What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2023-11-14 compared with 2022-11-14 · 133 added, 125 removed, 619 unchanged (29% of the section changed)

29 unchanged sentences

We may perform services directly or through third parties.

We offer our services and products under our various distinct brand names, including, but not limited to, Franklin ® , Templeton ® , Legg Mason ® , Alcentra ® , Benefit Street Partners ® , Brandywine Global Investment Management ® , Clarion Partners ® , ClearBridge Investments ® , Fiduciary Trust International™, Franklin Bissett ® , Franklin Mutual Series ® , K2 ® , Lexington Partners ® , Martin Currie ® , O’Shaughnessy ® Asset Management, Royce ® Investment Partners and Western Asset Management Company ® .

We offer our services and products under our various distinct brand names, including, but not limited to, Alcentra ® , Benefit Street Partners ® , Brandywine Global Investment Management ® , Clarion Partners ® , ClearBridge Investments ® , Fiduciary Trust International™, Franklin ® , Franklin Bissett ® , Franklin Mutual Series ® , K2 ® , Legg Mason ® , Lexington Partners ® , Martin Currie ® , O’Shaughnessy ® Asset Management, Royce ® Investment Partners, Templeton ® and Western Asset Management Company ® .

We offer a broad product mix of fixed income, equity, alternative, multi-asset and cash management asset classes and solutions that meet a wide variety of specific investment goals and needs for individual and institutional investors.

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These arrangements could change in the future.

During the fiscal year ended September 30, 2022 (“fiscal year 2022”), global equity markets experienced significant declines driven by the economic impacts of inflationary pressures, interest rate increases by the Federal Reserve and other developed market central banks in an effort to combat inflation, central banks’ tightened monetary policies, the Russian invasion of Ukraine, and concerns about the risk of recession.

The S&P 500 Index and MSCI World Index decreased 15.5% and 19.3% for the fiscal year.

The global bond markets also declined as the Bloomberg Barclays Global Aggregate Index decreased 20.4% for the fiscal year driven by the interest rate increases.

Our total AUM was $1,297.4 billion at September 30, 2022, which was 15% lower than at September 30, 2021 driven by the negative impact of $269.0 billion of net market change, distributions and other, $27.8 billion of long-term net outflows and $0.8 billion of cash management net outflows, partially offset by $64.9 billion from acquisitions.

During the fiscal year ended September 30, 2023 (“fiscal year 2023”), global equity markets provided positive returns driven by moderating inflation, easing of monetary policy and resilient economic activity amid continued concerns about the risk of recession.

The S&P 500 Index and MSCI World Index increased 21.6% and 22.6% for the fiscal year.

The global bond markets remained positive as the Bloomberg Barclays Global Aggregate Index increased 2.2% for the fiscal year, reflecting moderating inflation and easing of monetary policy.

Our total AUM was $1,374.2 billion at September 30, 2023, which was 6% higher than at September 30, 2022 driven by the positive impact of $58.9 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $4.3 billion of cash management net inflows, partially offset by $21.3 billion of long-term net outflows.

Simple monthly average AUM (“average AUM”) decreased 5% during fiscal year 2023.

On April 1, 2022, we acquired all of the outstanding ownership interests in Lexington Partners L.P.

(“Lexington”), a leading global manager of secondary private equity and co-investment funds, for cash consideration of $1.0 billion and additional payments totaling $750.0 million to be paid in cash over the next three years.

In connection with the acquisition, we granted a 25% ownership stake in Lexington and performance-based cash retention awards to certain employees that vest over approximately five years.

On December 31, 2021, we acquired all of the outstanding ownership interest in O’Shaughnessy Asset Management, LLC (“OSAM”), a leading quantitative asset management firm, for cash consideration paid of approximately $300 million, excluding future payments to be made subject to the attainment of certain performance measures.

On November 1, 2022, we acquired BNY Alcentra Group Holdings, Inc.

(together with its subsidiaries, “Alcentra”), one of the largest European credit and private debt managers, with global expertise in senior secured loans, high yield bonds, private credit, structured credit, special situations and multi-strategy credit strategies.

Total purchase price included cash consideration of $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s collateralized loan obligations;

deferred consideration of $62.0 million which was paid on November 1, 2023;

and contingent consideration to be paid upon the achievement of certain performance thresholds over the next four years of up to $350.0 million that had an acquisition-date fair value of $24.6 million.

The business and regulatory environments in which we operate globally remain complex, uncertain and subject to change.

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Long-term net flows (21.3) (27.8) (25.2) (23 %) 10 %

Cash management net flows (0.8) (15.1) (9.9) (95 %) 53%

Cash management net flows 4.3 (0.8) (15.1) NM (95%)

Total net flows (17.0) (28.6) (40.3) (41 %) (29 %)

21 unchanged sentences

AUM at September 30, 2023 $ 483.1 $ 430.4 $ 254.9 $ 145.0 $ 60.8 $ 1,374.2

AUM decreased $232.7 billion or 15% during fiscal year 2022 due to the negative impact of $269.0 billion of net market change, distributions and other, $27.8 billion of long-term net outflows and $0.8 billion of cash management net outflows, partially offset by acquisitions of $64.9 billion.

Net market change, distributions and other primarily consists of $199.2 billion of market depreciation, $48.7 billion of long-term distributions and a $21.1 billion decrease from foreign exchange revaluation.

The market depreciation occurred in all asset classes with the exception of the alternative asset class.

AUM increased $76.8 billion or 6% during fiscal year 2023 due to the positive impact of $58.9 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $4.3 billion of cash management net inflows, partially offset by $21.3 billion of long-term net outflows.

Net market change, distributions and other primarily consists of $94.4 billion of market appreciation, and a $4.6 billion increase from foreign exchange revaluation, partially offset by $40.1 billion of long-term distributions.

