What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-04-29 compared with 2024-01-29 · 208 added, 110 removed, 385 unchanged (45% of the section changed)

15 unchanged sentences

The following discussion should be read in conjunction with our Annual Report on Form 10-K for fiscal year 2023 filed with the U.S.

Securities and Exchange Commission, and the consolidated financial statements and notes thereto included elsewhere in this Form 10-Q.

Securities and Exchange Commission (the “SEC”), and the consolidated financial statements and notes thereto included in subsequent filings on Form 10-Q and elsewhere in this Form 10-Q.

Franklin is a holding company with subsidiaries operating under our Franklin Templeton ® and/or subsidiary brand names.

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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, 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, Putnam ® , Royce ® Investment Partners 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 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.

During our second fiscal quarter, global equity markets provided positive returns, reflecting strong corporate earnings in certain sectors and continued expectations of interest rate reductions, although likely slower and later in the calendar year than initially anticipated due to strong economic data.

The S&P 500 Index and MSCI World Index increased 10.6% and 9.0% for the quarter and 23.5% and 21.6% for the fiscal year to date.

The Bloomberg Global Aggregate Index decreased 2.1% during the quarter, reflecting the shift in interest rate expectations, but increased 5.9% for the fiscal year to date, reflecting strong positive returns in our first fiscal quarter.

Our total AUM at March 31, 2024 was $1,644.7 billion, 20% higher than at September 30, 2023 and 16% higher than at March 31, 2023.

Monthly average AUM (“average AUM”) for the three and six months ended March 31, 2024 increased 11% and 8% from the same periods in the prior fiscal year.

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

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Three Months Ended

Change Six Months Ended

March 31, Percent

(in millions, except per share data) 2024 2023 2024 2023

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Operating margin 1

6.0 % 13.2 % 8.1 % 11.5 %

Net income attributable to Franklin Resources, Inc.

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AUM by asset class was as follows:

(in billions) December 31,

2023 December 31,

(in billions) March 31,

2024 March 31,

$ 592.7 $ 437.1 36 %

Fixed Income 571.4 510.1 12 %

Equity 467.5 419.1 12 %

Alternative 255.5 258.2 (1 %)

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Change Mix of Average AUM

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

for the three months ended March 31, 2024 2023 2024 2023

$ 546.0 $ 433.4 26 % 35 % 31 %

Fixed Income 553.3 504.9 10 % 35 % 36 %

Equity 439.2 417.3 5 % 32 % 31 %

Alternative 256.1 257.5 (1 %) 16 % 18 %

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Total $ 1,581.1 $ 1,419.5 11 % 100 % 100 %

(in billions) Average AUM Percent

Change Mix of Average AUM

for the six months ended March 31, 2024 2023 2024 2023

$ 496.2 $ 426.3 16 % 34 % 31 %

Fixed Income 522.8 498.0 5 % 35 % 36 %

Alternative 255.8 247.7 3 % 17 % 18 %

Multi-Asset 153.7 141.7 8 % 10 % 10 %

Cash Management 63.7 72.7 (12 %) 4 % 5 %

Total $ 1,492.2 $ 1,386.4 8 % 100 % 100 %

Components of the change in AUM are shown below.

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(in billions) Three Months Ended

Change Six Months Ended

March 31, Percent

2024 2023 2024 2023

Beginning AUM $ 1,455.5 $ 1,387.7 5 % $ 1,374.2 $ 1,297.4 6 %

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Long-term outflows (78.0) (65.5) 19 % (151.9) (146.9) 3 %

Long-term net flows 6.9 (3.7) NM 1.9 (14.6) NM

Cash management net flows (4.8) (4.3) 12 % (0.1) 13.2 NM

Total net flows 2.1 (8.0) NM 1.8 (1.4) NM

148.3 — NM 148.3 34.9 NM

Net market change, distributions and other 38.8 42.4 (8 %) 120.4 91.2 32 %

Ending AUM $ 1,644.7 $ 1,422.1 16 % $ 1,644.7 $ 1,422.1 16 %

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

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

Management Total

for the three months ended

March 31, 2024

AUM at January 1, 2024 $ 467.5 $ 511.7 $ 256.2 $ 154.6 $ 65.5 $ 1,455.5

Long-term inflows 27.5 43.8 3.4 10.2 — 84.9

Long-term outflows (32.8) (35.5) (2.4) (7.3) — (78.0)

Long-term net flows (5.3) 8.3 1.0 2.9 — 6.9

Cash management net flows — — — — (4.8) (4.8)

