What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-01-29 compared with 2023-07-28 · 125 added, 246 removed, 370 unchanged (50% of the section changed)

28 unchanged sentences

These arrangements could change in the future.

During our third fiscal quarter, global equity markets provided positive returns led by developed markets, particularly the U.S., reflecting moderating inflation and signs of domestic economic strength despite rising interest rates.

The S&P 500 Index and MSCI World Index increased 8.7% and 7.0% for the quarter and 25.7% and 26.9% for the fiscal year to date.

The global bond markets declined during the quarter but remained positive for the fiscal year to date as the Bloomberg Global Aggregate Index decreased 1.5% during the quarter and increased 6.0% for the fiscal year to date, reflecting divergence in monetary policy during the quarter as the Federal Reserve paused raising interest rates in June for the first time in over a year while other central banks continued to raise interest rates.

Our total AUM at June 30, 2023 was $1,431.5 billion, 10% higher than at September 30, 2022 and 4% higher than at June 30, 2022.

Monthly average AUM (“average AUM”) for the three and nine months ended June 30, 2023 decreased 1% and 7% from the same periods in the prior fiscal year.

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 due 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.

During our first fiscal quarter, global equity markets provided positive returns led by developed markets, reflecting expectations that interest rate increases have ended and rate reductions will begin in calendar year 2024.

The S&P 500 Index and MSCI World Index increased 11.7% and 11.5% for the quarter.

The global bond markets were also positive as the Bloomberg Global Aggregate Index increased 8.1% during the quarter.

Our total AUM at December 31, 2023 was $1,455.5 billion, 6% higher than at September 30, 2023 and 5% higher than at December 31, 2022.

Monthly average AUM (“average AUM”) for the three months ended December 31, 2023 increased 3% from the same period in the prior fiscal year.

On January 1, 2024, we acquired Putnam Investments (“Putnam”), a global asset management firm, from Great-West Lifeco Inc.

(“Great-West”).

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

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Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions, except per share data) 2023 2022

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Operating margin 1

16.0 % 19.9 % 13.0 % 22.5 %

Net income attributable to Franklin Resources, Inc.

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AUM by asset class was as follows:

(in billions) June 30,

2023 June 30,

(in billions) December 31,

2023 December 31,

Fixed Income $ 511.7 $ 494.8 3 %

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Change Mix of Average AUM

for the three months ended June 30, 2023 2022 2023 2022

Fixed Income $ 507.1 $ 563.4 (10 %) 36 % 39 %

Equity 442.8 467.8 (5 %) 31 % 33 %

Alternative 257.5 205.4 25 % 18 % 14 %

Multi-Asset 146.3 144.4 1 % 10 % 10 %

Cash Management 65.9 58.8 12 % 5 % 4 %

Total $ 1,419.6 $ 1,439.8 (1 %) 100 % 100 %

(in billions) Average AUM Percent

Change Mix of Average AUM

for the nine months ended June 30, 2023 2022 2023 2022

for the three months ended December 31, 2023 2022 2023 2022

Fixed Income $ 489.7 $ 490.3 0 % 35 % 36 %

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(in billions) Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

2023 2022 2023 2022

Beginning AUM $ 1,374.2 $ 1,297.4 6 %

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Long-term outflows (73.9) (81.4) (9 %)

Long-term net flows 0.2 (19.8) NM (14.4) (7.4) 95%

Cash management net flows (7.3) 0.4 NM 5.9 (0.9) NM

Total net flows (7.1) (19.4) (63 %) (8.5) (8.3) 2%

Acquisitions — 57.2 (100%) 34.9 64.9 (46%)

Net market change, distributions and other 16.5 (135.5) NM 107.7 (206.9) NM

Ending AUM $ 1,431.5 $ 1,379.8 4 % $ 1,431.5 $ 1,379.8 4 %

Components of the change in AUM by asset class were as follows:

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

Management Total

for the three months ended

June 30, 2023

AUM at April 1, 2023 $ 510.1 $ 437.1 $ 258.2 $ 146.1 $ 70.6 $ 1,422.1

Long-term inflows 26.5 23.0 7.3 10.6 — 67.4

Long-term outflows (29.6) (26.0) (3.3) (8.3) — (67.2)

Long-term net flows (5.0) (10.9) (54 %)

Cash management net flows 4.7 17.5 (73 %)

Total net flows (3.1) (3.0) 4.0 2.3 (7.3) (7.1)

Net market change, distributions and other

Total net flows (0.3) 6.6 NM

— 34.9 (100 %)

AUM at June 30, 2023 $ 505.1 $ 458.0 $ 257.2 $ 148.3 $ 62.9 $ 1,431.5

AUM increased $9.4 billion or 1% during the three months ended June 30, 2023 due to the positive impact of $16.5 billion of net market change, distributions and other and $0.2 billion of long-term net inflows (which includes $3.5 billion of long-term reinvested distributions), partially offset by $7.3 billion of cash management net outflows.

Long-term net inflows included $3.2 billion from a low-fee equity mandate.

Net market change, distributions and other primarily consists of $24.4 billion of market appreciation and a $0.1 billion increase from foreign exchange revaluation, partially offset by $8.0 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, reflecting positive returns in the global equity markets.

AUM increased $51.7 billion or 4%, as compared to the prior year period.