The market appreciation occurred in all asset classes with the exception of the alternative asset class, most significantly in the equity asset class and reflected positive returns in the global equity markets.

Foreign exchange revaluation from AUM in products that are not U.S.

dollar denominated was primarily due to a stronger U.S.

dollar compared to the Japanese Yen, Euro, Pound Sterling and Australian dollar.

Long-term inflows decreased 12% to $320.4 billion, as compared to the prior year, driven by lower inflows in fixed income institutional separate accounts, open-end funds, and retail separately managed accounts, as well as equity open-end funds, partially offset by higher alternative inflows for private funds.

Long-term outflows decreased 11% to $348.2 billion due to lower outflows in fixed income institutional separate accounts, equity and multi-asset open-end funds, and equity sub-advised mutual funds, partially offset by higher equity outflows in retail separately managed accounts and multi-asset sub-advised mutual funds.

dollar denominated was primarily due to a weaker U.S.

dollar compared to the Euro, British Pound and Brazilian Real.

Long-term inflows decreased 20% to $254.9 billion, as compared to the prior year, driven by lower inflows in equity and fixed income open-end funds, fixed income institutional separate accounts, and equity retail separately managed accounts.

Long-term inflows for fiscal years 2023 and 2022 include reinvested distributions of $20.6 billion and $32.0 billion.

Long-term outflows decreased 21% to $276.2 billion due to lower outflows in fixed income and equity open-end funds, fixed income institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separately managed accounts.

(in billions)

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AUM at September 30, 2022 $ 490.9 $ 392.3 $ 225.1 $ 131.5 $ 57.6 $ 1,297.4

AUM increased $111.2 billion or 8% during fiscal year 2021 due to the positive impact of $148.0 billion of net market change, distributions and other, and $3.5 billion from an acquisition, partially offset by $25.2 billion of long-term net outflows and $15.1 billion of cash management net outflows.

Net market change, distributions and other primarily consists of $176.3 billion of market appreciation, partially offset by $29.1 billion of long-term distributions.

The market appreciation occurred in all asset classes, most significantly in the equity and multi-asset classes and reflected positive returns in global equity markets.

Long-term inflows increased 100% to $364.7 billion, as compared to the prior year, and long-term outflows increased 60% to $389.9 billion due to higher inflows and outflows in all long-term asset classes primarily due to the acquisition of Legg Mason.

Long-term net outflows included outflows of $35.7 billion from sixteen institutional products, including two fixed income redemptions of $5.9 billion and $2.0 billion and two equity redemptions of $3.7 billion and

$2.2 billion, $12.5 billion from seven fixed income funds, including $3.3 billion from five India credit funds that were non-management fee earning which are in the process of winding up, $5.4 billion from a 529 plan redemption, $3.9 billion from two equity funds and $3.1 billion from a multi-asset fund, partially offset by inflows of $12.3 billion in three fixed income funds, $6.7 billion in three institutional products, $3.7 billion in an equity fund, $3.1 billion in a multi-asset fund and $3.0 billion in two alternative funds.

The market depreciation occurred in all asset classes with the exception of the alternative asset class.

Foreign exchange revaluation from AUM in products that are not U.S.

dollar denominated was primarily due to a stronger U.S.

dollar compared to the Japanese Yen, Euro, British Pound and Australian dollar.

funds, partially offset by higher alternative inflows for private funds.

(in billions)

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International

Asia-Pacific 118.4 155.6 168.6 (24 %) (8 %)

Europe, Middle East and Africa 156.0 126.6 153.9 23 % (18 %)

Asia-Pacific 126.7 118.4 155.6 7 % (24 %)

Americas, excl.

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Mutual fund performance data includes U.S.

and cross-border domiciled mutual funds and exchange-traded funds, and excludes cash management and fund of funds.

These results assume the reinvestment of dividends, are based on data available as of October 7, 2022 and are subject to revision.

and cross-border domiciled mutual funds and exchange-traded funds, excludes cash management and fund of funds, and assumes the reinvestment of dividends.

Past performance is not indicative of future results.

For AUM included in institutional and retail separately managed accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on gross-of-fee performance.

For strategy composite AUM included in institutional and retail separately managed accounts and investment funds managed in the same strategy as separate accounts, performance comparisons are based on gross-of-fee performance.

For investment funds which are not managed in a separate account format, performance comparisons are based on net-of-fee performance.

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are generally higher than for U.S.

Investment management fees decreased $163.9 million in fiscal year 2023 primarily due to a 5% decrease in average AUM, partially offset by higher performance fees.

The decrease in average AUM occurred primarily in the fixed income and equity asset classes, partially offset by an increase in the alternative asset class that includes the acquisitions of Lexington Partners L.P.

(“Lexington”) on April 1, 2022 and Alcentra on November 1, 2022.

Investment management fees increased $75.2 million in fiscal year 2022 primarily due to higher performance fees, partially offset by a 2% decrease in average AUM.

The decrease in average AUM occurred primarily in the fixed income and equity asset classes, partially offset by an increase in the alternative asset class that includes the acquisition of Lexington.

Investment management fees increased $2,559.9 million in fiscal year 2021 primarily due to the acquisition of Legg Mason, a 5% increase in average AUM and higher performance fees.

The increase in average AUM occurred primarily in the equity and multi-asset asset classes, partially offset by a decrease in the fixed income asset class.

Our effective investment management fee rate excluding performance fees (investment management fees excluding performance fees divided by average AUM) was 42.1, 41.6 and 41.8 basis points for fiscal years 2023, 2022 and 2021.

The rate increase in fiscal year 2023 was primarily due to a shift in AUM from lower-fee fixed income products to higher-fee alternative products, including those from the acquisitions of Lexington and Alcentra, and an increase in certain transaction-related fees received in the current year.