Total net flows (0.3) 6.6 NM

Total net flows (5.3) 8.3 1.0 2.9 (4.8) 2.1

81.3 59.3 0.7 5.8 1.2 148.3

Net market change, distributions and other

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

49.2 (7.9) (2.4) 0.1 (0.2) 38.8

AUM at March 31, 2024 $ 592.7 $ 571.4 $ 255.5 $ 163.4 $ 61.7 $ 1,644.7

AUM increased $189.2 billion, or 13%, during the three months ended March 31, 2024 due to $148.3 billion from the acquisition of Putnam, the positive impact of $38.8 billion of net market change, distributions and other and $6.9 billion of long-term net inflows, which include $3.1 billion of long-term reinvested distributions, partially offset by $4.8 billion of cash management net outflows.

Fixed income net inflows include the funding of $13.7 billion related to the strategic partnership with Great-West, partially offset by an institutional client redemption of $2.0 billion.

Net market change, distributions and other primarily consists of $51.9 billion of market appreciation, partially offset by $7.9 billion of long-term distributions and a $5.2 billion decrease from foreign exchange revaluation.

The market appreciation occurred substantially in all asset classes, 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, Australian dollar, Euro and Canadian dollar.

AUM increased $222.6 billion or 16%, as compared to the prior year period.

Long-term inflows increased 37% to $84.9 billion, driven by higher inflows in fixed income and equity fund vehicles.

Long-term outflows increased 19% to $78.0 billion driven by higher redemptions in equity fund vehicles and fixed income funds and retail separate accounts, partially offset by lower redemptions in alternative open end and private open end funds.

(in billions) Equity

Fixed Income Alternative Multi-Asset Cash

Management Total

for the three months ended

December 31, 2023

March 31, 2023

AUM at January 1, 2023 $ 419.1 $ 494.8 $ 257.4 $ 141.4 $ 75.0 $ 1,387.7

Long-term inflows 17.1 31.5 4.9 8.3 — 61.8

Long-term outflows (25.4) (29.7) (3.6) (6.8) — (65.5)

Long-term net flows (8.3) 1.8 1.3 1.5 — (3.7)

Cash management net flows — — — — (4.3) (4.3)

Total net flows (8.3) 1.8 1.3 1.5 (4.3) (8.0)

Net market change, distributions and other

26.3 13.5 (0.5) 3.2 (0.1) 42.4

AUM at March 31, 2023 $ 437.1 $ 510.1 $ 258.2 $ 146.1 $ 70.6 $ 1,422.1

AUM increased $34.4 billion or 2% during the three months ended March 31, 2023 due to the positive impact of $42.4 billion of net market change, distributions and other, partially offset by $4.3 billion of cash management net outflows and $3.7 billion of long-term net outflows.

Fixed income net inflows included the funding of a $7.5 billion institutional mandate invested across fixed income strategies.

Net market change, distributions and other primarily consists of $48.1 billion of market appreciation and a $0.9 billion increase from foreign exchange revaluation, partially offset by $6.6 billion of long-term distributions.

The market appreciation occurred in 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.

AUM decreased $55.4 billion or 4%, as compared to the fiscal year 2022 period.

Long-term inflows decreased 19% to $61.8 billion, driven by lower inflows in equity and fixed income open end funds, equity separately managed accounts, and fixed income institutional separate accounts.

Long-term outflows decreased 25% to $65.5 billion driven by lower redemptions in fixed income and equity open end funds, equity separately managed accounts and fixed income institutional separate accounts.

(in billions) Equity

Fixed Income Alternative Multi-Asset Cash

Management Total

for the six months ended

March 31, 2024

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

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Total net flows (5.1) (0.1) 3.7 3.4 (0.1) 1.8

81.3 59.3 0.7 5.8 1.2 148.3

Net market change, distributions and other

86.1 29.1 (3.8) 9.2 (0.2) 120.4

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.

AUM at March 31, 2024 $ 592.7 $ 571.4 $ 255.5 $ 163.4 $ 61.7 $ 1,644.7

AUM increased $270.5 billion, or 20%, during the six months ended March 31, 2024 due to $148.3 billion from the acquisition of Putnam, the positive impact of $120.4 billion of net market change, distributions and other and $1.9 billion of long-term net inflows, which include $13.9 billion of long-term reinvested distributions, partially offset by $0.1 billion of cash management net outflows.

