What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-31 compared with 2026-04-28 · 139 added, 129 removed, 487 unchanged (35% of the section changed)

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Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them.

The initiation or unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or inquiries, including the Western Asset Management (“WAM”) investigations described under the heading “Risk Factors” and in “Note 15 - Commitments and Contingencies” to our audited financial statements contained in our Annual Report on Form 10-K for fiscal year 2025, and in “Note 10 - Commitments and Contingencies” to our unaudited interim financial statements contained in this Form 10-Q, may result in additional costs, monetary judgments, settlements or other remedies, including fines, penalties, restitution and/or alterations in our business practices or those of our investment groups.

The initiation or unfavorable resolution of legal proceedings or other claims and regulatory and other governmental investigations or inquiries may result in additional costs, monetary judgments, settlements or other remedies, including fines, penalties, restitution and/or alterations in our business practices or those of our investment groups.

In addition, these matters may cause reputational harm to us or our investment groups and could result in additional expenses and collateral costs, outflows of assets under management or other financial impacts that could materially affect our results of operations and the price of our common stock.

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These arrangements could change in the future.

During our second fiscal quarter, U.S.

and global equity markets declined amid heightened volatility, driven by the escalation of geopolitical tensions in the Middle East, rising energy and gas prices, and renewed inflation concerns.

The S&P 500 Index and the MSCI World Index decreased by 4.3% and 3.5%, respectively, for the quarter, and by 1.8% and 0.4% for the fiscal year to date.

Global bond markets declined as the Bloomberg Global Aggregate Index decreased 1.1% during the quarter and 0.8% for the fiscal year to date.

Our total AUM at March 31, 2026 was $1,682.1 billion, 1% higher than at September 30, 2025 and 9% higher than at March 31, 2025.

Monthly average AUM (“average AUM”) for the three and six months ended March 31, 2026 increased 8% and 5% from the same periods in the prior fiscal year.

During our third fiscal quarter, U.S.

and global equity markets provided positive returns on lower energy prices, resilient corporate earnings, and continued investment in artificial intelligence.

The S&P 500 Index and the MSCI World Index increased by 15.2% and 13.9%, respectively, for the quarter, and by 13.1% and 13.5% for the fiscal year to date.

Global bond markets remained relatively flat as the Bloomberg Global Aggregate Index increased 0.9% during the quarter and remained flat for the fiscal year to date.

Our total AUM at June 30, 2026 was $1,791.6 billion, 8% higher than at September 30, 2025 and 11% higher than at June 30, 2025.

Monthly average AUM (“average AUM”) for the three and nine months ended June 30, 2026 increased 12% and 7% from the same periods in the prior fiscal year.

On October 1, 2025, we acquired Apera Asset Management (“Apera”), a pan-European private credit firm.

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Three Months Ended

Change Six Months Ended

Change Nine Months Ended

(in millions, except per share data) 2026 2025 2026 2025

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AUM by asset class was as follows:

(in billions) March 31,

2026 March 31,

(in billions) June 30,

2026 June 30,

$ 756.9 $ 656.6 15 %

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Change Mix of Average AUM

for the three months ended March 31, 2026 2025 2026 2025

for the three months ended June 30, 2026 2025 2026 2025

$ 725.9 $ 620.5 17 % 41 % 40 %

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Change Mix of Average AUM

for the six months ended March 31, 2026 2025 2026 2025

for the nine months ended June 30, 2026 2025 2026 2025

$ 711.0 $ 626.0 14 % 41 % 39 %

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_______________

1 Average AUM is calculated as the average of the month-end AUM for the trailing seven months.

1 Average AUM is calculated as the average of the month-end AUM for the trailing ten months.

Components of the change in AUM are shown below.

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(in billions) Three Months Ended

Six Months Ended

Nine Months Ended

Beginning AUM $ 1,682.1 $ 1,540.6 $ 1,661.2 $ 1,678.6

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Total net flows 11.4 (6.6) 66.5 (80.1)

Acquisition — — 6.1 —

Acquisition (Disposition) 0.1 (0.2) 6.2 (0.2)

Net market change, distributions and other 98.0 78.0 57.7 13.5

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for the three months ended

March 31, 2026

AUM at January 1, 2026 $ 697.2 $ 437.7 $ 273.8 $ 198.8 $ 76.5 $ 1,684.0

June 30, 2026

AUM at April 1, 2026 $ 669.7 $ 434.3 $ 282.8 $ 207.5 $ 87.8 $ 1,682.1

Long-term inflows 65.9 30.4 11.8 13.9 — 122.0

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85.2 4.5 2.2 6.4 (0.3) 98.0

AUM at March 31, 2026 $ 669.7 $ 434.3 $ 282.8 $ 207.5 $ 87.8 $ 1,682.1

AUM at June 30, 2026 $ 756.9 $ 441.4 $ 294.2 $ 218.6 $ 80.5 $ 1,791.6

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1 Beginning in fiscal year 2026, non-fee generating uncalled capital commitments, which were previously included in net market change, distributions, and other, are reflected in long-term inflows in the period the capital is committed.