The rate decrease in fiscal year 2022 was primarily due to a shift in assets from higher-fee products to lower-fee products in the fixed income and equity asset classes.

The rate decrease in fiscal year 2021 was primarily due to the Legg Mason acquisition, as Legg Mason generally had a lower overall effective fee rate due to a higher mix of institutional and fixed income AUM.

Performance-based investment management fees were $550.1 million, $498.2 million and $258.6 million for fiscal years 2023, 2022 and 2021.

The increase in fiscal year 2022 was primarily due to strong performance by our alternative specialist investment managers, while the increase in fiscal year 2021 was primarily due to the acquisition of Legg Mason as well as strong performance.

The increase in fiscal year 2023 was primarily due to a $166.0 million increase in performance fees earned by Lexington, which were passed through as compensation expense per the terms of the acquisition agreement, partially offset by lower performance fees earned by our other alternative specialist investment managers, while the increase in fiscal year 2022 was primarily due to strong performance by our alternative specialist investment managers.

Our product offerings and global operations are diverse.

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mutual funds, with the exception of certain money market funds and certain other funds specifically designed for purchase through separately managed account programs, have adopted distribution plans under Rule 12b-1 (the “Rule 12b-1 Plans”) promulgated under the Investment Company Act of 1940.

The Rule 12b-1 Plans permit the funds to pay us for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans’ limitations on amounts based on daily average AUM.

earn distribution fees from our non-U.S.

The Rule 12b-1 Plans

permit the funds to pay us for marketing, marketing support, advertising, printing and sales promotion services relating to the distribution of their shares, subject to the Rule 12b-1 Plans’ limitations on amounts based on daily average AUM.

We earn distribution fees from our non-U.S.

funds based on daily average AUM.

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Sales-based fees 205.7 264.8 333.2 (22 %) (21 %)

Contingent sales charges 13.7 18.6 19.8 (26 %) (6 %)

Sales and Distribution Fees $ 1,203.7 $ 1,415.0 $ 1,635.5 (15 %) (13 %)

Asset-based distribution fees decreased $152.1 million in fiscal year 2022 primarily due to a 12% decrease in the related average AUM.

Asset-based distribution fees increased $206.0 million in fiscal year 2021 primarily due to the acquisition of Legg Mason and $53.1 million from a 5% increase in the related average AUM, partially offset by $33.2 million from a higher mix of lower-fee U.S.

Sales-based fees decreased $63.5 million in fiscal year 2022 primarily due to a 20% decrease in commissionable sales.

Sales-based fees increased $68.7 million in fiscal year 2021 primarily due to the acquisition of Legg Mason and $13.0 million from higher commissionable sales.

Asset-based distribution fees decreased $152.2 million and $152.1 million in fiscal years 2023 and 2022 primarily due to decreases of 11% and 12% in the related average AUM and, in fiscal year 2023, a higher mix of lower-fee assets.

Sales-based fees decreased $59.1 million and $68.4 million in fiscal years 2023 and 2022 primarily due to a 20% decrease in commissionable sales in both years.

Shareholder Servicing Fees

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Shareholder servicing fees also include fund reimbursements of expenses incurred while providing transfer agency services.

Shareholder servicing fees decreased $18.2 million in fiscal year 2022 primarily due to lower levels of related AUM and transactions.

Shareholder servicing fees increased $16.1 million in fiscal year 2021 primarily due to the acquisition of Legg Mason and higher levels of related AUM, partially offset by lower levels of transactions.

Other revenue increased $13.3 million and increased $9.5 million in fiscal years 2022 and 2021 primarily due to higher real estate transaction fees earned by certain of our alternative asset managers.

Effective October 1, 2023, fees charged to certain of our U.S.

sponsored funds are determined based on a contractual margin.

Shareholder servicing fees decreased $40.3 million in fiscal year 2023, primarily due to a reduction in fee rates charged for transfer agency services in the U.S., partially related to the outsourcing of our transfer agency services, lower levels of related AUM and fewer transactions.

Shareholder servicing fees decreased $18.2 million in fiscal year 2022 primarily due lower levels of related AUM and fewer transactions.

Other revenue decreased $10.4 million in fiscal year 2023 and increased $13.3 million in fiscal year 2022 driven by the volume of real estate transaction fees earned by certain of our alternative asset managers in each year.

OPERATING EXPENSES

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Acquisition-related retention 164.9 167.2 163.7 (1 %) 2 %

Acquisition-related performance fee pass through 1

169.7 4.2 25.3 NM (83 %)

127.8 (8.5) 49.8 NM NM

Compensation and Benefits Expenses $ 3,494.0 $ 3,089.8 $ 2,971.3 13 % 4 %

_______________

1 Includes impact of gains and losses on investments related to deferred compensation plans and seed investments, which is offset in investment and other income (losses), net;

1 See “Supplemental Non-GAAP Financial Measures” for additional information.

2 Includes impact of gains and losses on investments related to deferred compensation plans, which is offset in investment and other income (losses), net;

minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests;

special termination benefits;

and acquisition-related performance-based investment management fees which are passed through as compensation and benefits expense.

and special termination benefits.

Salaries, wages and benefits increased $73.1 million in fiscal year 2023 primarily due to the recent acquisitions and annual salary increases, partially offset by the impact of headcount reductions.

Salaries, wages and benefits decreased $2.2 million in fiscal year 2022 primarily due to a $16.8 million decrease in termination benefits and the impact of headcount reductions which were substantially offset by increases due to annual salary adjustments and the acquisitions of Lexington and OSAM.

Salaries, wages and benefits increased $365.9 million in fiscal year 2021, primarily due to the acquisition of Legg Mason.

Incentive compensation increased $31.6 million in fiscal year 2023, primarily due to an increase in expense for deferred compensation awards, due, in part, to an increase in annual acceleration for retirement-eligible employees, and recent acquisitions.