Net market change, distributions and other primarily consists of $146.2 billion of market appreciation and a $1.4 billion increase from foreign exchange revaluation, partially offset by $27.2 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, 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 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

The market appreciation occurred in 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.

Long-term inflows increased 16% to $153.8 billion, as compared to the prior year period, driven by higher inflows in equity and fixed income fund vehicles, partially offset by lower inflows in multi-asset open end funds and alternative institutional separate accounts.

Long-term outflows increased 3% to $151.9 billion due to higher outflows in equity open end funds, partially offset by lower outflows in alternative private funds, open end funds, and institutional separate accounts.

(in billions) Equity

Fixed Income Alternative Multi-Asset Cash

Management Total

for the three months ended

December 31, 2022

for the six months ended

March 31, 2023

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

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52.8 30.7 (2.8) 10.7 (0.2) 91.2

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.

AUM at March 31, 2023 $ 437.1 $ 510.1 $ 258.2 $ 146.1 $ 70.6 $ 1,422.1

AUM increased $124.7 billion, or 10%, during the six months ended March 31, 2023 due to the positive impact of $91.2 billion of net market change, distributions and other, $34.9 billion from an acquisition, and $13.2 billion of cash management net inflows, partially offset by $14.6 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.

Net market change, distributions and other primarily consists of $106.6 billion of market appreciation, a $9.7 billion increase from foreign exchange revaluation, partially offset by $25.1 billion of long-term distributions.

The market appreciation occurred in 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, 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.

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

Long-term inflows decreased 28% to $132.3 billion, as compared to the fiscal year 2022 period, driven by lower inflows in equity, fixed income, and multi-asset open end funds, fixed income institutional separate accounts and sub-advised collective investment trusts, and equity retail separate accounts.

Decreased inflows for open end mutual funds include the impact of lower reinvested distributions, which were $14.4 billion in the current year period, as compared to $32.0 billion in the prior year period.

Long-term outflows decreased 14% to $146.9 billion due to lower outflows in equity and fixed income open end funds, multi-asset sub-advised mutual funds and equity separately managed accounts, partially offset by higher outflows in fixed income institutional separate accounts.

AUM by sales region was as follows:

(in billions) December 31,

2023 December 31,

(in billions) March 31,

2024 March 31,

United States $ 1,155.9 $ 1,017.1 14 %

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Europe, Middle East and Africa 1

206.3 167.6 23 %

Asia-Pacific 170.4 120.0 42 %

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Total $ 1,644.7 $ 1,422.1 16 %

__________________

1 Effective October 1, 2023, India region is included in Europe, Middle East and Africa.

Investment Performance Overview

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Exceeding Benchmark

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 %

as of March 31, 2024 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

Equity 58 % 53 % 47 % 59 % 54 % 45 % 46 % 50 %

Fixed Income 58 % 53 % 53 % 71 % 73 % 50 % 88 % 91 %

51 % 60 % 44 % 56 % 62 % 51 % 62 % 69 %

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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%, 35%, 35% and 33% of our total AUM as of December 31, 2023.

Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 38%, 37%, 37% and 35% of our total AUM as of March 31, 2024.

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 51%, 51%, 50% and 46% of our total AUM as of December 31, 2023.

Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 54%, 53%, 53% and 49% of our total AUM as of March 31, 2024.

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 11% of our total AUM at December 31, 2023.

Alternative and multi-asset AUM represent 16% and 10% of our total AUM at March 31, 2024.

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

individual separate account and investment fund performance may differ.

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

Change Six Months Ended

March 31, Percent

2024 2023 2024 2023

Investment management fees $ 1,713.9 $ 1,573.3 9 % $ 3,366.1 $ 3,205.1 5 %

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Investment Management Fees

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.

Investment management fees increased $140.6 million and $161.0 million for the three and six months ended March 31, 2024 primarily due to an 11% and 8% increase in average AUM, and for the six-month period, higher catch-up fees recognized at the closing of fundraising rounds in a secondary private equity fund and one additional month of revenues earned by Alcentra, which was acquired on November 1, 2022, partially offset by a decrease in performance fees.

The increases in average AUM primarily occurred in the equity, fixed income and multi-asset asset classes, primarily due to the acquisition of Putnam, and, for the six-month period, the alternative asset class.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) was 41.4 and 41.7 basis points for the three and six months ended March 31, 2024, as compared to 41.8 and 41.7 basis points for the same periods in the prior fiscal year.

Performance fees were $85.2 million and $251.6 million for the three and six months ended March 31, 2024, and $111.2 million and $320.2 million for the same periods in the prior fiscal year.

