221 $ 843 $ — $ — $ — $ — $ — $ — $ — $ — $ (6,239) $ (2,081) $ — $ (9,518) $(12,221) $ — $ — $2,410 $ — $ 692 $ — $ — $ 843 December 31, 2016 Securities loaned Derivatives Derivatives held by consolidated VIEs Short exchange-traded options December 31, 2015 Securities loaned Derivatives Short exchange-traded options Cash collateral, whether pledged or received on derivative instruments, is not considered material and, accordingly, is not disclosed by counterparty. 9. Fair Value 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 December 31, 2016 and 2015 was as follows (in thousands): Level 1 Level 2 Level 3 Total December 31, 2016: Money markets U.S. Treasury Bills Available-for-sale Equity securities Fixed income securities Trading Equity securities Fixed income securities Long exchange-traded options 94 $107,250 — 23 22 158,316 80,473 3,106 $ — 922,126 — — 17,785 11,107 — $ — — — — 110 — — $107,250 922,126 23 22 176,211 91,580 3,106 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Derivatives Private equity Consolidated VIEs Investments Derivatives Total assets measured at fair value Securities sold not yet purchased Short equities-corporate Short exchange-traded options Derivatives Consolidated VIEs Short equities Derivatives Contingent payment arrangements Total liabilities measured at fair value December 31, 2015: Money markets U.S. Treasury Bills Available-for-sale Equity securities Fixed income securities Trading Equity securities Fixed income securities Long exchange-traded options Derivatives Private equity Total assets measured at fair value Securities sold not yet purchased Short equities-corporate Short exchange-traded options Derivatives Contingent payment arrangements Total liabilities measured at fair value Level 1 Level 2 Level 3 Total 1,224 — 341,830 58 7,189 — 203,197 1,739 — 4,913 5,741 — 8,413 4,913 550,768 1,797 $692,302 $1,163,143 $10,764 $1,866,209 $ 40,252 $ $ $ 692 1,092 248,419 48 — $290,503 $ 116,445 — 181 183 325,248 170,244 5,910 1,539 14,305 — — 7,557 — 2,033 — 9,590 $ — $ 40,252 — — — — 17,589 $17,589 692 8,649 248,419 2,081 17,589 $ 317,682 — $ — $ 116,445 485,121 — — 874 12,532 — 11,049 — — — — 113 — — — 16,035 $16,148 485,121 181 183 326,235 182,776 5,910 12,588 30,340 $1,159,779 $634,055 $ 509,576 $ 15,254 $ 843 2,651 — — — 9,570 — $ 18,748 $ 9,570 $ — $ 15,254 — — 31,399 $31,399 843 12,221 31,399 $ 59,717 Included in Note 6, Investments, but excluded in the above fair value table, are the following investments: • Limited partnership hedge funds, which are recorded using the equity method of accounting; • One private equity investment ($10.2 million as of December 31, 2015; sold in the first quarter of 2016), which was recorded using the cost method of accounting; • Other investments, which primarily include miscellaneous investments recorded using the cost or equity method of accounting and long-term deposits; and • One private equity investment ($40.4 million and $32.0 million as of December 31, 2016 and 2015, respectively) which is measured at fair value using NAV (or its equivalent) as a practical expedient. Annual Report 2016 95 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) We provide below a description of the fair value methodologies used for instruments measured at fair value, as well as the general clas- sification 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 and fixed income securities: Our equity and fixed income securities consist principally of company-sponsored mutual funds with NAVs and various separately-managed portfolios consisting primarily of equity and fixed income securities 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 hold currency forward contracts, interest rate swaps, credit default swaps, option swaps and total return swaps with counterparties that are valued based on observable inputs from recognized pricing vendors, which are included in Level 2 of the valuation hierarchy. • Options: We hold long exchange-traded options that are included in Level 1 of the valuation hierarchy. • Private equity: As of December 31, 2015, private equity investments include the investments of our consolidated venture capital fund and our investment in a private equity energy fund. As of December 31, 2016, the consolidated venture capital fund is classified as a consolidated VIE (see Note 2) and is discussed separately below; our investment in a private equity energy fund remains. Generally, the valuation of private equity investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity and the long-term nature of such investments. Private equity investments are valued initially at cost. The carrying values of private equity investments are adjusted either up or down from cost to reflect expected exit values as evidenced by financing and sale transactions with third parties, or when determination of a valuation adjustment is confirmed through ongoing review in accordance with our valuation policies and procedures. A variety of factors are reviewed and monitored to assess positive and negative changes in valuation, including current operating performance and future expectations of investee companies, industry valuations of comparable public companies, changes in market outlooks, and the third party financing environment over time. In determining valuation adjustments resulting from the investment review process, particular emphasis is placed on current company performance and market conditions. For these reasons, which make the fair value of private equity investments unobservable, equity investments are included in Level 3 of the valuation hierarchy. • 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 acquisitions in 2010, 2013, 2014 and 2016. At each reporting date, we estimate the fair values of the contingent consideration expected to be paid upon probability-weighted AUM and revenue projections, using observable market data inputs, which are included in Level 3 of the valuation hierarchy. • Investments of consolidated VIEs: During 2016, subsequent to the initial adoption of ASU 2015-02, we consolidated six addi- tional investment funds that were classified as VIEs in which we have a controlling interest and deconsolidated a VIE of which we were no longer the primary beneficiary. Currently, seven of our consolidated VIEs are open-end Luxembourg funds inves- ting in (i) high yield debt issued by U.S. corporations and related derivatives, (ii) fixed income securities issued by Asia-Pacific issuers and related derivatives, and (iii) equity securities, including common and preferred stocks, convertible securities, deposi- tary receipts and securities of real estate investment trusts; currencies and currency-related instruments; pooled investment vehicles; and financial derivative instruments, such as options, futures, forwards, swaps and commodity index-related instru- ments. Also, we consolidated one hedge fund which invests in a wide range of U.S. and non-U.S. securities and other financial instruments. In addition, our venture capital fund, which is classified as a consolidated VIE effective January 1, 2016, holds both 96 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) private equity investments as well as private equity investments that became publicly-traded. The investments and derivatives held by the consolidated VIEs are included in Levels 1, 2 and 3 of the valuation hierarchy. During the third quarter of 2016, one of our private securities went public and $23.6 million was transferred from a Level 3 to a Level 1 classification. The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as private equity invest- ments, trading equity securities and investments held by our consolidated VIEs, is as follows: Balance as of beginning of period Transfers out Activity related to consolidated VIEs Purchases Sales Realized gains, net Unrealized (losses) gains, net Balance as of end of period December 31, 2016 2015 (in thousands) $ 16,148 $ 27,813 (23,566) 19,772 — — — (1,590) (26) — 195 (14,178) 1,983 361 $10,764 $16,148 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 consolidated statements of income. As of December 31, 2016 and 2015, we have an investment in a private equity fund focused exclusively on the energy sector (fair value of $4.9 million and $6.5 million, respectively) that is classified as Level 3. This investment’s valuation is based on a market approach, considering recent transactions in the fund and the industry. Our consolidated venture capital fund, which is classified as a consolidated VIE in 2016 and a private equity investment in 2015, holds no Level 3 investments as of December 31, 2016. Quantitative information about our consolidated venture capital fund Level 3 fair value measurements as of December 31, 2015 was as follows: Fair Value as of December 31, 2015 (in thousands) Valuation Technique Unobservable Input Range Technology, Media and Telecommunications $9,527 Market comparable companies Revenue multiple 2.5 –4.8 Marketability discount 30% The significant unobservable inputs used in the fair value measurement of the reporting entities’ venture capital securities in the Technology, Media and Telecommunications areas are enterprise value to revenue multiples and a discount rate to account for liq- uidity and various risk factors. Significant increases (decreases) in the enterprise value to revenue multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the discount rate would result in a significantly lower (higher) fair value measurement. As of December 31, 2016, five of our consolidated VIEs that are open-end Luxembourg funds hold $5.7 million of investments that are classified as Level 3. They primarily consist of corporate bonds that are vendor priced with no ratings available, bank loans, non- agency collateralized mortgage obligations and asset-backed securities. Annual Report 2016 97 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) The change in carrying value associated with Level 3 financial instruments carried at fair value, classified as contingent payment arrangements, is as follows: Balance as of beginning of period Addition Accretion Changes in estimates Payments Balance as of end of period December 31, 2016 2015 (in thousands) $ 31,399 $ 42,436 11,893 1,237 (21,482) (5,458) — 1,770 (7,211) (5,596) $17,589 $31,399 During 2016, we recorded a change in estimate of the contingent consideration payable relating to our 2010 acquisition of $2.2 million. Additionally, we had recorded a contingent consideration payable for our 2013 acquisition relating to contingent value rights (“CVRs”). The CVRs would have entitled the shareholders to an additional $4 per share if the assets under management in the acquired investment services exceeded $5 billion on or before the third anniversary of the acquisition date (December 12, 2016). The target was not met and, as a result, we reversed the contingent consideration payable of $19.3 million. As of December 31, 2016, the three acquisition-related contingent consideration liabilities recorded have a combined fair value of $17.6 million and are valued using a projected AUM weighted average growth rate of 18% for one acquisition, and revenue growth rates and discount rates ranging from 4% to 31% and 1.4% to 6.4%, respectively, for the three acquisitions. As of December 31, 2015, the three acquisition-related contingent consideration liabilities recorded had a combined fair value of $31.4 million and were valued using a projected AUM weighted average growth rate of 46%, a revenue growth rate of 43% and discount rates ranging from 3.0% to 6.4%. During 2015, we recorded changes in estimates of the contingent consideration payable relating to recent acquisitions of $7.2 million. 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 years ended December 31, 2016 or 2015. 10. Furniture, Equipment and Leasehold Improvements, Net Furniture, equipment and leasehold improvements, net consist of: Furniture and equipment Leasehold improvements Less: Accumulated depreciation and amortization Furniture, equipment and leasehold improvements, net December 31, 2016 2015 (in thousands) $ 535,890 $ 529,488 247,121 783,011 (623,447) 258,280 787,768 (627,408) $159,564 $160,360 Depreciation and amortization expense on furniture, equipment and leasehold improvements were $29.4 million, $29.0 million and $36.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. 98 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) During 2016, 2015 and 2014, we recorded $17.7 million, $1.0 million and $0.1 million, respectively, in pre-tax real estate charges. Included in the 2014 charge was $5.5 million of leasehold improvements, furniture and equipment we wrote off related to the respective spaces. See Note 3 for further discussion of the real estate charges. 11. Deferred Sales Commissions, Net The components of deferred sales commissions, net for the years ended December 31, 2016 and 2015 were as follows (excluding amounts related to fully amortized deferred sales commissions): Carrying amount of deferred sales commissions Less: Accumulated amortization Cumulative CDSC received Deferred sales commissions, net December 31, 2016 2015 (in thousands) $ 903,252 $ 970,671 (565,681) (273,681) (606,963) (264,638) $ 63,890 $ 99,070 Amortization expense was $41.1 million, $49.1 million and $41.5 million for the years ended December 31, 2016, 2015 and 2014, respectively. Estimated future amortization expense related to the December 31, 2016 net asset balance, assuming no additional CDSC is received in future periods, is as follows (in thousands): 2017 2018 2019 2020 2021 2022 12. Debt $ 32,206 21,092 7,688 2,864 36 4 $63,890 As of December 31, 2016 and 2015, AB had $513.0 million and $581.7 million, respectively, in commercial paper outstanding with weighted average interest rates of approximately 0.9% and 0.5%, 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 2016 and 2015 were $422.9 million and $387.9 million, respectively, with weighted average interest rates of approximately 0.6% and 0.3%, respectively. AB has a $1.0 billion committed, unsecured senior revolving credit facility (“Credit Facility”) with a group of commercial banks and other lenders, which matures on October 22, 2019. The Credit Facility provides for possible increases in the principal amount by up to an aggregate incremental amount of $250.0 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 $1.0 billion 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 Annual Report 2016 99 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) December 31, 2016, 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 automatically would terminate. 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 cus- tomary 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 indices: London Interbank Offered Rate; a floating base rate; or the Federal Funds rate. As of December 31, 2016 and 2015, we had no amounts outstanding under the Credit Facility. During 2016 and 2015, we did not draw upon the Credit Facility. On December 1, 2016, AB entered into a $200.0 million, unsecured 364-day senior revolving credit facility (the “Revolver”) with a leading international bank and the other lending institutions that may be party thereto. 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 December 31, 2016, we had no amounts outstanding under the Revolver and the average daily borrowings for 2016 were $7.3 million, with a weighted average interest rate of 1.6%. In addition, SCB LLC has four uncommitted lines of credit with four financial institutions. Three of these lines of credit permit us to borrow up to an aggregate of approximately $225.0 million, with AB named as an additional borrower, while one line has no stated limit. As of December 31, 2016 and 2015, SCB LLC had no bank loans outstanding. Average daily borrowings of bank loans during 2016 and 2015 were $4.4 million and $3.9 million, respectively, with weighted average interest rates of approximately 1.1% and 1.2%, respectively. 13. Commitments and Contingencies Operating Leases We lease office space, furniture and office equipment under various operating leases. The future minimum payments under non- cancelable leases, sublease commitments and related payments we are obligated to make, net of sublease commitments of third party lessees to make payments to us, as of December 31, 2016, are as follows: 2017 2018 2019 2020 2021 2022 and thereafter Total future minimum payments Payments Sublease Receipts (in millions) Net Payments $ 138.3 $ 43.3 $ 95.0 132.3 125.9 105.7 99.2 291.0 44.2 43.6 27.2 25.8 66.8 $892.4 $250.9 88.1 82.3 78.5 73.4 224.2 $641.5 100 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Office leases contain escalation clauses that provide for the pass through of increases in operating expenses and real estate taxes. Rent expense, which is amortized on a straight-line basis over the life of the lease, was $68.1 million, $70.7 million and $73.0 million, respectively, for the years ended December 31, 2016, 2015 and 2014, net of sublease income of $2.5 million, $2.9 million and $3.3 million, respectively, for the years ended December 31, 2016, 2015 and 2014. See Note 3 for further discussion of the real estate charges. Legal Proceedings During the first quarter of 2012, we received a legal letter of claim (“Letter of Claim”) sent on behalf of Philips Pension Trustees Limited and Philips Electronics U.K. Limited (“Philips”), a former pension fund client, alleging that AllianceBernstein Limited (one of our subsidiaries organized in the U.K.) was negligent and failed to meet certain applicable standards of care with respect to the initial investment in, and management of, a £500 million portfolio of U.S. mortgage-backed securities. Philips alleged damages ranging between $177 million and $234 million, plus compound interest on an alleged $125 million of realized losses in the portfo- lio. On January 2, 2014, Philips filed a claim form in the High Court of Justice in London, England, which formally commenced litigation with respect to the allegations in the Letter of Claim. By agreement dated November 28, 2016, the terms of which are confidential, this matter was settled. Our contribution to the settlement amount was paid by our relevant insurance carriers. In addition to the matter discussed immediately above, we may be involved in various other matters, including regulatory inquiries, administrative proceedings and litigation, some of which may allege significant damages. In management’s opinion, an adequate accrual has been made as of December 31, 2016 to provide for any probable losses regarding any litigation matters for which we can reasonably estimate an amount of loss. It is reasonably possible that we could incur addi- tional losses pertaining to these matters, but currently we cannot estimate any such additional 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. Other During 2009, we entered into a subscription agreement, under which we committed to invest up to $35.0 million, as amended in 2011, in a venture capital fund over a six-year period. As of December 31, 2016, we had funded $33.5 million of this commitment. 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 December 31, 2016, we had funded $20.5 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 the Real Estate Fund II. As of December 31, 2016, we had funded $3.8 million of this commitment. During 2012, we entered into an investment agreement under which we committed to invest up to $8.0 million in an oil and gas fund over a three-year period, as amended. As of December 31, 2016, we had funded $6.2 million of this commitment. 14. Net Capital SCB LLC is registered as a broker-dealer under the Exchange Act and is subject to the minimum net capital requirements imposed by the U.S. Securities and Exchange Commission (“SEC”). SCB LLC computes its net capital under the alternative method permitted by the applicable rule, which requires that minimum net capital, as defined, equals the greater of $1 million or two per- cent of aggregate debit items arising from customer transactions, as defined. As of December 31, 2016, SCB LLC had net capital of Annual Report 2016 101 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) $214.3 million, which was $184.2 million in excess of the minimum net capital requirement of $30.1 million. Advances, dividend payments and other equity withdrawals by SCB LLC are restricted by regulations imposed by the SEC, the Financial Industry Regulatory Authority, Inc., and other securities agencies. Our U.K.-based broker-dealer is a member of the London Stock Exchange. As of December 31, 2016, it was subject to financial resources requirements of $22.7 million imposed by the Financial Conduct Authority of the United Kingdom and had aggregate regulatory financial resources of $43.6 million, an excess of $20.9 million. AllianceBernstein Investments, Inc., another one of our subsidiaries and the distributor and/or underwriter for certain company- sponsored mutual funds, is registered as a broker-dealer under the Exchange Act and is subject to the minimum net capital require- ments imposed by the SEC. As of December 31, 2016, it had net capital of $56.5 million, which was $56.2 million in excess of its required net capital of $0.3 million. Many of our subsidiaries around the world are subject to minimum net capital requirements by the local laws and regulations to which they are subject. As of December 31, 2016, each of our subsidiaries subject to a minimum net capital requirement satisfied the applicable requirement. 15. Counterparty Risk Customer Activities In the normal course of business, brokerage activities involve the execution, settlement and financing of various customer securities trades, which may expose our broker-dealer operations to off-balance sheet risk by requiring us to purchase or sell securities at pre- vailing market prices in the event the customer is unable to fulfill its contractual obligations. Our customer securities activities are transacted on either a cash or margin basis. In margin transactions, we extend credit to the customer, subject to various regulatory and internal margin requirements. These transactions are collateralized by cash or securities in the customer’s account. In connection with these activities, we may execute and clear customer transactions involving the sale of securities not yet purchased. We seek to control the risks associated with margin transactions by requiring customers to maintain collateral in compliance with the aforementioned regulatory and internal guidelines. We monitor required margin levels daily and, pursuant to such guidelines, require customers to deposit additional collateral, or reduce positions, when necessary. A majority of our customer margin accounts are managed on a discretionary basis whereby we maintain control over the investment activity in the accounts. For these discretionary accounts, our margin deficiency exposure is minimized through maintaining a diversified port- folio of securities in the accounts and by virtue of our discretionary authority and our U.S-based broker-dealer’s role as custodian. In accordance with industry practice, we record customer transactions on a settlement date basis, which generally was three business days after trade date for our U.S. operations and two business days after trade date for our U.K. operations. We are exposed to risk of loss on these transactions in the event of the customer’s or broker’s inability to meet the terms of their contracts, in which case we may have to purchase or sell financial instruments at prevailing market prices. The risks we assume in connection with these transactions are not expected to have a material adverse effect on our financial condition or results of operations. Other Counterparties We are engaged in various brokerage activities on behalf of clients, in which counterparties primarily include broker-dealers, banks and other financial institutions. In the event these counterparties do not fulfill their obligations, we may be exposed to loss. The risk of default depends on the creditworthiness of the counterparty or issuer of the instrument. It is our policy to review, as necessary, each counterparty’s creditworthiness. In connection with security borrowing and lending arrangements, we enter into collateralized agreements, which may result in potential loss in the event the counterparty to a transaction is unable to fulfill its contractual obligations. Security borrowing arrangements require us to deposit cash collateral with the lender. With respect to security lending arrangements, we receive 102 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) collateral in the form of cash in amounts generally in excess of the market value of the securities loaned. We attempt to mitigate credit risk associated with these activities by establishing credit limits for each broker and monitoring these limits on a daily basis. Additionally, security borrowing and lending collateral is marked to market on a daily basis, and additional collateral is deposited by or returned to us as necessary. We enter into various futures, forwards, options and swaps primarily to economically hedge certain of our seed money investments. We may be exposed to credit losses in the event of nonperformance by counterparties to these derivative financial instruments. See Note 7, Derivative Instruments for further discussion. 