AUM decreased $1.9 billion during the three months ended March 31, 2026 due to the negative impact of $30.2 billion of net market change, distributions and other, partially offset by $16.9 billion of long-term net inflows, inclusive of $4.1 billion of long-term net outflows at WAM, and $11.4 billion of cash management net inflows.

AUM increased $109.5 billion during the three months ended June 30, 2026 due to the positive impact of $98.0 billion of net market change, distributions and other and $18.4 billion of long-term net inflows, inclusive of $1.1 billion of long-term net outflows at WAM, partially offset by $7.0 billion of cash management net outflows.

Long-term net inflows include $4.1 billion of long-term reinvested distributions.

Net market change, distributions and other primarily consists of $17.3 billion of market depreciation and $10.9 billion of distributions.

The market depreciation occurred primarily in the equity asset class and reflected negative returns in the global equity markets, partially offset by appreciation in the alternative and multi-asset classes.

Long-term inflows increased 36% to $118.2 billion, as compared to the prior period, driven by higher inflows in equity, multi-asset and fixed income open-end funds, alternative private funds, equity exchange traded funds, multi-asset sub-advised mutual funds, equity and multi-asset separately managed accounts, and fixed income institutional separate accounts.

Long-term outflows decreased 10% to $101.3 billion, substantially due to lower outflows across multiple fixed income vehicles at WAM, partially offset by higher outflows in equity open-end funds and exchange traded funds.

Net market change, distributions and other primarily consists of $110.0 billion of market appreciation, partially offset by $10.2 billion of distributions.

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

Long-term inflows increased 61% to $122.0 billion, as compared to the prior year period, driven by higher inflows in equity and multi-asset open-end funds, equity and multi-asset separately managed accounts, equity exchange traded funds, fixed income and equity institutional separate accounts, alternative private funds, and equity sub-advised mutual funds.

Long-term outflows increased 22% to $103.6 billion, primarily reflecting higher redemptions in equity open-end funds, separately managed accounts, exchange traded funds, and institutional separate accounts, partially offset by lower outflows across multiple fixed income vehicles at WAM.

(in billions) Equity

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Multi-Asset Cash

Management Total

for the three months ended

March 31, 2025

AUM at January 1, 2025 $ 620.0 $ 469.5 $ 248.8 $ 174.0 $ 63.4 $ 1,575.7

June 30, 2025

AUM at April 1, 2025 $ 598.1 $ 446.0 $ 251.8 $ 175.8 $ 68.9 $ 1,540.6

Long-term inflows 32.0 28.2 5.6 9.8 — 75.6

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Total net flows (0.6) (13.0) 2.5 1.8 2.7 (6.6)

Disposition — (0.1) (0.1) — — (0.2)

Net market change, distributions and other

59.1 8.8 4.2 5.6 0.3 78.0

AUM at March 31, 2025 $ 598.1 $ 446.0 $ 251.8 $ 175.8 $ 68.9 $ 1,540.6

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1 Cash management at March 31, 2025 includes $6.3 billion of AUM and $3.7 billion of net inflows related to two money market mutual fund share classes previously closed to third-party investors.

AUM at June 30, 2025 $ 656.6 $ 441.7 $ 258.4 $ 183.2 $ 71.9 $ 1,611.8

(in billions) Equity

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Management Total

for the six months ended

March 31, 2026

for the nine months ended

June 30, 2026

AUM at October 1, 2025 $ 686.2 $ 438.7 $ 263.9 $ 193.9 $ 78.5 $ 1,661.2

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53.6 2.8 (4.0) 6.5 (1.2) 57.7

AUM at March 31, 2026 $ 669.7 $ 434.3 $ 282.8 $ 207.5 $ 87.8 $ 1,682.1

AUM at June 30, 2026 $ 756.9 $ 441.4 $ 294.2 $ 218.6 $ 80.5 $ 1,791.6

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AUM increased $20.9 billion, or 1%, during the six months ended March 31, 2026 due to $44.9 billion of long-term net inflows, inclusive of $10.6 billion of long-term net outflows at WAM, $10.2 billion of cash management net inflows, and $6.1 billion from the acquisition of Apera, partially offset by the negative impact of $40.3 billion of net market change, distributions and other.

AUM increased $130.4 billion, or 8%, during the nine months ended June 30, 2026 due to $63.3 billion of long-term net inflows, inclusive of $11.7 billion of long-term net outflows at WAM, the positive impact of $57.7 billion of net market change, distributions and other, $6.2 billion from the acquisition of Apera and $3.2 billion of cash management net inflows.

Long-term net inflows include $36.2 billion of long-term reinvested distributions.

Net market change, distributions and other primarily consists of $54.1 billion of distributions, primarily from the equity and alternative asset classes, partially offset by $16.4 billion of market appreciation.

The market appreciation occurred in all asset classes.

Long-term inflows increased 29% to $236.8 billion, as compared to the prior period, driven by higher inflows in equity, multi-asset, and fixed income open-end funds, alternative private funds, equity and fixed income exchange traded funds, fixed income, multi-asset, and equity separately managed accounts, alternative and fixed income institutional separate accounts, and multi-asset and fixed income sub-advised mutual funds, partially offset by lower inflows in equity sub-advised mutual funds.