The decrease for the three months ended March 31, 2024 was primarily due to lower performance fees earned by certain of our alternative specialist investment managers, and for the six months ended March 31, 2024 was primarily due to a $65.5 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.

Sales and Distribution Fees

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(in millions) Three Months Ended

Change Six Months Ended

March 31, Percent

2024 2023 2024 2023

Asset-based fees $ 291.5 $ 247.7 18 % $ 537.5 $ 492.7 9 %

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Sales and Distribution Fees $ 358.3 $ 301.4 19 % $ 654.7 $ 593.3 10 %

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.

Asset-based distribution fees increased $43.8 million and $44.8 million for the three and six months ended March 31, 2024 primarily due to revenue earned by Putnam subsequent to the acquisition and increases of 4% and 3% in the related average AUM.

Sales-based fees increased $13.1 million and $16.6 million for the three and six months ended March 31, 2024 primarily due to increases of 15% and 13% in commissionable sales and sales-based revenue earned by Putnam subsequent to the acquisition.

Shareholder Servicing Fees

Shareholder servicing fees increased $24.7 million and $23.8 million for the three and six months ended March 31, 2024 primarily due to fees earned by Putnam subsequent to the acquisition.

OPERATING EXPENSES

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Three Months Ended

Change Six Months Ended

March 31, Percent

(in millions) 2024 2023 2024 2023

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Total Operating Expenses $ 2,023.5 $ 1,672.1 21 % $ 3,808.1 $ 3,445.2 11 %

The Putnam acquisition had a significant impact on operating expenses in the three and six months ended March 31, 2024;

however, due to the ongoing integration of the combined businesses, it is not practicable to separately quantify the impact of the legacy Putnam business.

Compensation and Benefits

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Three Months Ended

Change Six Months Ended

March 31, Percent

(in millions) 2024 2023 2024 2023

11 unchanged sentences

and special termination benefits.

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.

Salaries, wages and benefits increased $56.7 million and $67.0 million for the three and six months ended March 31, 2024, primarily due to higher headcount as a result of the acquisition of Putnam and annual salary increases, partially offset by the impact of other headcount reductions.

Incentive compensation increased $24.3 million and $58.7 million for the three and six months ended March 31, 2024 primarily due to the acquisition of Putnam, an increase in expense for deferred compensation awards, and higher bonus expense based on expectations of our annual performance, partially offset by lower incentive compensation at specialist investment managers in the three-month period.

Acquisition-related retention expenses increased $81.3 million and $86.8 million for the three and six months ended March 31, 2024 primarily due to higher costs associated with recent acquisitions.

Acquisition-related performance fee pass through expenses decreased $65.5 million for the six months ended March 31, 2024, due to lower performance fees earned by Lexington.

Other compensation and benefits increased $12.2 million and $23.0 million for the three and six months ended March 31, 2024, primarily due to an increase in special termination benefits and higher net market gains on investments related to our deferred compensation plans.

Special termination benefits increased $8.6 million and $4.4 million for the three and six months ended March 31, 2024 primarily due to the acquisition of Putnam, partially offset by costs associated with workforce optimization initiatives in the prior year.

Compensation expense related to minority interests increased $0.2 million and $1.8 million for the three and six months ended March 31, 2024.

We expect to incur additional acquisition-related retention expenses of approximately $130 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 $80 million.

At March 31, 2024, our global workforce increased to approximately 10,100 employees from approximately 9,200 at March 31, 2023, primarily due to the acquisition of Putnam.

Sales, Distribution and Marketing

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Three Months Ended

Change Six Months Ended

March 31, Percent

(in millions) 2024 2023 2024 2023

3 unchanged sentences

Sales, Distribution and Marketing $ 484.3 $ 406.6 19 % $ 885.1 $ 795.2 11 %

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.

Asset-based expenses increased $62.7 million and $71.3 million for the three and six months ended March 31, 2024 primarily due to expenses incurred by Putnam subsequent to the acquisition, increases of 3% and 2% in the related average AUM and higher marketing support fees.

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 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.

Sales-based expenses increased $12.7 million and $15.3 million for the three and six months ended March 31, 2024 primarily due to increases of 15% and 13% in commissionable sales and sales-based expenses incurred by Putnam subsequent to the acquisition.

Occupancy expenses increased $16.5 million and $28.7 million for the three and six months ended March 31, 2024, 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 expenses incurred by Putnam subsequent to the acquisition.

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.