These increases were partially offset by lower incentive compensation at specialist investment managers and lower bonus expense based on our annual performance.

Incentive compensation increased $196.6 million in fiscal year 2022, primarily due to higher performance fees and the acquisition of Lexington.

Incentive compensation increased $753.9 million in fiscal year 2021, primarily due to the acquisition of Legg Mason.

Acquisition-related retention expenses increased $3.5 million in fiscal year 2022, primarily due to acquisition of Lexington and decreased $32.1 million in fiscal year 2021 primarily due to lower costs associated with the acquisition of Legg Mason.

Other compensation and benefits were $(4.3) million, $75.1 million, and $65.4 million for fiscal years 2022, 2021, and 2020.

The changes for fiscal years 2022 and 2021 were primarily related to market adjustments on investments related to our deferred compensation plans and compensation related to minority interests.

Special termination benefits also decreased $18.9 million and $27.7 million in fiscal years 2022 and 2021 primarily due to workforce optimization initiatives related to the acquisition of Legg Mason.

Acquisition-related retention expenses decreased $2.3 million in fiscal year 2023, primarily due to lower compensation associated with performance-based awards, partially offset by an increase due to the acquisition of Alcentra.

Acquisition-related retention expenses increased $3.5 million in fiscal year 2022, primarily due to the acquisition of Lexington.

Acquisition-related performance fee pass through expenses increased $165.5 million in fiscal year 2023, due to higher performance fees earned by Lexington, and decreased $21.1 million in fiscal year 2022, due to lower pass through performance fees at Clarion Partners.

Other compensation and benefits were $127.8 million, $(8.5) million, and $49.8 million for fiscal years 2023, 2022,

Fiscal year 2023 included the impact of $20.3 million of market gains on investments related to our deferred compensation plans, while fiscal year 2022 included losses of $36.7 million and fiscal year 2021 included $22.7 million of such gains.

Special termination benefits increased $55.0 million in fiscal year 2023 primarily due to workforce optimization initiatives and the acquisition of Alcentra and decreased $18.9 million in fiscal year 2022 primarily due to workforce optimization initiatives related to the acquisition of Legg Mason.

Compensation related to minority interests increased $24.3 million in fiscal year 2023 and $20.0 million in fiscal year 2022.

We expect to incur acquisition-related retention expenses of approximately $240 million during the fiscal year ending September 30, 2024 (“fiscal year 2024”), and decreasing over the following two fiscal years by approximately $80 million and $20 million.

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Sales, Distribution and Marketing $ 1,613.1 $ 1,845.6 $ 2,105.8 (13 %) (12 %)

Asset-based expenses decreased $182.1 million in fiscal year 2022 primarily due to an 11% decrease in the related average AUM.

Asset-based expenses increased $345.7 million in fiscal year 2021 primarily due to the acquisition of Legg Mason and $59.7 million from a 5% increase in the related average AUM.

Sales-based expenses decreased $64.7 million in fiscal year 2022 primarily due to a 20% decrease in commissionable sales.

Sales-based expenses increased $59.1 million in fiscal year 2021 primarily due to the acquisition of Legg Mason and $12.1 million from higher commissionable sales.

Asset-based expenses decreased $164.5 million and $182.1 million in fiscal years 2023 and 2022 primarily due to decreases of 10% and 11% in the related average AUM and in fiscal year 2023, a higher mix of lower-fee assets.

Sales-based expenses decreased $53.2 million and $64.7 million in fiscal years 2023 and 2022 primarily due to a 20% decrease in commissionable sales in both years.

Information Systems and Technology

Information systems and technology expenses increased $14.1 million in fiscal year 2022 primarily due to higher costs incurred for technology consulting, software and external data services offset in part by lower technology depreciation.

Information systems and technology expenses increased $197.7 million in fiscal year 2021 primarily due to higher external data service and software costs and technology consulting as a result of the Legg Mason acquisition.

Occupancy expenses remained relatively flat in fiscal year 2022 and increased $70.2 million in fiscal year 2021.

The increase in fiscal year 2021 was primarily due to an increase in leased office space as a result of the Legg Mason acquisition.

Information systems and technology expenses increased $4.8 million in fiscal year 2023 primarily due to higher software costs partially offset by lower technology depreciation.

Occupancy expenses increased $10.0 million in fiscal year 2023 primarily due to higher utility costs, reflecting a full year of return to office, and higher leasehold and equipment depreciation.

Occupancy expenses remained relatively flat in fiscal year 2022.

We expect to incur additional expense of approximately $50 million in fiscal year 2024 primarily related to new leased office space located at One Madison Avenue.

This is part of an initiative to consolidate our existing office space in New York City.

Amortization of intangible assets

Amortization of intangible assets increased $50.0 million in fiscal year 2022, primarily due to intangible assets recognized as part of the acquisition of Lexington Partners, and increased $178.0 million in fiscal year 2021 primarily due to intangible assets recognized as part of the acquisition of Legg Mason.

Amortization of intangible assets increased $59.1 million and $50.0 million in fiscal years 2023 and 2022, primarily due to intangible assets recognized as part of the acquisition of Lexington and, in fiscal year 2023, the acquisition of Alcentra.

General, Administrative and Other

General, administrative and other expenses primarily consist of professional fees, fund-related service fees payable to external parties, advertising and promotion, travel and entertainment, and other miscellaneous expenses.

General, administrative and other operating expenses remained relatively flat in fiscal year 2023 as an increase of $35.9 million in travel and entertainment expenses and conference costs, reflecting the resumption of activity post-pandemic, and the impact of net credits of $19.2 million recognized in the prior year to adjust the fair values of our contingent consideration asset and liabilities, were substantially offset by a $17.3 million decrease in third-party sub-advisory service fees, a $20.6 million decrease in acquisition-related costs, primarily due to costs associated with our global brand campaign in the prior year, and a $6.8 million decrease in other taxes at certain European subsidiaries.