16. Qualified Employee Benefit Plans We maintain a qualified profit sharing plan covering U.S. employees and certain foreign employees. Employer contributions are discretionary and generally limited to the maximum amount deductible for federal income tax purposes. Aggregate contributions for 2016, 2015 and 2014 were $14.3 million, $14.2 million and $13.5 million, respectively. We maintain several defined contribution plans for foreign employees working for our subsidiaries in the United Kingdom, Australia, Japan and other locations outside the United States. Employer contributions generally are consistent with regulatory requirements and tax limits. Defined contribution expense for foreign entities was $6.8 million, $7.9 million and $7.3 million in 2016, 2015 and 2014, respectively. We maintain a qualified, noncontributory, defined benefit retirement plan (“Retirement Plan”) covering current and former employees who were employed by AB in the United States prior to October 2, 2000. Benefits are based on years of credited serv- ice, average final base salary (as defined in the Retirement Plan) and primary Social Security benefits. Service and compensation after December 31, 2008 are not taken into account in determining participants’ retirement benefits. Our policy is to satisfy our funding obligation for each year in an amount not less than the minimum required by the Employee Retire- ment Income Security Act of 1974, as amended, and not greater than the maximum amount we can deduct for federal income tax purposes. We did not make a contribution to the Retirement Plan during 2016. We currently estimate that we will contribute $4.0 million to the Retirement Plan during 2017. Contribution estimates, which are subject to change, are based on regulatory require- ments, future market conditions and assumptions used for actuarial computations of the Retirement Plan’s obligations and assets. Man- agement, at the present time, has not determined the amount, if any, of additional future contributions that may be required. The Retirement Plan’s projected benefit obligation, fair value of plan assets, and funded status (amounts recognized in the con- solidated statements of financial condition) were as follows: Changeinprojectedbenefitobligation: Projected benefit obligation at beginning of year Interest cost Plan amendments Actuarial loss (gain) Benefits paid Projected benefit obligation at end of year Changeinplanassets: Plan assets at fair value at beginning of year Actual return on plan assets Employer contribution Benefits paid Plan assets at fair value at end of year Funded status Years Ended December 31, 2016 2015 (in thousands) $107,784 $113,733 4,972 — 1,794 (3,235) 4,816 827 (6,698) (4,894) 111,315 107,784 86,292 3,642 — (3,235) 86,699 90,320 866 — (4,894) 86,292 $(24,616) $(21,492) Annual Report 2016 103 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Effective December 31, 2015, the Retirement Plan was amended to change the actuarial basis used for converting a life annuity benefit to optional forms of payment and converting benefits payable at age 65 to earlier commencement dates. This prior service cost will be amortized over future years. The amounts recognized in other comprehensive income (loss) for the Retirement Plan for 2016, 2015 and 2014 were as follows: 2016 2015 2014 (in thousands) Unrecognized net (loss) gain from experience different from that assumed and effects of changes and assumptions $ (3,115) $ 2,882 $ (20,803) Prior service cost Income tax (expense) benefit Other comprehensive (loss) income 93 (3,022) (10) $(3,032) (895) 1,987 (99) $1,888 — (20,803) 232 $(20,571) The loss of $3.0 million recognized in 2016 primarily was due to expected earnings on plan assets exceeding actual earnings ($1.8 million) and changes in the discount rate and lump sum interest rates ($3.5 million), offset by changes in the mortality assumption ($1.7 million). The gain of $1.9 million recognized in 2015 primarily was due to changes in the discount rate and lump sum interest rates ($5.6 million) and changes in the mortality assumption ($1.4 million), offset by expected earnings on plan assets exceeding actual earnings ($5.3 million). The loss of $20.6 million recognized in 2014 primarily was due to changes in the discount rate ($12.0 million) and changes in the mortality assumption ($7.5 million). Foreign retirement plans and an individual’s retirement plan maintained by AB are not material to AB’s consolidated financial state- ments. As such, disclosure for these plans is not necessary. The reconciliation of the 2016 amounts recognized in other compre- hensive income for the Retirement Plan as compared to the consolidated statement of comprehensive income (“OCI Statement”) is as follows: Recognized actuarial (loss) gain Amortization of prior service cost Changes in employee benefit related items Income tax (expense) benefit Employee benefit related items, net of tax Retirement Plan $ (3,115) 93 (3,022) (10) $(3,032) Retired Individual Plan Foreign Retirement Plans (in thousands) $ 22 — 22 (1) $21 $ 50 — 50 (11) $ 39 OCI Statement $ (3,043) 93 (2,950) (22) $(2,972) The amounts included in accumulated other comprehensive income (loss) for the Retirement Plan as of December 31, 2016 and 2015 were as follows: Unrecognized net loss from experience different from that assumed and effects of changes and assumptions $ (46,430) $ (43,314) Prior service cost Income tax benefit Accumulated other comprehensive loss (803) (47,233) 457 (895) (44,209) 468 $(46,776) $(43,741) 2016 2015 (in thousands) 104 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) The amortization period over which we are amortizing the loss for the Retirement Plan from accumulated other comprehensive income is 36 years. The estimated prior service cost and amortization of loss for the Retirement Plan that will be amortized from accumulated other comprehensive income over the next year are $23,959 and $1.1 million, respectively. The accumulated benefit obligation for the plan was $111.3 million and $107.8 million, respectively, as of December 31, 2016 and 2015. The discount rates used to determine benefit obligations as of December 31, 2016 and 2015 (measurement dates) were 4.55% and 4.75%, respectively. Benefit payments are expected to be paid as follows (in thousands): 2017 2018 2019 2020 2021 2022-2026 Net (benefit) expense under the Retirement Plan consisted of: Interest cost on projected benefit obligations Expected return on plan assets Amortization of prior service cost Recognized actuarial loss Net pension (benefit) expense $ 4,302 5,545 6,048 5,109 5,872 37,837 Year Ended December 31, 2015 2014 2016 (in thousands) $ 4,972 (5,407) 24 959 $ 4,816 (6,176) — 979 $ 4,895 (6,493) — 490 $ 548 $ (381) $(1,108) Actuarial computations used to determine net periodic costs were made utilizing the following weighted-average assumptions: Years Ended December 31, 2015 2016 2014 Discount rate on benefit obligations Expected long-term rate of return on plan assets 4.75% 6.5 4.3% 7.0 5.3% 7.5 In developing the expected long-term rate of return on plan assets of 6.5%, management considered the historical returns and future expectations for returns for each asset category, as well as the target asset allocation of the portfolio. The expected long-term rate of return on assets is based on weighted average expected returns for each asset class. As of December 31, 2016, the mortality projection assumption has been updated to use the generational MP-2016 improvement scale. Previously, mortality was projected generationally using the MP-2015 improvements scale. The base mortality assumption remains at the RP-2014 white-collar mortality table for males and females adjusted back to 2006 using the MP-2014 improvement scale. Annual Report 2016 105 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) It is expected that the Internal Revenue Service (“IRS”) will update the mortality tables used to determine lump sums. As the cur- rent IRS mortality tables have been published for plan years through 2017, updated tables will not be effective before 2018. For fiscal year-end 2016, we reflected current IRS tables through 2017. We assumed that the most recent mortality tables published by the Society of Actuaries will be adopted by the IRS for lump sum payments projected to begin in 2018 and later. The Retirement Plan’s asset allocation percentages consisted of: Equity Debt securities Other December 31, 2016 2015 61% 18 21 100% 56% 24 20 100% The guidelines regarding allocation of assets are formalized in the Investment Policy Statement adopted by the Investment Commit- tee for the Retirement Plan. The objective of the investment program is to enhance the portfolio of the Retirement Plan through total return (capital appreciation and income), thereby promoting the ongoing ability of the plan to meet future liabilities and obligations, while minimizing the need for additional contributions. The guidelines specify an allocation weighting of 30% to 60% for return seeking investments (target of 40%), 10% to 30% for risk mitigating investments (target of 15%), 0% to 25% for diversify- ing investments (target of 17%) and 18% to 38% for dynamic asset allocation (target of 28%). Investments in mutual funds, hedge funds (and other alternative investments), and other commingled investment vehicles are permitted under the guidelines. Invest- ments are permitted in overlay portfolios (regulated mutual funds), which are designed to manage short-term portfolio risk and mitigate the effect of extreme outcomes by varying the asset allocation of a portfolio. See Note 9, Fair Value for a description of how we measure the fair value of our plan assets. The valuation of our Retirement Plan assets by pricing observability levels as of December 31, 2016 and 2015 was as follows (in thousands): December 31, 2016: Cash Fixed income mutual funds Equity mutual fund Equity securities Total assets in the fair value hierarchy Investments measured at net assets value Investments at fair value December 31, 2015: Cash Fixed income mutual funds Equity mutual fund Equity securities Total assets in the fair value hierarchy Investments measured at net assets value Investments at fair value Level 1 Level 2 Level 3 Total $ 344 $ — $ — $ 344 21,441 25,037 20,690 67,512 — — — — — — — — — — — 21,441 25,037 20,690 67,512 19,187 $67,512 $ — $ — $86,699 $ 445 $ — $ — $ 445 21,555 23,603 21,586 67,189 — — — — — — — — — — — 21,555 23,603 21,586 67,189 19,103 $67,189 $ — $ — $86,292 106 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) The Retirement Plan’s investments include the following: • • • two fixed income mutual funds, each of which seeks to generate income consistent with preservation of capital. One mutual fund invests in a portfolio of fixed income securities of U.S. and non-U.S. companies and U.S. and non-U.S. government securities and supranational entities, including lower-rated securities, while the second fund invests in a broad range of fixed income securities in both developed and emerging markets with a range of maturities from short- to long-term; three equity mutual funds, one of which invests primarily in a diversified portfolio of equity securities of small- to mid- capitalization U.S. companies, the second which invests primarily in a diversified portfolio of equity securities with relatively smaller capitalizations as compared to the overall U.S market, and the third which primarily invests in equity securities of small capitalization companies or other securities or instruments with similar economic characteristics; separate equity and fixed income mutual funds, which seek to moderate the volatility of equity and fixed income oriented asset allocation over the long term, as part of the overall asset allocation managed by AB; • a multi-style, multi-cap integrated portfolio adding U.S. equity diversification to its value and growth equity selections, designed to deliver a long-term premium to the S&P 500 with greater consistency across a range of market environments; and • investments measured at net asset value, including two equity private investment trusts, one of which invests primarily in equity securities of non-U.S. companies located in emerging market countries, and the other of which invests in equity securities of established non-U.S. companies located in the countries comprising the MSCI EAFE Index, plus Canada; and a hedge fund that seeks to provide attractive risk-adjusted returns over full market cycles with less volatility than the broad equity markets by allocating all or substantially all of its assets among portfolio managers through portfolio funds that employ a broad range of investment strategies. 17. Long-term Incentive Compensation Plans We maintain an unfunded, non-qualified incentive compensation program known as the AllianceBernstein Incentive Compensation Award Program (“Incentive Compensation Program”), under which annual awards may be granted to eligible employees. See Note 2, “Summary of Significant Accounting Policies – Long-Term Incentive Compensation Plans” for a discussion of the award provisions. Under the Incentive Compensation Program, we made awards in 2016, 2015 and 2014 aggregating $157.8 million, $178.8 million and $176.5 million, respectively. The amounts charged to employee compensation and benefits for the years ended December 31, 2016, 2015 and 2014 were $153.8 million, $171.7 million and $173.2 million, respectively. Effective as of July 1, 2010, we established the AllianceBernstein 2010 Long Term Incentive Plan, as amended (“2010 Plan”), which was adopted by AB Holding Unitholders at a special meeting of AB Holding Unitholders held on June 30, 2010. Since the 2010 Plan was adopted, the following forms of awards have been available for grant to employees and Eligible Directors: (i) restricted AB Holding Units or phantom restricted AB Holding Units (a “phantom” award is a contractual right to receive AB Holding Units at a later date or upon a specified event); (ii) options to buy AB Holding Units; and (iii) other AB Holding Unit- based awards (including, without limitation, AB Holding Unit appreciation rights and performance awards). The purpose of the 2010 Plan is to promote the interest of AB by: (i) attracting and retaining talented officers, employees and directors, (ii) motivating such officers, employees and directors by means of performance-related incentives to achieve longer-range business and operational goals, (iii) enabling such officers, employees and directors to participate in the long-term growth and financial success of AB, and (iv) aligning the interests of such officers, employees and directors with those of AB Holding Unitholders. The 2010 Plan will expire on June 30, 2020, and no awards under the 2010 Plan will be made after that date. Under the 2010 Plan, the aggregate number of AB Holding Units with respect to which awards may be granted is 60 million, including no more than 30 million newly-issued AB Holding Units. The 2010 Plan was amended by the Board in May 2011, expanding the universe of persons eligible to receive awards under the 2010 Plan to include any member of the Board who is a former executive or former employee of an affiliate of AB Holding. For purposes of this amendment, “affiliate” includes any company or other entity that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, AB. Annual Report 2016 107 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) The 2010 Plan was further amended by the Compensation Committee of the Board (“Compensation Committee”) in December 2011, clarifying that, where duly authorized by the Compensation Committee or the Board, continued vesting of awards after a Termination (as those terms are defined in the 2010 Plan or the applicable award agreement) in circumstances where such con- tinued vesting is conditioned on compliance with (A) one or more restrictive covenants, and/or (B) a standard of conduct regarding appropriate consideration of risk set forth in the applicable award agreement, shall count towards satisfying the minimum vesting requirement set forth in Section 6(b)(i) of the 2010 Plan. The 2010 Plan was further amended by the Board in May 2012, when the Board authorized management to reacquire on the open market or otherwise all 60 million AB Holding Units available for awards under the 2010 Plan (less one AB Holding Unit for every newly-issued AB Holding Unit already awarded under the 2010 Plan), while maintaining the 30 million AB Holding Unit limi- tation on newly-issued AB Holding Units available for awards under the 2010 Plan. As of December 31, 2016, 356,989 options to buy AB Holding Units had been granted and 51,944,758 AB Holding Units, net of for- feitures, were subject to other AB Holding Unit awards made under the 2010 Plan or an equity compensation plan with similar terms that expired in 2010. AB Holding Unit-based awards (including options) in respect of 7,698,253 AB Holding Units were available for grant as of December 31, 2016. We intend to seek approval from our unitholders in 2017 for a new long-term incentive plan. Options granted to employees generally are exercisable at a rate of 20% of the AB Holding Units subject to such options on each of the first five anniversary dates of the date of grant; options granted to Eligible Directors generally are exercisable at a rate of 33.3% of the AB Holding Units subject to such options on each of the first three anniversary dates of the date of grant. Restricted AB Holding Units awarded to our CEO pursuant to his employment agreements (as described below under “Restricted AB Holding Unit Awards”) vest ratably over his employment term. Restricted AB Holding Units awarded under the Incentive Compensation Pro- gram vest 25% on December 1st of each of the four years immediately subsequent to the year in which the award is granted. Option Awards Options to buy AB Holding Units (including grants to Eligible Directors) were granted as follows: 54,546 options were granted during 2016, 29,056 options were granted during 2015 and 25,106 options were granted during 2014. The weighted average fair value of options to buy AB Holding Units granted during 2016, 2015 and 2014 was $2.75, $4.13 and $4.78, respectively, on the date of grant, determined using the Black-Scholes option valuation model with the following assumptions: Risk-free interest rate Expected cash distribution yield Historical volatility factor Expected term 2016 2015 2014 1.3% 7.1% 31.0% 1.5% 7.1% 32.1% 1.5% 8.4% 48.9% 6.0 years 6.0 years 6.0 years Due to a lack of sufficient historical data, we have chosen to use the simplified method to calculate the expected term of options. 108 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) The activity in our option plan during 2016 is as follows: Options to Buy AB Holding Units Weighted Average Exercise Price Per Option Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding as of December 31, 2015 5,398,471 $47.59 2.9 Granted Exercised Forfeited Expired Outstanding as of December 31, 2016 Exercisable as of December 31, 2016 Vested or expected to vest as of December 31, 2016 54,546 (358,262) — (9,712) 5,085,043 4,700,909 5,085,043 22.64 17.05 — 65.02 49.45 47.58 49.45 2.0 1.9 2.0 $ — — — The aggregate intrinsic value as of December 31, 2016 of options outstanding, exercisable and expected to vest is negative, and is therefore presented as zero in the table above. The total intrinsic value of options exercised during 2016, 2015 and 2014 was $2.1 million, $7.0 million and $9.1 million, respectively. Under the fair value method, compensation expense is measured at the grant date based on the estimated fair value of the options awarded (determined using the Black-Scholes option valuation model) and is recognized over the required service period. We recorded compensation expense (credit) relating to option grants of $0.2 million, $0.1 million and $(0.3) million, respectively, for the years ended December 31, 2016, 2015 and 2014. As of December 31, 2016, there was no compensation expense related to unvested option grants not yet recognized in the consolidated statement of income. Restricted AB Holding Unit Awards In 2016, 2015 and 2014, the Board granted restricted AB Holding Unit awards to Eligible Directors. These AB Holding Units give the Eligible Directors, in most instances, all the rights of other AB Holding Unitholders subject to such restrictions on transfer as the Board may impose. We awarded 46,382, 26,468 and 31,320 restricted AB Holding Units, respectively, in 2016, 2015 and 2014 with grant date fair values per restricted AB Holding Unit of $22.64 in 2016, $31.74 in 2015 and $22.99 in 2014. All of the restricted AB Holding Units are delivered as soon as administratively feasible after the third anniversary of grant date or sooner if a director leaves the Board for any reason other than “cause”, as defined in the applicable award agreement. We fully expensed these awards on each grant date, as there is no service requirement. We recorded compensation expense relating to these awards of $1.1 million, $0.8 million and $0.7 million, respectively, for the years ended December 31, 2016, 2015 and 2014. In connection with the commencement of Mr. Kraus’s employment as our Chief Executive Officer (“CEO”) on December 19, 2008, he was granted 2.7 million restricted AB Holding Units with a grant date fair value per Unit of $19.20. Mr. Kraus’s restricted AB Holding Units vested ratably on each of the first five anniversaries of December 19, 2008, commencing December 19, 2009, subject to his continued employment by AB on the vesting dates. During June 2012, Mr. Kraus entered into an agreement (“Kraus Employment Agreement”) pursuant to which Mr. Kraus continues to serve as our CEO. The Kraus Employment Agreement commenced on January 3, 2014 and terminates on January 2, 2019 (“Employment Term”), unless it is terminated earlier in accordance with its terms. In connection with the signing of the Kraus Employment Agreement, Mr. Kraus was granted an addi- tional 2.7 million restricted AB Holding Units, vesting ratably over the Employment Term. Under US GAAP, the compensation expense for the AB Holding Unit award under the Kraus Employment Agreement of $33.1 million (based on the $12.17 grant date AB Holding Unit price) must be amortized on a straight-line basis over 6.5 years, beginning on the grant date. We recorded com- pensation expense relating to the CEO restricted AB Holding Unit grants of $5.1 million for each of the years ended December 31, 2016, 2015 and 2014. Annual Report 2016 109 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Under the Incentive Compensation Program, we awarded 6.1 million restricted AB Holding Units in 2016 (substantially all of which were restricted AB Holding Units in December for the 2016 year-end awards as well as minimal restricted AB Holding Units granted during the year relating to the 2015 year-end awards), 7.2 million restricted AB Holding Units in 2015 (which included 7.0 million restricted AB Holding Units in December for the 2015 year-end awards and 0.2 million additional restricted AB Hold- ing Units granted during the year relating to the 2014 year-end awards) and 6.8 million restricted AB Holding Units in 2014 (which included 6.6 million restricted AB Holding Units in December for the 2014 year-end awards and 0.2 million additional restricted AB Holding Units granted during the year relating to the 2013 year-end awards) with grant date fair values per restricted AB Holding Unit of $19.45 and $23.20 in 2016, $23.02 and $24.24 in 2015 and $21.67 and $24.24 in 2014. We also award restricted AB Holding Units in connection with certain employment and separation agreements with vesting sched- ules ranging between two and five years. The fair value of the restricted AB Holding Units is amortized over the required service period as employee compensation expense. We awarded 1.0 million, 0.2 million and 0.7 million restricted AB Holding Units in 2016, 2015 and 2014, respectively, with grant date fair values per restricted AB Holding Unit ranging between $18.67 and $25.34 in 2016, $25.36 and $32.71 in 2015 and $21.07 and $27.40 in 2014. We recorded compensation expense relating to restricted AB Holding Unit grants in connection with certain employment and separation agreements of $11.2 million, $9.9 million and $13.2 million, respectively, for the years ended December 31, 2016, 2015 and 2014. Changes in unvested restricted AB Holding Units during 2016 are as follows: Unvested as of December 31, 2015 Granted Vested Forfeited Unvested as of December 31, 2016 Weighted Average Grant Date Fair Value per AB Holding Unit $22.05 23.14 21.58 24.05 22.60 AB Holding Units 19,779,814 7,085,482 (7,384,528) (334,727) 19,146,041 The total grant date fair value of restricted AB Holding Units that vested during 2016, 2015 and 2014 was $159.4 million, $156.4 million and $170.9 million, respectively. As of December 31, 2016, the 19,146,041 unvested restricted AB Holding Units consist of 16,272,607 restricted AB Holding Units that do not have a service requirement and have been fully expensed on the grant date and 2,873,434 restricted AB Holding Units that have a service requirement and will be expensed over the required service period. As of December 31, 2016, there was $39.1 million of compensation expense related to unvested restricted AB Holding Unit awards granted and not yet recognized in the consolidated statement of income. We expect to recognize the expense over a weighted average period of 2.6 years. 18. Units Outstanding Changes in AB Units outstanding for the years ended December 31, 2016 and 2015 were as follows: Outstanding as of January 1, Options exercised Units issued Units retired Outstanding as of December 31, 2016 2015 272,301,827 273,040,452 358,262 4,455,944 (8,222,499) 541,073 4,600,583 (5,880,281) 268,893,534 272,301,827 110 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) During 2016 and 2015, we purchased 15,998 and 26,111 AB Units, respectively, in private transactions and retired them. 19. Income Taxes AB is a private partnership for federal income tax purposes and, accordingly, is not subject to federal or state corporate income taxes. However, AB is subject to a 4.0% New York City unincorporated business tax (“UBT”). Domestic corporate subsidiaries of AB, which are subject to federal, state and local income taxes, generally are included in the filing of a consolidated federal income tax return with separate state and local income tax returns being filed. Foreign corporate subsidiaries are generally subject to taxes in the foreign jurisdictions where they are located. In order to preserve AB’s status as a private partnership for federal income tax purposes, AB Units must not be considered publicly traded. The AB Partnership Agreement provides that all transfers of AB Units must be approved by AXA Equitable Life Insurance Company (a subsidiary of AXA, “AXA Equitable”) and the General Partner; AXA Equitable and the General Partner approve only those transfers permitted pursuant to one or more of the safe harbors contained in relevant treasury regulations. If AB Units were considered readily tradable, AB’s net income would be subject to federal and state corporate income tax, significantly reducing its quarterly distributions to AB Holding. Furthermore, should AB enter into a substantial new line of business, AB Holding, by virtue of its ownership of AB, would lose its status as a “grandfathered” publicly-traded partnership and would become subject to corporate income tax, which would reduce materially AB Holding’s net income and its quarterly distributions to AB Holding Unitholders. Earnings before income taxes and income tax expense consist of: Earnings before income taxes: United States Foreign Total Income tax expense: Partnership UBT Corporate subsidiaries: Federal State and local Foreign Current tax expense Deferred tax (benefit) Income tax expense Years Ended December 31, 2015 2016 2014 (in thousands) $ 614,261 108,904 $723,165 $ 520,282 110,817 $631,099 $ 493,311 115,310 $608,621 $ 5,363 $ 8,027 $ 10,042 291 1,064 28,158 34,876 (6,557) 7,957 661 26,822 43,467 1,330 12,464 1,372 31,273 55,151 (10,847) $ 28,319 $ 44,797 $ 44,304 The principal reasons for the difference between the effective tax rates and the UBT statutory tax rate of 4.0% are as follows: 2016 Years Ended December 31, 2015 (in thousands) 2014 UBT statutory rate Corporate subsidiaries’ federal, state, local and foreign income taxes Effect of ASC 740 adjustments, miscellaneous taxes, and other Income not taxable resulting from use of UBT business apportionment factors Income tax expense and effective tax rate $ 28,927 4.0% $ 25,244 4.0% $ 24,345 4.0% 17,907 (1,070) (17,445) $28,319 2.5 (0.2) (2.4) 3.9 31,223 2,965 (14,635) $44,797 4.9 0.5 (2.3) 7.1 30,353 3,393 (13,787) $44,304 5.0 0.6 (2.3) 7.3 Annual Report 2016 111 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) We recognize the effects of a tax position in the financial statements only if, as of the reporting date, it is “more likely than not” to be sustained based solely on its technical merits. In making this assessment, we assume that the taxing authority will examine the tax position and have full knowledge of all relevant information. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows: Years Ended December 31, 2015 2016 2014 Balance as of beginning of period Additions for prior year tax positions Reductions for prior year tax positions Additions for current year tax positions Reductions for current year tax positions Reductions related to closed years/settlements with tax authorities Balance as of end of period (in thousands) $12,004 $11,311 $ 2,975 — — 592 — — — — 693 — — 2,838 — 5,498 — — $12,596 $12,004 $11,311 The amount of unrecognized tax benefits as of December 31, 2016, 2015 and 2014, when recognized, is recorded as a reduction to income tax expense and reduces the company’s effective tax rate. Interest and penalties, if any, relating to tax positions are recorded in income tax expense on the consolidated statements of income. The total amount of interest expense (credit) recorded in income tax expense during 2016, 2015 and 2014 was $0.7 million, $0.4 million and $0.4 million, respectively. The total cumulative amount of accrued interest payable recorded on the consolidated state- ments of financial condition as of December 31, 2016, 2015 and 2014 were $1.7 million, $1.0 million and $0.6 million, respectively. There were no accrued penalties as of December 31, 2016, 2015 or 2014. Generally, the company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for any year prior to 2013, except that, during the third quarter of 2014, the City of New York notified us of an examination of AB’s UBT returns for the years 2010 and 2011. The examination is ongoing. Currently, there are no income tax examinations at our significant non-U.S. subsidiaries. Years that remain open and may be sub- ject to examination vary under local law, and range from one to seven years. At December 31, 2016, it is reasonably possible that $6.6 million of our unrecognized tax benefits will change within the next twelve months due to completion of tax authority exams. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The tax effect of significant items comprising the net deferred tax asset (liability) is as follows: Deferred tax asset: Differences between book and tax basis: Benefits from net operating loss carryforwards Long-term incentive compensation plans Other, primarily accrued expenses deductible when paid Less: valuation allowance Deferred tax asset December 31, 2016 2015 (in thousands) $ 6,066 $ 18,887 15,468 16,730 38,264 (462) 37,802 17,092 18,490 54,469 (13,709) 40,760 112 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Deferred tax liability: Differences between book and tax basis: Intangible assets Translation adjustment Other Deferred tax liability Net deferred tax asset December 31, 2016 2015 (in thousands) 6,302 — 1,960 8,262 $29,540 6,520 8,220 766 15,506 $25,254 Valuation allowances of $0.5 million and $13.7 million are established as of December 31, 2016 and 2015, respectively, primarily due to the uncertainty of realizing certain net operating loss (“NOL”) carryforwards given the future losses expected to be incurred by the applicable subsidiaries. We had NOL carryforwards at December 31, 2016 of approximately $52.9 million in certain foreign locations with an indefinite expiration period. As of December 31, 2015, we had NOL carryforwards of approximately $80.9 mil- lion in certain foreign locations with an indefinite expiration period and $135.7 million in certain domestic locations with expira- tion periods between 15 and 20 years. The deferred tax asset is included in other assets. Management has determined that realization of the net deferred tax asset is more likely than not based on anticipated future taxable income. We provide income taxes on the undistributed earnings of non-U.S. corporate subsidiaries except to the extent that such earnings are permanently invested outside the United States. As of December 31, 2016, $683.0 million of accumulated undistributed earn- ings of non-U.S. corporate subsidiaries that has not been taxed in the U.S. were permanently invested outside the U.S. At existing applicable income tax rates, additional taxes of approximately $54.8 million, net of foreign tax credits, would need to be provided if such earnings were remitted. 20. Business Segment Information Management has assessed the requirements of ASC 280, Segment Reporting, and determined that, because we utilize a consolidated approach to assess performance and allocate resources, we have only one operating segment. Enterprise-wide disclosures as of and for the years ended December 31, 2016, 2015 and 2014 were as follows: Services Net revenues derived from our investment management, research and related services were as follows: Institutions Retail Private Wealth Management Bernstein Research Services Other Total revenues Less: Interest expense Net revenues Years Ended December 31, 2015 2016 2014 (in thousands) $ 422,060 $ 435,205 $ 434,081 1,261,907 1,362,541 1,397,135 711,599 479,875 162,461 3,037,902 9,123 689,853 493,463 42,986 3,024,048 3,321 664,324 482,538 29,714 3,007,792 2,426 $3,028,779 $3,020,727 $3,005,366 Annual Report 2016 113 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) Our AllianceBernstein Global High Yield Portfolio, an open-end fund incorporated in Luxembourg (ACATEUH: LX), generated approximately 10%, 11% and 12% of our investment advisory and service fees and 10%, 12% and 13% of our net revenues during 2016, 2015 and 2014, respectively. Geographic Information Net revenues and long-lived assets, related to our U.S. and international operations, as of and for the years ended December 31, were as follows: Net revenues: United States International Total Long-lived assets: United States International Total Major Customers 2016 2015 2014 (in thousands) $ 1,901,571 1,127,208 $3,028,779 $ 1,829,518 1,191,209 $3,020,727 $ 1,779,422 1,225,944 $3,005,366 $ 3,388,221 $ 3,410,491 36,539 39,456 $3,424,760 $3,449,947 Company-sponsored mutual funds are distributed to individual investors through broker-dealers, insurance sales representatives, banks, registered investment advisers, financial planners and other financial intermediaries. Certain subsidiaries of AXA, including AXA Advi- sors, LLC, have entered into selected dealer agreements with AllianceBernstein Investments and have been responsible for 2%, 4% and 3% of our open-end mutual fund sales in 2016, 2015 and 2014, respectively. HSBC was responsible for approximately 12% of our open-end mutual fund sales in 2016. UBS AG was responsible for approximately 8% and 11% of our open-end mutual fund sales in 2015 and 2014, respectively. Neither AXA, HSBC or UBS AG is under any obligation to sell a specific amount of AB Fund shares and each also sells shares of mutual funds that it sponsors and that are sponsored by unaffiliated organizations. AXA and the general and separate accounts of AXA Equitable (including investments by the separate accounts of AXA Equitable in the funding vehicle EQ Advisors Trust) accounted for approximately 5% of our total revenues for each of the years ended December 31, 2016, 2015 and 2014. No single institutional client other than AXA and its subsidiaries accounted for more than 1% of our total revenues for the years ended December 31, 2016, 2015 and 2014. 114 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) 21. Related Party Transactions Mutual Funds We provide investment management, distribution, shareholder, administrative and brokerage services to individual investors by means of retail mutual funds sponsored by our company, our subsidiaries and our affiliated joint venture companies. We provide substantially all of these services under contracts that specify the services to be provided and the fees to be charged. The contracts are subject to annual review and approval by each mutual fund’s board of directors or trustees and, in certain circumstances, by the mutual fund’s shareholders. Revenues for services provided or related to the mutual funds are as follows: Investment advisory and services fees Distribution revenues Shareholder servicing fees Other revenues Bernstein Research Services Years Ended December 31, 2015 2014 2016 (in thousands) $1,056,227 $1,061,677 415,380 85,207 4,939 4 433,063 91,020 6,694 13 $998,892 371,604 76,201 6,253 5 Also, we have receivables from AB mutual funds recorded in our consolidated statements of financial condition of $165.1 million and $160.7 million as of December 31, 2016 and 2015, respectively. AXA and its Subsidiaries We provide investment management and certain administration services to AXA and its subsidiaries. In addition, AXA and its sub- sidiaries distribute company-sponsored mutual funds, for which they receive commissions and distribution payments. Sales of company-sponsored mutual funds through AXA and its subsidiaries aggregated approximately $0.8 billion, $1.1 billion and $1.1 bil- lion for the years ended December 31, 2016, 2015 and 2014, respectively. Also, we are covered by various insurance policies main- tained by AXA and its subsidiaries and we pay fees for technology and other services provided by AXA and its subsidiaries. Aggregate amounts included in the consolidated financial statements for transactions with AXA and its subsidiaries, as of and for the years ended December 31, are as follows: Revenues: Investment advisory and services fees Bernstein Research Services Distribution revenues Other revenues Expenses: Commissions and distribution payments to financial intermediaries General and administrative Other Balance Sheet: Institutional investment advisory and services fees receivable Prepaid expenses Other due to AXA and its subsidiaries 2016 2015 2014 (in thousands) $ 131,317 958 11,590 1,066 $144,931 $ 16,255 20,176 1,457 $ 37,888 $ 150,016 583 12,145 969 $163,713 $ 16,077 16,315 1,653 $ 34,045 $ 11,826 1,461 (5,325) $ 7,962 $ 149,035 694 11,541 912 $162,182 $ 16,140 17,680 1,483 $ 35,303 $ 12,622 1,431 (6,231) $ 7,822 Annual Report 2016 115 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) AllianceBernstein Venture Fund I, L.P. was launched during 2006. It seeks to achieve its investment objective, which is long-term capital appreciation through equity and equity-related investments, by acquiring early-stage growth companies in private trans- actions. One of our subsidiaries is the general partner of the fund and, as a result, the fund is included in our consolidated financial statements, with approximately $32.7 million and $23.9 million of investments in the consolidated statements of financial condition as of December 31, 2016 and 2015, respectively. AXA Equitable holds a 10% limited partnership interest in this fund. We maintain an unfunded, non-qualified long-term incentive compensation plan known as the Capital Accumulation Plan and also have assumed obligations under contractual unfunded long-term incentive compensation arrangements covering certain former executives (“Contractual Arrangements”). The Capital Accumulation Plan was frozen on December 31, 1987, since which date no additional awards have been made. The Board may terminate the Capital Accumulation Plan at any time without cause, in which case our liability would be limited to benefits that have vested. Payment of vested benefits under both the Capital Accumu- lation Plan and the Contractual Arrangements generally will be made over a ten-year period commencing at retirement age. The General Partner is obligated to make capital contributions to AB in amounts equal to benefits paid under the Capital Accumulation Plan and the Contractual Arrangements. Amounts paid by the General Partner to AB for the Capital Accumulation Plan and the Contractual Arrangements for the years ended December 31, 2016, 2015 and 2014 were $1.2 million, $1.6 million and $2.3 mil- lion, respectively. Other Related Parties The consolidated statements of financial condition include a net receivable from AB Holding as a result of cash transactions for fees and expense reimbursements. The net receivable balance included in the consolidated statements of financial condition as of December 31, 2016 and 2015 was $12.0 million and $12.1 million, respectively. 22. Acquisitions Acquisitions are accounted for under ASC 805, Business Combinations. On September 23, 2016, we acquired a 100% ownership interest in Ramius Alternative Solutions LLC (“RASL”), a global alter- native investment management business that, as of the acquisition date, had approximately $2.5 billion in AUM. RASL offers a range of customized alternative investment and advisory solutions to a global institutional client base. On the acquisition date, we made a cash payment of $20.5 million and recorded a contingent consideration payable of $11.9 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 resulted in the recognition of $21.9 million of goodwill. We recorded $10.0 million of definite-lived intangible assets relat- ing to investment management contracts. On June 20, 2014, we acquired an 81.7% ownership interest in CPH Capital Fondsmaeglerselskab A/S (“CPH”), a Danish asset management firm that managed approximately $3 billion in global core equity assets for institutional investors, for a cash payment of $64.4 million and a contingent consideration payable of $9.4 million based on projected assets under management levels over a three-year measurement period. The excess of the purchase price over the fair value of identifiable assets acquired resulted in the recognition of $58.1 million of goodwill. We recorded $24.1 million of definite-lived intangible assets relating to separately- managed account relationships and $3.5 million of indefinite-lived intangible assets relating to an acquired fund’s investment con- tract. We also recorded redeemable non-controlling interests of $16.5 million relating to the fair value of the portion of CPH we did not own. During 2015 and 2016, we purchased additional shares of CPH, bringing our ownership interest to 90.4% as of December 31, 2016. The 2016 and 2014 acquisitions have not had a significant impact on 2016 or 2015 revenues and earnings. As a result, we have not provided supplemental pro forma information. 116 AB AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) 23. Non-controlling Interests As discussed in Note 2, we adopted ASU 2015-02 effective January 1, 2016. As a result, we are disclosing below the components of non-controlling interest. Non-controlling interest in net income for the years ended December 31, 2016, 2015 and 2014 consisted of the following: Consolidated VIEs Consolidated private equity fund Other Total non-controlling interest in net income (loss) 2016 2015 2014 (in thousands) $ 21,176 $ — $ — — 312 5,940 435 487 (31) $21,488 $6,375 $456 Non-redeemable non-controlling interest as of December 31, 2016 and 2015 consisted of the following: Consolidated VIEs Consolidated private equity fund Other Total non-redeemable non-controlling interest Redeemable non-controlling interest as of December 31, 2016 and 2015 consisted of the following: Consolidated VIEs CPH Capital Fondsmaeglerselskab A/S acquisition Total redeemable non-controlling interest 2016 2015 (in thousands) $ 34,622 $ — — 1,550 23,171 1,302 $36,172 $24,473 2016 2015 (in thousands) $ 384,294 8,665 $392,959 $ — 13,203 $13,203 Annual Report 2016 117 AllianceBernstein L.P. and Subsidiaries Notes to Consolidated Financial Statements (continued) 24. Quarterly Financial Data (Unaudited) Net revenues Net income attributable to AB Unitholders Basic net income per AB Unit(1) Diluted net income per AB Unit(1) Cash distributions per AB Unit(2)(3) Net revenues Net income attributable to AB Unitholders Basic net income per AB Unit(1) Diluted net income per AB Unit(1) Cash distributions per AB Unit(2)(3) Quarters Ended 2016 December 31 September 30 June 30(4) March 31(4) (in thousands, except per unit amounts) $786,256 $224,538 $ $ $ 0.83 0.83 0.73 $747,591 $158,035 $ $ $ 0.58 0.58 0.51 $725,806 $124,501 $ $ $ 0.46 0.46 0.46 $769,126 $166,284 $ $ $ 0.61 0.60 0.45 Quarters Ended 2015 December 31(4) September 30(4) June 30(4) March 31(4) (in thousands, except per unit amounts) $726,726 $159,394 $ $ $ 0.59 0.58 0.56 $738,693 $133,308 $ $ $ 0.49 0.48 0.50 $792,737 $147,425 $ $ $ 0.53 0.53 0.54 $762,571 $139,800 $ $ $ 0.51 0.51 0.51 (1) Basic and diluted net income per unit are computed independently for each of the periods presented. Accordingly, the sum of the quarterly net income per unit amounts may not agree to the total for the year. (2) Declared and paid during the following quarter. (3) Cash distributions reflect the impact of our non-GAAP adjustments. (4) Certain prior-period amounts have been revised, see Note 2 for a discussion of the revision. 118 AB Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Neither AB nor AB Holding had any changes in or disagreements with accountants in respect of accounting or financial disclosure. Annual Report 2016 119 Item 9A. 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 partic- ipation of the CEO and the CFO, of the effectiveness of the design and operation of disclosure controls and procedures. Based on this evaluation, the CEO and the CFO concluded that the disclosure controls and procedures are effective. Management’s Report on Internal Control Over Financial Reporting Management acknowledges its responsibility for establishing and maintaining adequate internal control over financial reporting for each of AB Holding and AB. Internal control over financial reporting is a process designed by, or under the supervision of, a company’s CEO and CFO, to pro- vide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external pur- poses in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and includes those policies and procedures that: • Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; • Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accord- ance with US GAAP and receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and • Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those internal control systems determined to be effective can provide only reasonable assurance with respect to the reliability of financial statement preparation and presentation. Because of these inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness of internal control to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of AB Holding’s and AB’s internal control over financial reporting as of December 31, 2016. In making its assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013) (“COSO criteria”). Based on its assessment, management concluded that, as of December 31, 2016, each of AB Holding and AB maintained effective internal control over financial reporting based on the COSO criteria. PricewaterhouseCoopers LLP, the independent registered public accounting firm that audited the 2016 financial statements included in this Form 10-K, has issued an attestation report on the effectiveness of each of AB Holding’s and AB’s internal control over financial reporting as of December 31, 2016. These reports can be found in Item 8. Changes in Internal Control Over Financial Reporting No changes in our internal control over financial reporting occurred during the fourth quarter of 2016 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 120 AB Item 9B. Other Information Both AB and AB Holding reported all information required to be disclosed on Form 8-K during the fourth quarter of 2016. Annual Report 2016 121 PART III Item 10. Directors, Executive Officers and Corporate Governance We use “Internet Site” in Items 10 and 11 to refer to our company’s internet site, www.abglobal.com. To contact our company’s Corporate Secretary, you may send an email to corporate_secretary@abglobal.com or write to Corporate Secretary, AllianceBernstein L.P., 1345 Avenue of the Americas, New York, New York 10105. General Partner The Partnerships’ activities are managed and controlled by the General Partner. The Board of the General Partner acts as the Board of each of the Partnerships. Neither AB Unitholders nor AB Holding Unitholders have any rights to manage or control the Partnerships or to elect directors of the General Partner. The General Partner is a subsidiary of AXA. The General Partner does not receive any compensation from the Partnerships for services rendered to them as their general part- ner. The General Partner holds a 1% general partnership interest in AB and 100,000 units of general partnership interest in AB Holding. Each general partnership unit in AB Holding is entitled to receive distributions equal to those received by each AB Holding Unit. The General Partner is entitled to reimbursement by AB for any expenses it incurs in carrying out its activities as general partner of the Partnerships, including compensation paid by the General Partner to its directors and officers (to the extent such persons are not compensated directly by AB). Board of Directors Our Board currently consists of 11 members, including our CEO, two senior executives of AXA and certain of its subsidiaries, and eight independent directors. While we do not have a formal, written diversity policy in place, we believe that an effective board con- sists of a diverse group of individuals who collectively possess a variety of complementary skills and perspectives and who will work together to provide a board with the needed leadership and experience to successfully guide our company. As set forth in its charter, the Corporate Governance Committee of the Board (“Governance Committee”) assists the Board in identifying and evaluating such candidates, determining Board composition, developing and monitoring a process to assess Board effectiveness, developing and implementing corporate governance guidelines, and reviewing programs relating to matters of corporate responsibility. As we indicate below, our directors have a combined wealth of leadership experience derived from extensive service leading large, complex organizations in their roles as either senior executives or board members and in government. Each has the integrity, busi- ness judgment, collegiality and commitment that are among the essential characteristics for a member of our Board. Collectively, they have substantive knowledge and skills applicable to our business, including expertise in areas such as regulation; public account- ing and financial reporting; finance; risk management; business development; operations; technology; strategic planning; manage- ment development, succession planning and compensation; corporate governance; public policy; and international matters. As of February 14, 2017, our directors are as follows: Peter S. Kraus Mr. Kraus, age 64, was elected Chairman of the Board and CEO in December 2008. Mr. Kraus has in-depth experience in financial services, including investment banking, asset management and private wealth management. From September 2008 through December 2008, he served as an executive vice president, the head of global strategy and a member of the Management Committee of Merrill Lynch & Company Inc. (“Merrill Lynch”). Prior to joining Merrill Lynch, Mr. Kraus spent 22 years with Goldman Sachs Group Inc. (“Goldman Sachs”), where he most recently served as co-head of the Investment Management Division and a member of the Management Committee, as well as head of firm-wide strategy and chairman of the Strategy Committee. Mr. Kraus also served as a co-head of the Financial Institutions Group. He was named a partner at Goldman Sachs in 1994 and managing director in 1996. 122 AB Mr. Kraus is also Chairman of the Investment Committee of Trinity College, Chairman of the Board of Overseers of the California Institute of the Arts, Co-Chair of the Friends of Carnegie International, a member of the Board of Directors of Lincoln Center for the Performing Arts and the Chairman of Lincoln Center’s Art Committee, a member of the Board of Camp Keewaydin, and a member of the Board of Young Audiences, Inc., a non-profit organization that works with educational systems, the arts community and private and public sectors to provide arts education to children. Mr. Kraus brings to the Board extensive knowledge of our industry and in-depth experience in financial services, including experi- ence as our CEO for the past eight years and, previously, as co-head of the Investment Management Division and head of firm- wide strategy at Goldman Sachs. Christopher M. Condron Mr. Condron, age 69, was elected a Director of the General Partner in May 2001. Effective January 1, 2011, he retired as Director, CEO and President of AXA Financial, a post he had held since May 2001. Prior to retiring, he was also Chairman of the Board, CEO and President of AXA Equitable and a member of the Management Committee of AXA. Prior to joining AXA Financial, Mr. Condron served as both President and Chief Operating Officer (“COO”) of Mellon Financial Corporation (“Mellon”), from 1999, and as Chairman and CEO of The Dreyfus Corporation, a subsidiary of Mellon, from 1995. Mr. Condron sits on the board of directors and the executive committee, and serves as chairman of the compensation committee, of The American Ireland Fund. Mr. Condron brings to the Board extensive financial services, insurance and sales experience obtained throughout his career. Denis Duverne Mr. Duverne, age 63, was elected a Director of the General Partner in February 1996. On September 1, 2016, he was appointed Chairman of the Board of AXA after having served as Deputy CEO of AXA and a member of the Board of Directors of AXA since April 2010, when AXA changed its governance structure. Mr. Duverne was a member of the AXA Management Board from February 2003 through April 2010. He was CFO of AXA from May 2003 through December 2009. From January 2000 to May 2003, Mr. Duverne served as Group Executive Vice President-Finance, Control and Strategy. Mr. Duverne joined AXA as Senior Vice President in 1995. He is a director of AXA Financial, AXA Equitable and various other privately-held subsidiaries and affiliates of the AXA Group. Mr. Duverne brings to the Board the highly diverse experience he has attained from the many key roles he has served for AXA. Steven G. Elliott Mr. Elliott, age 70, was elected a Director of the General Partner in January 2011. Until his retirement in December 2010, Mr. Elliott had served as Senior Vice Chairman of The Bank of New York Mellon (“BNY Mellon”) since 1998. In this role, he helped oversee numerous company-wide growth initiatives and co-headed the integration of The Bank of New York and Mellon from 2007 to 2009. Mr. Elliott was CFO of Mellon from 1990 to 2002 and Head of Finance from 1987 to 1990, while also leading some of Mellon’s diverse lines of business, including asset servicing, securities lending, global cash management and institutional banking. Before joining Mellon, he held senior positions at First Commerce Corporation (1986-87), Crocker National Bank (1984- 86), Continental Illinois National Bank (1977-84) and United California Bank (1974-77). Since January 2011, he has been a mem- ber of the boards of directors of Huntington Bancshares Inc. (NASDAQ: HBAN) and PPL Corporation (NYSE: PPL). Since April 2011, he has served as Chairman of Huntington Bancshares’s risk oversight committee and, since January 2012, he has served as chairman of PPL Corporation’s audit committee. Mr. Elliott served as a director of Mellon (NYSE: MEL) from 2001 to the July 2007 merger with The Bank of New York and then as a director of BNY Mellon (NYSE: BK) through July 2008. Mr. Elliott, an audit committee financial expert, brings to the Board the vast auditing and banking expertise he has gained in the financial services industry. Deborah S. Hechinger Ms. Hechinger, age 66, was elected a Director of the General Partner in May 2007. For the past nine years, she has been an independent consultant on non-profit governance. From 2003 to 2007, she was President and CEO of BoardSource (“BoardSource”), a leading governance resource for non-profit organizations. From 2004 to 