Information systems and technology expenses increased $27.1 million and $36.7 million for the three and six months ended March 31, 2024, primarily due to expenses incurred by Putnam subsequent to the acquisition, and higher outsourced data services and software costs.

Amortization of Intangible Assets

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.

Amortization of intangible assets decreased $1.4 million and increased $1.2 million for the three and six months ended March 31, 2024, primarily due to the net effect of intangible assets which became fully amortized during the period, partially offset by the amortization of intangible assets recognized as part of the acquisition of Putnam and, for the six-month period, Alcentra.

General, Administrative and Other

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.

General, administrative and other operating expenses increased $50.6 million and $36.4 million for the three and six months ended March 31, 2024, primarily due to the acquisition of Putnam, increases of $15.8 million and $16.5 million in professional fees, and increases of $3.9 million and $9.3 million in travel and entertainment expenses due to higher activity levels.

These increases were partially offset by decreases of $10.5 million and $9.7 million in fund-related expenses.

OTHER INCOME (EXPENSES)

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Three Months Ended

Change Six Months Ended

March 31, Percent

(in millions) 2024 2023 2024 2023

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Interest expense (27.7) (33.5) (17 %) (46.5) (64.4) (28 %)

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

Investment and other income of consolidated investment products, net 89.9 87.2 3 % 66.1 73.6 (10 %)

Expenses of consolidated investment products (5.9) (3.4) 74 % (11.8) (14.9) (21 %)

Other Income, Net $ 108.8 $ 110.9 (2 %) $ 233.5 $ 144.8 61 %

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.

Investment and other income, net decreased $8.1 million for the three months ended March 31, 2024, primarily due to losses on investments, as compared to gains in the prior year quarter, partially offset by higher dividend and interest income, lower net foreign currency exchange losses, and higher net income from equity method investees.

Investment and other income, net increased $75.2 million for the six months ended March 31, 2024, primarily due to higher net income from equity method investees, lower net foreign currency exchange losses, and higher dividend and interest income.

Investments held by the Company generated net losses of $18.5 million and net gains of $41.6 million in the three and six months ended March 31, 2024, as compared to net gains of $3.0 million and $48.5 million for the three and six months ended March 31, 2023.

The net losses for the three months ended March 31, 2024 were primarily from investments in nonconsolidated funds and separate accounts, partially offset by net gains on assets invested for deferred compensation plans.

The net gains for the three months ended March 31, 2023 were primarily from assets invested for deferred compensation plans, partially offset by losses on investments in nonconsolidated funds and separate accounts.

The net gains in both the current and prior year six-month periods were 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.

Equity method investees generated income of $24.4 million and $81.3 million for the three and six months ended March 31, 2024, as compared to income of $20.6 million and $52.6 million in the prior year, primarily related to various alternative and global equity funds.

Net foreign currency exchange losses were $1.3 million and $8.7 million for the three and six months ended March 31, 2024.

as compared to net losses of $6.5 million and $33.6 million for the three and six months ended March 31, 2023.

dollar strengthened in the three-month period and weakened less in the six-month period 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 $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:

Dividend and interest income increased $5.7 million and $24.0 million for the three and six months ended March 31, 2024, primarily due to higher yields.

Interest expense decreased $5.8 million and $17.9 million for the three and six months ended March 31, 2024 primarily due to interest expense recognized in the prior year periods on our term loan that was terminated on July 25, 2023 and a decrease in interest recognized on tax reserves.

Investments held by consolidated investment products (“CIPs”) generated investment gains and other income of $89.9 million and $66.1 million in the three and six months ended March 31, 2024, and investment gains and other income of $87.2 million and $73.6 million during the three and six months ended March 31, 2023, largely related to gains on holdings of various equity and fixed income funds, and in the current year periods, gains on holdings of various alternative funds.

Expenses of CIPs increased $2.5 million and decreased $3.1 million for the three and six months ended March 31, 2024, due to activity of the funds.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at March 31, 2024, 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 $4,435.5 million used for operational activities, including investments in sponsored funds and other products, and $324.5 million necessary to comply with regulatory requirements.

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.

3 Total cash and cash equivalents and investments includes approximately $350 million attributable to employee-owned and other third-party investments made through partnerships which are offset in nonredeemable noncontrolling interests, $353.0 million of investments that are subject to long-term repurchase agreements and other net financing arrangements, and $447.1 million of cash and investments related to deferred compensation plans.

TAXES ON INCOME

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 was 26.4% and 24.2% for the three and six months ended March 31, 2024, as compared to 25.4% and 25.8% for the three and six months ended March 31, 2023.