Long-term outflows decreased 26% to $191.9 billion, substantially due to lower outflows across multiple fixed income vehicles at WAM, partially offset by slightly higher outflows in equity and fixed income vehicles across other investment groups.

Net market change, distributions and other primarily consists of $126.4 billion of market appreciation, partially offset by $64.3 billion of distributions.

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

Long-term inflows increased 38% to $358.8 billion, as compared to the prior year period, driven by higher inflows in equity and multi-asset open-end funds, equity and fixed income exchange traded funds, equity, multi-asset, and fixed income separately managed accounts, alternative private funds, fixed income and alternative institutional separate accounts, and multi-asset sub-advised mutual funds.

Long-term outflows decreased 14% to $295.5 billion, primarily due to lower outflows across multiple fixed income vehicles at WAM, including institutional separate accounts, sub-advised mutual funds, open-end funds, and sub-advised CITs, partially offset by higher outflows in equity open-end funds, separately managed accounts, exchange traded funds and institutional separate accounts.

(in billions) Equity

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Multi-Asset Cash

for the six months ended

March 31, 2025

for the nine months ended

June 30, 2025

AUM at October 1, 2024 $ 632.1 $ 556.4 $ 249.9 $ 176.2 $ 64.0 $ 1,678.6

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Total net flows 6.5 (110.2) 9.7 8.5 5.4 (80.1)

Disposition — (0.1) (0.1) — — (0.2)

Net market change, distributions and other

18.0 (4.4) (1.1) (1.5) 2.5 13.5

AUM at March 31, 2025 $ 598.1 $ 446.0 $ 251.8 $ 175.8 $ 68.9 $ 1,540.6

AUM at June 30, 2025 $ 656.6 $ 441.7 $ 258.4 $ 183.2 $ 71.9 $ 1,611.8

_______________

1 Cash management at March 31, 2025 includes $6.3 billion of AUM and $3.7 billion of net inflows related to two money market mutual fund share classes previously closed to third-party investors.

1 Cash management at June 30, 2025 includes $6.3 billion of AUM and $3.7 billion of net inflows related to two money market mutual fund share classes previously closed to third-party investors.

AUM by sales region was as follows:

(in billions) March 31,

2026 March 31,

(in billions) June 30,

2026 June 30,

United States 1

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Exceeding Benchmark

as of March 31, 2026 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

as of June 30, 2026 1-Year 3-Year 5-Year 10-Year 1-Year 3-Year 5-Year 10-Year

Equity 46 % 57 % 51 % 59 % 25 % 43 % 40 % 56 %

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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 39%, 39%, 38% and 35% of our total AUM as of March 31, 2026.

Total mutual fund AUM measured for the 1-, 3-, 5- and 10-year periods represents 40%, 40%, 39% and 36% of our total AUM as of June 30, 2026.

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 55%, 54%, 54% and 50% of our total AUM as of March 31, 2026.

Total strategy composite AUM measured for the 1-, 3-, 5- and 10-year periods represents 56%, 55%, 55% and 51% of our total AUM as of June 30, 2026.

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 17% and 12% of our total AUM at March 31, 2026.

Alternative and multi-asset AUM represent 16% and 12% of our total AUM at June 30, 2026.

Mutual fund performance data includes U.S.

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Investment Management Fees

Investment management fees increased $145.7 million and $194.3 million for the three and six months ended March 31, 2026 primarily due to an increase in average equity, multi-asset, and alternative AUM, an increase in performance fees and the acquisition of Apera, partially offset by the impact of WAM outflows.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) was 41.0 and 40.8 basis points for the three and six months ended March 31, 2026, as compared to 41.4 and 40.7 basis points for the same periods in the prior fiscal year.

Performance fees were $100.8 million and $232.4 million for the three and six months ended March 31, 2026 and $71.9 million and $213.5 million for the same periods in prior fiscal year.

Investment management fees increased $225.4 million and $419.7 million for the three and nine months ended June 30, 2026 primarily due to an increase in average equity, multi-asset, and alternative AUM, an increase in performance fees and the acquisition of Apera, partially offset by the impact of WAM outflows.

Our effective investment management fee rate excluding performance fees (annualized investment management fees excluding performance fees divided by average AUM) was 41.0 and 40.7 basis points for the three and nine months ended June 30, 2026, as compared to 40.5 basis points for the same periods in the prior fiscal year.

Performance fees were $78.1 million and $310.5 million for the three and nine months ended June 30, 2026 and $60.6 million and $274.1 million for the same periods in prior fiscal year.

The increase for both periods was primarily due to changes in the amount of performance fees earned by our alternative and equity investment groups.

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Sales and Distribution Fees $ 404.5 $ 351.9 15 % $ 1,189.8 $ 1,092.3 9 %

Asset-based distribution fees increased $23.8 million and $39.3 million for the three and six months ended March 31, 2026 primarily due to increases of 6% and 4% in the related average AUM and a higher mix of non-U.S.

equity and multi-asset funds and U.S.

equity and alternative funds, which generate higher fees.