General, administrative and other operating expenses increased $27.7 million in fiscal year 2022, primarily due to increases of $27.1 million in advertising and promotion expenses, due in part to our global brand campaign, $25.7 million in professional fees, largely related to acquisition costs, and $24.0 million in travel and entertainment expenses.

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Fiscal year 2022 also included net credits of $19.2 million to adjust the fair values of our contingent consideration asset and liabilities, as compared to $4.1 million of expense recognized in the prior year.

General, administrative and other operating expenses increased $86.9 million in fiscal year 2021, primarily due to the acquisition of Legg Mason and $43.0 million of closed-end fund product launch costs.

The increase was also due to increases of $35.0 million in third-party fund administration and sub-advisory service fees and $12.9 million in placement and platform fees.

The increases were partially offset by $55.4 million of prior year impairments of intangible assets and goodwill primarily related to assets recognized from the acquisitions of Benefit Street Partners, L.L.C.

and Onsa, Inc., (formally known as TokenVault, Inc.).

OTHER INCOME (EXPENSES)

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for the fiscal years ended September 30, 2023 2022 2021

Investment and other income (losses), net $ 91.1 $ 264.7 $ (38.4) (66 %) NM

Investment and other income, net $ 340.0 $ 91.1 $ 264.7 273 % (66 %)

Interest expense (123.7) (98.2) (85.4) 26 % 15 %

Investment and other income (losses) of consolidated investment products, net (17.7) 421.1 70.2 NM 500 %

Investment and other income (losses) of consolidated investment products, net 115.8 (17.7) 421.1 NM NM

Expenses of consolidated investment products (18.7) (19.7) (31.2) (5 %) (37 %)

Other income (expenses), net $ 313.4 $ (44.5) $ 569.2 NM NM

Investment and other income (losses), net consists primarily of gains (losses) on investments held by the Company, income (losses) from equity method investees, foreign currency exchange gains (losses), rental income from excess owned space which we lease to third parties, gains (losses) on derivatives, and dividend income.

Investment and other income (losses), net decreased $173.6 million in fiscal year 2022 primarily due to the impact of market declines in the current year.

Investment and other income (losses), net increased $303.1 million in fiscal year 2021 primarily due to income from equity method investees and gains on investments held by the Company, partially offset by a decrease in dividend income and losses on derivatives.

Investment and other income, net consists primarily of gains (losses) on investments held by the Company, income (losses) from equity method investees, foreign currency exchange gains (losses), rental income from excess owned space leased to third parties, gains (losses) on derivatives, and dividend and interest income.

Investment and other income, net increased $248.9 million in fiscal year 2023 primarily due to an increase in dividend and interest income, gains on investments held by the Company as compared to losses in the prior year, and higher income from equity method investees, partially offset by net foreign currency exchange losses as compared to gains in the prior year.

Investment and other income, net decreased $173.6 million in fiscal year 2022 primarily due to the impact of market declines.

Dividend and interest income increased $122.0 million in fiscal year 2023, primarily due to higher yields, and increased $20.3 million in fiscal year 2022, primarily due to higher yields on money market funds.

Investments held by the Company generated net gains of $39.5 million, as compared to net losses of $75.4 million in the prior year, primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by net losses from investments measured at cost adjusted for observable price changes.

Investments held by the Company generated net losses of $75.4 million in fiscal year 2022, as compared to net gains of $90.9 million in fiscal year 2021, primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans.

The losses in fiscal year 2022 were partially offset in by net gains from investments measured at cost adjusted for observable price changes.

Income from equity method investees generated income of $123.1 million in fiscal year 2023 and income of $36.2 million in fiscal year 2022.

The current year income was largely related to various global alternative funds, and included $86.0 million which was fully offset in noncontrolling interest.

Income from equity method investees decreased $118.1 million in fiscal year 2022.

The current year included a $52.6 million gain recognized on the sale of our investment in Embark, offset in part by losses from equity method investees, largely related to declines in market valuations of investments held by various global equity and alternative funds, while the prior year included gains from equity method investees.

Equity method investees generated income of $154.3 million in fiscal year 2021, as compared to losses of $98.1 million in fiscal year 2020, reflecting recovery in market valuations of investments held by various global equity funds.

Investments held by the Company generated net losses of $75.4 million, as compared to net gains of $90.9 million in the prior year, primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by net gains from investments measured at cost adjusted for observable price change.

Investments held by the Company generated net gains of $90.9 million in fiscal year 2021, as compared to net losses of $16.8 million in fiscal year 2020, primarily from various nonconsolidated funds, and in fiscal year 2021, assets invested for Legg Mason deferred compensation plans.

Net foreign currency exchange gains were $40.6 million in fiscal year 2022, as compared to net losses of $11.9 million in the prior year.

The increases were primarily due to the impact of the strengthening of the U.S.

Fiscal year 2022 included a $52.6 million gain recognized on the sale of our investment in Embark, offset in part by losses from equity method investees, largely related to declines in market valuations of investments held by various global equity and alternative funds, while fiscal year 2021 included gains from equity method investees.

Net foreign currency exchange losses were $26.7 million in fiscal year 2023, as compared to net gains of $40.6 million fiscal year 2022 and net losses of $11.9 million in fiscal year 2021.

The net losses in fiscal year 2023 compared to fiscal year 2022 were primarily due to the impact of the weakening of the U.S.

dollar against the Euro and British Pound on cash and cash equivalents denominated in U.S.

dollars held by our European subsidiaries.

The net gains in fiscal year 2022 compared to fiscal year 2021 were primarily due to the impact of the strengthening of the U.S.

dollar against the Euro and British Pound.