Long-term inflows decreased 13% to $67.4 billion, driven by lower inflows in fixed income, equity, and multi-asset open end funds, fixed income institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separate accounts, partially offset by higher inflows for multi-asset institutional separate accounts, alternative private funds, and equity sub-advised mutual funds.

Long-term outflows decreased 31% to $67.2 billion driven by lower redemptions in fixed income and equity open end funds, fixed income and equity institutional separate accounts, multi-asset sub-advised mutual funds, and equity and fixed income retail separate accounts, partially offset by higher redemptions for multi-asset institutional separate accounts.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

Management Total

for the three months ended

June 30, 2022

AUM at April 1, 2022 $ 595.0 $ 515.4 $ 157.9 $ 151.9 $ 57.3 $ 1,477.5

Long-term inflows 35.2 24.5 5.9 11.8 — 77.4

Long-term outflows (49.5) (33.7) (3.8) (10.2) — (97.2)

Long-term net flows (14.3) (9.2) 2.1 1.6 — (19.8)

Cash management net flows — — — — 0.4 0.4

Total net flows (14.3) (9.2) 2.1 1.6 0.4 (19.4)

Acquisition — — 57.2 — — 57.2

Net market change, distributions and other 81.6 48.8 67 %

(44.4) (81.3) 7.6 (17.3) (0.1) (135.5)

AUM at June 30, 2022 $ 536.3 $ 424.9 $ 224.8 $ 136.2 $ 57.6 $ 1,379.8

AUM decreased $97.7 billion or 7% during the three months ended June 30, 2022 due to the negative impact of $135.5 billion of net market change, distributions and other and $19.8 billion of long-term net outflows, partially offset by an acquisition of $57.2 billion and $0.4 billion of cash management net inflows.

Net market change, distributions and other primarily consists of $117.3 billion of market depreciation, a $10.3 billion decrease from foreign exchange revaluation and $7.9 billion of long-term distributions.

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

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

dollar denominated, which represented 10% of total AUM as of June 30, 2022, was primarily due to a stronger U.S.

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

AUM decreased $172.3 billion, or 11%, as compared to the prior year period.

Long-term inflows decreased 8% to $77.4 billion, driven by lower inflows in fixed income, equity and alternative open-end funds and equity investment trusts, partially offset by higher inflows in multi-asset open end funds, alternative private closed-end funds and multi-asset and equity sub-advised mutual funds.

Long-term outflows increased 8% to $97.2 billion driven by higher redemptions in fixed income

open-end funds and institutional separate accounts, multi-asset sub-advised mutual funds, and equity retail separate accounts, partially offset by lower redemptions in equity sub-advised mutual funds, open-end funds and institutional separate accounts.

Ending AUM $ 1,455.5 $ 1,387.7 5 %

Components of the change in AUM by asset class were as follows:

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

Management Total

for the nine months ended

June 30, 2023

for the three months ended

December 31, 2023

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

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Total net flows (8.4) 0.2 2.7 0.5 4.7 (0.3)

Acquisition — — 34.9 — — 34.9

Net market change, distributions and other

37.0 36.9 (1.4) 9.1 — 81.6

AUM at June 30, 2023 $ 505.1 $ 458.0 $ 257.2 $ 148.3 $ 62.9 $ 1,431.5

AUM increased $134.1 billion, or 10%, during the nine months ended June 30, 2023 due to the positive impact of $107.7 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $5.9 billion of cash management net inflows, partially offset by $14.4 billion of long-term net outflows.

Net market change, distributions and other primarily consists of $131.0 billion of market appreciation, a $9.8 billion increase from foreign exchange revaluation, partially offset by $33.1 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 and fixed income asset classes and reflected positive returns in the global equity and fixed income markets.

AUM at December 31, 2023 $ 511.7 $ 467.5 $ 256.2 $ 154.6 $ 65.5 $ 1,455.5

AUM increased $81.3 billion, or 6%, during the three months ended December 31, 2023 due to the positive impact of $81.6 billion of net market change, distributions and other, and $4.7 billion of cash management net inflows, partially offset by $5.0 billion of long-term net outflows, which include $10.8 billion of long-term reinvested distributions.

Net market change, distributions and other primarily consists of $94.3 billion of market appreciation and a $6.6 billion increase from foreign exchange revaluation, partially offset by $19.3 billion of long-term distributions.

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

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

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

dollar compared to the Euro, Pound Sterling, Brazilian Real and Australian dollar.

Long-term inflows decreased 23% to $199.7 billion, as compared to the prior year period, driven by lower inflows in equity and fixed income open end funds, fixed income institutional separate accounts, and equity retail separate accounts.

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

Long-term inflows decreased 2% to $68.9 billion, as compared to the prior year period, driven by lower inflows in fixed income open end funds, alternative private open end funds, and equity and alternative institutional separate accounts, partially offset by higher inflows in alternative private closed end funds and fixed income separately managed accounts.

Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $10.8 billion in the current year period, as compared to $12.1 billion in the prior year period.

Long-term outflows decreased 20% to $214.1 billion due to lower outflows in fixed income and equity open end funds, multi-asset sub-advised mutual funds, fixed income and equity institutional separate accounts, and equity retail separate accounts.

Long-term outflows decreased 9% to $73.9 billion due to lower outflows in fixed income open end funds, fixed income and alternative institutional separate accounts, equity separately managed accounts and alternative private open end funds, partially offset by higher outflows in fixed income separately managed accounts, equity sub-advised mutual funds and multi-asset high net worth accounts.