Sales-based fees increased $7.9 million and $5.6 million for the three and six months ended March 31, 2026, primarily due to increases of 20% and 7% in commissionable sales, partially offset by a higher mix of non-U.S.

Asset-based distribution fees increased $37.8 million and $77.1 million for the three and nine months ended June 30, 2026 primarily due to increases of 9% and 6% in the related average AUM and a higher mix of equity funds, non-U.S.

and multi-asset funds and U.S.

alternative funds, which generate higher fees.

Sales-based fees increased $14.8 million and $20.4 million for the three and nine months ended June 30, 2026, primarily due to increases of 31% and 14% in commissionable sales, partially offset by a higher mix of non-U.S.

sales, which generate lower fees.

Shareholder Servicing Fees

Shareholder servicing fees increased $7.1 million and $14.5 million for the three and six months ended March 31, 2026 primarily due to higher levels of related AUM and increased revenue related to fees earned on a contractual basis.

Other revenue increased $5.3 million for the six months ended March 31, 2026 primarily due to higher loan origination fees earned by certain of our alternative investment groups.

Shareholder servicing fees increased $14.4 million and $28.9 million for the three and nine months ended June 30, 2026 primarily due to increased revenue related to fees earned on a contractual basis and higher levels of related AUM.

Other revenue increased $7.3 million for the nine months ended June 30, 2026 primarily due to higher loan origination fees earned by certain of our alternative investment groups.

OPERATING EXPENSES

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Impairment of intangible assets

— 24.4 NM — 24.4 NM

33.0 — NM 33.0 24.4 35 %

General, administrative and other 312.8 183.7 70 % 696.0 551.7 26 %

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Acquisition-related retention 1

30.4 34.7 (12 %) 66.1 80.5 (18 %)

(23.6) 47.9 NM 42.5 128.4 (67 %)

Acquisition-related performance fee pass through 1

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and special termination benefits.

Salaries, wages and benefits increased $11.8 million and $16.7 million for the three and six months ended March 31, 2026, primarily due to annual salary increases, higher post-retirement and employee insurance costs, and the acquisition of Apera, partially offset by the impact of cost savings initiatives.

Incentive compensation increased $28.3 million and $59.9 million for the three and six months ended March 31, 2026, primarily due to higher bonus expense based on expectations of our annual performance, and higher deferred compensation expense for the six month period, partially offset by lower sales-related commissions.

Acquisition-related retention expenses decreased $4.3 million and $14.4 million for the three and six months ended March 31, 2026, primarily due to lower costs associated with recent acquisitions.

Other compensation and benefits increased $13.4 million for the three months ended March 31, 2026, primarily due to a $12.8 million increase in special termination benefits, and increased $43.6 million for the six months ended March 31, 2026, primarily due to a $28.4 million increase in special termination benefits and higher net market gains on investments related to our deferred compensation plans.

Salaries, wages and benefits increased $16.6 million and $33.3 million for the three and nine months ended June 30, 2026, primarily due to annual salary increases, higher post-retirement and employee insurance costs, and the acquisition of Apera, partially offset by the impact of cost savings initiatives.

Incentive compensation increased $42.0 million and $101.9 million for the three and nine months ended June 30, 2026, primarily due to higher bonus expense based on expectations of our annual performance, higher sales-related commissions, and for the nine month period, higher deferred compensation expense.

Acquisition-related retention expenses decreased $71.5 million and $85.9 million for the three and nine months ended June 30, 2026, primarily due to the reversal of $67.3 million of expense upon forfeiture of certain equity awards and lower costs associated with recent acquisitions.

Other compensation and benefits increased $68.7 million and $112.3 million for the three and nine months ended June 30, 2026, primarily due to increases of $50.3 million and $78.7 million in special termination benefits and higher net market gains on investments related to our deferred compensation plans.

The special termination benefits increased primarily due to higher costs associated with workforce optimization initiatives.

At March 31, 2026, our global workforce remained flat at approximately 10,000 employees, as compared to March 31, 2025.

At June 30, 2026, our global workforce remained flat at approximately 10,100 employees, as compared to June 30, 2025.

Sales, Distribution and Marketing

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Sales, Distribution and Marketing $ 555.4 $ 480.7 16 % $ 1,640.3 $ 1,491.1 10 %

Asset-based expenses increased $36.4 million and $66.0 million for the three and six months ended March 31, 2026 primarily due to increases of 7% and 6% in the related average AUM, higher marketing support fees, and a higher mix of non-U.S.

equity and multi-asset funds and U.S.

equity and alternative funds, which incur higher fees.

Asset-based expenses increased $58.5 million and $124.5 million for the three and nine months ended June 30, 2026 primarily due to increases of 8% and 6% in the related average AUM, a higher mix of equity funds, non-U.S.

multi-asset funds and U.S.

alternative funds, which incur higher fees, 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 $3.0 million for the three months ended March 31, 2026 primarily due to an increase of 20% in commissionable sales, partially offset by a higher mix of non-U.S.

sales, and decreased $0.6 million for the six months ended March 31, 2026 primarily due to a higher mix of non-U.S.

sales, partially offset by an increase of 7% in commissionable sales and lower sales-based marketing support fees.