2007, Ms. Hechinger also served as co-convener of the Governance and Fiduciary Responsibilities work group, one of the five groups established by the Panel on the Annual Report 2016 123 Nonprofit Sector to make recommendations to Congress on ways to improve the governance and accountability of non-profit organizations. Prior to joining BoardSource, Ms. Hechinger was the Executive Vice President of the World Wildlife Fund, a large, global conservation organization, where she oversaw all fundraising, communication and operations activities. She also has served as a Deputy Comptroller and as Director of the Securities and Corporate Practices Division at the Office of the Comptroller of the Currency and has held senior executive positions in the Division of Enforcement at the SEC. Ms. Hechinger brings to the Board the significant knowledge of corporate governance matters and public policy she has gained through her extensive experience in both the private and public sectors. Weston M. Hicks Mr. Hicks, age 60, was elected a Director of the General Partner in July 2005. He has been a director and the President and CEO of Alleghany Corporation (NYSE: Y, “Alleghany”), an insurance and diversified financial services holding company, since December 2004 and was Executive Vice President of Alleghany from October 2002 until December 2004. From March 2001 through October 2002, Mr. Hicks was Executive Vice President and CFO of The Chubb Corporation. Prior to joining Chubb, he was an equity research analyst with Bernstein Research Services. Also, in February 2016, Mr. Hicks joined the Investment Committee of The New York Community Trust (“NYCT”), a community foundation that manages a $2.5 billion endowment and annually grants more than $150 million to non-profit organizations. Mr. Hicks brings to the Board extensive financial expertise, including his unique perspective as the chief executive of an unaffiliated publicly-traded company, his background as a professional investor and CFA charter holder, and his decade of experience as an equity research analyst. Heidi S. Messer Ms. Messer, age 47, was elected a Director of the General Partner in February 2015. Since 2007, she has served as Co-Founder and Chairman of Cross Commerce Media, host to Collective[i], a network that uses artificial intelligence to transform “Big Data” into insights and intelligence that is delivered by applications designed for business-to-business sales and other business users. In addition, Ms. Messer has served as Co-Founder and CEO of World Evolved, a platform for global investment and expansion, and she also is one of the founding members of the Zokei Network, a global network that encourages innovation across art, science, business and technology. Ms. Messer serves on the board of Partnership Fund for New York City, the board and the Operating Committee of the Brown Entrepreneurship Program, and the advisory board of the Department of Physics and Astronomy at Johns Hopkins. A graduate of Harvard Law School, Ms. Messer has been a member in good standing of the New York Bar Association since 1997. Ms. Messer brings to the Board extensive technology, investment and executive experience achieved through her roles in the for- mation and management of various technology companies. Mark Pearson Mr. Pearson, age 58, was elected a Director of the General Partner in February 2011. Also during February 2011, he succeeded Mr. Condron as Director, CEO and President of AXA Financial, and as Chairman and CEO of AXA Equitable. In September 2013, Mr. Pearson became President of AXA Equitable. In addition, he is a member of AXA’s current Management Committee, as established in July 2016. Mr. Pearson joined AXA in 1995 when AXA acquired National Mutual Funds Management Limited (presently AXA Asia Pacific Holdings Limited) and was appointed Regional Chief Executive of AXA Asia Life in 2001. In 2008, Mr. Pearson was named Presi- dent and CEO of AXA Japan Holding Co., Ltd. (“AXA Japan”). Prior to joining AXA, Mr. Pearson spent approximately 20 years in the insurance sector, holding several senior management positions at National Mutual Holdings and Friends Provident. Mr. Pearson brings to the Board the diverse financial services experience he has developed through his service as an executive, including as CEO, with AXA Financial, AXA Japan and other AXA affiliates. Scott A. Schoen Mr. Schoen, age 58, was elected a Director of the General Partner in July 2013. He has served as CEO of Baylon Capital Partners, L.P. (“Baylon”), a private family investment office, since April 2013. In addition, Mr. Schoen has served as a Senior Advisor to Thomas Lee Partners, L.P. (“THL”), a private equity firm, since 2012 and, prior thereto, held various senior management roles with THL, including Vice Chairman from 2010 to 2011, Co-President from 2003 to 2009 and Senior Managing Director from 124 AB 1998 to 2003. Mr. Schoen began his career in the investment banking group at Goldman Sachs. He serves as chairman of the board of trustees of Partners Continuing Care and Spaulding Rehabilitation Hospital, a member of the board of trustees of Partners Healthcare System, a member of the President’s Council of Massachusetts General Hospital, and a director of Share Our Strength. Mr. Schoen, an audit committee financial expert, brings to the Board extensive private equity and investment banking experience, as well as his executive experience as the CEO of Baylon. Lorie A. Slutsky Ms. Slutsky, age 64, was elected a Director of the General Partner in July 2002. Since January 1990, she has been President and CEO of NYCT. From 2010 to 2015, Ms. Slutsky served in various capacities at Independent Sector, including board member, Treasurer and Secretary, and also co-chaired its National Panel on the Non-Profit Sector, which focused on reducing abuse and improving governance practices at non-profit organizations. She served on the Board of Directors of BoardSource from 1999 to 2008 and served as its Chair from 2005 to 2007. Ms. Slutsky served as Trustee and Chair of the Budget Committee of Colgate University from 1989 to 1997 and as a member of the Council on Foundations from 1989 to 1995, for which she also served as Chair from 1993 to 1995. She has been a Director of AXA Financial, AXA Equitable and MONY Life Insurance Company of America (“MLOA”) since September 2006. In addition, Ms. Slutsky was a member of AXA Financial’s Audit Committee from 2006 through 2010. She has been a member of AXA Financial’s Organization and Compensation Committee since 2006 and was elected Chair of the Organization and Compensation Committee in February 2012. Ms. Slutsky brings to the Board extensive corporate governance experience achieved through her executive and managerial roles at NYCT, BoardSource, Independent Sector and various other non-profit organizations. She also brings valuable insight gained from serving on boards and board committees at certain of our parent companies. Joshua A. Weinreich Mr. Weinreich, age 56, was elected a Director of the General Partner in July 2013. A career finance executive, Mr. Weinreich retired in 2004 after 20 years with Bankers Trust/Deutsche Bank where he held numerous positions, including Global Head of Hedge Funds, CEO of Deutsche Asset Management, Americas, and Chief Investment Officer and Co-Head of Bankers Trust Pri- vate Bank. He plays key roles on several boards, which roles currently include Chairman of the Board of the Community Food- Bank of New Jersey and Chairman of the Overlook Hospital Foundation Investment Committee. In addition, he is a director of Skybridge Capital Hedge Fund Portfolios and Houseparty Inc. Mr. Weinreich brings to the Board the financial expertise and managerial skills he developed while working with Bankers Trust/ Deutsche Bank and the philanthropic experiences he has cultivated since his retirement. Executive Officers (other than Mr. Kraus) Kate C. Burke, Head of Human Capital and Chief Talent Officer Ms. Burke, age 45, has been Head of Human Capital and Chief Talent Officer since February 2016. She joined our firm in 2004 as an institutional equity salesperson with Bernstein Research Services and has held various managerial roles since that time. Prior to joining AB, Ms. Burke was a consultant at A.T. Kearney, where she focused on strategy, organizational design and change management. Laurence E. Cranch, General Counsel Mr. Cranch, age 70, has been our General Counsel since he joined our firm in 2004. Prior to joining AB, Mr. Cranch was a part- ner of Clifford Chance, an international law firm. Mr. Cranch joined Clifford Chance in 2000 when Rogers & Wells, a New York law firm of which he was Managing Partner, merged with Clifford Chance. James A. Gingrich, COO Mr. Gingrich, age 58, joined our firm in 1999 as a senior research analyst with Bernstein Research Services and has been our firm’s COO since December 2011. Prior to becoming COO, Mr. Gingrich held senior managerial positions in Bernstein Research Serv- ices, including Chairman and CEO from February 2007 to November 2011 and Global Director of Research from December 2002 to January 2007. Annual Report 2016 125 Robert P. van Brugge, Chairman and CEO of Bernstein Research Services Mr. van Brugge, age 48, has been Chairman of the Board and CEO of Bernstein Research Services since December 2011. Prior to becoming Chairman and CEO, Mr. van Brugge served as Global Director of Research from January 2008 to December 2011. He joined our firm in 2002 as a senior research analyst with Bernstein Research Services. John C. Weisenseel, CFO Mr. Weisenseel, age 57, joined our firm in May 2012 as Senior Vice President and CFO. From 2004 to April 2012, he worked at The McGraw Hill Companies (“McGraw Hill”), where he served initially as Senior Vice President and Corporate Treasurer and, from 2007 to April 2012, as CFO of the firm’s Standard & Poor’s subsidiary. Prior to joining McGraw Hill, Mr. Weisenseel was Vice President and Corporate Treasurer for Barnes & Noble, Inc. Prior to joining Barnes & Noble, he spent ten years in various derivatives trading and financial positions at Citigroup. A Certified Public Accountant, Mr. Weisenseel also has worked at KPMG LLP. Changes in Directors and Executive Officers The following changes to our directors and executive officers occurred since we filed our Form 10-K for the year ended December 31, 2015: • On July 27, 2016, Veronique Weill, then serving as the Chief Customer Officer of AXA, joined the Board, the Compensation Committee of the Board, the Corporate Governance Committee of the Board and the Executive Committee of the Board. • On July 27, 2016, Christian Thimann, Head of Strategy, Sustainability and Public Affairs of AXA, resigned from the Board due to competing demands on his time related to his responsibilities at AXA. • On January 31, 2017, Ms. Weill, in connection with her departure from AXA, resigned from the Board, the Compensation Committee of the Board, the Corporate Governance Committee of the Board and the Executive Committee of the Board. • Since February 14, 2017, Ms. Burke has been deemed an executive officer of AB. Board Meetings In 2016, the Board held: • • regular meetings in February, April, May, July, September and November; and special meetings in June and December. Generally, the Board holds six meetings annually: in February, April, May, July or August, September and November. In addition, the Board holds special meetings or takes action by unanimous written consent as circumstances warrant. The Board has standing Executive, Audit, Governance, Compensation and Special Committees, each of which is described in further detail below. Each member of the Board attended 75% or more of the aggregate of all Board and committee meetings that he or she was entitled to attend in 2016. Committees of the Board The Executive Committee of the Board (“Executive Committee”) consists of Mses. Messer and Slutsky and Messrs. Condron, Duverne, Kraus (Chair) and Elliott. The Executive Committee exercises all of the powers and authority of the Board (with limited exceptions) when the Board is not in session, or when it is impractical to assemble the full Board. The Executive Committee held three meetings in 2016. 126 AB The Governance Committee consists of Mses. Hechinger (Chair) and Slutsky and Messrs. Condron, Duverne and Kraus. The Governance Committee: • assists the Board and the sole stockholder of the General Partner in: • identifying and evaluating qualified individuals to become Board members; and • determining the composition of the Board and its committees, and • assists the Board in: • developing and monitoring a process to assess Board effectiveness; • developing and implementing our Corporate Governance Guidelines; and • reviewing our policies and programs that relate to matters of corporate responsibility of the General Partner and the Partnerships. The Governance Committee held two meetings in 2016. The Audit Committee of the Board (“Audit Committee”) consists of Messrs. Elliott (Chair), Hicks, Schoen and Weinreich. The primary purposes of the Audit Committee are to: • assist the Board in its oversight of: • • • • the integrity of the financial statements of the Partnerships; the Partnerships’ status and system of compliance with legal and regulatory requirements and business conduct; the independent registered public accounting firm’s qualification and independence; and the performance of the Partnerships’ internal audit function; and • oversee the appointment, retention, compensation, evaluation and termination of the Partnerships’ independent registered pub- lic accounting firm. Consistent with these functions, the Audit Committee encourages continuous improvement of, and fosters adherence to, the Part- nerships’ policies, procedures and practices at all levels. With respect to these matters, the Audit Committee provides an open ave- nue of communication among the independent registered public accounting firm, senior management, the Internal Audit Department and the Board. The Audit Committee held seven meetings in 2016. The Compensation Committee consists of Ms. Slutsky and Messrs. Condron (Chair), Duverne, Elliott and Kraus. The Compensa- tion Committee four meetings in 2016. For additional information about the Compensation Committee, see “Compensation Dis- cussion and Analysis—Compensation Committee” in Item 11. The functions of each of the committees discussed above are more fully described in each committee’s charter. The charters are avail- able on our Internet Site. The Special Committee of the Board (“Special Committee”) consists of all of the independent directors and, in 2016, included Mses. Hechinger, Messer and Slutsky and Messrs. Condron, Elliott (Chair), Hicks, Schoen and Weinreich. The Special Committee has the authority to direct and oversee any matters referred to it by the Board and/or management including, but not limited to, matters relating to conflicts of interest and the relationship among AB, AB Holding and AXA. The members of the Special Committee do not receive any compensation for their service on the Special Committee, apart from ordinary meeting fees. The Special Committee did not meet in 2016. Annual Report 2016 127 Audit Committee Financial Experts; Financial Literacy In January 2016, the Governance Committee, after reviewing materials prepared by management, recommended that the Board determine that each of Messrs. Elliott and Schoen is an “audit committee financial expert” within the meaning of Item 407(d) of Regulation S-K. The Board so determined at its regular meeting in February 2016. In January 2017, the Governance Committee, after reviewing materials prepared by management, recommended that the Board determine that each of Messrs. Elliott and Schoen is an “audit committee financial expert” within the meaning of Item 407(d) of Regulation S-K. The Board so determined at its regular meeting in February 2017. In January 2016, the Governance Committee, after reviewing materials prepared by management, recommended that the Board determine that each of Messrs. Elliott, Hicks, Schoen and Weinreich is financially literate and possesses accounting or related finan- cial management expertise, as contemplated by Section 303A.07(a) of the NYSE Listed Company Manual (“Financially Literate”). The Board so determined at its regular meeting in February 2016. In January 2017, the Governance Committee, after reviewing materials prepared by management, recommended that the Board determine that each of Messrs. Elliott, Hicks, Schoen and Weinreich is Financially Literate. The Board so determined at its regular meeting in February 2017. Independence of Certain Directors In January 2016, the Governance Committee, after reviewing materials prepared by management, recommended that the Board determine that each of Mses. Hechinger, Messer and Slutsky and Messrs. Condron, Elliott, Hicks, Schoen and Weinreich is independent. The Board considered immaterial relationships of Mr. Hicks (relating to the fact that Alleghany is a Bernstein Research Services client) and Ms. Slutsky (relating to a contribution AB made to NYCT in February 2015 and the fact that she is a member of the boards of directors of AXA Financial and AXA Equitable), and determined, at its February 2016 regular meeting, that each of Mses. Hechinger, Messer and Slutsky and Messrs. Condron, Elliott, Hicks, Schoen and Weinreich is independent within the meaning of the relevant rules. In January 2017, the Governance Committee, after reviewing materials prepared by management, recommended that the Board determine that each of Mses. Hechinger, Messer and Slutsky and Messrs. Condron, Elliott, Hicks, Schoen and Weinreich is independent. The Board considered immaterial relationships of Mr. Hicks (relating to the fact that Alleghany is a Bernstein Research Services client) and Ms. Slutsky (relating to a contribution AB made to NYCT in February 2016 and the fact that she is a member of the boards of directors of AXA Financial and AXA Equitable), and determined, at its February 2017 regular meeting, that each of Mses. Hechinger, Messer and Slutsky and Messrs. Condron, Elliott, Hicks, Schoen and Weinreich is independent within the meaning of the relevant rules. Board Leadership Structure and Role in Risk Oversight Leadership The Board, together with the Governance Committee, is responsible for reviewing the Board’s leadership structure. In determining the appropriate individual to serve as our Chairman and CEO, the Board and the Governance Committee consider, among other things, the composition of the Board, the role of the Board’s lead independent director (discussed more fully below), our company’s strong corporate governance practices, and the challenges and opportunities specific to AB. We believe that our company derives significant benefits from having one individual hold the positions of both Chairman and CEO, provided we have sufficient counter-balancing governance in place. We see significant value in having the leader in the Board room also manage the affairs of our company, and we believe any potential doubts as to our Board’s objectivity in evaluating 128 AB management are offset by the lead independent director we have in place and the fact that the affirmative consent of our largest Unitholder (AXA) is required in order for any action taken by the Executive Committee or the Compensation Committee to be effective. Lead Independent Director Our lead independent director, Steven G. Elliott, was appointed unanimously by our Board in February 2014. He presides at all executive sessions of non-management and independent directors and makes himself available, if requested by Unitholders, for consultation and communication. Interested parties wishing to communicate directly with Mr. Elliott may send an e-mail, with “confidential” in the subject line, to our Corporate Secretary or address mail to Mr. Elliott in care of our Corporate Secretary. Our Corporate Secretary will promptly forward such e-mail or mail to Mr. Elliott. We have posted this information in the “Management & Governance” section of our Internet Site. Risk Oversight The Board, together with the Audit Committee, has oversight for our company’s risk management framework, which includes investment risk, credit and counterparty risk, and operational risk, and is responsible for helping to ensure that these risks are man- aged in a sound manner. The Board has delegated to the Audit Committee, which consists entirely of independent directors, the responsibility to consider our company’s policies and practices with respect to investment, credit and counterparty, and operational risk assessment and risk management, including discussing with management the major financial risk exposures and the steps taken to monitor and control such exposures. Members of the company’s risk management team, who are responsible for identifying, managing and controlling the array of risks inherent in our company’s business and operations, make quarterly reports to the Audit Committee, which address investment, credit and counterparty, and operational risk identification, assessment and monitoring. The Chief Risk Officer, whose expertise encompasses both quantitative research and associated investment risks, makes periodic pre- sentations to the Board. He reports directly to our Chairman and CEO and, since 2013, has had a reporting line to the Audit Committee. The Board has determined that its leadership and risk oversight are appropriate for our company. Mr. Kraus’s in-depth knowledge of financial services and extensive executive experience in the investment management industry make him uniquely suited to serve as our Chairman and CEO, while Mr. Elliott’s leadership and expertise have proven invaluable at enhancing the overall functioning of the Board and the Audit Committee. The Board believes that the combination of a single Chairman and CEO, a lead independent director, the Audit Committee, a specialized risk management team and significant involvement from our largest Unitholder (AXA) provide the appropriate leadership to help ensure effective risk oversight by the Board. Code of Ethics and Related Policies All of our directors, officers and employees are subject to our Code of Business Conduct and Ethics. The code is intended to com- ply with Section 303A.10 of the NYSE Listed Company Manual, Rule 204A-1 under the Investment Advisers Act and Rule 17j-1 under the Investment Company Act, as well as with recommendations issued by the Investment Company Institute regarding, among other things, practices and standards with respect to securities transactions of investment professionals. The Code of Business Conduct and Ethics establishes certain guiding principles for all of our employees, including sensitivity to our fiduciary obligations and ensuring that we meet those obligations. Our Code of Business Conduct and Ethics may be found in the “Management & Governance” section of our Internet Site. We have adopted a Code of Ethics for the CEO and Senior Financial Officers, which is intended to comply with Section 406 of the Sarbanes-Oxley Act of 2002 (“Item 406 Code”). The Item 406 Code, which may be found in the “Management & Gover- nance” section of our Internet Site, was adopted in October 2004 by the Executive Committee. We intend to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding certain amendments to, or waivers from, provisions of the Item 406 Code that apply to the CEO, the CFO and the Chief Accounting Officer by posting such information on our Internet Site. To date, there have been no such amendments or waivers. Annual Report 2016 129 NYSE Governance Matters Section 303A.00 of the NYSE Listed Company Manual exempts limited partnerships from compliance with the following sections of the Manual, some of which we comply with voluntarily: Section 303A.01 (board must have a majority of independent directors), 303A.04 (corporate governance committee must have only independent directors as its members and must have a charter that addresses, among other things, the committee’s purpose and responsibilities), and 303A.05 (compensation committee must have only independent directors as its members and must have a charter that addresses, among other things, the committee’s purpose and responsibilities). AB Holding is a limited partnership (as is AB). In addition, because the General Partner is a subsidiary of AXA, and the General Partner controls AB Holding (and AB), we believe we also would qualify for the “controlled company” exemption. However, we comply voluntarily with the charter requirements set forth in Sections 303A.04 and 303A.05. Our Corporate Governance Guidelines (“Guidelines”) promote the effective functioning of the Board and its committees, promote the interests of the Partnerships’ respective Unitholders (with appropriate regard to the Board’s duties to the sole stockholder of the General Partner), and set forth a common set of expectations as to how the Board, its various committees, individual directors and management should perform their functions. The Guidelines may be found in the “Management & Governance” section of our Internet Site. The Governance Committee is responsible for considering any request for a waiver under the Code of Business Conduct and Eth- ics, the Item 406 Code, the AXA Group Compliance and Ethics Guide, and the AXA Financial Policy Statement on Ethics from any director or executive officer of the General Partner. No such waiver has been granted to date and, if a waiver is granted in the future, such waiver would be described in the “Management & Governance” section of our Internet Site. Our Internet Site, under the heading “Contact our Directors”, provides an e-mail address for any interested party, including Unit- holders, to communicate with the Board. Our Corporate Secretary reviews e-mails sent to that address and has some discretion in determining how or whether to respond, and in determining to whom such e-mails should be forwarded. In our experience, sub- stantially all of the e-mails received are ordinary client requests for administrative assistance that are best addressed by management, or solicitations of various kinds. The 2016 Certification by our CEO under NYSE Listed Company Manual Section 303A.12(a) was submitted to the NYSE on February 16, 2016. Certifications by our CEO and CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 have been furnished as exhibits to this Form 10-K. AB Holding Unitholders and AB Unitholders may request a copy of any committee charter, the Guidelines, the Code of Business Conduct and Ethics, and the Item 406 Code by contacting our Corporate Secretary. The charters and memberships of the Execu- tive, Audit, Governance and Compensation Committees may be found in the “Management & Governance” section of our Internet Site. Fiduciary Culture We maintain a robust fiduciary culture and, as a fiduciary, we place the interests of our clients first and foremost. We are committed to the fair and equitable treatment of all our clients, and to compliance with all applicable rules and regulations and internal policies to which our business is subject. We pursue these goals through education of our employees to promote awareness of our fiduciary obligations, incentives that align employees’ interests with those of our clients, and a range of measures, including active monitoring, to ensure regulatory compliance. Our compliance framework includes: • the Code of Ethics Oversight Committee (“Ethics Committee”) and the Internal Compliance Controls Committee (“Compliance Committee”), each of which consists of our executive officers and other senior executives; • an ombudsman office, where employees and others can voice concerns on a confidential basis; 130 AB • firm-wide compliance and ethics training programs; and • a Conflicts Officer and a Conflicts Committee, which help to identify and mitigate conflicts of interest. The Ethics Committee oversees all matters relating to issues arising under our Code of Business Conduct and Ethics and meets on a quarterly basis and at such other times as circumstances warrant. The Ethics Committee and its subcommittee, the Personal Trading Subcommittee, have oversight of personal trading by our employees. The Compliance Committee reviews compliance issues throughout our firm, endeavors to develop solutions to those issues as they may arise from time to time and oversees implementation of those solutions. The Compliance Committee meets on a quarterly basis and at such other times as circumstances warrant. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires directors of the General Partner and executive officers of the Partnerships, and persons who own more than 10% of the AB Holding Units or AB Units, to file with the SEC initial reports of ownership and reports of changes in ownership of AB Holding Units or AB Units. To the best of our knowledge, during 2016, we complied with all Section 16(a) filing requirements. Our Section 16 filings can be found under “Investor & Media Relations” / “Reports & SEC Filings” on our Internet Site. Annual Report 2016 131 Item 11. Executive Compensation Compensation Discussion and Analysis (“CD&A”) Compensation Philosophy and Goals The intellectual capital of our employees is collectively the most important asset of our firm. We invest in people—we hire qualified people, train them, encourage them to give their best thinking to the firm and our clients, and compensate them in a manner designed to motivate, reward and retain them while aligning their interests with the interests of our Unitholders. We structure our named executive officer compensation programs with the intent of enhancing firm-wide and individual perform- ance and Unitholder value. Our “named executive officers” are: Chief Executive Officer (“CEO”) Chief Financial Officer (“CFO”) Three other most highly-compensated executive officers Peter S. Kraus John C. Weisenseel James A. Gingrich, Chief Operating Officer Robert P. van Brugge, Chairman and CEO of Bernstein Research Services Laurence E. Cranch, General Counsel We also are focused on ensuring that our compensation practices are competitive with industry peers and provide sufficient poten- tial for wealth creation for our named executive officers and our employees generally, which we believe will enable us to meet the following key compensation goals: • attract, motivate and retain highly-qualified executive talent; • • • reward prior year performance; incentivize future performance; recognize and support outstanding individual performance and behaviors that demonstrate and foster our firm’s culture of “Relentless Ingenuity”, which includes the core competencies of relentlessness, ingeniousness, collaboration and accountability; and • align our executives’ long-term interests with those of our Unitholders and clients. Compensation Elements for Named Executive Officers We utilize a variety of compensation elements to achieve the goals described above, consisting of base salary, annual short-term incentive compensation awards (cash bonuses), a long-term incentive compensation award program, a defined contribution plan and certain other benefits, each of which we discuss in detail below: Base Salaries Base salaries comprise a relatively small portion of our named executive officers’ total compensation. We consider individual experi- ence, responsibilities and tenure with the firm when determining the narrow range of base salaries paid to our named executive officers other than Mr. Kraus (for information relating to Mr. Kraus’s compensation elements, please refer to “Overview of Our CEO’s Compensation” below). Annual Short-Term Incentive Compensation Awards (Cash Bonuses) We provide our named executive officers, other than Mr. Kraus, with annual short-term incentive compensation awards in the form of cash bonuses. We believe that annual cash bonuses, which generally reflect individual performance and the firm’s current year financial perform- ance, provide a short-term retention mechanism for our named executive officers, other than Mr. Kraus, because such bonuses typically are paid during the last week of the year. 132 AB In 2016, we paid annual cash bonuses in late December. These bonuses, and the 2016 long-term incentive compensation awards described immediately below, were based on management’s evaluation, subject to the Compensation Committee’s review and approval, of each named executive officer’s performance during the year, the performance of the executive’s business unit or function com- pared to business and operational goals established at the beginning of the year, and the firm’s current-year financial perform- ance. For more information regarding the factors considered when determining cash bonuses for executives, see “Other Factors Considered When Determining Named Executive Officer Compensation” below. Long-Term Incentive Compensation Awards A substantial portion of long-term incentive compensation awards generally is denominated in restricted AB Holding Units. We utilize this structure to align our named executive officers’ long-term interests directly with the interests of our Unitholders and indirectly with the interests of our clients, as strong performance for our clients generally contributes directly to increases in assets under management and improved financial performance for the firm. We believe that annual long-term incentive compensation awards provide a long-term retention mechanism for our named execu- tive officers because such awards generally vest ratably over four years. In 2016, these awards, which were granted in December to each named executive officer (other than Mr. Kraus), were made pursuant to the Incentive Compensation Program, an unfunded, non-qualified incentive compensation plan, and, when the award is AB Holding Unit-based, the 2010 Plan, our equity compensa- tion plan. Employees, except certain members of senior management, can elect to diversify their long-term incentive compensation awards by allocating up to 50% of their awards to cash, up to a maximum cash amount of $250,000 (“Deferred Cash”). The portion of an award allocated to Deferred Cash is subject to the same multi-year vesting periods (generally, four years) as the portion of the award allocated to restricted AB Holding Units. With respect to both restricted AB Holding Units and Deferred Cash, award recipients who resign or are terminated without cause continue to vest in their long-term incentive compensation awards if the award recipients comply with certain agreements and restrictive covenants set forth in the applicable award agreement, including restrictions on competition, restrictions on employee and client solicitation, and a claw-back for failing to follow existing risk management policies. As such, for accounting purposes, there is no employee service requirement and awards are fully expensed when granted. As used in this Item 11, “vest” refers to the time at which the awards are no longer subject to forfeiture for breach of these restrictions or risk management policies, which we discuss further below in “Consideration of Risk Matters in Determining Compensation”. Prior to vesting, withdrawals of the restricted AB Holding Units and/or Deferred Cash underlying an award are not permitted. Upon vesting, the AB Holding Units and/or Deferred Cash underlying an award are distributed unless the award recipient has, in advance, voluntarily elected to defer receipt to future periods. Quarterly cash distributions on vested and unvested restricted AB Holding Units are paid to award recipients when distributed generally. If Deferred Cash is elected, interest accrues monthly based on our monthly weighted average cost of funds and is credited to the award recipient annually. Our weighted average cost of funds during 2016 was approximately 0.6%, representing a nominal return. Defined Contribution Plan U.S. employees of AB, including each of our named executive officers, are eligible to participate in the Profit Sharing Plan for Employees of AB (as amended and restated as of January 1, 2015 and as further amended as of January 1, 2017, “Profit Sharing Plan”), a tax-qualified retirement plan. The Compensation Committee determines the amount of company contributions (both the level of annual matching by the firm of an employee’s pre-tax salary deferral contributions and the annual company profit sharing contribution, if any). For 2016, the Compensation Committee determined that employee deferral contributions would be matched on a dollar-for-dollar basis up to 5% of eligible compensation and that there would be no profit sharing contribution. Other Benefits Our firm pays the premiums associated with life insurance policies purchased on behalf of our named executive officers. Annual Report 2016 133 Overview of 2016 Incentive Compensation Program In 2016, each of our named executive officers, other than Mr. Kraus, received a portion of his incentive compensation in the form of an annual cash bonus and a portion in the form of long-term incentive compensation (as described above, at least 50% of which must have been allocated to restricted AB Holding Units). The split between the annual cash bonus and long-term incentive com- pensation varied depending on the named executive officer’s total compensation, with lower-paid executives receiving a greater percentage of their incentive compensation as cash bonuses than more highly-paid executives. (For additional information about these compensatory elements, see “Compensation Elements for Named Executive Officers” above.) Although estimates are developed for budgeting and strategic planning purposes, our named executive officers’ incentive compensation is not correlated with meeting any specific targets. Instead, the aggregate amount of incentive compensation paid to our named execu- tive officers generally is determined on a discretionary basis and primarily is a function of our firm’s current year financial performance. Amounts are awarded to help us achieve our goal of attracting, motivating and retaining top talent while also helping to ensure that our executives’ goals are appropriately aligned with the goal of increasing our Unitholders’ return on their investment. Senior management, with the approval of the Compensation Committee, confirmed that the appropriate metric to consider in determining the amount of incentive compensation paid to all employees, including our named executive officers, in respect of 2016 is the ratio of adjusted employee compensation and benefits expense to adjusted net revenues, which terms are described immediately below: • Adjusted employee compensation and benefits expense is our total employee compensation and benefits expense minus other employment costs such as recruitment, training, temporary help and meals, 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. • Adjusted net revenues (see our discussion of “Management Operating Metrics” in Item 7) exclude investment gains and losses and dividends and interest on employee long-term incentive compensation-related investments. In addition, adjusted net revenues offset distribution-related payments to third parties as well as amortization of deferred sales commissions against distribution revenues. We also exclude from adjusted net revenues additional pass-through expenses we incur (primarily through our trans- fer agent) that are reimbursed and recorded as fees in revenues. Additionally, adjusted net revenues, effective January 1, 2016, as a result of our having adopted a new accounting standard (see Note 2 to AB’s consolidated financial statements in Item 8), reflect the fact that we account for our consolidated venture capital fund in the same manner as our other consolidated VIEs. Specifically, we adjust for the revenue impact of consolidating VIEs by eliminating the consolidated VIEs’ revenues and including AB’s fees from such VIEs and AB’s investment gains and losses on its investments in such VIEs that were eliminated in consolidation. Also, we excluded from adjusted net revenues a gain of $75.3 million we realized in the first quarter of 2016 resulting from the liquidation of an investment in Jasper Wireless Technologies, Inc., which was acquired by Cisco Systems, Inc., because it was not part of our core operating results. In addition, senior management, with the approval of the Compensation Committee, determined that the firm’s adjusted employee compensation and benefits expense generally should not exceed 50.0% of our adjusted net revenues, except in unexpected or unusual circumstances. As the table below indicates, in 2016, adjusted employee compensation and benefits expense amounted to approximately 48.5% of adjusted net revenues (in thousands): Net Revenues Adjustments (seeabove) Adjusted Net Revenues Employee Compensation & Benefits Expense Adjustments (seeabove) Adjusted Employee Compensation & Benefits Expense Adjusted Compensation Ratio 134 $ 3,028,779 (559,465) $2,469,314 $ 1,229,721 (31,122) $1,198,599 48.5% AB Our 2016 adjusted compensation ratio of approximately 48.5% reflects the need to keep compensation levels competitive with industry peers in order to attract, motivate and retain highly-qualified executive talent. Benchmarking In 2016, management retained McLagan Partners (“McLagan”) to provide compensation benchmarking data for our named execu- tive officers (“McLagan Data”). The McLagan Data summarized 2015 compensation levels and 2016 salaries at selected asset man- agement companies and banks comparable to ours in terms of size and business mix (“Comparable Companies”), to assist us in determining the appropriate level of compensation for the firm’s named executive officers, other than Mr. Kraus. The McLagan Data provided ranges of compensation levels at the Comparable Companies for executive positions similar to those held by our named executive officers, including base salary and total compensation. The Comparable Companies, which management selected with input from McLagan, included: Bank of America Merrill Lynch Credit Suisse Group AG Franklin Resources, Inc. Invesco Ltd. Legg Mason, Inc. Morgan Stanley Investment Management Inc. PIMCO LLC TIAA Group Barclays Capital Group Deutsche Bank AG Goldman Sachs Group, Inc. JPMorgan Chase & Co. MFS Investment Management Neuberger Berman LLC Prudential Investments UBS AG Citigroup Inc. Eaton Vance Corp. Goldman Sachs Asset Management, L.P. JPMorgan Asset Management Inc. Morgan Stanley Oppenheimer Funds Distributor, Inc. T. Rowe Price Group, Inc. The Vanguard Group, Inc. The McLagan Data indicated that the total compensation paid to our named executive officers in 2016 generally fell within or below the ranges of total compensation paid to executives at the Comparable Companies. The Compensation Committee considered this information in concluding that the compensation levels paid in 2016 to our named executive officers were appropriate and reasonable. Other Factors Considered When Determining Named Executive Officer Compensation We base decisions about the incentive compensation of our named executive officers, other than Mr. Kraus, primarily on our assess- ment of each executive’s leadership, operational performance, and potential to enhance investment returns and service for our cli- ents, all of which contribute to long-term Unitholder value. We do not utilize quantitative formulas when determining the incentive compensation of our named executive officers. Instead, we rely on our judgment about each executive’s performance in light of business and operational goals established at the beginning of the year and reviewed in the context of the current-year financial performance of the firm. We begin this process, which is conducted by our CEO and COO working with other members of senior management, by determining the total incentive compensation amounts available for a particular year (as more fully explained above in “Overview of 2016 Incentive Compensation Program”). Our CEO and COO, as well as the Compensation Committee, then consider a number of key factors for each of the named execu- tive officers (other than Mr. Kraus, our CEO, whose compensation is described below in “Overview of Our CEO’s Compensation”). Specific factors will vary among business units, among individuals and during different business cycles, so we do not adopt any specific weighting or formula under which these metrics are applied. Key factors we consider are: • • • • the firm’s financial performance in the current year; the named executive officer’s performance compared to individual business and operational goals established at the beginning of the year; the firm’s strategic and operational considerations; total compensation awarded to the named executive officer in the previous year; Annual Report 2016 135 • • • • • the increase or decrease in the current year’s total incentive compensation amounts available; the contribution of the named executive officer to our overall financial results; the nature, scope and level of responsibilities of the named executive officer; the named executive officer’s execution of our firm’s culture of Relentless Ingenuity; and the named executive officer’s management effectiveness, talent development, and adherence to risk management and regulatory compliance. Our CEO and COO then provided specific incentive compensation recommendations to the Compensation Committee, which recommendations were supported by the factors listed above. The CEO and COO also provided the Compensation Committee with the McLagan Data, which was not used in a formulaic or mechanical way to determine named executive officer compensation lev- els, but rather, as noted above, provided the Compensation Committee with compensation levels paid to executives at the Com- parable Companies. The Compensation Committee then made the final incentive compensation decisions. We have described in the table below the business and operational goals established at the beginning of 2016 for our named executive officers, other than Mr. Kraus, and their achievements during 2016: Named Executive Officer 2016 Business and Operational Goals 2016 Goals Achieved James A. Gingrich COO Robert P. van Brugge Chairman and CEO, Bernstein Research Services 1. increase operating efficiency/margins; 2. optimize strategy and sales efforts of Retail, Institutions and Private Wealth; 3. enhance planning and organizational processes; 4. optimize revenue and profitability of Bernstein Research Services; 5. foster a culture of meritocracy, empowerment 1. contained operating costs and improved adjusted operating margin; 2. oversaw team acquisitions in alternatives; 3. oversaw organizational and process changes within distribution functions designed to enhance cost structure and efficiencies; and accountability among business leaders; and 4. helped improve Bernstein Research Services 6. recruit and retain top talent. cost structure; and 5. helped recruit new personnel in several key positions. 1. optimize revenue and profitability of Bernstein 1. increased Bernstein Research Services Research Services; profitability; 2. further enhance this unit’s research capabilities, 2. achieved excellent results in third-party trading services and product array; research and trading surveys; 3. extend this unit’s geographic platform; and 4. attract, motivate and retain top talent. 3. increased the commercial success of our firm’s sell-side trading platform; and 4. continued to expand the sell-side business in Asia. 136 AB Named Executive Officer 2016 Business and Operational Goals 2016 Goals Achieved Laurence E. Cranch General Counsel John C. Weisenseel CFO 1. address new compliance challenges and main- tain and improve our firm’s good compliance record, including with respect to new regu- latory initiatives; 2. improve the level of client service, including through improvements to productivity and effi- ciency while using existing resources; 3. develop and retain high quality talent by identi- fying opportunities to promote from within, and promote diversity; 4. manage the firm’s legal risk, including by resolving the Philips matter and by proactively managing the firm’s activities and relationships to help avoid future litigation and regulatory issues; and 5. manage expenses, including overall compensa- tion expense, and continue to manage outside counsel and other department expenses. 1. provided leadership with respect to several significant regulatory developments that required analysis and compliance program development, including particularly the Department of Labor fiduciary duty rules (“DOL Rules”), and required strict adher- ence to our firm’s compliance policies and procedures and its fiduciary duties to clients; 2. received positive evaluations from senior busi- ness leaders with respect to the performance of the Legal and Compliance Department and implemented changes that made this depart- ment more productive and efficient; 3. promoted several individuals from within the department, which has enhanced morale and improved work quality, and recruited high quality talent to fill open positions, in each case while making prog- ress on our goal of improving diversity; 4. settled the Philips litigation, proactively addressed the exposure to liability faced by our firm with respect to litigation brought against 401(k) plan sponsors and their fidu- ciary advisers, and focused on implem entation of the DOL Rules to manage the risks to our firm with respect to possible class action litigation that may be brought as a result of provisions in the rule’s best interest contract exemption; and 5. continued to actively manage outside coun- sel expenses. 1. increase the firm’s profitability by controlling 1. decreased non-compensation expenses expenses; 2. evaluate and support new business develop- ment opportunities; 3. manage business funding requirements within the context of the firm’s capital and liquidity; 4. continue to streamline the firm’s office foot- print; 5. ensure adherence to internal control structure and financial reporting standards; 6. continue communications with the firm’s investors and credit rating agencies; and 7. identify and develop the next generation of leaders in the Finance and Administrative Serv- ices Departments. compared to 2015; 2. provided accounting and tax guidance in structuring, integrating and funding busi- ness development opportunities; 3. repurchased AB Holding Units to offset earnings per unit dilution, which otherwise would result from employee equity-based compensation awards; 4. secured an additional $200 million credit facility to support short-term liquidity requirements; 5. sub-leased additional space in NY metro and London offices and identified potential office space efficiency strategies for NY headquarters and Hong Kong; 6. enhanced internal financial reporting, including an increased focus on manage- ment operating metrics, to provide more useful information to senior management; 7. maintained active discussion with AB’s investor community and credit rating agen- cies and participated in the asset manage- ment industry annual CFO roundtable; and 8. implemented several staffing changes in the Finance and Administrative Services Departments, providing better client service within our firm while reducing costs. Annual Report 2016 137 As indicated in the table above, each of the named executive officers included in the table successfully achieved his goals in 2016. The compensation of each of these named executive officers reflected Mr. Kraus’s and the Compensation Committee’s judgment in assessing the importance of the officer’s achievements to our firm’s financial results. Overview of Our CEO’s Compensation In 2016, Mr. Kraus was compensated for his services as Chairman of the Board and CEO based on the terms set forth in his employment agreement dated as of June 21, 2012 (“Kraus Employment Agreement”). The Kraus Employment Agreement commenced on January 3, 2014 and terminates on January 2, 2019 (“Employment Term”), unless it is terminated earlier in accordance with its terms. Although the Employment Term did not commence until January 3, 2014, certain provisions of the Kraus Employment Agreement became effective on June 21, 2012, the date the agreement was signed, including those provisions summarized below pertaining to the grant of 2,722,052 restricted AB Holding Units to Mr. Kraus (“June 2012 Grant”) and termi- nation of his employment. The terms of the Kraus Employment Agreement were the result of arm’s-length negotiations between Mr. Kraus, members of the Compensation Committee, who discussed this matter during four Special Meetings of the Compensation Committee held in 2012, and other members of the Board. In addition, the Compensation Committee considered comparative compensation benchmarking data (“Johnson Data”) from Johnson Associates, Inc., a compensation consultant engaged by the Compensation Committee. The Johnson Data provided ranges of CEO compensation levels for 2011 at selected asset management companies and banks comparable to ours in terms of size and business mix, including salary, cash bonus, total cash compensation and total compensation. The com- parable companies, which management selected with input from Johnson Associates, included: Affiliated Managers Group, Inc. Ameriprise Financial, Inc. The Bank of New York Mellon Corp. BlackRock Financial Management, Inc. Credit Suisse Asset Management LLC Eaton Vance Corp. Federated Investors, Inc. Janus Capital Group Inc. Legg Mason, Inc. State Street Global Advisors Ltd. Franklin Resources, Inc. JPMorgan Asset Management Inc. Morgan Stanley T. Rowe Price Group, Inc. Invesco Ltd. Lazard Ltd. Northern Trust Corporation In addition, the Johnson Data indicated that the compensation terms for Mr. Kraus set forth in the Kraus Employment Agreement were fully competitive and consistent with industry standards given our firm’s size, scope and complexity, the importance of CEO continuity, Mr. Kraus’s experience and integral role in the ongoing execution of our firm’s long-term growth strategy, and the allo- cation of Mr. Kraus’s compensation more heavily to restricted equity. The Compensation Committee and the Executive Committee, based on the Johnson Data and other inquiry as needed, decided to structure the allocation of Mr. Kraus’s compensation under the Kraus Employment Agreement heavily toward the June 2012 Grant. For information regarding the Executive Committee, see “Committees of the Board” in Item 10. Compensation Elements Base Salary Mr. Kraus’s annual base salary under the Kraus Employment Agreement, which originally was set at $275,000, was increased to $400,000 by the Compensation Committee, effective January 1, 2014. This amount is comparable to the annual base salary paid to our most senior executives generally and is consistent with our firm’s policy to keep base salaries of executives and other highly- compensated employees low in relation to total compensation. Any future increase to Mr. Kraus’s base salary is entirely in the dis- cretion of the Compensation Committee. Cash Bonus Mr. Kraus did not receive a cash bonus for 2016, nor is he entitled to receive a future cash bonus during the remainder of the Employ- ment Term. Any future cash bonus that may be paid to Mr. Kraus is entirely in the discretion of the Compensation Committee. 