Derivatives generated gains of $20.9 million in fiscal year 2022, losses of $23.2 million in fiscal 2021, and gains of $3.0 million in fiscal 2020.

Dividend and interest income increased $20.3 million in fiscal year 2022, primarily due to higher yields on money market funds, and decreased $45.6 million in fiscal year 2021 primarily due to lower dividend yields on money market funds.

Derivatives generated losses of $15.1 million in fiscal year 2023, gains of $20.9 million in fiscal 2022, and losses of $23.2 million in fiscal 2021.

Interest expense increased $25.5 million in fiscal year 2023 primarily due to a full year of accretion on Lexington deferred consideration, higher interest on debt and an increase in interest recognized on tax reserves.

Interest expense increased $12.8 million in fiscal year 2022 primarily due to accretion on Lexington deferred consideration.

Interest expense increased $52.0 million in fiscal year 2021 primarily due to interest expense recognized on debt of Legg Mason and on the senior unsecured unsubordinated notes issued during fiscal year 2021, partially offset by the redemption of the junior notes issued by Legg Mason.

Investment and other income (loss) of consolidated investment products, net consists of investment gains (losses) on investments held by consolidated investment products (“CIPs”) and dividend and interest income.

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Significant portions of the investment and other income of consolidated investment products, net and expenses of consolidated investment products are offset in noncontrolling interests in our consolidated statements of income.

Investments held by CIPs generated losses of $66.9 million in fiscal year 2022, as compared to gains of $324.6 million in the prior year, largely related to net losses on holdings of various equity and fixed income funds and lower gains on holdings of various alternative funds.

Dividend and interest income of CIPs was $49.2 million in fiscal year 2022, as compared to $96.5 million in the prior year.

Investment and other income of consolidated investment products, net increased $350.9 million in fiscal year 2021 primarily due to net gains on investments held by various alternative funds.

Expenses of consolidated investment products decreased $11.5 million in fiscal year 2022 and increased $1.8 million in fiscal year 2021, due to activity of the funds.

Investments held by CIPs generated investment and other income of $115.8 million in fiscal year 2023, as compared to investment and other losses of $17.7 million in fiscal year 2022 and investment and other income of $421.1 million in fiscal year 2021, largely related to net investment gains (losses) on holdings of various equity, fixed income and alternative funds.

Expenses of consolidated investment products decreased $1.0 million in fiscal year 2023 and decreased $11.5 million in fiscal year 2022, due to activity of the funds.

Our investments in sponsored funds include initial cash investments made in the course of launching mutual fund and other investment product offerings, as well as investments for other business reasons.

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2 Total cash and cash equivalents and investments includes $4,084.8 million held for operational activities, including investments in sponsored funds and other products, and $324.2 million necessary to comply with regulatory requirements.

3 Total cash and cash equivalents and investments includes $296.3 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests.

3 Total cash and cash equivalents and investments includes $295.8 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests and approximately $380 million of investments that are subject to long-term repurchase agreements and other financing arrangements.

TAXES ON INCOME

Our effective income tax rate for fiscal year 2023 was 22.1% as compared to 22.9% in fiscal year 2022 and 14.3% in fiscal year 2021.

The rate decrease in fiscal year 2023 was primarily due to an increase in foreign earnings and activity of CIPs for which there is no related tax impact, partially offset by additional state tax expense.

The rate increase in fiscal year 2022 was primarily due to the release of a tax reserve in the prior year following the close of an IRS audit of the U.S.

taxation of deemed foreign dividends for fiscal year 2018, net losses on investments held by CIPs for which there are no related tax benefits, as compared to net gains in fiscal year 2021, and a decrease in foreign earnings.

The rate decrease in fiscal year 2021 was primarily due the release of the tax reserve mentioned above and net income attributable to noncontrolling interests as compared to a net loss in fiscal year 2020.

taxation of deemed foreign dividends for fiscal year 2018, activity of CIPs for which there is no related tax impact, and a decrease in foreign earnings.

Our effective income tax rate reflects the relative contributions of earnings in the jurisdictions in which we operate, which have varying tax rates.

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164.9 167.2 163.7

Compensation and benefits expense from gains (losses) on deferred compensation and seed investments, net (36.7) 22.7 1.2

Compensation and benefits expense from gains (losses) on deferred compensation, net 20.3 (36.7) 22.7

Other acquisition-related expenses 50.2 60.7 36.0

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341.1 282.0 232.0

Impairment of goodwill and intangible assets

Special termination benefits

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Add (subtract):

Net income of consolidated investment products¹ (0.2) (2.8) (4.6)

Net (income) loss of consolidated investment products¹ 8.0 (0.2) (2.8)

Acquisition-related retention

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341.1 282.0 232.0

Impairment of goodwill and intangible assets

Special termination benefits

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(25.4) (25.2) (51.4)

Write-off of noncontrolling interests — — (16.7)

Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income (loss) attributable to redeemable noncontrolling interests 0.1 1.4 —

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Elimination of operating revenues upon consolidation $ (37.5) $ (48.2) $ (22.8)

$ (48.2) $ (22.8) $ (23.6)

Other income, net 88.8 24.2 207.4

income (loss) attributable to noncontrolling interests 59.3 (24.2) 181.8

Net income $ 0.2 $ 2.8 $ 4.6

Net income (loss) $ (8.0) $ 0.2 $ 2.8

LIQUIDITY AND CAPITAL RESOURCES

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Financing cash flows 2,029.0 1,585.0 2,030.1

Net cash provided by operating activities increased in fiscal year 2022 primarily due to lower net purchases of investments by CIPs, higher net income adjusted for non-cash items and timing differences in the cash settlement of operating assets and liabilities.