Occupancy expenses decreased $2.2 million and $10.5 million for the three and six months ended March 31, 2026, primarily due to consolidation of our office space in New York City.

Sales-based expenses increased $9.9 million and $9.3 million for the three and nine months ended June 30, 2026 primarily due to increases of 31% and 14% in commissionable sales, partially offset by a higher mix of non-U.S.

Occupancy expenses decreased $8.6 million for the nine months ended June 30, 2026, primarily due to consolidation of our office space in New York City.

Information Systems and Technology

Information systems and technology expenses decreased $1.1 million and $0.1 million for the three and six months ended March 31, 2026, primarily due to lower technology consulting and spending related to strategic initiatives, substantially offset by higher costs for software and external data services.

Information systems and technology expenses decreased $1.9 million and $2.0 million for the three and nine months ended June 30, 2026, primarily due to lower technology consulting and depreciation, substantially offset by higher costs for software and external data services.

Amortization of Intangible Assets

Amortization of intangible assets decreased $61.9 million and $119.4 million for the three and six months ended March 31, 2026, primarily due to intangible assets which became fully amortized during the prior fiscal year, partially offset by an increase in amortization due to the reclassification of certain indefinite-lived intangible assets to definite lived intangible assets and a reduction in the useful lives of certain definite-lived intangible assets related to trade names.

Amortization of intangible assets decreased $61.5 million and $180.9 million for the three and nine months ended June 30, 2026, primarily due to intangible assets which became fully amortized during the prior fiscal year, partially offset by an increase in amortization due to the reclassification of certain indefinite-lived intangible assets to definite lived intangible assets and a reduction in the useful lives of certain definite-lived intangible assets related to trade names.

Impairment of intangible assets

During the three months ended March 31, 2025, we recognized an impairment charge of $ 24.4 million related to certain indefinite-lived intangible assets for acquired mutual fund investment management contracts.

We recognized impairment charges totaling $ 33.0 million during the three and nine months ended June 30, 2026, and $ 24.4 million during the nine months ended June 30, 2025.

The impairment charges in both periods were primarily related to certain indefinite-lived intangible assets for acquired mutual fund investment management contracts.

See Critical Accounting Policies for additional information.

General, Administrative and Other

General, administrative and other operating expenses increased $4.8 million and $15.2 million for the three and six months ended March 31, 2026.

The increase for the three months ended March 31, 2026 was primarily due to an increase of $11.6 million in legal and other professional fees, driven by a $7.6 million decrease in insurance recoveries, and an increase of $2.4 million in fund-related expenses, driven by higher transfer agency and sub-advisory expenses, partially offset by lower fund administration costs and lower placement and platform fees.

General, administrative and other operating expenses increased $129.1 million and $144.3 million for the three and nine months ended June 30, 2026, primarily due to a $100.0 million regulatory settlement in the current year period.

The increase for the three months ended June 30, 2026 was also driven by a $19.3 million increase in legal and other professional fees, and an $18.3 million increase in fund-related expenses, primarily due to higher transfer agency expenses and higher placement and platform fees.

These increases were partially offset by a $7.7 million decrease in advertising expenses.

The increase for the six months ended March 31, 2026, was primarily due to an increase of $17.9 million in fund-related expenses, driven by higher transfer agency and sub-advisory expenses, and an increase of $3.1 million in travel and entertainment, partially offset by a $6.3 million decrease in advertising expenses.

The increase for the nine months ended June 30, 2026, was also driven by an increase of $36.2 million in fund-related expenses, primarily due to higher transfer agency expenses and higher placement and platform fees, and an increase of $17.9 million in legal and other professional fees, partially offset by a $13.9 million decrease in advertising expenses.

OTHER INCOME (EXPENSES)

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$ 31.1 $ 38.9 (20 %) $ 124.4 $ 101.4 23 %

Gains (losses) on investments, net (20.7) 46.8 NM (29.3) (10.3) 184 %

Gains (losses) on investments, net 62.1 (31.4) NM 32.8 (41.7) NM

Income from investments in equity method investees 22.8 23.0 (1 %) 58.6 38.5 52 %

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Foreign currency exchange gains (losses), net 2.7 (14.4) NM 0.2 (7.4) NM

13.0 1.4 829 % 34.9 7.8 347 %

1.4 (3.4) NM 36.3 4.4 725 %

Investment and other income, net 131.0 23.4 460 % 267.3 128.0 109 %

Interest expense (23.5) (25.8) (9 %) (63.8) (69.7) (8 %)

Investment and other income (losses) of consolidated investment products, net 96.5 (164.7) NM 221.4 (50.6) NM

Investment and other income (losses) of consolidated investment products, net 54.8 35.9 53 % 276.2 (14.7) NM

Expenses of consolidated investment products (7.2) (11.0) (35 %) (31.4) (29.8) 5 %

Other Income (Expenses), Net $ 122.4 $ (102.9) NM $ 293.2 $ (8.7) NM

Dividend and interest income increased $19.3 million and $30.8 million for the three and six months ended March 31, 2026, primarily due to higher dividend and interest income earned from strategic investments and assets invested for deferred compensation plans.