(in billions) Fixed Income Equity Alternative Multi-Asset Cash

Management Total

for the nine months ended

June 30, 2022

for the three months ended

December 31, 2022

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

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Total net flows (13.3) 0.3 (0.3) 2.4 17.5 6.6

Acquisitions — 4.6 58.0 2.3 — 64.9

— — 34.9 — — 34.9

Net market change, distributions and other

17.2 26.5 (2.3) 7.5 (0.1) 48.8

AUM at June 30, 2022 $ 536.3 $ 424.9 $ 224.8 $ 136.2 $ 57.6 $ 1,379.8

AUM decreased $150.3 billion or 10% during the nine months ended June 30, 2022 due to the negative impact of $206.9 billion of net market change, distributions and other, $7.4 billion of long-term net outflows and $0.9 billion of cash management net outflows, partially offset by $64.9 billion from acquisitions.

Net market change, distributions and other primarily consists of $152.5 billion of market depreciation, $42.6 billion of long-term distributions and an $11.8 billion decrease from foreign exchange revaluation.

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

AUM at December 31, 2022 $ 494.8 $ 419.1 $ 257.4 $ 141.4 $ 75.0 $ 1,387.7

AUM increased $90.3 billion, or 7%, during the three months ended December 31, 2022 due to the positive impact of $48.8 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $17.5 billion of cash management net inflows, partially offset by $10.9 billion of long-term net outflows.

Long-term net outflows included a $2.1 billion fixed income institutional redemption that had minimal impact on revenue.

Net market change, distributions and other primarily consists of $58.5 billion of market appreciation, an $8.8 billion increase from foreign exchange revaluation, partially offset by $18.5 billion of long-term distributions.

The market appreciation occurred in all asset classes with the exception of the alternative asset class and reflected positive returns in the global equity and fixed income 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 7% to $260.5 billion, as compared to the prior-year period, driven by lower inflows in fixed income open-end funds and institutional separate accounts, partially offset by higher inflows for alternative private closed end funds.

Long-term outflows decreased 10% to $267.9 billion due to lower outflows in fixed income institutional separate accounts and equity open-end funds, partially offset by higher outflows for multi-asset sub-advised mutual funds.

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

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

Long-term inflows decreased 34% to $70.5 billion, as compared to the prior year period, driven by lower inflows in equity, multi-asset, and fixed income open end funds, fixed income institutional separate accounts, sub-advised CITs, and equity retail separate accounts.

Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $12.1 billion in the current year quarter, as compared to $23.5 billion in the prior year quarter.

Long-term outflows decreased 2% to $81.4 billion due to lower outflows in equity open end funds and multi-asset and equity sub-advised mutual funds, partially offset by higher outflows in fixed income and alternative institutional separate accounts, fixed income open end funds, and alternative private open end funds.

AUM by sales region was as follows:

(in billions) June 30,

2023 June 30,

(in billions) December 31,

2023 December 31,

United States $ 1,019.4 $ 993.1 3 %

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Exceeding Benchmark

as of June 30, 2023 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

as of December 31, 2023 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

Fixed Income 69 % 37 % 38 % 66 % 78 % 44 % 89 % 90 %

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1 Mutual fund performance is sourced from Morningstar and measures the percent of ranked AUM in the top two quartiles versus peers.

Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 36%, 36%, 35% and 34% of our total AUM as of June 30, 2023.

Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 36%, 35%, 35% and 33% of our total AUM as of December 31, 2023.

2 Strategy composite performance measures the percent of composite AUM beating its benchmark.

The benchmark comparisons are based on each account’s/composite’s (strategy composites may include retail separately managed accounts and mutual fund assets managed as part of the same strategy) return as compared to a market index that has been selected to be generally consistent with the asset class of the account/composite.

Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 50%, 50%, 49% and 47% of our total AUM as of June 30, 2023.

Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 51%, 51%, 50% and 46% of our total AUM as of December 31, 2023.

3 Total mutual fund AUM includes performance of our alternative and multi-asset funds, and total strategy composite AUM includes performance of our alternative composites.

Alternative and multi-asset AUM represent 18% and 10% of our total AUM at June 30, 2023.

Alternative and multi-asset AUM represent 18% and 11% of our total AUM at December 31, 2023.

Mutual fund performance data includes U.S.

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These performance comparisons do not reflect the actual performance of any specific separate account or investment fund;

individual separate account and investment fund performance may differ.

individual separate account and investment fund performance

The information in this presentation is provided solely for use in connection with this document, and is not directed toward existing or potential clients of Franklin.

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(in millions) Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

2023 2022 2023 2022

Investment management fees $ 1,652.2 $ 1,631.8 1 %

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Investment Management Fees

Investment management fees decreased $22.7 million and $227.3 million for the three and nine months ended June 30, 2023 primarily due to a 1% and 7% 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.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) was 42.0 and 41.9 basis points for the three and nine months ended June 30, 2023, as compared to 42.3 and 41.8 basis points for the same period in the prior fiscal year.

Performance fees were $125.9 million and $446.1 million for the three and nine months ended June 30, 2023, and $119.3 million and $364.3 million for the same periods in the prior fiscal year.

The increase for both periods was primarily due to $11.6 million and $164.1 million of 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 for both the three and nine months ended June 30, 2023.