138 AB Restricted AB Holding Units Mr. Kraus was awarded the June 2012 Grant upon execution of the Kraus Employment Agreement, on June 21, 2012. The size of the June 2012 Grant, which had a value of approximately $33 million based on the market price of an AB Holding Unit on June 21, 2012, reflected the determination by Mr. Kraus and the Board that this was a reasonable and appropriate amount of long- term incentive compensation in view of Mr. Kraus’s expertise and experience, his past compensation, and the compensation of the CEOs included in the Johnson Data. Subject to accelerated vesting clauses in the Kraus Employment Agreement (e.g., immediate vesting upon a “change in control” of our firm, as discussed in detail below), the June 2012 Grant vests ratably on each of the first five anniversaries of December 19, 2013, commencing December 19, 2014, provided, with respect to each installment, Mr. Kraus continues to be employed by AB on the vesting date. However, Mr. Kraus elected to delay delivery of all of the restricted AB Holding Units until December 19, 2018, the final vesting date, subject to acceleration upon a “change in control” of our firm and certain qualifying events of termination of employment (see “Terms Relating to Change in Control and Termination of Employment” below). During the Employment Term, Mr. Kraus is paid the cash distributions payable with respect to his unvested and vested restricted AB Holding Units until the AB Holding Units are delivered or forfeited. These cash distributions generally are paid at the time dis- tributions are made to AB Holding Unitholders. As noted above, Mr. Kraus did not receive an equity-based award for 2016, nor is he entitled to receive a future equity award during the remainder of the Employment Term. Accordingly, during the Employment Term, the totality of Mr. Kraus’s compensation (other than his base salary) is and, absent any additional awards the Compensation Committee may choose to grant, will continue to be, dependent on the level of cash distributions on the restricted AB Holding Units granted to Mr. Kraus and the evolution of the trading price of an AB Holding Unit, both of which are partially dependent on the financial and operating results of our firm. Therefore, his long-term interests are, and will continue to be, aligned directly with the interests of our Unitholders and indirectly with the interests of our clients, as strong performance for our clients generally contributes directly to increases in assets under management and improved financial performance for the firm. Perquisites and Benefits Under the Kraus Employment Agreement, Mr. Kraus is entitled to receive the following perquisites and benefits: • personal use of company aircraft (provided he reimburses the company for any incremental cost resulting from such use), and the ability to have family members accompany him on company aircraft when Mr. Kraus travels for business purposes (provided that taxable income is imputed to him for any business flight on which family members are aboard); • personal use of a company car and driver; • • following termination of his employment due to death or disability, continued health and welfare benefits (see note 5 to “Potential Payments upon Termination or Change in Control” table below for additional information); and following termination of his employment by AB without cause or by Mr. Kraus for good reason, payments equal to the cost of COBRA coverage for the period for which he is entitled to COBRA. Terms Relating to Change in Control and Termination of Employment The June 2012 Grant will vest immediately upon a “change in control” of our firm. A change in control is defined as: • AXA ceasing to control the management of AB’s business; or • AB Holding ceasing to be publicly traded. Mr. Kraus negotiated the change-in-control provisions described immediately above in order to ensure that AB would continue to be operated as a separately-managed entity and with a certain degree of independence and that AB Holding would continue as a publicly-traded entity. Both AXA and Mr. Kraus believed that these arrangements added significant value to AB. The Board under- stood that AXA had no intention of changing these arrangements during the Employment Term and, accordingly, concluded that the change-in-control provisions were acceptable and necessary in order to retain Mr. Kraus. Annual Report 2016 139 The Kraus Employment Agreement also provides for the immediate vesting of the next two installments of restricted AB Holding Units (or the final installment, if only one installment remains unvested as of the termination date) upon certain qualifying termi- nations of employment, including termination of Mr. Kraus’s employment: • by AB without cause, where “cause” includes, among other things: • the continued, willful failure by Mr. Kraus to perform substantially his duties with AB after a written demand for substantial performance is delivered to him by the Board; • Mr. Kraus’s conviction of, or plea of guilty or nolo contendere to, a crime that constitutes a felony; • • the willful engaging by Mr. Kraus in misconduct that is materially and demonstrably injurious to AB or any of its affiliates; the willful breach by Mr. Kraus of the covenant not to disclose any confidential information pertaining to AB or its affiliates or the covenant not to compete with AB or its affiliates; or • Mr. Kraus’s failure to comply with a material written company workplace policy applicable to him, and • by Mr. Kraus for good reason, where “good reason” generally includes actions taken by AB resulting in a material negative change in Mr. Kraus’s employment relationship, such as: • assignment to Mr. Kraus of duties materially inconsistent with his position; • any material breach of the Kraus Employment Agreement by AB; • a requirement by AB that Mr. Kraus be based at any office or location more than 25 miles commuting distance from company headquarters; or • a requirement that Mr. Kraus report to an officer or employee of AB instead of reporting directly to the Board and the CEO of AXA. In addition, if Mr. Kraus dies or becomes disabled during the Employment Term, Mr. Kraus immediately will vest in a pro-rated portion of any restricted AB Holding Units otherwise due to vest on the next vesting date. Mr. Kraus negotiated the provisions described immediately above in order to preserve the value of his long-term incentive compensa- tion arrangement. The Board agreed to these provisions because they were typical of executive compensation agreements for executives at Mr. Kraus’s level, they provided Mr. Kraus with effective incentives for future performance, and because the Board concluded that they were necessary to retain Mr. Kraus. The Board also concluded that the change-in-control and termination provisions in the Kraus Employment Agreement fit within AB’s overall compensation objectives because these provisions, which aligned with AB’s goal of providing Mr. Kraus with effective incentives for future performance: • permitted AB to retain a highly-qualified chief executive officer; • aligned Mr. Kraus’s long-term interests with those of AB’s Unitholders and clients; • were consistent with AXA’s and the Board’s expectations with respect to the manner in which AB and AB Holding would be operated during Mr. Kraus’s tenure; and • were consistent with the Board’s expectations that Mr. Kraus would not be terminated without cause and that no steps would be taken that would provide him with the ability to terminate the agreement for good reason. Compensation Committee The Compensation Committee consists of Ms. Slutsky and Messrs. Condron (Chair), Duverne, Elliott and Kraus. The Compensa- tion Committee held four meetings in 2016. 140 AB As discussed in “NYSE Governance Matters” in Item 10, AB Holding, as a limited partnership, is exempt from NYSE rules that require public companies to have a compensation committee consisting solely of independent directors. AXA owns, indirectly, an approx- imate 63.7% economic interest in AB (as of December 31, 2016), and compensation expense is a significant component of our financial results. For these reasons, Mr. Duverne, Chairman of the Board of AXA, is a member of the Compensation Committee, and any action taken by the Compensation Committee requires the affirmative vote or consent of an AXA representative. The Compensation Committee has general oversight of compensation and compensation-related matters, including: • determining cash bonuses; • determining contributions and awards under incentive plans or other compensation arrangements (whether qualified or non- qualified) for employees of AB and its subsidiaries, and amending or terminating such plans or arrangements or any welfare benefit plan or arrangement or making recommendations to the Board with respect to adopting any new incentive compensa- tion plan, including equity-based plans; • • reviewing and approving the compensation of our CEO, evaluating his performance, and determining and approving his compensation level based on this evaluation; and reviewing and discussing the CD&A, and recommending to the Board its inclusion in the Partnerships’ Forms 10-K and, when applicable, proxy statements. The Compensation Committee’s year-end process generally has focused on the cash bonuses and long-term incentive compensation awards granted to senior management. Mr. Kraus is an active member of the Compensation Committee, but he does not participate in any committee discussions or votes regarding his own compensation. Mr. Kraus, working with the COO and other members of senior management, provides recommendations for individual employee awards to the Compensation Committee for its consideration. As part of this process, management provides the committee with compensation benchmarking data from one or more compensation consultants. For 2016, we paid $26,750 to McLagan for executive compensation benchmarking data and an additional $409,931 for survey and consulting services relating to the amount and form of compensation paid to employees other than executives. The Compensation Committee held its regularly-scheduled meeting regarding year-end compensation on December 9, 2016, at which meeting it discussed and approved senior management’s compensation recommendations. The Compensation Committee did not retain its own consultants. The Compensation Committee’s functions are more fully described in the committee’s charter, which is available on-line in the “Management & Governance” section of our Internet Site. Other Compensation-Related Matters AB and AB Holding are, respectively, private and public limited partnerships, and are subject to taxes other than federal and state corporate income tax (see “Structure-related Risks” in Item 1A and Note 19 to AB’s consolidated financial statements in Item 8). Accord- ingly, Section 162(m) of the Code, which limits tax deductions relating to executive compensation otherwise available to entities taxed as corporations, is not applicable to either AB or AB Holding. Compensation Committee Interlocks and Insider Participation Mr. Duverne is the Chairman of the Board of AXA, the ultimate parent company of the General Partner. Mr. Kraus is Chairman of the Board and CEO of the General Partner and, accordingly, also serves in that capacity for AB and AB Holding. No executive officer of AB serves as (i) a member of a compensation committee or (ii) a director of another entity, an executive officer of which serves as a member of AB’s Compensation Committee or Board. Annual Report 2016 141 Compensation Committee Report The members of the Compensation Committee reviewed and discussed with management the Compensation Discussion and Analy- sis set forth above and, based on such review and discussion, recommended to the Board its inclusion in this Form 10-K. Christopher M. Condron (Chair) Steven G. Elliott Lorie A. Slutsky Denis Duverne Peter S. Kraus Consideration of Risk Matters in Determining Compensation In 2016, we considered whether our compensation practices for employees, including our named executive officers, encourage unnecessary or excessive risk-taking and whether any risks arising from our compensation practices are reasonably likely to have a material adverse effect on our firm. For the reasons set forth below, we have determined that our current compensation practices do not create risks that are reasonably likely to have a material adverse effect on our firm. As described above in “Compensation Elements for Named Executive Officers—Long-Term Incentive Compensation Awards”, a substantial portion of each long-term incentive compensation award granted to an eligible employee is denominated in AB Holding Units that are not distributed until subsequent years, so the ultimate value that the employee derives from the award depends on the long-term performance of the firm. Denominating a substantial portion of the award in restricted AB Holding Units and deferring their deliv- ery sensitizes employees to risk outcomes and discourages them from taking excessive risks that could lead to a decrease in the value of the AB Holding Units. Furthermore, and as noted above in “Compensation Elements for Named Executive Officers—Long-Term Incentive Compensation Awards”, generally all outstanding long-term incentive compensation awards include a provision permitting us to “claw-back” the unvested portion of an employee’s long-term incentive compensation award (whether denominated in restricted AB Holding Units or Deferred Cash) if the Compensation Committee determines that (i) the employee failed to follow existing risk management policies and (ii) as a result of the employee’s failure, there has been or reasonably could be expected to be a material adverse impact on our firm or the employee’s business unit. 142 AB Summary Compensation Table for 2016 Total compensation of our named executive officers for 2016, 2015 and 2014, as applicable, is as follows: Name and Principal Position Peter S. Kraus(3) Chairman and CEO James A. Gingrich(4) Chief Operating Officer Robert P. van Brugge Chairman and CEO of SCB LLC Laurence E. Cranch(5) General Counsel John C. Weisenseel CFO Salary ($) Bonus ($) Stock Awards(1)(2) ($) All Other Compensation ($) Total ($) 400,000 400,000 411,539 — — — — — — 400,000 3,540,000 3,260,000 400,000 3,940,000 3,660,000 5,954,676 6,544,627 6,374,364 828,361 892,863 6,354,676 6,944,627 6,785,903 8,028,361 8,892,863 Year 2016 2015 2014 2016 2015 2014 415,385 3,940,000 3,660,000 872,272 8,887,657 2016 2015 400,000 1,890,000 1,610,000 400,000 2,040,000 1,760,000 324,696 339,762 4,224,696 4,539,762 2014 415,385 1,940,000 1,660,000 327,253 4,342,638 2016 2015 2016 2015 400,000 400,000 375,000 375,000 890,000 915,000 977,500 915,000 610,000 635,000 672,500 610,000 326,556 334,969 111,505 129,559 2,226,556 2,284,969 2,136,505 2,029,559 2014 389,423 800,000 500,000 135,457 1,824,880 (1) The figures in the “Stock Awards” column provide the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For the assumptions made in determining these values, see Note 17 to AB’s consolidated financial statements in Item 8. (2) See “Grants of Plan-based Awards in 2016” below for information regarding the 2016 long-term incentive compensation awards granted to our named execu- tive officers. (3) Mr. Kraus’s compensation structure is set forth in the Kraus Employment Agreement, the terms of which are described above in “Overview of Our CEO’s Compensation”. (4) On February 13, 2017, the Compensation Committee approved a grant to Mr Gingrich of restricted AB Holding Units with a value of $21 million (based on the average closing price on the NYSE of an AB Holding Unit for the period covering the four trading days immediately preceding the grant date, the grant date and the five trading days immediately following the grant date), in lieu of cash bonus and long-term incentive compensation awards for 2017, 2018 and 2019 for which Mr. Gingrich otherwise would have been eligible under the Incentive Compensation Program; provided, Mr. Gingrich will be eligible to receive at the end of each such year an additional cash bonus, to the extent approved by the Compensation Committee. Mr. Gingrich’s restricted AB Holding Units will vest (after which they are no longer subject to forfeiture) ratably on each of December 1, 2017, 2018 and 2019, provided, with respect to each installment, Mr. Gingrich continues to be employed by our firm. (5) We have not provided 2014 compensation for Mr. Cranch because he was not a named executive officer in 2014. Annual Report 2016 143 The “All Other Compensation” column includes the aggregate incremental cost to our company of certain other expenses and perquisites. For 2016, this column includes the following: Name Peter S. Kraus(1) James A. Gingrich(2) Robert P. van Brugge Laurence E. Cranch(3) John C. Weisenseel Quarterly Distributions on AB Holding Unit Awards ($) Aircraft- related Imputed Income ($) Personal Use of Car and Driver ($) Contributions to Profit Sharing Plan ($) Life Insurance Premiums ($) Financial Planning Services ($) 5,716,309 39,792(4) 185,325(5) 791,716 310,816 308,115 96,578 — — — — — — — — 13,250 13,250 13,250 13,250 13,250 — 1,806 630 5,191 1,677 — 21,589 — — — (1) (2) (3) Includes $2,858,154 paid on AB Holding Units that have not yet vested and $2,858,155 paid on AB Holding Units that have vested but with respect to which delivery has been voluntarily deferred. Includes $692,432 paid on AB Holding Units that have not yet vested and $99,284 paid on AB Holding Units that have vested but with respect to which delivery has been voluntarily deferred. Includes $120,673 paid on AB Holding Units that have not yet vested and $187,442 paid on AB Holding Units that have vested but with respect to which deliv- ery has been voluntarily deferred. (4) We use the Standard Industry Fare Level (“SIFL”) methodology to calculate the amount to include in the taxable income of named executive officers for the personal use of company-leased aircraft. Using the SIFL methodology, which was approved by the Compensation Committee, limits our ability to deduct the full cost of personal use of company-leased aircraft by our executive officers. Mr. Kraus reimburses AB for any incremental cost resulting from his personal use of company-leased aircraft. However, taxable income is imputed to Mr. Kraus for business flights on which family members are aboard. The figure in the table represents the taxable income for the 12 months ended October 31, 2016 that was imputed to Mr. Kraus. In addition, AB was unable to deduct approximately $826,000 of the cost of company-leased aircraft, representing a tax cost to AB of $7,849, due to the fact that family members accompanied Mr. Kraus on cer- tain trips on company-leased aircraft taken for business purposes. (5) Includes lease costs ($15,423), driver compensation ($145,984) and other car-related costs ($23,918), such as parking, gas, tolls, and repairs and maintenance. Grants of Plan-based Awards in 2016 Grants of awards under the 2010 Plan, our equity compensation plan, during 2016 made to our named executive officers are as fol- lows: Name Peter S. Kraus James A. Gingrich(2) Robert P. van Brugge(2) Laurence E. Cranch(2) John C. Weisenseel(2) All Other Stock Awards: Number of Shares of Stock or Units (#) Grant Date Fair Value of Stock Awards(1) ($) — 140,517 69,397 26,293 28,987 — 3,260,000 1,610,000 610,000 672,500 Grant Date — 12/9/2016 12/9/2016 12/9/2016 12/9/2016 (1) This column provides the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For the assumptions made in determining these values, see Note 17 to AB’s consolidated financial statements in Item 8. (2) As discussed above in “Overview of 2016 Incentive Compensation Program” and “Compensation Elements for Named Executive Officers – Long-Term Incentive Compensation Awards”, long-term incentive compensation awards generally are denominated in restricted AB Holding Units. The 2016 long-term incentive compensation awards granted to our named executive officers under the Incentive Compensation Program and the 2010 Plan are shown in the “All Other Stock Awards” column of this table, the “Stock Awards” column of the Summary Compensation Table and the “AB Holding Unit Awards” columns of the Out- standing Equity Awards at 2016 Fiscal Year-End Table. 144 AB In 2016, the number of restricted AB Holding Units comprising long-term incentive compensation awards granted to each named executive officer (other than Mr. Kraus, who was not granted an incentive compensation award in 2016) was determined based on the closing price of an AB Holding Unit as reported for NYSE composite transactions on December 9, 2016, the date on which the Compensation Committee approved the awards. For further information regarding the material terms of such awards, including the vesting terms and the formulas or criteria to be applied in determining the amounts payable, please refer to “Overview of 2016 Incentive Compensation Program”, “Compensation Elements for Named Executive Officers – Long-Term Incentive Compensation Awards” and “Other Factors Considered When Determining Named Executive Officer Compensation” above. Outstanding Equity Awards at 2016 Fiscal Year-End Outstanding equity awards held by our named executive officers as of December 31, 2016 are as follows: Option Awards AB Holding Unit Awards Number of Securities Underlying Unexercised Options Exercisable (#) Number of Securities Underlying Unexercised Options Unexercisable (#) Option Exercise Price ($) Option Expiration Date Number of Shares or Units of Stock That Have Not Vested (#) Market Value of Shares or Units of Stock That Have Not Vested(8) ($) — 263,533 — 78,348 — — — — — — — — 1,088,821 17.05 1/23/2019 — — 17.05 1/23/2019 — — 377,481 175,804 67,406 64,251 25,532,848 8,851,922 4,122,594 1,580,662 1,506,680 Name Peter S. Kraus(1) James A. Gingrich(2)(3) Robert P. van Brugge(4) Laurence E. Cranch(5)(6) John C. Weisenseel(7) (1) Subject to accelerated vesting clauses in the Kraus Employment Agreement (e.g., immediate vesting upon a “change in control” of our firm), the June 2012 Grant vests ratably on each of the first five anniversaries of December 19, 2013, commencing December 19, 2014, provided, with respect to each installment, Mr. Kraus continues to be employed by AB on the vesting date. However, Mr. Kraus elected to delay delivery of all of the restricted AB Holding Units until December 19, 2018, the final vesting date, subject to acceleration upon a “change in control” of our firm and certain qualifying events of termination of employment. For further information regarding the restricted AB Holding Units awarded to Mr. Kraus under the Kraus Employment Agreement, see “Overview of Our CEO’s Compensation” above. (2) Mr. Gingrich was awarded (i) 140,517 restricted AB Holding Units in December 2016 that are scheduled to vest in 25% increments on each of December 1, 2017, 2018, 2019 and 2020, (ii) 158,992 restricted AB Holding Units in December 2015, 25% of which vested on December 1, 2016 and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017, 2018 and 2019, (iii) 150,992 restricted AB Holding Units in December 2014, 25% of which vested on each of December 1, 2015 and 2016, and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017 and 2018, and (iv) 168,897 restricted AB Holding Units in December 2013, 25% of which vested on each of December 1, 2014, 2015 and 2016, and the remainder of which is scheduled to vest in an additional 25% increment on December 1, 2017. (3) Mr. Gingrich was granted 263,533 options to buy AB Holding Units in January 2009, 20% of which vested and became exercisable on each of January 23, 2010, 2011, 2012, 2013 and 2014. (4) Mr. van Brugge was awarded (i) 69,397 restricted AB Holding Units in December 2016 that are scheduled to vest in 25% increments on each of December 1, 2017, 2018, 2019 and 2020, (ii) 76,455 restricted AB Holding Units in December 2015, 25% of which vested on December 1, 2016 and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017, 2018 and 2019, (iii) 68,482 restricted AB Holding Units in December 2014, 25% of which vested on each of December 1, 2015 and 2016, and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017 and 2018, and (iv) 59,299 restricted AB Holding Units in December 2013, 25% of which vested on each of December 1, 2014, 2015 and 2016, and the remainder of which is scheduled to vest in an additional 25% increment on December 1, 2017. (5) Mr. Cranch was awarded (i) 26,293 restricted AB Holding Units in December 2016 that are scheduled to vest in 25% increments on each of December 1, 2017, 2018, 2019 and 2020, (ii) 27,585 restricted AB Holding Units in December 2015, 25% of which vested on December 1, 2016 and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017, 2018 and 2019, (iii) 26,197 restricted AB Holding Units in December 2014, 25% of which vested on each of December 1, 2015 and 2016, and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017 and 2018, and (iv) 29,303 restricted AB Holding Units in December 2013, 25% of which vested on each of December 1, 2014, 2015 and 2016, and the remainder of which is scheduled to vest in an additional 25% increment on December 1, 2017. (6) Mr. Cranch was granted 78,348 options to buy AB Holding Units in January 2009, 20% of which vested and became exercisable on each of January 23, 2010, 2011, 2012, 2013 and 2014. Annual Report 2016 145 (7) Mr. Weisenseel was awarded (i) 28,987 restricted AB Holding Units in December 2016 that are scheduled to vest in 25% increments on each of December 1, 2017, 2018, 2019 and 2020, (ii) 26,499 restricted AB Holding Units in December 2015, 25% of which vested on December 1, 2016 and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017, 2018 and 2019, (iii) 20,628 restricted AB Holding Units in December 2014, 25% of which vested on each of December 1, 2015 and 2016, and the remainder of which is scheduled to vest in 25% increments on each of December 1, 2017 and 2018, and (iv) 20,305 restricted AB Holding Units in December 2013, 25% of which vested on each of December 1, 2014, 2015 and 2016, and the remainder of which is scheduled to vest in an additional 25% increment on December 1, 2017. (8) The market values of restricted AB Holding Units set forth in this column were calculated assuming a price per AB Holding Unit of $23.45, which was the closing price on the NYSE of an AB Holding Unit on December 30, 2016, the last trading day of AB’s last completed fiscal year. Option Exercises and AB Holding Units Vested in 2016 AB Holding Units held by our named executive officers that vested during 2016 are as follows: Name Peter S. Kraus(1) James A. Gingrich Robert P. van Brugge Laurence E. Cranch John C. Weisenseel AB Holding Unit Awards Number of AB Holding Units Acquired on Vesting (#) Value Realized on Vesting ($) 544,410 158,712 71,202 27,843 19,924 12,330,887 3,634,505 1,630,526 637,605 456,260 (1) Mr. Kraus deferred delivery of the 544,410 restricted AB Holding Units that vested in December 2016. See “Overview of Our CEO’s Compensation – Compensa- tion Elements – Restricted AB Holding Units” above for additional information. Pension Benefits for 2016 None of our named executive officers are entitled to benefits under the Amended and Restated Retirement Plan for Employees of AB (as amended and restated as of January 1, 2016, “Retirement Plan”), our company pension plan. For additional information regarding the Retirement Plan, including interest rates and actuarial assumptions, see Note 16 to AB’s consolidated financial statements in Item 8. Non-Qualified Deferred Compensation for 2016 Vested and unvested non-qualified deferred compensation contributions, earnings and distributions of our named executive officers during 2016 and their non-qualified deferred compensation plan balances as of December 31, 2016 are as follows: Name Executive Contributions in Last FY ($) Aggregate Earnings in Last FY ($) Aggregate Withdrawals/Distributions ($) Aggregate Balance at Last FYE ($) Peter S. Kraus(1) James A. Gingrich(2) Robert P. van Brugge Laurence E. Cranch(2) John C. Weisenseel(3) 12,330,896 — — — — (217,764) 150,076 — (1,542) 138 — (178,489) — (412,680) (25,150) 51,065,696 1,243,151 — — — (1) Mr. Kraus deferred delivery of the 544,410 restricted AB Holding Units that vested in December 2016, the value of which, as of December 19, 2016 (vesting date), is reflected in “Executive Contributions in Last FY”, until the earlier of December 19, 2018, his death and the date on which a change in control of AB occurs. “Aggregate Earnings in Last FY” represents the change in the value of these restricted AB Holding Units from December 19, 2016 to December 31, 2016. “Aggregate Balance at Last FYE” represents the aggregate value of the portions of the June 2012 Grant that are scheduled to vest in equal increments on each of December 19, 2017 and 2018. See “Overview of Our CEO’s Compensation – Compensation Elements – Restricted AB Holding Units” above for additional information. 