Investments held by the Company generated net losses of $20.7 million and $29.3 million for the three and six months ended March 31, 2026, as compared to net gains of $46.8 million and net losses of $10.3 million for the three and six months ended March 31, 2025.

The net losses in the three months ended March 31, 2026 were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by gains from investments measured at cost adjusted for observable price changes, while the net gains in the prior year period were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, partially offset by losses from investments measured at cost adjusted for observable price changes.

The net losses in the six months ended March 31, 2026 were primarily from investments in nonconsolidated funds and separate accounts, partially offset by gains on investments measured at cost adjusted for observable price changes and assets invested for deferred compensation plans, while the net losses in the prior year were primarily from investments measured at cost adjusted for observable price changes and assets invested for deferred compensation plans, partially offset by losses on investments in nonconsolidated funds and separate accounts.

Equity method investees generated income of $24.3 million and $35.8 million for the three and six months ended March 31, 2026, as compared to income of $23.1 million and $15.5 million in the prior year, largely related to various global alternative funds.

Net foreign currency exchange gains were $1.5 million for the three months ended March 31, 2026, as compared to net losses of $7.5 million in the prior year period.

dollar strengthened in the three month period against the Euro and British Pound, which resulted in net foreign exchange gains on cash and cash equivalents denominated in U.S.

dollars held by certain of our European subsidiaries, as compared to weakening against the same currencies, which resulted in net foreign exchange gains, in the prior year period.

Net foreign currency exchange losses were $2.5 million for the six months ended March 31, 2026, as compared to net gains of $7.0 million in the prior year, as changes in the value of the U.S.

dollar against the Euro and British Pound resulted in net foreign exchange losses in the current year as compared to net gains in the prior year.

Other, net increased $11.6 million and $27.1 million for the three and six months ended March 31, 2026, primarily due to gains recognized on the sale of owned office space.

Interest expense decreased $0.9 million and $3.6 million for the three and six months ended March 31, 2026 primarily due to interest recognized in the prior year on the $400 million senior notes which were repaid in March 31, 2025, partially offset by interest recognized on borrowings under our revolving credit facility.

Investments held by consolidated investment products (“CIPs”) generated gains and other income of $96.5 million and $221.4 million for the three and six months ended March 31, 2026, largely related to gains on holdings of various alternative, equity, and multi-asset funds.

Investments held by CIPs generated losses of $164.7 million and $50.6 million for the three and six months ended March 31, 2025, largely related to losses on holdings of various global equity funds, partially offset by gains on various alternative funds, and for the six month period, global fixed income and multi-asset funds.

Expenses of CIPs decreased $1.3 million and increased $5.4 million for the three and six months ended March 31, 2026, due to activity of the funds.

Other Income, Net $ 155.1 $ 22.5 589 % $ 448.3 $ 13.8 NM

Dividend and interest income decreased $7.8 million for the three months ended June 30, 2026, primarily due to lower dividend and interest income earned from investments in collateralized loan obligations, and increased $23.0 million for the nine months ended June 30, 2026, primarily due to higher dividend income earned from a strategic investment.

Investments held by the Company generated net gains of $62.1 million and $32.8 million for the three and nine months ended June 30, 2026, as compared to net losses of $31.4 million and $41.7 million for the three and nine months ended June 30, 2025.

The net gains in the three months ended June 30, 2026 and net losses in the prior year period were primarily from investment activity from investments in nonconsolidated funds and separate accounts, and for the prior year period investments measured at cost adjusted for observable price changes.

The net gains in the nine months ended June 30, 2026 were primarily from investments in nonconsolidated funds and separate accounts and assets invested for deferred compensation plans, while the net losses in the prior year were primarily from investments measured at cost adjusted for observable price changes and investments in nonconsolidated funds and separate accounts.

Equity method investees generated income of $22.8 million and $58.6 million for the three and nine months ended June 30, 2026, as compared to income of $23.0 million and $38.5 million in the prior year, largely related to various global alternative and equity funds.

Net foreign currency exchange gains were $2.7 million and $0.2 million for the three and nine months ended June 30, 2026, as compared to net losses of $14.4 million and $7.4 million in the prior year periods, as changes in the value of the U.S.

dollar against the Euro and British Pound resulted in net foreign exchange gains in the current year periods, as compared to net losses in the prior year.

Other, net increased $31.9 million for the nine months ended June 30, 2026, primarily due to gains recognized on the sale of owned office space.

Interest expense decreased $2.3 million and $5.9 million for the three and nine months ended June 30, 2026 reflecting the repayment of $450 million of senior notes in March 2026 and $400 million of senior notes in March 2025, partially offset by interest recognized on borrowings under our revolving credit facility.

Investments held by consolidated investment products (“CIPs”) generated gains and other income of $54.8 million and $276.2 million for the three and nine months ended June 30, 2026, largely related to gains on holdings of various alternative funds, and for the nine month period gains on holdings of various equity funds.