Investment management fees increased $20.4 million for the three months ended December 31, 2023 primarily due to a 3% increase in average AUM and higher catch-up fees recognized at the closing of fundraising rounds in a secondary private fund, partially offset by lower performance fees.

The increase in average AUM occurred primarily in the alternative and equity asset classes, partially offset by a decrease in the cash management asset class.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) increased to 42.4 basis points for the three months ended December 31, 2023, from 41.7 basis points for the same period in the prior fiscal year, primarily due to higher catch-up fees recognized at the closing of fundraising rounds in a secondary private equity fund.

Performance fees were $166.4 million and $209.0 million for the three months ended December 31, 2023 and 2022.

The decrease was primarily due to a $72.0 million decrease in performance fees earned by Lexington Partners L.P.

(“Lexington”), which were passed through as compensation expense per the terms of the acquisition agreement, partially offset by higher performance fees earned by other alternative specialist investment managers.

Sales and Distribution Fees

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(in millions) Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

2023 2022 2023 2022

Asset-based fees $ 246.0 $ 245.0 0 %

1 unchanged sentence

Sales and Distribution Fees $ 296.4 $ 291.9 2 %

Asset-based distribution fees decreased $21.5 million and $146.8 million for the three and nine months ended June 30, 2023 primarily due decreases of 6% and 15% in the related average AUM and a higher mix of lower-fee assets.

Sales-based fees decreased $10.1 million and $59.9 million for the three and nine months ended June 30, 2023 primarily due to decreases of 11% and 26% in commissionable sales.

Shareholder Servicing Fees

Shareholder servicing fees decreased $8.1 million and $31.3 million for the three and nine months ended June 30, 2023 primarily due to a reduction in fee rates charged for transfer agency services in the U.S.

and lower levels of related global AUM.

Asset-based distribution fees increased $1.0 million for the three months ended December 31, 2023 primarily due to a 1% increase in the related average AUM, partially offset by a higher mix of lower fee assets.

Sales-based fees increased $3.5 million for the three months ended December 31, 2023 primarily due to a 10% increase in commissionable sales.

OPERATING EXPENSES

1 unchanged sentence

Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2023 2022

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Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2023 2022

2 unchanged sentences

Acquisition-related retention 69.1 63.6 9 %

Acquisition-related performance fee pass through 11.6 — NM 164.1 0.4 NM

34.4 (8.3) NM 113.8 (12.3) NM

Acquisition-related performance fee pass through 1

72.6 144.5 (50 %)

37.4 26.6 41 %

Compensation and Benefits Expenses $ 968.3 $ 979.2 (1 %)

_______________

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;

1 unchanged sentence

and special termination benefits.

Salaries, wages and benefits increased $7.4 million and $52.7 million for the three and nine months ended June 30, 2023, primarily due to the recent acquisitions and annual salary increases, partially offset by the impact of headcount reductions.

Incentive compensation increased $35.7 million and $13.7 million for the three and nine months ended June 30, 2023 primarily due to recent acquisitions, and an increase in expense for deferred compensation awards, due, in part, to an increase in annual acceleration for retirement-eligible employees in the nine-month period.

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

Acquisition-related retention expenses decreased $22.9 million and $10.3 million for the three and nine months ended June 30, 2023 primarily due to lower compensation associated with performance-based awards, partially offset by an increase due to the acquisition of Alcentra.

Acquisition-related performance fee pass through expenses increased $11.6 million and $163.7 million for the three and nine months ended June 30, 2023, due to higher performance fees earned by Lexington.

Other compensation and benefits were $34.4 million and $(8.3) million for the three months ended June 30, 2023 and 2022 and $113.8 million and $(12.3) million for the nine months ended June 30, 2023 and 2022.

The three and nine months ended June 30, 2023 included the impact of $10.1 million and $26.3 million of market gains on investments related to our deferred compensation plans, while the three and nine months ended June 30, 2022 included the impact of $19.3 million and $30.4 million of losses on investments related to our deferred compensation plans.

Special termination benefits increased $11.5 million and $47.1 million for the three and nine months ended June 30, 2023 primarily due to workforce optimization initiatives and the acquisition of Alcentra.

Compensation related to minority interests increased $1.8 million and $22.3 million for the three and nine months ended June 30, 2023.

We expect to incur additional acquisition-related retention expenses of approximately $70 million during the remainder of the current fiscal year, and annual amounts beginning at approximately $240 million in the fiscal year ending September 30, 2024 and decreasing over the following two fiscal years by approximately $80 million and $20 million.

At June 30, 2023, our global workforce had decreased to approximately 9,300 employees from approximately 9,800 at June 30, 2022.

Salaries, wages and benefits increased $10.3 million for the three months ended December 31, 2023, primarily due to annual salary increases and the acquisition of Alcentra on November 1, 2022, partially offset by the impact of headcount reductions.

Incentive compensation increased $34.4 million for the three months ended December 31, 2023 primarily due to higher incentive compensation at specialist investment managers, partially offset by a decrease in expense for deferred compensation awards, due in part to lower annual acceleration for retirement-eligible employees.

Acquisition-related retention expenses increased $5.5 million for the three months ended December 31, 2023 primarily due to higher costs associated with recent acquisitions, partially offset by lower costs associated with performance-based awards.

Acquisition-related performance fee pass through expenses decreased $71.9 million for the three months ended December 31, 2023, due to lower performance fees earned by Lexington.