The rate increase for the three-month period was primarily due to tax audit settlements and state tax provision to return adjustments.

The rate decrease for the six-month period was primarily due to tax benefits from stock-based compensation and the release of tax reserves due to statute of limitation expiration.

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

Six Months Ended

2024 2023 2024 2023

Operating income $ 129.3 $ 255.1 $ 335.8 $ 449.1

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Acquisition-related retention

104.5 23.2 173.6 86.8

Compensation and benefits expense from gains on deferred compensation, net 14.0 10.6 33.0 16.2

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Amortization of intangible assets

84.6 86.0 170.4 169.2

Special termination benefits

40.4 31.8 47.1 42.7

Compensation and benefits expense related to minority interests in certain subsidiaries 10.6 10.4 22.3 20.5

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

Six Months Ended

2024 2023 2024 2023

Net income attributable to Franklin Resources, Inc.

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Acquisition-related retention

104.5 23.2 173.6 86.8

Other acquisition-related expenses 29.3 20.1 40.1 48.8

Amortization of intangible assets

84.6 86.0 170.4 169.2

Special termination benefits

40.4 31.8 47.1 42.7

Net gains on deferred compensation plan investments not offset by compensation and benefits expense (3.9) (6.0) (9.9) (13.6)

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(in millions) Three Months Ended

Six Months Ended

2024 2023 2024 2023

Elimination of operating revenues upon consolidation $ (11.0) $ (9.1) $ (22.4) $ (14.2)

Other expense, net (8.6) (2.8)

loss attributable to noncontrolling interests (22.2) (11.5)

Net income $ 2.2 $ 3.6

Other income, net 38.6 62.9 30.0 60.1

income attributable to noncontrolling interests 31.1 62.3 8.9 50.8

Net loss $ (3.5) $ (8.5) $ (1.3) $ (4.9)

LIQUIDITY AND CAPITAL RESOURCES

Cash flows were as follows:

Three Months Ended

Six Months Ended

(in millions) 2024 2023

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Financing cash flows 232.1 1,986.8

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.

Net cash used in operating activities decreased during the six months ended March 31, 2024 primarily due to lower net purchases of investments by CIPs and decreases in receivables, partially offset by lower income taxes payable, decreases in accounts payable and accrued expenses as compared to increases in the prior year, and lower net income adjusted for non-cash items.

Net cash used in investing activities decreased primarily due to lower net purchases of investments by collateralized loan obligations (“CLOs”), lower cash paid for acquisitions in the current year as compared to the prior year, net consolidations of CIPs as compared to net deconsolidations of CIPs in the prior year period and net liquidations of investments as compared to purchases in the prior year.

Net cash provided by financing activities decreased 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) December 31,

(in millions) March 31,

2024 September 30,

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

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

Cash and cash equivalents at March 31, 2024 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 December 31, 2023, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,600.0 million.

At March 31, 2024, 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 $1,586.0 million.

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.

At March 31, 2024, 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 $1,455.0 million at March 31, 2024.

Franklin unconditionally and irrevocably guarantees all of the outstanding notes issued by Legg Mason.

We intend to repay the $250 million 3.950% senior notes due July 2024 from existing cash or other sources of liquidity.

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

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.

We were in compliance with all debt covenants at March 31, 2024.

At March 31, 2024, 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 typically declare cash dividends on a quarterly basis, subject to approval by our Board of Directors.

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 declared regular dividends of $0.62 per share during the six months ended March 31, 2024 and $0.60 per share during the six months ended March 31, 2023.

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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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.

During the three and six months ended March 31, 2024, we repurchased 0.4 million and 2.8 million shares of our common stock at a cost of $11.7 million and $70.5 million.

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.

At March 31, 2024, 39.1 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 $221.7 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.

1 unchanged sentence

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.

On April 1, 2024, we paid $400.0 million in deferred cash consideration related to our acquisition of Lexington from existing cash.

We expect to make an additional deferred cash payment related to our acquisition of Lexington of $100 million during the third quarter of fiscal year 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.

1 unchanged sentence

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 three months ended December 31, 2023.

We did not provide financial or other support to our sponsored funds during the six months ended March 31, 2024.

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

As of March 31, 2024, we were the primary beneficiary of 69 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 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.

During the six months ended March 31, 2024, 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 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.

As of March 31, 2024, 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 six months ended March 31, 2024.

Quantitative and Qualitative Disclosures About Market Risk.

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.

During the six months ended March 31, 2024, 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