146 AB (2) Amounts shown reflect Messrs. Gingrich’s and Cranch’s interests from pre-2009 awards under the predecessor plan to the Incentive Compensation Program, under which plan participants were permitted to allocate their awards (i) among notional investments in AB Holding Units, certain of the investment services we provided to clients and a money market fund, or (ii) under limited circumstances, in options to buy AB Holding Units. For additional information about the Incentive Compensation Program, see Notes 2 and 17 to AB’s consolidated financial statements in Item 8. (3) The amounts shown in “Aggregate Earnings in Last FY” for Mr. Weisenseel reflects the interest payments associated with the Deferred Cash portion of his long- term incentive compensation award granted in 2012. Interest accrues monthly based on our monthly weighted average cost of funds (approximately 0.6% in 2016) and will be credited to Mr. Weisenseel annually until the cash is distributed him. The amounts shown in “Aggregate Withdrawals/Distributions” for Mr. Weisenseel represents his Deferred Cash distribution during 2016. Potential Payments upon Termination or Change in Control Estimated payments and benefits to which our named executive officers would have been entitled upon a change in control of AB or the specified qualifying events of termination of employment as of December 31, 2016 are as follows: Name Peter S. Kraus(3) Change in control Termination by AB without cause Termination by Mr. Kraus for good reason Death or disability(4)(5) James A. Gingrich Resignation or termination by AB without cause (complies with applicable agreements and restrictive covenants)(2) Death or disability(6) Robert P. van Brugge Resignation or termination by AB without cause (complies with applicable agreements and restrictive covenants)(2) Death or disability(6) Laurence E. Cranch Resignation or termination by AB without cause (complies with applicable agreements and restrictive covenants)(2) Death or disability(6) John C. Weisenseel Resignation or termination by AB without cause (complies with applicable agreements and restrictive covenants)(2) Death or disability(6) Cash Payments(1) ($) Acceleration of Restricted AB Holding Unit Awards(2) ($) Other Benefits ($) — — — — — — — — — — — — 25,532,848 25,532,848 25,532,848 12,766,424 8,851,922 8,851,922 4,122,594 4,122,594 1,580,662 1,580,662 1,506,680 1,506,680 21,908 21,908 21,908 21,908 — — — — — — — — (1) It is possible that each named executive officer, other than Mr. Kraus, could receive a cash severance payment on the termination of his employment. The amounts of any such cash severance payments would be determined at the time of such termination, so we are unable to estimate such amounts. (2) See Notes 2 and 17 in AB’s consolidated financial statements in Item 8 and “Compensation Elements for Named Executive Officers – Long-Term Incentive Com- pensation Awards” above for a discussion of the terms set forth in long-term incentive compensation award agreements relating to termination of employment. (3) See “Overview of Our CEO’s Compensation” above for a discussion of the terms set forth in the Kraus Employment Agreement relating to termination of employment. (4) The Kraus Employment Agreement defines “Disability” as a good faith determination by AB that Mr. Kraus is physically or mentally incapacitated and has been unable for a period of 120 days in the aggregate during any 12-month period to perform substantially all of the duties for which he is responsible immediately before the commencement of the incapacity. (5) Under the Kraus Employment Agreement, upon termination of Mr. Kraus’s employment due to death or disability, AB will provide at its expense continued health and welfare benefits for Mr. Kraus, his spouse and his dependents through the end of the calendar year in which termination occurs. Thereafter, until the date Mr. Kraus (or, in the case of his spouse, his spouse) reaches age 65, AB will provide Mr. Kraus and his spouse with access to participation in AB’s medical plans at Mr. Kraus’s (or his spouse’s) sole expense based on a reasonably determined fair market value premium rate. Annual Report 2016 147 (6) “Disability” is defined in the Incentive Compensation Program award agreements of each of Messrs. Gingrich, van Brugge, Cranch and Weisenseel, and in the Special Option Program award agreement of Messrs. Gingrich and Cranch, as the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to last for a continuous period of not less than 12 months, as determined by the carrier of the long-term disability insurance program maintained by AB or its affiliate that covers the named executive officer. Director Compensation in 2016 During 2016, we compensated our directors, who are not employed by our company or by any of our affiliates (“Eligible Directors”), as follows: Name Fees Earned or Paid in Cash ($) Stock Awards(1)(3) ($) Option Awards(2)(3) ($) Total ($) Christopher M. Condron(4) Steven G. Elliott(4) Deborah S. Hechinger(4) Weston M. Hicks(4) Heidi S. Messer(4) Scott A. Schoen(4) Lorie A. Slutsky(4) Joshua A. Weinreich 148,375 195,750 140,875 128,000 126,500 128,000 143,500 111,125 75,000 150,000 75,000 150,000 150,000 150,000 150,000 150,000 75,000 — 75,000 — — — — — 298,375 345,750 290,875 278,000 276,500 278,000 293,500 261,125 (1) The aggregate number of restricted AB Holding Units underlying awards outstanding but not yet distributed at December 31, 2016 was: for Mr. Condron and Ms. Hechinger, 7,814 AB Holding Units; for Ms. Messer, 10,407 AB Holding Units; and for each of Ms. Slutsky and Messrs. Elliott, Hicks, Schoen and Weinreich, 15,627 AB Holding Units. (2) The aggregate number of options outstanding at December 31, 2016 was: for Mr. Condron, options to buy 91,376 AB Holding Units; for Mr. Elliott, options to buy 26,383 AB Holding Units; for Ms. Hechinger, options to buy 118,141 AB Holding Units; for Mr. Hicks, options to buy 42,510 AB Holding Units; for Ms. Slutsky, options to buy 39,398 AB Holding Units; and for Mr. Weinreich, options to buy 5,774 AB Holding Units. Ms. Messer and Mr. Schoen do not own any options to buy AB Holding Units. (3) Reflects the aggregate grant date fair value of the awards calculated in accordance with FASB ASC Topic 718. For the assumptions made in determining these values, see Note 17 to AB’s consolidated financial statements in Item 8. (4) Includes retainer payments made in December 2016 relating to the fourth quarter of 2016, which payments should have been made in January 2017. The General Partner pays fees, and makes equity-based awards, only to Eligible Directors. At a regularly-scheduled meeting of the Board held during July 2015, the Board approved, effective January 1, 2016, the Eligible Director compensation elements described immediately below and agreed to re-consider such compensation elements no less frequently than every five years: • an annual retainer of $75,000 (paid quarterly after any quarter during which an Eligible Director serves on the Board); • a fee of $5,000 for participating in any meeting of the Board, whether in person or by telephone, in excess of the six regularly- scheduled Board meetings each year; • a fee of $2,000 for participating in any meeting of any duly constituted committee of the Board, whether in person or by tele- phone, in excess of the number of regularly-scheduled committee meetings each year (i.e., in excess of seven meetings of the Audit Committee and three meetings of each of the Executive Committee, the Compensation Committee and the Governance Committee); • an annual retainer of $20,000 for acting as Lead Independent Director; • an annual retainer of $25,000 for acting as Chair of the Audit Committee; • an annual retainer of $12,500 for acting as Chair of the Compensation Committee; 148 AB • an annual retainer of $12,500 for acting as Chair of the Governance Committee; • an annual retainer of $12,500 for serving as a member of the Audit Committee; • an annual retainer of $6,000 for serving as a member of the Executive Committee; • an annual retainer of $6,000 for serving as a member of the Compensation Committee; • an annual retainer of $6,000 for serving as a member of the Governance Committee; and • an annual equity-based grant under an equity compensation plan consisting of (at each Eligible Director’s election): • restricted AB Holding Units with a grant date value of $150,000; • options to buy AB Holding Units with a grant date value of $150,000; or • restricted AB Holding Units with a grant date value of $75,000 and options to buy AB Holding Units with a grant date value of $75,000. The Board also approved, effective in 2018, the following increases to Eligible Director compensation: • an annual retainer of $85,000 (paid quarterly after any quarter during which the director serves on the Board); and • an annual equity-based grant under an equity compensation plan consisting of (at each Eligible Director’s election): • restricted AB Holding Units with a grant date value of $170,000; • options to buy AB Holding Units with a grant date value of $170,000; or • restricted AB Holding Units with a grant date value of $85,000 and options to buy AB Holding Units with a grant date value of $85,000. Equity grants to Eligible Directors generally are made at the May meeting of the Board. The date of the May meeting is set by the Board the previous year. At a regularly-scheduled meeting of the Board held during May 2016, the Board, consistent with elections made by our Eligible Directors during the first quarter of 2016, granted to (i) each of Mr. Condron and Ms. Hechinger, 3,313 restricted AB Holding Units and options to buy 27,273 AB Holding Units at $22.64 per AB Holding Unit, and (ii) each of Mses. Messer and Slutsky and Messrs. Elliott, Hicks, Schoen and Weinreich, 6,626 restricted AB Holding Units. The exercise price of the options was the closing price of an AB Holding Unit as reported for NYSE composite transactions on May 19, 2016, the date on which the Board approved the awards. For information about how the Black-Scholes value was calculated, see Notes 2 and 17 to AB’s consolidated financial statements in Item 8. Options granted to Eligible Directors become exercisable ratably over three years. Restricted AB Holding Units granted to Eligible Directors “cliff” vest after three years (i.e., 100% of the award is distributed on the third anniversary of the grant date). In order to avoid any perception that our directors’ exercise of their fiduciary duties might be impaired, these options and restricted AB Hold- ing Units are not forfeitable, except if the Eligible Director is terminated for “Cause”, as that term is defined in the 2010 Plan or the applicable award agreement. Accordingly, vesting and exercisability of options continues following an Eligible Director’s resignation from the Board. Restricted AB Holding Units are distributed as soon as administratively feasible following an Eligible Director’s resignation from the Board. The General Partner may reimburse any director for reasonable expenses incurred in connection with attendance at Board meetings as well as additional Board responsibilities. AB Holding and AB, in turn, reimburse the General Partner for expenses incurred by the General Partner on their behalf, including amounts in respect of directors’ fees and expenses. These reimbursements are subject to any relevant provisions of the AB Holding Partnership Agreement and the AB Partnership Agreement. Annual Report 2016 149 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Securities Authorized for Issuance under Equity Compensation Plans AB Holding Units to be issued pursuant to our equity compensation plans as of December 31, 2016 are as follows: Equity Compensation Plan Information Plan Category Equity compensation plans approved by security holders Equity compensation plans not approved by security holders Total Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance(1) 5,085,043 — 5,085,043 $ 49.45 — $49.45 7,698,253 — 7,698,253 (1) All AB Holding Units remaining available for future issuance will be issued pursuant to the 2010 Plan. There are no AB Units to be issued pursuant to an equity compensation plan. For information about our equity compensation plans, see Note 17 to AB’s consolidated financial statements in Item 8. Principal Security Holders As of December 31, 2016, we had no information that any person beneficially owned more than 5% of the outstanding AB Holding Units. As of December 31, 2016, we had no information that any person beneficially owned more than 5% of the outstanding AB Units, except as reported by AXA and certain of its subsidiaries on Schedule 13D/A and Forms 4 filed with the SEC on January 5, 2016 pursuant to the Exchange Act. We have prepared the following table, and the notes that follow, in reliance on such filings: Name and Address of Beneficial Owner Amount and Nature of Beneficial Ownership Reported on Schedule Percent of Class AXA(1)(2)(3)(4)(5) 25 avenue Matignon 75008 Paris, France 170,121,745(4)(5) 63.3(4)(5) (1) Based on information provided by AXA Financial, on December 31, 2016, AXA and certain of its subsidiaries beneficially owned all of AXA Financial’s out- standing common stock. For insurance regulatory purposes, the shares of common stock of AXA Financial beneficially owned by AXA and its subsidiaries have been deposited into a voting trust (“Voting Trust”), the term of which ends on April 29, 2021. The trustees of the Voting Trust (“Voting Trustees”) are Denis Duverne and Mark Pearson. Mr. Duverne serves on the Board of Directors of AXA, while Mr. Pearson serves on the Management Committee of AXA. The Voting Trustees have agreed to exercise their voting rights to protect the legitimate economic interests of AXA, but with a view to ensuring that certain minority share- holders of AXA do not exercise control over AXA Financial or certain of its insurance subsidiaries. (2) Based on information provided by AXA, as of December 31, 2016, 14.13% of the issued ordinary shares (representing 23.93% of the voting power) of AXA were owned directly and indirectly by two French mutual insurance companies (AXA Assurances IARD Mutuelle and AXA Assurances Vie Mutuelle) engaged in the Property & Casualty insurance business and the Life & Savings insurance business in France (“Mutuelles AXA”). (3) The Voting Trustees and the Mutuelles AXA, as a group, may be deemed to be beneficial owners of all AB Units beneficially owned by AXA and its subsidiaries. By virtue of the provisions of the Voting Trust Agreement, AXA may be deemed to have shared voting power with respect to the AB Units. AXA and its sub- sidiaries have the power to dispose or direct the disposition of all shares of the capital stock of AXA Financial deposited in the Voting Trust. The Mutuelles AXA, as a group, may be deemed to share the power to vote or to direct the vote and to dispose or to direct the disposition of all the AB Units beneficially owned by AXA and its subsidiaries. The address of each of AXA and Mr. Duverne is 25 avenue Matignon, 75008 Paris, France. The address of Mr. Pearson is 1290 Avenue of the Americas, New York, NY 10104. The address of the Mutuelles AXA is 313 Terrasses de l’Arche, 92727 Nanterre Cedex, France. 150 AB (4) By reason of their relationships, AXA, the Voting Trustees, the Mutuelles AXA, AXA America Holdings, Inc. (a subsidiary of AXA, “AXA America”), AXA Equi- table Financial Services, LLC (a subsidiary of AXA America), AXA-IM Holding U.S. (a 96.23%-owned subsidiary of AXA), AXA Financial, AXA Equitable, Coliseum Reinsurance Company (a subsidiary of AXA Financial), ACMC, LLC (a subsidiary of AXA Equitable) and MLOA may be deemed to share the power to vote or to direct the vote and to dispose or direct the disposition of all or a portion of the 268,893,534 issued and outstanding AB Units. (5) AXA has reported on Schedule 13D/A and Forms 3 and 4 filed with the SEC on January 5, 2016 that, by reason of its ownership of 100% of the outstanding shares of common stock of AXA America and its ownership of 96.23% of the outstanding shares of common stock of AXA-IM Holding U.S., AXA may be deemed to beneficially own all of the issued and outstanding AB Units owned directly and indirectly by AXA America and AXA-IM Holding U.S. As of December 31, 2016, AB Holding was the record owner of 96,652,190, or 35.9%, of the issued and outstanding AB Units. Management As of December 31, 2016, the beneficial ownership of AB Holding Units by each director and named executive officer of the General Partner and by all directors and executive officers as a group is as follows: Name of Beneficial Owner Number of AB Holding Units and Nature of Beneficial Ownership Peter S. Kraus(1)(2) Christopher M. Condron(3) Denis Duverne(1) Steven G. Elliott(4) Deborah S. Hechinger(5) Weston M. Hicks(6) Heidi S. Messer Mark Pearson(1) Scott A. Schoen(7) Lorie A. Slutsky(1)(8) Joshua A. Weinreich(9) James A. Gingrich(1)(10) Laurence E. Cranch(1)(11) Robert P. van Brugge(1)(12) John C. Weisenseel(1)(13) All directors and executive officers as a group (16 persons)(14)(15)(16) 4,337,643 112,190 2,000 53,424 95,190 58,137 10,407 — 77,612 72,227 22,644 1,113,950 308,977 278,413 138,745 6,713,387 Percent of Class 4.5% * * * * * * * * * * 1.2 * * * 6.9% * Number of AB Holding Units listed represents less than 1% of the Units outstanding. (1) Excludes AB Holding Units beneficially owned by AXA and its subsidiaries. Ms. Slutsky and Messrs. Duverne and Pearson are directors and/or officers of AXA, AXA Financial and/or AXA Equitable. Messrs. Kraus, Gingrich, Cranch, van Brugge and Weisenseel are directors and/or officers of the General Partner. (2) (3) (4) (5) (6) Includes 3,266,462 restricted AB Holding Units awarded to Mr. Kraus pursuant to the Kraus Employment Agreement or his previous employment agreement that have not yet vested and/or with respect to which he has deferred delivery. See “Overview of Our CEO’s Compensation – Compensation Elements – Restricted AB Holding Units” in Item 11 for additional information regarding Mr. Kraus’s AB Holding Unit awards. Includes 50,231 AB Holding Units Mr. Condron can acquire within 60 days under an AB option plan. Includes 26,383 AB Holding Units Mr. Elliott can acquire within 60 days under an AB option plan. Includes 76,996 AB Holding Units Ms. Hechinger can acquire within 60 days under an AB option plan. Includes 42,510 AB Holding Units Mr. Hicks can acquire within 60 days under an AB option plan. (7) Excludes 2,000 AB Holding Units owned by the Sheldon S. Schoen Irrevocable Trust, of which Mr. Schoen serves as Trustee. Mr. Schoen disclaims beneficial ownership of these 2,000 AB Holding Units. (8) (9) Includes 39,398 AB Holding Units Ms. Slutsky can acquire within 60 days under an AB option plan. Includes 5,774 AB Holding Units Mr. Weinreich can acquire within 60 days under an AB option plan. Annual Report 2016 151 (10) Includes 263,533 AB Holding Units Mr. Gingrich can acquire within 60 days under an AB option plan and 472,962 restricted AB Holding Units awarded to Mr. Gingrich as long-term incentive compensation that have not yet vested or with respect to which he has deferred delivery. For information regarding Mr. Gingrich’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2016” and “Outstanding Equity Awards at 2016 Fiscal Year-End” in Item 11. (11) Includes 78,348 AB Holding Units Mr. Cranch can acquire within 60 days under an AB option plan and 188,390 restricted AB Holding Units awarded to Mr. Cranch as long-term incentive compensation that have not yet vested or with respect to which he has deferred delivery. For information regarding Mr. Cranch’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2016” and “Outstanding Equity Awards at 2016 Fiscal Year-End” in Item 11. (12) Includes 175,804 restricted AB Holding Units awarded to Mr. van Brugge as long-term incentive compensation that have not yet vested or with respect to which he has deferred delivery. For information regarding Mr. van Brugge’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2016” and “Outstanding Equity Awards at 2016 Fiscal Year-End” in Item 11. (13) Includes 70,876 restricted AB Holding Units awarded to Mr. Weisenseel as long-term incentive compensation that have not yet vested or with respect to which he has deferred delivery. For information regarding Mr. Weisenseel’s long-term incentive compensation awards, see “Grants of Plan-based Awards in 2016” and “Outstanding Equity Awards at 2016 Fiscal Year-End” in Item 11. (14) Includes 583,173 AB Holding Units the directors and executive officers as a group can acquire within 60 days under AB option plans. (15) Includes 4,199,527 restricted AB Holding Units awarded to the executive officers as a group as long-term incentive compensation that have not yet vested and/ or with respect to which the executive officer has deferred delivery. (16) Includes 31,828 AB Holding Units owned by Kate C. Burke, who is deemed an executive officer but not a named executive officer. Of these AB Holding Units, 25,033 are restricted AB Holding Units awarded to Ms. Burke as long-term incentive compensation that have not yet vested or with respect to which she has deferred delivery. As of December 31, 2016, our directors and executive officers did not beneficially own any AB Units. As of December 31, 2016, the beneficial ownership of the common stock of AXA by each director and named executive officer of the General Partner and by all directors and executive officers as a group is as follows: AXA Common Stock(1) Name of Beneficial Owner Number of Shares and Nature of Beneficial Ownership Percent of Class Peter S. Kraus Christopher M. Condron(2) Denis Duverne(3) Steven G. Elliott Deborah S. Hechinger Weston M. Hicks Heidi S. Messer Mark Pearson(4) Scott A. Schoen Lorie A. Slutsky(5) Joshua A. Weinreich James A. Gingrich Laurence E. Cranch Robert P. van Brugge John C. Weisenseel All directors and executive officers as a group (16 persons)(6) * Number of shares listed represents less than 1% of the outstanding AXA common stock. — 1,330,661 2,167,767 — — — — 855,687 — 49,363 — — — — — 4,403,478 * * * * * * * * * * * * * * * * 152 AB (1) Holdings of AXA American Depositary Shares (“ADS”) are expressed as their equivalent in AXA common stock. Each AXA ADS represents the right to receive one AXA ordinary share. (2) Includes 974,724 shares Mr. Condron can acquire within 60 days under option plans. Also includes 231,987 deferred restricted ADS units under AXA’s Variable Deferred Compensation Plan for Executives. (3) Includes 800,318 shares Mr. Duverne can acquire within 60 days under option plans. (4) Includes 453,656 shares Mr. Pearson can acquire within 60 days under options plans. Also includes 272,129 AXA performance shares, which are paid out when vested based on the price of AXA at that time and are subject to achievement of internal performance conditions. (5) Includes 9,393 shares Ms. Slutsky can acquire within 60 days under option plans. (6) Includes 2,238,091 shares the directors and executive officers as a group can acquire within 60 days under option plans. Partnership Matters The General Partner makes all decisions relating to the management of AB and AB Holding. The General Partner has agreed that it will conduct no business other than managing AB and AB Holding, although it may make certain investments for its own account. Conflicts of interest, however, could arise between AB and AB Holding, the General Partner and the Unitholders of both Partnerships. Section 17-403(b) of the Delaware Revised Uniform Limited Partnership Act (“Delaware Act”) states in substance that, except as provided in the Delaware Act or the applicable partnership agreement, a general partner of a limited partnership has the liabilities of a general partner in a general partnership governed by the Delaware Uniform Partnership Law (as in effect on July 11, 1999) to the partnership and to the other partners. In addition, as discussed below, Sections 17-1101(d) and 17-1101(f) of the Delaware Act gen- erally provide that a partnership agreement may limit or eliminate fiduciary duties a partner may be deemed to owe to the limited partnership or to another partner, and any related liability, provided that the partnership agreement may not limit or eliminate the implied contractual covenant of good faith and fair dealing. Accordingly, while under Delaware law a general partner of a limited partnership is liable as a fiduciary to the other partners, those fiduciary obligations may be altered by the terms of the applicable partnership agreement. Each of the AB Partnership Agreement and AB Holding Partnership Agreement (each a “Partnership Agreement” and, together, the “Partnership Agreements”) sets forth limitations on the duties and liabilities of the General Part- ner. Each Partnership Agreement provides that the General Partner is not liable for monetary damages for errors in judgment or for breach of fiduciary duty (including breach of any duty of care or loyalty) unless it is established (the person asserting such liability having the burden of proof) that the General Partner’s action or failure to act involved an act or omission undertaken with deliber- ate intent to cause injury, with reckless disregard for the best interests of the Partnerships or with actual bad faith on the part of the General Partner, or constituted actual fraud. Whenever the Partnership Agreements provide that the General Partner is permitted or required to make a decision (i) in its “discretion” or under a grant of similar authority or latitude, the General Partner is entitled to consider only such interests and factors as it desires and has no duty or obligation to consider any interest of or other