Other compensation and benefits were $37.4 million and $26.6 million for the three months ended December 31, 2023 and 2022.

The three months ended December 31, 2023 and 2022 included the impact of $19.0 million and $5.6 million of market gains on investments related to our deferred compensation plans.

Special termination benefits decreased $4.2 million for the three months ended December 31, 2023 primarily due to the acquisition of Alcentra in the prior year, partially offset by higher costs associated with workforce optimization initiatives.

Compensation related to minority interests increased $1.6 million for the three months ended December 31, 2023.

We expect to incur additional acquisition-related retention expenses, including costs associated with the acquisition of Putnam, of approximately $250 million during the remainder of the current fiscal year, and annual amounts beginning at approximately $190 million in the fiscal year ending September 30, 2025 and decreasing over the following two fiscal years by approximately $20 million and $90 million.

At December 31, 2023, our global workforce had decreased to approximately 9,100 employees from approximately 9,400 at December 31, 2022.

Sales, Distribution and Marketing

1 unchanged sentence

Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2023 2022

3 unchanged sentences

Sales, Distribution and Marketing $ 400.8 $ 388.6 3 %

Asset-based expenses decreased $23.0 million and $163.9 million for the three and nine months ended June 30, 2023 primarily due to decreases of 7% and 13% in the related average AUM and, for the nine months ended June 30 2023, higher mix of lower-fee assets.

Asset-based expenses increased $8.6 million for the three months ended December 31, 2023 primarily due to higher marketing support fees and a 1% increase in the related average AUM.

Distribution expenses are generally not directly correlated with distribution fee revenues due to certain fee structures that do not provide full recovery of distribution costs.

Sales-based expenses decreased $8.1 million and $54.5 million for the three and nine months ended June 30, 2023 due to lower commissionable sales.

Amortization of deferred sales commissions decreased $2.4 million and $12.4 million for the three and nine months ended June 30, 2023, primarily due to lower sales of shares sold without a front-end sales charge.

Occupancy expenses increased $3.1 million and $8.0 million for the three and nine months ended June 30, 2023, primarily due to higher utility costs and leasehold and building depreciation for both the three and nine months ended June 30, 2023.

Sales-based expenses increased $2.6 million for the three months ended December 31, 2023 due to a 10% increase in commissionable sales.

Occupancy expenses increased $12.2 million for the three months ended December 31, 2023, primarily due to new leased office space located at One Madison Avenue, associated with an initiative to consolidate our office space in New York City, and lower sublease income.

Information Systems and Technology

Information systems and technology expenses increased $9.6 million for the three months ended December 31, 2023, primarily due to higher outsourced data services and software costs.

Amortization of intangible assets

Amortization of intangible assets increased $3.6 million and $54.1 million for the three and nine months ended June 30, 2023, primarily due to intangible assets recognized as part of the acquisitions of Lexington on April 1, 2022 and Alcentra on November 1, 2022.

Amortization of intangible assets increased $2.6 million for the three months ended December 31, 2023, primarily due to intangible assets recognized as part of the acquisition of Alcentra on November 1, 2022.

General, Administrative and Other

General, administrative and other operating expenses decreased $21.6 million for the three months ended June 30, 2023 and increased $11.1 million for the nine months ended June 30, 2023.

The decrease for the three months ended June 30, 2023 was primarily due to a $16.4 million decrease in acquisition-related costs, driven by lower professional fees and costs associated with our global brand campaign in the prior year quarter, and a $3.8 million adjustment to increase the fair value of contingent consideration liabilities recognized in the prior year quarter.

The increase for the nine months ended June 30, 2023 was primarily due to a $26.8 million increase in travel and entertainment and conference costs as activity has resumed post-pandemic, a $9.7 million increase in placement fees, and a net credit of $7.7 million recognized in the prior year to adjust the fair value of contingent consideration assets and liabilities.

These increases were partially offset by a $14.7 million decrease in third-party sub-advisory service fees and a $14.2 million decrease in acquisition-related costs, primarily due to costs associated with our global brand campaign in the prior year.

General, administrative and other operating expenses decreased $14.2 million for the three months ended December 31, 2023 primarily due to a $14.9 million decrease in acquisition-related costs related to the acquisition of Alcentra in the prior year quarter, a $2.1 million decrease in placement fees, and a $1.5 million decrease in other taxes, offset in part by a $5.3 million increase in travel and entertainment expenses due to higher activity levels.

OTHER INCOME (EXPENSES)

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Three Months Ended

June 30, Percent

Change Nine Months Ended

June 30, Percent

(in millions) 2023 2022

1 unchanged sentence

Interest expense (18.8) (30.9) (39 %)

Investment and other income (losses) of consolidated investment products, net 1.7 (74.4) NM 75.3 33.3 126 %

Investment and other losses of consolidated investment products, net (23.8) (13.6) 75 %

Expenses of consolidated investment products (5.9) (11.5) (49 %)

Other Income (Expenses), Net $ 17.2 $ (91.6) NM $ 228.2 $ 49.8 358 %

Investment and other income, net increased $38.2 million and $170.2 million for the three and nine months ended June 30, 2023 primarily due to net gains on investments in the current year periods as compared to net losses in the prior year and an increase in dividend and interest income.