Investments held by CIPs generated gains of $35.9 million for the three months ended June 30, 2025, largely related to gains on holdings of various equity, fixed income,

and multi-asset funds, and losses of $14.7 million for the nine months ended June 30, 2025, largely related to losses on holdings of various equity funds, partially offset by gains on holdings of various alternative, fixed income, and multi-asset funds.

Expenses of CIPs decreased $3.8 million and increased $1.6 million for the three and nine months ended June 30, 2026, due to activity of the funds.

TAXES ON INCOME

Our effective income tax rate was 22.2% and 22.7% for the three and six months ended March 31, 2026, as compared to 72.8% and 31.5% for the three and six months ended March 31, 2025.

The rate decrease for the three month period was primarily due to activity of CIPs for which there is no related tax impact and valuation allowances on net operating losses and capital losses recognized in the prior year period.

The rate decrease for the six month period was primarily due to activity of CIPs for which there is no related tax impact, excess tax benefits related to stock-based compensation in the current year, as compared to excess tax expense in the prior year, and valuation allowances on net operating losses and capital losses recognized in the prior year.

Our effective income tax rate was 31.2% and 25.2% for the three and nine months ended June 30, 2026, as compared to 33.9% and 32.3% for the three and nine months ended June 30, 2025.

The rate decreases were primarily due to activity of CIPs for which there is no related tax impact, partially offset by the impact of the charge related to a significant regulatory settlement which is not deductible for income tax purposes.

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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• Impact on compensation and benefits expense related to minority interests in certain subsidiaries, which is offset in net income (loss) attributable to redeemable noncontrolling interests.

• Charges related to significant regulatory settlements.

Adjusted Operating Margin

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• Unrealized investment gains and losses.

• Charges related to significant regulatory settlements.

• Net income tax expense of the above adjustments based on the respective blended rates applicable to the adjustments.

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In calculating our non-GAAP measures, we adjust for the impact of CIPs because it is not considered reflective of our underlying results of operations.

Charges related to significant regulatory settlements are excluded because they are not considered reflective of our underlying results of operations and relate to matters that are non-recurring in nature.

Acquisition-related items and special termination benefits are excluded to facilitate comparability to other asset management firms.

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(in millions) Three Months Ended

Six Months Ended

Nine Months Ended

2026 2025 2026 2025

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Compensation and benefits expense related to minority interests in certain subsidiaries 14.8 14.1 44.5 41.5

Charges related to significant regulatory settlements 100.0 — 100.0 —

Adjusted operating income $ 508.9 $ 377.8 $ 1,420.8 $ 1,167.8

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

Six Months Ended

Nine Months Ended

2026 2025 2026 2025

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Net compensation and benefits expense related to minority interests in certain subsidiaries not offset by net income attributable to redeemable noncontrolling interests 9.6 7.4 26.0 18.9

Charges related to significant regulatory settlements 100.0 — 100.0 —

Net income tax expense of adjustments (38.4) (43.8) (93.3) (143.8)

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(in millions) Three Months Ended

Six Months Ended

Nine Months Ended

2026 2025 2026 2025

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Cash flows were as follows:

Six Months Ended

Nine Months Ended

(in millions) 2026 2025

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Financing cash flows 3,253.0 363.9

Net cash used in operating activities increased during the six months ended March 31, 2026 primarily due to timing of cash receipts reflected in changes in receivables and lower net income adjusted for non-cash items, partially offset by lower payments for incentive compensation, accounts payable and accrued expenses.

Net cash used in investing activities increased primarily due to higher net purchases of investments by collateralized loan obligations (“CLOs”), higher net purchases of investments and cash paid for an acquisition in current year partially offset by net proceeds from the sale of property, plant and equipment.

Net cash provided by financing activities increased primarily due to higher net proceeds on debt of CIPs and higher net subscriptions in CIPs by noncontrolling interests.

Net cash provided by operating activities decreased during the nine months ended June 30, 2026 primarily due to higher net purchases of investments by consolidated investment products and timing of cash receipts reflected in changes in receivables and other assets.

Net cash used in investing activities increased primarily due to higher net purchases of investments by collateralized loan obligations (“CLOs”), partially offset by lower additions of property and equipment.

Net cash provided by financing activities increased primarily due to higher net proceeds on debt of CIPs and higher net subscriptions in CIPs by noncontrolling interests, partially offset by higher repurchases of common stock.

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) March 31,

(in millions) June 30,

2026 September 30,

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

Cash and cash equivalents at March 31, 2026 primarily consist of money market funds and deposits with financial institutions.

Cash and cash equivalents at June 30, 2026 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 March 31, 2026, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,200.0 million.

At June 30, 2026, Franklin’s outstanding senior notes had an aggregate principal amount due of $1,200.0 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 $1,189.6 million.

At March 31, 2026, Legg Mason’s outstanding senior note had a principal amount due of $550.0 million.

The note has a fixed interest rate of 5.625% with interest paid semi-annually and had a carrying value, inclusive of unamortized premium, of $714.0 million at March 31, 2026.

At June 30, 2026, Legg Mason’s outstanding senior note had a principal amount due of $550.0 million.