factors affecting the Partnerships or any Unitholder of AB or AB Holding or (ii) in its “good faith” or under another express standard, the General Partner will act under that express standard and will not be subject to any other or different standard imposed by either Partnership Agreement or applicable law or in equity or otherwise. Each Partnership Agreement further provides that to the extent that, at law or in equity, the General Partner has duties (including fiduciary duties) and liabilities relating thereto to either Partnership or any partner, the General Partner acting under either Partnership Agreement, as applicable, will not be liable to the Partnerships or any partner for its good faith reliance on the provisions of the Partnership Agreement. In addition, each Partnership Agreement grants broad rights of indemnification to the General Partner and its directors, officers and affiliates and authorizes AB and AB Holding to enter into indemnification agreements with the directors, officers, partners, employees and agents of AB and its affiliates and AB Holding and its affiliates. The Partnerships have granted broad rights of indemnification to officers and employees of AB and AB Holding. The foregoing indemnification provisions are not exclusive, and the Partnerships are authorized to enter into additional indemnification arrangements. AB and AB Holding have obtained directors and officers/errors and omissions liability insurance. Annual Report 2016 153 Each Partnership Agreement also allows transactions between AB and AB Holding and the General Partner or its affiliates, as we describe in “Policies and Procedures Regarding Transactions with Related Persons” in Item 13, so long as such transactions are on an arms- length basis. The Delaware courts have held that provisions in partnership or limited liability company agreements that permit affili- ate transactions so long as they are on an arms-length basis operate to establish a contractually-agreed-to fiduciary duty standard of entire fairness on the part of the general partner or manager in connection with the approval of affiliate transactions. Also, each Partnership Agreement expressly permits all affiliates of the General Partner to compete, directly or indirectly, with AB and AB Holding, as we discuss in “Competition” in Item 1. The Partnership Agreements further provide that, except to the extent that a deci- sion or action by the General Partner is taken with the specific intent of providing an improper benefit to an affiliate of the General Partner to the detriment of AB or AB Holding, there is no liability or obligation with respect to, and no challenge of, decisions or actions of the General Partner that would otherwise be subject to claims or other challenges as improperly benefiting affiliates of the General Partner to the detriment of the Partnerships or otherwise involving any conflict of interest or breach of a duty of loyalty or similar fiduciary obligation. Section 17-1101(c) of the Delaware Act provides that it is the policy of the Delaware Act to give maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements. Further, Section 17-1101(d) of the Delaware Act provides in part that to the extent that, at law or in equity, a partner has duties (including fiduciary duties) to a limited partnership or to another partner, those duties may be expanded, restricted, or eliminated by provisions in a partnership agreement (provided that a partnership agreement may not eliminate the implied contractual covenant of good faith and fair dealing). In addition, Section 17-1101(f) of the Delaware Act provides that a partnership agreement may limit or eliminate any or all liability of a partner to a limited partnership or another partner for breach of contract or breach of duties (including fiduciary duties); provided, however, that a partnership agreement may not limit or eliminate liability for any act or omission that constitutes a bad faith violation of the implied contractual covenant of good faith and fair dealing. Decisions of the Delaware courts have recognized the right of parties, under the above provisions of the Delaware Act, to alter by the terms of a partnership agreement otherwise applicable fiduciary duties and liability for breach of duties. However, the Delaware courts have required that a partnership agreement make clear the intent of the parties to displace otherwise applicable fiduciary duties (the otherwise applicable fiduciary duties often being referred to as “default” fiduciary duties). Judicial inquiry into whether a partnership agreement is sufficiently clear to displace default fiduciary duties is necessarily fact driven and is made on a case by case basis. Accordingly, the effectiveness of displacing default fiduciary obligations and liabilities of general partners con- tinues to be a developing area of the law and it is not certain to what extent the foregoing provisions of the Partnership Agreements are enforceable under Delaware law. 154 AB Item 13. Certain Relationships and Related Transactions, and Director Independence Policies and Procedures Regarding Transactions with Related Persons Each Partnership Agreement expressly permits AXA and its affiliates, which includes AXA Equitable and its affiliates (collectively, “AXA Affiliates”), to provide services to AB and AB Holding if the terms of the transaction are approved by the General Partner in good faith as being comparable to (or more favorable to each such Partnership than) those that would prevail in a transaction with an unaffiliated party. This requirement is conclusively presumed to be satisfied as to any transaction or arrangement that (i) in the reasonable and good faith judgment of the General Partner meets that unaffiliated party standard, or (ii) has been approved by a majority of those directors of the General Partner who are not also directors, officers or employees of an affiliate of the General Partner. In practice, our management pricing committees review investment advisory agreements with AXA Affiliates, which is the manner in which the General Partner reaches a judgment regarding the appropriateness of the fees. Other transactions with AXA Affiliates are submitted to the Audit Committee for their review and approval. (See “Committees of the Board” in Item 10 for details regarding the Audit Committee.) We are not aware of any transaction during 2016 between our company and any related person with respect to which these procedures were not followed. Our relationships with AXA Affiliates also are subject to applicable provisions of the insurance laws and regulations of New York and other states. Under such laws and regulations, the terms of certain investment advisory and other agreements we enter into with AXA Affiliates are required to be fair and equitable and charges or fees for services performed must be reasonable. Also, in some cases, the agreements are subject to regulatory approval. We have written policies regarding the employment of immediate family members of any of our related persons. Compensation and benefits for all of our employees is established in accordance with our human resources practices, taking into consideration the defined qualifications, responsibilities and nature of the role. Financial Arrangements with AXA Affiliates The General Partner has, in its reasonable and good faith judgment (based on its knowledge of, and inquiry with respect to, com- parable arrangements with or between unaffiliated parties), approved the following arrangements with AXA Affiliates as being comparable to, or more favorable to AB than, those that would prevail in a transaction with an unaffiliated party. Transactions between AB and related persons during 2016 are as follows (the first table summarizes services we provide to related persons and the second table summarizes services our related persons provide to us): Parties(1) General Description of Relationship(2) Amounts Received or Accrued for in 2016 We provide investment management services and ancillary accounting, valuation, reporting, treasury and other services to the general and separate accounts of AXA Equitable and its insurance company subsidiaries. We serve as sub-adviser to these open-end mutual funds, each of which is sponsored by a subsidiary of AXA Financial. We provide investment management, distribution and shareholder servicing- related services. AXA Equitable(3) EQAT, AXA Enterprise Trust and AXA Premier VIP Trust AXA AB Funds AXA Life Japan Limited(3) AXA Switzerland Life(3) AXA Re Arizona Company(3) AXA U.K. Group Pension Scheme AXA France(3) AXA Hong Kong Life(3) AXA Germany(3) AXA Belgium(3) $57,898,000 $23,956,000 $16,070,000 $14,771,000 $ 9,600,000 $ 8,735,000 $ 7,615,000 $ 6,947,000 $ 6,677,000 $ 3,004,000 $ 2,240,000 Annual Report 2016 155 Parties(1) General Description of Relationship(2) Amounts Received or Accrued for in 2016 AXA Switzerland Property and Casualty(3) MONY Life Insurance Company of America(3) AXA Mediterranean(3) AXA Corporate Solutions(3) AIM Deutschland GmbH(3) AXA Investment Managers Ltd. Paris(3) U.S. Financial Life Insurance Company(3) AXA General Insurance Hong Kong Ltd.(3) AXA Investment Managers Ltd.(3) AXA Insurance Company(3) AXA Life Singapore(3) Coliseum Reinsurance(3) AXA MPS(3) $1,280,000 $1,279,000 $ 766,000 $ 521,000 $ 469,000 $ 395,000 $ 392,000 $ 250,000 $ 188,000 $ 143,000 $ 142,000 $ 127,000 $ 107,000 Parties(1)(3) General Description of Relationship Amounts Paid or Accrued for in 2016 AXA Advisors AXA Business Services Pvt. Ltd. Distributes certain of our Retail Products and provides Private Wealth Management referrals. Provides data processing services and support for certain investment operations functions. AXA Technology Services India Pvt. Provides certain data processing services and functions. AXA Equitable AXA Advisors We are covered by various insurance policies maintained by AXA Equitable. Sells shares of our mutual funds under Distribution Service and educational Support agreements. AXA Group Solutions Pvt. Ltd. Provides maintenance and development support for applications. AXA Wealth GIE Informatique AXA Provides portfolio-related services for assets we manage under the AXA Corporate Trustee Investment Plan. Provides cooperative technology development and procurement services to us and to various other subsidiaries of AXA. $16,077,000 $ 5,475,000 $ 5,327,000 $ 2,915,000 $ 1,653,000 $ 1,110,000 $ $ 908,000 416,000 (1) AB or one of its subsidiaries is a party to each transaction. (2) We provide investment management services unless otherwise indicated. (3) This entity is a subsidiary of AXA. Additional Transactions with Related Persons AXA Equitable and its affiliates are not obligated to provide funds to us, except for ACMC, LLC’s and the General Partner’s obliga- tion to fund certain of our incentive compensation and employee benefit plan obligations. ACMC, LLC and the General Partner are obligated, subject to certain limitations, to make capital contributions to AB in an amount equal to the payments AB is required to make as incentive compensation under the employment agreements entered into in connection with AXA Equitable’s 1985 acquisition of Donaldson, Lufkin and Jenrette Securities Corporation (since November 2000, a part of Credit Suisse Group) as well as obligations of AB to various employees and their beneficiaries under AB’s Capital Accumulation Plan. In 2016, ACMC, LLC made capital contributions to AB in the amount of approximately $1.2 million in respect of these obligations. ACMC, LLC’s obligations to make these contributions are guaranteed by Equitable Holdings, LLC (a wholly-owned subsidiary of AXA Equitable), subject to certain limitations. All tax deductions with respect to these obligations, to the extent funded by ACMC, LLC, the Gen- eral Partner or Equitable Holdings, LLC, will be allocated to ACMC, LLC or the General Partner. 156 AB Arrangements with Immediate Family Members of Related Persons During 2016, we did not have arrangements with immediate family members of our directors and executive officers. Director Independence See “Independence of Certain Directors” in Item 10. Annual Report 2016 157 Item 14. Principal Accounting Fees and Services Fees for professional audit services rendered by PricewaterhouseCoopers LLP (“PwC”) for the audit of AB’s and AB Holding’s annual financial statements for 2016 and 2015, respectively, and fees for other services rendered by PwC are as follows: Audit fees(1) Audit-related fees(2) Tax fees(3) All other fees(4) Total 2016 2015 (in thousands) $ 5,173 $ 5,608 3,391 1,980 548 3,195 2,155 5 $11,092 $10,963 (1) Includes $55,606 and $65,563 paid for audit services to AB Holding in 2016 and 2015, respectively. (2) Audit-related fees consist principally of fees for audits of financial statements of certain employee benefit plans, internal control reviews and accounting consultation. (3) Tax fees consist of fees for tax consultation and tax compliance services. (4) All other fees in 2016 and 2015 consisted of miscellaneous non-audit services. The Audit Committee has a policy to pre-approve audit and non-audit service engagements with the independent registered public accounting firm. The independent registered public accounting firm must provide annually a comprehensive and detailed schedule of each proposed audit and non-audit service to be performed. The Audit Committee then affirmatively indicates its approval of the listed engagements. Engagements that are not listed, but that are of similar scope and size to those listed and approved, may be deemed to be approved, if the fee for such service is less than $100,000. In addition, the Audit Committee has delegated to its chairman the ability to approve any permissible non-audit engagement where the fees are expected to be less than $100,000. 158 AB PART IV Item 15. Exhibits, Financial Statement Schedules (a) There is no document filed as part of this Form 10-K. Financial Statement Schedule. Attached to this Form 10-K is a schedule describing Valuation and Qualifying Account-Allowance for Doubtful Accounts for the three years ended December 31, 2016, 2015 and 2014. (b) Exhibits. The following exhibits required to be filed by Item 601 of Regulation S-K are filed herewith or incorporated by reference herein, as indicated: Exhibit Description 3.01 3.02 3.03 3.04 3.05 3.06 3.07 3.08 4.01 10.01 10.02 10.03 10.04 10.05 10.06 10.07 10.08 10.09 10.10 10.11 10.12 AllianceBernstein Corporation By-Laws with amendments through November 20, 2015 (incorporated by reference to to Exhibit 3.01 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016). Amended and Restated Certificate of Limited Partnership dated February 24, 2006 of AB Holding (incorporated by reference to Exhibit 99.06 to Form 8-K, as filed February 24, 2006). Amendment No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited Partnership of AB Holding (incorporated by reference to Exhibit 3.1 to Form 10-Q for the quarterly period ended September 30, 2006, as filed November 8, 2006). Amended and Restated Agreement of Limited Partnership dated October 29, 1999 of AB Holding (incorporated by reference to Exhibit 3.2 to Form 10-K for the fiscal year ended December 31, 2003, as filed March 10, 2004). Amended and Restated Certificate of Limited Partnership dated February 24, 2006 of AB (incorporated by reference to Exhibit 99.07 to Form 8-K, as filed February 24, 2006).` Amendment No. 1 dated February 24, 2006 to Amended and Restated Agreement of Limited Partnership of AB (incorporated by reference to Exhibit 3.2 to Form 10-Q for the quarterly period ended September 30, 2006, as filed November 8, 2006). Amended and Restated Agreement of Limited Partnership dated October 29, 1999 of AB (incorporated by reference to Exhibit 3.3 to Form 10-K for the fiscal year ended December 31, 2003, as filed March 10, 2004). Certificate of Amendment to the Certificate of Incorporation of AllianceBernstein Corporation (incorporated by reference to Exhibit 99.08 to Form 8-K, as filed February 24, 2006). Contingent Value Rights Agreement, dated as of December 12, 2013, by and between AB and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.01 to Form 10-K for the fiscal year ended December 31, 2013, as filed February 12, 2014). Award Letter among James A. Gingrich, AB and AB Holding.* AllianceBernstein 2016 Incentive Compensation Award Program.* AllianceBernstein 2016 Deferred Cash Compensation Program.* Form of Award Agreement under Incentive Compensation Award Program, Deferred Cash Compensation Program and 2010 Long Term Incentive Plan.* Form of Award Agreement under 2010 Long Term Incentive Plan relating to equity compensation awards to Eligible Directors.* Amendment to the Profit Sharing Plan for Employees of AllianceBernstein L.P., dated as of October 20, 2016 and effective as of January 1, 2017.* Summary of AB’s Lease at 1345 Avenue of the Americas, New York, New York 10105. Guidelines for Transfer of AB Units. Revolving Credit Agreement, dated as of December 1, 2016, with AB and SCB LLC as Borrowers, the Industrial and Commercial Bank of China as Administrative Agent and the other lending institutions that may be party thereto (incorporated by reference to Exhibit 10.01 to Form 8-K, as filed December 5, 2016). Profit Sharing Plan for Employees of AB, as amended and restated as of January 1, 2015 and as further amended as of January 1, 2017 (incorporated by reference to Exhibit 10.05 to Form 10-K the the fiscal year ended December 31, 2015, as filed February 11, 2016).* Amendment and Restatement of the Retirement Plan for Employees of AB, as of January 1, 2015 (incorporated by reference to Exhibit 10.06 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016).* Commercial Paper Dealer Agreement 4(a)(2) Program, dated as of June 1, 2015, between AllianceBernstein L.P., as Issuer, and Citigroup Global Markets Inc., as Dealer (incorporated by reference to Exhibit 10.08 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016). Annual Report 2016 159 Exhibit 10.13 10.14 10.15 10.16 10.17 10.18 10.19 10.20 10.21 10.22 10.23 10.24 10.25 10.26 10.27 10.28 12.01 21.01 23.01 31.01 31.02 32.01 Description Commercial Paper Dealer Agreement 4(a)(2) Program, dated as of June 1, 2015, between AllianceBernstein L.P., as Issuer, and Credit Suisse Securities (USA) LLC, as Dealer.(incorporated by reference to Exhibit 10.09 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016). Commercial Paper Dealer Agreement 4(a)(2) Program, dated as of June 1, 2015, between AllianceBernstein L.P., as Issuer, and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as Dealer.(incorporated by reference to Exhibit 10.10 to Form 10-K for the fiscal year ended December 31, 2015, as filed February 11, 2016). AllianceBernstein L.P. 2010 Long Term Incentive Plan, as amended (incorporated by reference to Exhibit 10.03 to Form 10-K for the fiscal year ended December 31, 2014, as filed February 12, 2015).* Revolving Credit Agreement, dated as of December 9, 2010, Amended and Restated as of January 17, 2012 and Further Amended and Restated as of October 22, 2014, among AB and SCB LLC, as Borrowers; Bank of America, N.A., as Administrative Agent; Merrill Lynch, Pierce, Fenner & Smith Incorporated, Citigroup Global Markets Inc., J.P. Morgan Securities LLC, The Bank of Tokyo-Mitsubishi UFJ, Ltd. and HSBC Securities (USA) Inc., as Joint Lead Arrangers and Joint Book Managers, and the other lenders party thereto (incorporated by reference to Exhibit 10.01 to Form 8-K, as filed October 24, 2014). Employment Agreement among Peter S. Kraus, AllianceBernstein Corporation, AB Holding and AB, dated as of June 21, 2012 (incorporated by reference to Exhibit 99.01 to Form 8-K/A, as filed June 26, 2012).* Amendment No. 1 to Employment Agreement dated as of December 19, 2008 among Peter S. Kraus, AllianceBernstein Corporation, AB Holding and AB, dated as of June 21, 2012 (incorporated by reference to Exhibit 99.02 to Form 8-K, as filed June 21, 2012).* Form of Award Agreement under the Special Option Program (incorporated by reference to Exhibit 10.05 to Form 10-K for the fiscal year ended December 31, 2008, as filed February 23, 2009).* Employment Agreement among Peter S. Kraus, AllianceBernstein Corporation, AB Holding and AB, dated as of December 19, 2008 (incorporated by reference to Exhibit 99.02 to Form 8-K, as filed December 24, 2008).* Amended and Restated 1997 Long Term Incentive Plan, as amended through November 28, 2007 (incorporated by reference to Exhibit 10.02 to Form 10-K for the fiscal year ended December 31, 2007, as filed February 25, 2008).* Amended and Restated Issuing and Paying Agency Agreement, dated as of May 3, 2006 (incorporated by reference to Exhibit 10.2 to Form 10-Q for the quarterly period ended March 31, 2006, as filed May 8, 2006). Investment Advisory and Management Agreement for the General Account of AXA Equitable Life Insurance Company (incorporated by reference to Exhibit 10.5 to Form 10-K for the fiscal year ended December 31, 2004, as filed March 15, 2005). AB Partners Plan of Repurchase adopted as of February 20, 2003 (incorporated by reference to Exhibit 10.2 to Form 10-K for the fiscal year ended December 31, 2002, as filed March 27, 2003). Services Agreement dated as of April 22, 2001 between AB and AXA Equitable Life Insurance Company (incorporated by reference to Exhibit 10.19 to Form 10-K for the fiscal year ended December 31, 2001, as filed March 28, 2002). Extendible Commercial Notes Dealer Agreement, dated as of December 14, 1999 (incorporated by reference to Exhibit 10.10 to the Form 10-K for the fiscal year ended December 31, 1999, as filed March 28, 2000). Amended and Restated Investment Advisory and Management Agreement dated January 1, 1999 among AB Holding, Alliance Corporate Finance Group Incorporated, and AXA Equitable Life Insurance Company (incorporated by reference to Exhibit (a)(6) to Form 10-Q/A for the quarterly period ended September 30, 1999, as filed on September 28, 2000). Amended and Restated Accounting, Valuation, Reporting and Treasury Services Agreement dated January 1, 1999 between AB Holding, Alliance Corporate Finance Group Incorporated, and AXA Equitable Life Insurance Company (incorporated by reference to Exhibit (a)(7) to the Form 10-Q/A for the quarterly period ended September 30, 1999, as filed September 28, 2000). AB Consolidated Ratio of Earnings to Fixed Charges in respect of the years ended December 31, 2016, 2015 and 2014. Subsidiaries of AB. Consents of PricewaterhouseCoopers LLP. Certification of Mr. Kraus furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Mr. Weisenseel furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Certification of Mr. Kraus furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 160 AB Exhibit 32.02 Description Certification of Mr. Weisenseel furnished for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document. 101.SCH XBRL Taxonomy Extension Schema. 101.CAL XBRL Taxonomy Extension Calculation Linkbase. 101.LAB XBRL Taxonomy Extension Label Linkbase. 101.PRE 101.DEF XBRL Taxonomy Extension Presentation Linkbase. XBRL Taxonomy Extension Definition Linkbase. * Denotes a compensatory plan or arrangement Annual Report 2016 161 Item 16. Form 10-K Summary None. 162 AB Signatures Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 14, 2017 By: /s/ Peter S. Kraus AllianceBernstein Holding L.P. Peter S. Kraus Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Exchange Act, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: February 14, 2017 Date: February 14, 2017 /s/ John C. Weisenseel John C. Weisenseel Chief Financial Officer /s/ Edward J. Farrell Edward J. Farrell Chief Accounting Officer Annual Report 2016 163 Directors /s/ Peter S. Kraus Peter S. Kraus Chairman of the Board /s/ Christopher M. Condron Christopher M. Condron Director /s/ Denis Duverne Denis Duverne Director /s/ Steven G. Elliott Steven G. Elliott Director /s/ Deborah S. Hechinger Deborah S. Hechinger Director /s/ Weston M. Hicks Weston M. Hicks Director /s/ Heidi S. Messer Heidi S. Messer Director /s/ Mark Pearson Mark Pearson Director /s/ Scott A. Schoen Scott A. Schoen Director /s/ Lorie A. Slutsky Lorie A. Slutsky Director /s/ Joshua A. Weinreich Joshua A. Weinreich Director 164 AB This page intentionally left blank. This page intentionally left blank. 2016 COMPANY INFORMATION AllianceBernstein Holding L.P. New York Stock Exchange Symbol: AB Headquarters 1345 Avenue of the Americas New York, NY 10105 (212) 969 1000 www.abglobal.com Unitholder Investor Relations Phone: (800) 962 2134 option 6 Fax: (212) 969 2136 Email: ir@abglobal.com www.abglobal.com/investorrelations All forms that we ﬁle with the US Securities and Exchange Commission, as well as this annual report, can be found in the Investor & Media Relations section of our website. Unitholder Account Assistance Unitholders who own units in certiﬁcate form should contact the transfer agent and registrar listed below with any questions: Media Relations Jonathan Freedman (212) 823 2687 Independent Public Accountants PricewaterhouseCoopers LLP New York Mutual Fund Shareholder Information For US Investors: AllianceBernstein Investor Services, Inc. P.O. Box 786003 San Antonio, TX 78278-6003 Monday to Friday, 8:30 am–7:00 pm ET (800) 221 5672 US Direct Number: (210) 384 6000 24-Hour Automated Assistance The AB Answer: (800) 251 0539 www.abglobal.com (regular mail) Computershare P.O. Box 505000 Louisville, KY 40233 (overnight) Computershare 462 South 4th Street, Suite 1600 Louisville, KY 40202 US: (866) 737 9896 Outside the US: (201) 680 6578 Email: web.queries@computershare.com www.computershare.com/investor Unitholder Tax Assistance Unitholders with Schedule K-1 or any tax-related questions can contact: Phone: (800) 526 3132 (212) 969 6870 Fax: Email: K1help@abglobal.com www.taxpackagesupport.com/ab For Non-US Investors: AllianceBernstein Investor Services, a unit of AllianceBernstein (Luxembourg) S.A. Société Anonyme R.C.S. Luxembourg B 34 305 2-4, rue Eugène Ruppert L-2453 Luxembourg International Access Code + (800) 22 63 8637 Be advised that only the international access code is required to dial this number and not the country code. Alternative Phone + (352) 46 39 36 151 AllianceBernstein Institutional Investments Kelly Murphy (212) 969 6601 www.abglobal.com/institutional Bernstein Private Wealth Management (212) 486 5800 www.bernstein.com Bernstein Research Lori Lewin (212) 756 4226 www.bernsteinresearch.com Cautions Regarding Forward-Looking Statements Certain statements provided by management in this report 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, 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, such 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 Item 1A and “Cautions Regarding Forward-Looking Statements” in Item 7 of the enclosed Form 10-K. Any or all of the forward-looking statements that we make in this report, the enclosed Form 10-K, 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 “Cautions Regarding Forward-Looking Statements” could also adversely affect our revenues, ﬁnancial condition, results of operations and business prospects. The [A/B] logo and “Ahead of Tomorrow” slogan are registered service marks of AllianceBernstein and AllianceBernstein® is a registered service mark used by permission of the owner, AllianceBernstein L.P. © 2017 AllianceBernstein L.P. Printed in the USA www.abglobal.com 1345 Avenue of the Americas New York, NY 10105 AB–4737–0417

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