Investments held by the Company generated net gains of $13.8 million and $62.3 million in the three and nine months ended June 30, 2023, as compared to net losses of $35.6 million and $32.9 million for the three and nine months ended June 30, 2022.

The net gains in the current year periods and net losses in the prior year were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans.

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

Equity method investees generated losses of $7.7 million and income of $111.1 million for the three and nine months ended June 30, 2023.

The losses in the three months ended June 30, 2023 were primarily due to a $7.5 million other-than-temporary impairment of an equity method investment, and the income in the nine months ended June 30, 2023 was largely related to various global alternative and equity funds, and included $68.0 million which was fully offset in noncontrolling interest.

Equity method investees generated losses of $0.1 million and income of $51.6 million for the three and nine months ended June 30, 2022, largely related to various global equity and alternative funds.

The nine months ended June 30, 2022 also reflects a $52.6 million gain recognized on the sale of our investment in Embark in the prior year.

Net foreign currency exchange losses were $6.6 million and $40.2 million for the three and nine months ended June 30, 2023, as compared to net gains of $14.5 million and $24.2 million for the three and nine months ended June 30, 2022.

The decrease was 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.

Other Income, Net $ 124.7 $ 35.1 255 %

Investment and other income, net increased $82.1 million for the three months ended December 31, 2023 primarily due to higher net gains on investments and income from equity method investments, lower net foreign currency exchange losses, and an increase in dividend and interest income.

Investments held by the Company generated net gains of $60.1 million in the three months ended December 31, 2023, as compared to net gains of $45.5 million for the three months ended December 31, 2022.

The net gains in both the current and prior year period were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans.

Equity method investees generated income of $56.9 million for the three months ended December 31, 2023, as compared to income of $33.2 million in the prior year, primarily related to various alternative and global equity funds.

Net foreign currency exchange losses were $7.4 million for the three months ended December 31, 2023, as compared to net losses of $27.1 million for the three months ended December 31, 2022.

dollar weakened less in the current year against the Euro and British Pound, which resulted in lower foreign exchange losses on cash and cash equivalents denominated in U.S.

dollars held by our European subsidiaries.

Dividend and interest income increased $36.4 million and $94.0 million for the three and nine months ended June 30, 2023, as compared to the prior year periods, primarily due to higher yields.

Interest expense increased $6.0 million and $28.2 million for the three and nine months ended June 30, 2023 primarily due to an increase in interest recognized on tax reserves and higher interest on debt.

The nine months ended June 30, 2023 also increased due to accretion on Lexington deferred consideration.

Investments held by consolidated investment products (“CIPs”) generated investment and other income of $1.7 million and $75.3 million in the three and nine months ended June 30, 2023, largely related to gains on holdings of various equity and fixed income funds, substantially offset by losses on holdings of various alternative funds.

Investments held by CIPs generated investment and other losses of $74.4 million in the three months ended June 30, 2022, largely related to losses on holdings of various alternative, equity, and fixed income funds.

Investments held by CIPs generated investment and other income of $33.3 million in the nine months ended June 30, 2022, largely related to gains on holdings of various alternative funds, partially offset by losses on holdings of various equity and fixed income funds.

Expenses of consolidated investments products decreased $0.5 million and increased $5.6 million for the three and nine months ended June 30, 2023, due to activity of the funds.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at June 30, 2023, excluding third-party assets of CIPs, was as follows:

Dividend and interest income increased $18.3 million for the three months ended December 31, 2023, primarily due to higher yields and higher balances.

Interest expense decreased $12.1 million for the three months ended December 31, 2023 primarily due to a decrease in interest recognized on tax reserves.

Investments held by consolidated investment products (“CIPs”) generated losses of $23.8 million in the three months ended December 31, 2023, largely related to losses on holdings of various alternative and equity funds.

Investments held by CIPs generated losses of $13.6 million in the prior year period, largely related to losses on holdings of various equity and fixed income funds, partially offset by gains on various alternative funds.

Expenses of CIPs decreased $5.6 million for the three months ended December 31, 2023, due to activity of the funds.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at December 31, 2023, excluding third-party assets of CIPs, was as follows:

Accounting Classification 1

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2 Total cash and cash equivalents and investments includes $4,145.4 million used for operational activities, including investments in sponsored funds and other products, and $327.3 million necessary to comply with regulatory requirements.

3 Total cash and cash equivalents and investments includes $277.6 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 $313.7 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests and approximately $370 million of investments that are subject to long-term repurchase agreements and other financing arrangements.

TAXES ON INCOME

Our effective income tax rate was 25.3% and 23.9% for the three and nine months ended June 30, 2023, as compared to 28.6% and 23.6% for the three and nine months ended June 30, 2022.

The rate decrease for the three-month period was primarily due to benefits from the release of valuation allowances for capital losses and activity of CIPs for which there is no related tax impact, partially offset by additional state tax expense.

Our effective income tax rate was 22.6% and 26.3% for the three months ended December 31, 2023 and 2022.

The rate decrease was primarily due to benefits related to the release of tax reserves due to statute of limitation expiration and settlements, and tax benefits from stock-based compensation.

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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(in millions) Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Operating income $ 206.5 $ 194.0

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Acquisition-related retention

21.3 44.2 108.1 118.4

Compensation and benefits expense from gains (losses) on deferred compensation, net 10.1 (19.3) 26.3 (30.4)

Compensation and benefits expense from gains on deferred compensation, net 19.0 5.6

Other acquisition-related expenses 6.8 22.6

Amortization of intangible assets

85.4 81.8 254.6 200.5

Special termination benefits

12.2 0.7 54.9 7.8

Compensation and benefits expense related to minority interests in certain subsidiaries 11.7 10.1

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(in millions, except per share data) Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Net income attributable to Franklin Resources, Inc.

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Add (subtract):

Net (income) loss of consolidated investment products* 1.5 (6.8) 6.4 3.3

Net loss of consolidated investment products* (2.2) (3.6)

Acquisition-related retention

21.3 44.2 108.1 118.4

Other acquisition-related expenses 10.8 28.7

Amortization of intangible assets

85.4 81.8 254.6 200.5

Special termination benefits

12.2 0.7 54.9 7.8

Net (gains) losses on deferred compensation plan investments not offset by compensation and benefits expense (0.5) 6.1 (14.1) 8.6

Unrealized investment (gains) losses 9.4 45.7 (23.2) 117.8

Net gains on deferred compensation plan investments not offset by compensation and benefits expense (6.0) (7.6)

Unrealized investment gains (49.0) (30.7)

Interest expense for amortization of debt premium (6.4) (6.3)

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(in millions) Three Months Ended

June 30, Nine Months Ended

2023 2022 2023 2022

Elimination of operating revenues upon consolidation $ (11.4) $ (5.1)

Other income (expense), net 7.3 (33.6) 67.4 48.8

income (loss) attributable to noncontrolling interests (3.3) (53.4) 47.5 13.6

Net income (loss) $ (1.5) $ 6.8 $ (6.4) $ (3.3)

Other expense, net (8.6) (2.8)

loss attributable to noncontrolling interests (22.2) (11.5)

Net income $ 2.2 $ 3.6

LIQUIDITY AND CAPITAL RESOURCES

Cash flows were as follows:

Nine Months Ended

Three Months Ended

(in millions) 2023 2022

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Financing cash flows (159.0) 958.9

Net cash provided by operating activities decreased during the nine months ended June 30, 2023 primarily due to higher net purchases of investments by CIPs, lower net income and higher payments of accrued compensation and benefits.

Net cash used in investing activities increased primarily due to higher net purchases of investments by collateralized loan obligations (“CLOs”), net purchases of investments as compared to net liquidations in the prior 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 primarily due to higher net proceeds on debt of CIPs, higher net subscriptions in CIPs by noncontrolling interests and proceeds from repurchase agreements.

Net cash used in operating activities decreased during the three months ended December 31, 2023 primarily due to lower net purchases of investments by CIPs and higher net income adjusted for non-cash items, partially offset by decreases in accounts payable and accrued expenses as compared to increases in the prior year, increases in receivables and other assets as compared to decreases in the prior year, and lower taxes payable.

Net cash used in investing activities decreased primarily due to cash paid for an acquisition in the prior year, lower net purchases of investments by collateralized loan obligations (“CLOs”), and net liquidations of investments as compared to purchases in the prior year, partially offset by a deferred consideration payment.

Net cash used in financing activities, as compared to net cash provided by financing activities in the prior year, was primarily due to lower net proceeds on debt of CIPs, lower net subscriptions in CIPs by noncontrolling interests, and proceeds from repurchase agreements in the prior year.

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

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Our liquid assets and debt consisted of the following:

(in millions) June 30,

(in millions) December 31,

2023 September 30,

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Liquid assets consist of cash and cash equivalents, receivables and certain investments.

Cash and cash equivalents at June 30, 2023 primarily consist of money market funds and deposits with financial institutions.

Cash and cash equivalents at December 31, 2023 primarily consist of money market funds and deposits with financial institutions.

Liquid investments consist of investments in sponsored and other funds, direct investments in redeemable CIPs, other equity and debt securities, and time deposits with maturities greater than three months.

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

At June 30, 2023, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 million.

At December 31, 2023, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 million.

The notes have fixed interest rates from 1.600% to 2.950% with interest paid semi-annually and have an aggregate carrying value, inclusive of unamortized discounts and debt issuance costs, of $1,585.6 million.

At June 30, 2023, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million.

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 $1,474.1 million at June 30, 2023.

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

At December 31, 2023, Legg Mason’s outstanding senior notes had an aggregate principal amount due of $1,250.0 million.

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 $1,461.3 million at December 31, 2023.

Franklin unconditionally and irrevocably guarantees 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.

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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.

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

The term loan was repaid with existing cash.

The 36 4-day revolving credit facility and term loan credit agreement contained 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 3.00 to 1.00.

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

Concurrently, the Company entered into a $800.0 million 5-year revolving credit facility that 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 maintain an $800.0 million 5-year revolving credit facility that 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.

This facility remains undrawn as of the time of this filing.

At June 30, 2023, we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 and is unrated.

We were in compliance with all debt covenants at December 31, 2023.

At December 31, 2023, we had $500.0 million of short-term commercial paper available for issuance under an uncommitted private placement program which has been inactive since 2012 and is unrated.

Our ability to access the capital markets in a timely manner depends on a number of factors, including our credit rating, the condition of the global economy, investors’ willingness to purchase our securities, interest rates, credit spreads and the valuation levels of equity markets.