Net cash provided by operating activities decreased in fiscal year 2023 primarily due to higher net purchases of investments by CIPs and lower net income adjusted for non-cash items.

Net cash used in investing activities increased as compared to the prior year primarily due to net purchases of our investments as compared to net liquidations in the prior year, higher net purchases of investments by collateralized loan obligations (“CLOs”), payments of deferred consideration liability in the current year, and net deconsolidation of CIPs as compared to net consolidation in the prior year, partially offset by lower cash paid for acquisitions in the current year.

Net cash provided by financing activities increased as compared to the prior year primarily due to proceeds from repurchase agreements in the current year and higher net proceeds from debt of CIPs.

Net cash provided by operating activities increased in fiscal year 2022 primarily due to lower net purchases of

investments by CIPs, higher net income adjusted for non-cash items and timing differences in the cash settlement of operating assets and liabilities.

Net cash used in investing activities increased as compared to the prior year primarily due to cash paid for acquisitions in the current year, partially offset by net liquidations of our investments as compared to net purchases in the prior year.

Net cash provided by financing activities decreased as compared to the prior year primarily due to proceeds from issuance of debt in the prior year, partially offset by higher net proceeds from debt of CIPs.

Net cash provided by operating activities increased in fiscal year 2021 primarily due to higher net income, a higher

adjustment for amortization of intangible assets and increases in accrued compensation and benefits, partially offset by a lower change in investments, net, adjustments for gains of CIPs as compared to losses in the prior year, increases in receivables and other assets and income from investments in equity method investees as compared to losses in the prior year.

Net cash used in investing activities decreased as compared to the prior year primarily due to lower cash paid for acquisitions, partially offset by net deconsolidation of CIPs as compared to net consolidation in the prior year, higher net purchases of investments by CLOs and net purchases of investments as compared to net liquidations in the prior year.

Net cash provided by financing activities increased as compared to the prior year primarily due to proceeds from debt of CIPs, proceeds from issuance of debt and higher net subscriptions in CIPs by noncontrolling interests, partially offset by higher payments on debt by CIPs and debt.

The assets and liabilities of CIPs attributable to third-party investors do not impact our liquidity and capital resources.

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We believe that we can meet our present and reasonably foreseeable operating cash needs and future commitments through existing liquid assets, continuing cash flows from operations, amounts available under the credit facility discussed below, the ability to issue debt or equity securities and borrowing capacity under our uncommitted commercial paper private placement program.

On September 15, 2022, we repaid all of the outstanding $300.0 million 2.800% senior notes due in September 2022 issued by Franklin Resources, Inc.

at the principal amount plus accrued and unpaid interest of $4.2 million.

On September 8, 2022, we entered into a term loan credit agreement with several financial institutions to establish a 3-year term loan with an aggregate commitment of $300.0 million.

On January 10, 2022, we entered into a bi-lateral credit agreement with Bank of America, N.A.

to establish a 364- day revolving credit facility with an aggregate commitment of $500.0 million.

On September 8, 2022, we amended and restated the credit facility to, among other things, extend its maturity to September 7, 2023.

As of the time of this filing, there were no amounts outstanding.

In prior fiscal years, we issued senior unsecured unsubordinated notes for general corporate purposes and to redeem outstanding notes.

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The notes have fixed interest rates from 3.950% to 5.625% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized premium, of $1,467.8 million.

Effective August 2, 2021, Franklin agreed to unconditionally and irrevocably guarantee all of the outstanding notes issued by Legg Mason.

The senior notes contain an optional redemption feature that allows us to redeem each series of notes prior to maturity in whole or in part at any time, at a make-whole redemption price.

The indentures governing the senior notes contain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably.

The indentures governing the senior notes

contain limitations on our ability and the ability of our subsidiaries to pledge voting stock or profit participating equity interests in our subsidiaries to secure other debt without similarly securing the notes equally and ratably.

In addition, the indentures include requirements that must be met if we consolidate or merge with, or sell all of our assets to, another entity.

The 364-day revolving credit facility and term loan credit agreement contain a financial performance covenant requiring that the Company maintains a consolidated net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 3.00 to 1.00.

On July 25, 2023, we terminated our undrawn 364-day $500.0 million revolving credit facility and our 3-year term loan with an aggregate commitment of $300.0 million.

The term loan was repaid with existing cash.

Concurrently, the Company entered into a $800.0 million 5-year revolving credit facility which remains undrawn as of the time of this filing.

This facility contains a financial performance covenant requiring that the Company maintain a consolidated net leverage ratio, measured as of the last day of each fiscal quarter, of no greater than 3.25 to 1.00.

We were in compliance with all debt covenants at September 30, 2023.

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At September 30, 2023, 14.7 million shares remained available for repurchase under the authorization of 80.0 million shares approved by our Board of Directors in April 2018.

We routinely make cash investments in the course of launching sponsored funds.

At September 30, 2022, we had $227.6 million of committed capital contributions which relate to discretionary commitments to invest in sponsored funds and other investment products and entities, including CIPs.

While we have no legal or contractual obligation to do so, we routinely make cash investments in the course of launching sponsored funds.

At September 30, 2023, we had $305.6 million of committed capital contributions which relate to commitments to invest in sponsored funds and other investment products and entities, including CIPs.

These unfunded commitments are not recorded in the consolidated balance sheet.

We invested $109.2 million, net of redemptions, into our sponsored products during fiscal year 2022, and invested $182.2 million, net of redemptions, during fiscal year 2021.

On September 27, 2022 we entered into a lease agreement for office space in New York City located at One Madison Avenue with occupancy expected to begin in early fiscal year 2024 with an aggregate expected commitment of $766.7 million over 16 years.

We entered into a lease agreement for office space in New York City located at One Madison Avenue with occupancy expected to begin in early fiscal year 2024 with an aggregate expected commitment of $766.7 million over sixteen years.