The note has a fixed interest rate of 5.625% with interest paid semi-annually and had a carrying value, inclusive of unamortized premium, of $712.3 million at June 30, 2026.

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

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Pursuant to the Joinder Agreement, the aggregate commitments have increased by $400.0 million such that the total aggregate commitments under the Credit Agreement are $1.5 billion.

On July 30, 2026, we entered into an amendment and restatement of the Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”).

The Second Amended and Restated Credit Agreement amends and restates the Company’s existing revolving credit agreement to, among other things, increase the aggregate commitments and extend its maturity to July 30, 2031.

The Second Amended and Restated Credit Agreement provides for a five-year revolving credit facility with $1.5 billion of aggregate commitments with the option to increase the aggregate commitments by a maximum of $500.0 million.

We expect to utilize the Credit Agreement periodically as part of our normal operations.

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On March 16, 2026, we borrowed $350.0 million under the Credit Agreement, the proceeds of which were used to repay the 4.750% Senior Notes due March 2026.

On April 13, 2026, we borrowed an additional $50.0 million under the Credit Agreement.

During the quarter ended June 30, 2026, we borrowed an additional $150.0 million and on July 9, 2026, an additional $200.0 million under the Credit Agreement.

The aggregate borrowings of $700.0 million remain outstanding at the time of this filing.

Interest is payable semi-annually on any outstanding amounts and is based on the Term Secured Overnight Financing Rate (“Term SOFR”) plus a credit spread of 87.5 basis points and a Term SOFR adjustment of 10 basis points.

Interest is payable semi-annually on any outstanding amounts and is based on the Term Secured Overnight Financing Rate (“Term SOFR”) plus a credit spread of 87.5 basis points.

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

We were in compliance with all debt covenants at March 31, 2026.

At March 31, 2026, 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 June 30, 2026.

At June 30, 2026, 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 $0.66 per share during the six months ended March 31, 2026 and $0.64 per share during the six months ended March 31, 2025.

We declared regular dividends of $0.99 per share during the nine months ended June 30, 2026 and $0.96 per share during the nine months ended June 30, 2025.

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 and six months ended March 31, 2026, we repurchased 2.3 million and 4.1 million shares of our common stock at a cost of $57.1 million and $99.0 million and we repurchased 0.5 million and 0.8 million shares of our common stock at a cost of $10.0 million and $15.8 million in the prior year periods.

During the three and nine months ended June 30, 2026, we repurchased 10.4 million and 14.5 million shares of our common stock at a cost of $348.1 million and $447.1 million and we repurchased 7.3 million and 8.1 million shares of our common stock at a cost of $157.4 million and $173.2 million in the prior year periods.

The fiscal 2026 repurchases included 6.2 million shares repurchased from Great-West Lifeco Inc.

(“Great-West”) for an aggregate purchase price of $208.0 million.

In December 2025, our Board of Directors authorized the repurchase of up to an additional 20.8 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 as of such authorization date.

At March 31, 2026, 35.9 million shares remained available for repurchase under this authorization.

At June 30, 2026, 25.6 million shares remained available for repurchase under this authorization.

On October 1, 2025, we completed the acquisition of Apera Asset Management for cash consideration of €65.2 million net of closing adjustments, funded from existing cash.

In addition, we will pay up to €125.0 million in cash through the fifth anniversary of the closing date based on achieving revenue targets.

As part of our acquisition of Putnam, which closed on January 1, 2024, we 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 Lifeco, Inc., which will be recognized in operating income.

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

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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 significant additional financial or other support to our sponsored funds during the six months ended March 31, 2026.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at March 31, 2026, excluding third-party assets of CIPs, was as follows:

We did not provide significant additional financial or other support to our sponsored funds during the nine months ended June 30, 2026.

Our cash, cash equivalents and investments portfolio by asset class and accounting classification at June 30, 2026, excluding third-party assets of CIPs, was as follows:

Accounting Classification 1

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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 six months ended March 31, 2026, 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 nine months ended June 30, 2026, there were no events or circumstances which would indicate that goodwill or definite-lived intangible assets might be impaired.

We performed a quantitative impairment test for certain indefinite-lived assets related to acquired management contracts due to decreased AUM in related products and recognized impairments totaling $33.0 million during the quarter ended June 30, 2026.

There were no other impairments of indefinite-lived intangible assets, as no events occurred or circumstances changed that would indicate these 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 March 31, 2026, Level 3 assets represented 4% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities.

There were $25.6 million of transfers into and $ 16.8 million of transfers out of Level 3 during the six months ended March 31, 2026.

As of June 30, 2026, Level 3 assets represented 4% of total assets measured at fair value, which primarily related to CIPs’ investments in equity and debt securities.

There were $27.1 million of transfers into and $16.9 million of transfers out of Level 3 during the nine months ended June 30, 2026.

Quantitative and Qualitative Disclosures About Market Risk.

During the six months ended March 31, 2026, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2025.

During the nine months ended June 30, 2026, there were no material changes from the market risk disclosures in our Form 10‑K for the fiscal year ended September 30, 2025.

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