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We expect that our main uses of cash will be to invest in and grow our business including through acquisitions, pay stockholder dividends, invest in our products, pay income taxes and operating expenses of the business, enhance technology infrastructure and business processes, repurchase shares of our common stock, and repay and service debt.

While we expect to continue to repurchase shares to offset dilution from share-based compensation, and expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post-dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams and operations.

While we expect to continue to repurchase shares to offset dilution from stock-based compensation, and expect to continue to repurchase shares opportunistically from time to time, we will likely spend more of our post-dividend free cash flow investing in our business, including seed capital and acquiring resources to help grow our investment teams and operations.

We typically declare cash dividends on a quarterly basis, subject to approval by our Board of Directors.

We declared regular dividends of $0.90 per share during the nine months ended June 30, 2023 and $0.87 per share during the nine months ended June 30, 2022.

We declared regular dividends of $0.31 per share during the three months ended December 31, 2023 and $0.30 per share during the three months ended December 31, 2022.

We currently expect to continue paying comparable regular dividends on a quarterly basis to holders of our common stock depending upon earnings and other relevant factors.

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Our stock repurchase program is effected through open-market purchases and private transactions in accordance with applicable laws and regulations, and is not subject to an expiration date.

The size and timing of these purchases will depend on business conditions, price, market and other factors.

During the three and nine months ended June 30, 2023, we repurchased 2.0 million and 2.6 million shares of our common stock at a cost of $50.9 million and $68.7 million.

At June 30, 2023, 21.8 million shares remained available for repurchase under the authorization of 80.0 million shares approved by our Board of Directors in April 2018.

During the three and nine months ended June 30, 2022, we repurchased 2.0 million and 5.4 million shares of our common stock at a cost of $51.0 million and $153.5 million.

We redeemed $244.7 million, net of investments, from our sponsored products during the nine months ended June 30, 2023 and invested $19.7 million, net of redemptions, in the prior year period.

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.

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, LLC from Great-West Lifeco, Inc.

(“Great-West”) for 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 cash on hand.

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.

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;

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 $179.3 million at June 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, 2022 from our existing cash.

The size and timing of these purchases will depend on business conditions, price, market and other factors, including the terms of any 10b5-1 stock purchase plan that may be in effect at any given time.

During the three months ended December 31, 2023, we repurchased 2.4 million shares of our common stock at a cost of $58.8 million and we repurchased 0.5 million shares of our common stock at a cost of $14.2 million in the prior year period.

In December 2023, our Board of Directors authorized the repurchase of up to an additional 27.2 million shares of our common stock in either open market or private transactions, for a total of up to 40.0 million shares available for repurchase under the stock repurchase program.

At December 31, 2023, 39.5 million shares remained available for repurchase under the authorization approved by our Board of Directors.

On January 1, 2024, we acquired Putnam from Great-West for 31.6 million shares of our common stock, cash consideration paid at close of approximately $220 million for investments and other purchase-related amounts, and deferred cash consideration of $100.0 million to be paid during the third quarter of fiscal year 2024.

The cash consideration paid at close was funded from existing cash and we expect to fund the deferred consideration from existing cash and sources of liquidity.

In addition, the Company will pay up to $375.0 million between the third and seventh anniversaries of the closing date related to revenue growth targets from the strategic partnership with Great-West and its affiliates which will be recognized in operating income.

On November 1, 2023, we paid $60.8 million in deferred cash consideration related to our acquisition of Alcentra from existing cash.

We expect to make additional deferred cash payments related to our acquisition of Lexington of $400 million and $100 million during the third quarter of fiscal year 2024 and 2025 from existing cash and sources of liquidity.

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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While we have no legal or contractual obligation to do so, we have in certain instances voluntarily elected to provide the funds with direct or indirect financial support based on our business objectives.

We did not provide financial or other support to our sponsored funds during the nine months ended June 30, 2023.

We did not provide financial or other support to our sponsored funds during the three months ended December 31, 2023.

CRITICAL ACCOUNTING POLICIES

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Our VIEs are primarily investment products and our variable interests consist of our equity ownership interests in and investment management fees earned from these products.

As of June 30, 2023, we were the primary beneficiary of 64 investment product VIEs.

As of December 31, 2023, we were the primary beneficiary of 61 investment product VIEs.

Business Combinations

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We also monitored fluctuations of our common stock per share price to evaluate our market capitalization relative to the reporting unit as a whole.

During the nine months ended June 30, 2023, there were no events or circumstances which would indicate that goodwill, indefinite-lived intangible assets or definite-lived intangible assets might be impaired.

During the three months ended December 31, 2023, there were no events or circumstances which would indicate that goodwill, indefinite-lived intangible assets or definite-lived intangible assets might be impaired.

While we believe that the assumptions used to estimate fair value in our impairment tests are reasonable and appropriate, future changes in the assumptions could result in recognition of impairment.

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We use a three-level fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based on whether the inputs to those valuation techniques are observable or unobservable.

As of June 30, 2023, Level 3 assets represented 5% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities.

There were insignificant transfers into and out of Level 3 during the nine months ended June 30, 2023.

As of December 31, 2023, Level 3 assets represented 5% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities.

There were insignificant transfers into and out of Level 3 during the three months ended December 31, 2023.

Quantitative and Qualitative Disclosures About Market Risk.

During the nine months ended June 30, 2023, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2022.

During the three months ended December 31, 2023, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2023.

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-Q

Item 2. Management’s Discussion and Analysis