In the first quarter of fiscal year 2024, we expect to recognize operating lease liabilities of approximately $400 million.

This is part of an initiative to consolidate our existing office space in New York City.

On May 31, 2023, we entered into a definitive agreement to acquire Putnam Investments from Great-West Lifeco, Inc.

(“Great-West”) for approximately 33.3 million shares of our common stock that we will issue to Great-West at closing and $100.0 million paid in cash 180 days after closing.

We plan to pay the cash portion with existing cash.

On November 1, 2022, we acquired all of the outstanding ownership interests in BNY Alcentra Group Holdings, Inc.

from The Bank of New York Mellon Corporation for cash consideration of approximately $587.3 million paid at closing, including $188.3 million related to investments, and up to $350.0 million in contingent consideration to be paid upon on the achievement of certain performance thresholds over the next four years.

We paid the purchase price from our existing cash.

On April 1, 2021, we acquired all of the outstanding ownership interests in Lexington, a leading global manager of secondary private equity and co-investment funds, for cash consideration of approximately $1.0 billion and additional payments totaling $750.0 million to be paid in cash over the next three years.

In connection with the acquisition, we granted a 25% profits interest in Lexington and performance-based cash retention awards to certain employees that vest over approximately five years.

We paid the purchase price from our existing cash.

On December 31, 2021, we acquired all of the outstanding ownership interests in OSAM, a leading quantitative asset

management firm, for cash consideration of approximately $300.0 million, excluding future payments to be made subject to the attainment of certain performance measures.

from The Bank of New York Mellon Corporation.

Total purchase consideration consisted of cash consideration of approximately $594.1 million, which includes $188.3 million for certain securities held in Alcentra’s CLOs;

deferred consideration of $62.0 million which was paid on November 1, 2023;

and contingent consideration of up to $350.0 million to be paid upon the achievement of certain performance thresholds over the next four years that has an acquisition-date fair value of $24.6 million.

We paid the purchase price from our existing cash.

On December 15, 2022, we entered into repurchase agreements with a third-party financing company for certain securities held in Alcentra’s CLOs.

Under the terms of the repurchase agreements, we received cash proceeds of approximately $175.0 million with pledged collateral consisting of Alcentra investments with a carrying value of $171.3 million at September 30, 2023.

The repurchase agreements have contractual maturity dates ranging between 2029 to 2034.

On April 1, 2022, we acquired all of the outstanding ownership interests in Lexington for cash consideration of approximately $1.0 billion and additional payments of $750.0 million to be paid in cash over the next three years.

The first additional payment of $250.0 million was made during the quarter ended June 30, 2023 from our existing cash.

The funds that we manage have their own resources available for purposes of providing liquidity to meet shareholder redemptions, including securities that can be sold or provided to investors as in-kind redemptions, and lines of credit.

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These estimates, judgments, and assumptions are affected by our application of accounting policies.

Further, concerns about the global economic outlook and the risk of recession as well as the ongoing COVID-19 pandemic have adversely affected and may continue to adversely affect, our business, financial condition and results of operations including the estimates and assumptions made by management.

Further, concerns about the global economic outlook have adversely affected and may continue to adversely affect our business, financial condition and results of operations including the estimates and assumptions made by management.

Actual results could differ from the estimates.

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We are the primary beneficiary of a VIE if we have the power to direct the activities that most significantly impact the VIE ’ s economic performance and the obligation to absorb losses of or right to receive benefits from the VIE that could potentially be significant to the VIE.

Investment management fees earned from VIEs are excluded from the primary beneficiary determination if they are deemed to be at market and commensurate with service.

Investment management fees earned from VIEs are excluded from the primary

beneficiary determination if they are deemed to be at market and commensurate with service.

The key assumption used in the analysis includes the amount of AUM.

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See Note 1 – Significant Accounting Policies in the notes to consolidated financial statements in Item 8 of Part II of this Annual Report for more information on the fair value hierarchy.

As of September 30, 2022, Level 3 assets represented 12% of total assets measured at fair value, substantially all of which related to CIPs ’ investments in equity and debt securities, and real estate.

There were $5.8 million of transfers into and $9.3 million of transfers out of Level 3 during fiscal year 2022.

As of September 30, 2023, Level 3 assets represented 6% of total assets measured at fair value, substantially all of which related to CIPs ’ investments in equity and debt securities.

There were insignificant transfers into and out of Level 3 during fiscal year 2023.

The following are descriptions of the significant assets measured at fair value and their fair value methodologies.

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The fair values of the investments are determined based on the fund products’ published NAV or estimated using NAV as a practical expedient.

Other equity and debt securities consist of other equity investment securities and debt securities carried at fair value.

Other equity and debt investments consist of other equity and debt securities carried at fair value.

Changes in the fair value are recognized as gains and losses in earnings.

The fair values of equity securities, excluding fund products, and debt securities are determined using independent third-party broker or dealer price quotes or based on either a

market-based or income-based approach using significant unobservable inputs.

The fair values of equity securities, excluding fund products, and debt securities are determined using independent third-party broker or dealer price quotes or based on either a market-based or income-based approach using significant unobservable inputs.

The fair values of fund products are determined based on their published NAV or estimated using NAV as a practical expedient.

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Pricing of the securities is governed by our global valuation and pricing policy, which defines valuation and pricing conventions for each security type, including practices for responding to unexpected or unusual market events.

As substantially all of our AUM is valued based on observable market prices or inputs, market risk is the most significant risk underlying the valuation of our AUM.

As our AUM is primarily valued based on observable market prices or inputs, market risk is the most significant risk underlying the valuation of our AUM.

Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and the reported amounts in the consolidated financial statements using the statutory tax rates in effect for the year when the reported amount of the asset or liability is expected to be recovered or settled, respectively.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity